UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March~~June 3130, 2023

☐ 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. 1-9410

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

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ NO ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:
		Shares outstanding at
Title of each class		~~May~~August 43, 2023
Common stock, par value $.01 per share		1516,~~896~~044,~~768~~815

SEC Form 10-Q Index

Section		Page
Part I Financial Information
Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2224
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3135
Item 4.	Controls and Procedures	3235
Part II Other Information
Item 1.	Legal Proceedings	3336
Item 1A.	Risk Factors	3336
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3338
Item 3.	Defaults Upon Senior Securities	3339
Item 4.	Mine Safety Disclosures	3339
Item 5.	Other Information	3339
Item 6.	Exhibits	3440

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

COMPUTER TASK GROUP, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(amounts in thousands, except per share data)

(Unaudited)

	For the Quarter Ended					For the Two Quarters Ended
	March 31, 2023			April 1, 2022
	June 30, 2023			July 1, 2022		June 30, 2023		July 1, 2022
Revenue	$	7874,~~202~~588		$	8982,~~417~~759	$	152,790	$	172,176
Cost of services		5853,~~067~~593			6863,~~822~~009		111,660		131,831
Gross profit		20,~~135~~995			2019,~~595~~750		41,130		40,345
Selling, general and administrative expenses		1920,~~428~~710			1716,~~396~~577		40,138		33,973
Operating income		~~707~~285			3,~~199~~173		992		6,372
Interest and other income		~~128~~72			9199		200		190
Interest and other expense		~~358~~436			~~348~~484		794		832
Income before income taxes		477			2,942
Income (loss) before income taxes		(79	)		2,788		398		5,730
Provision for income taxes		~~162~~51			~~702~~748		213		1,450
Net income	$	315		$	2,240
Net income (loss)	$	(130	)	$	2,040	$	185	$	4,280
Net income per share:
Net income (loss) per share:
Basic	$	(0.0201	)	$	0.1614	$	0.01	$	0.30
Diluted	$	(0.0201	)	$	0.1513	$	0.01	$	0.28
Weighted average shares outstanding:
Basic		14,~~704~~832			14,~~199~~419		14,768		14,309
Diluted		1514,~~347~~832			1415,~~977~~122		15,399		15,050

The accompanying notes are an integral part of these condensed consolidated financial statements.

COMPUTER TASK GROUP, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(amounts in thousands)

(Unaudited)

	For the Quarter Ended						For the Two Quarters Ended
	March 31, 2023			April 1, 2022
	June 30, 2023			July 1, 2022			June 30, 2023		July 1, 2022
Net income	$	315		$	2,240
Net income (loss)	$	(130	)	$	2,040		$	185	$	4,280
Foreign currency translation adjustment		~~944~~110			(13,~~329~~238	)		1,054		(4,567	)
Change in pension, net of taxes of $16 and $33 in the 2023 and 2022 first quarters, respectively		44			331
Change in pension, net of taxes of $24 and $45 in the 2023 and 2022 second quarters, respectively, and $40 and $78 in the first two quarters of 2023 and 2022, respectively		60			580			104		911
Other comprehensive income (loss)		~~988~~170			(~~998~~2,658	)		1,158		(3,656	)
Comprehensive income	$	1,303		$	1,242
Comprehensive income (loss)	$	40		$	(618	)	$	1,343	$	624

The accompanying notes are an integral part of these condensed consolidated financial statements.

COMPUTER TASK GROUP, INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share balances)

(Unaudited)

	March 31,			December 31,
	June 30,			December 31,
	2023			2022
Assets
Current Assets:
Cash and cash equivalents	$	2319,~~300~~137		$	25,140
Accounts receivable, net of allowances of $390 and $397 in 2023 and 2022, respectively		71,885			70,979
Accounts receivable, net of allowances of $406 and $397 in 2023 and 2022, respectively		70,457			70,979
Prepaid and other current assets		54,~~016~~992			3,769
Total current assets		~~100~~94,~~201~~586			99,888
Property, equipment and capitalized software, net		5,~~436~~725			5,061
Operating lease right-of-use assets		1819,~~654~~398			18,506
Deferred income taxes		3,~~193~~815			2,886
Acquired intangibles, net		12,~~629~~210			12,943
Goodwill		36,~~229~~245			35,998
Cash surrender value of life insurance, net		34,~~971~~202			4,120
Other assets		2,~~173~~320			2,101
Investments		~~136~~155			116
Total assets	$	~~182~~178,~~622~~656		$	181,619
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	1514,~~110~~389		$	14,254
Accrued compensation		1614,~~937~~859			19,016
Advance billings on contracts		34,~~613~~030			5,480
Short-term operating lease liabilities		5,~~981~~584			5,905
Other current liabilities		97,~~094~~864			7,066
Income taxes payable		~~513~~68			212
Total current liabilities		5146,~~248~~794			51,933
Long-term debt		~~1,369~~—			—
Deferred compensation benefits		6,~~738~~796			6,424
Long-term operating lease liabilities		1213,~~503~~686			12,466
Deferred income taxes		1,~~380~~365			1,482
Other long-term liabilities		2,~~080~~262			3,335
Total liabilities		7570,~~318~~903			75,640
Shareholders’ Equity:
Common stock, par value $0.01 per share, 150,000,000 shares authorized; 27,017,824 shares issued in 2023 and 2022		270			270
Capital in excess of par value		~~108~~107,~~240~~250			109,868
Retained earnings		114,~~966~~836			114,651
Less: Treasury stock of 11,112,418 and 11,274,171 shares at cost, in 2023 and 2022, respectively		(101,854	)		(103,504	)
Less: Treasury stock of 10,973,009 and 11,274,171 shares at cost, in 2023 and 2022, respectively		(100,455	)		(103,504	)
Accumulated other comprehensive loss		(14,~~318~~148	)		(15,306	)
Total shareholders’ equity		107,~~304~~753			105,979
Total liabilities and shareholders’ equity	$	~~182~~178,~~622~~656		$	181,619

The accompanying notes are an integral part of these condensed consolidated financial statements.

COMPUTER TASK GROUP, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(Unaudited)

	For the Quarter Ended
	For the Two Quarters Ended
	March 31, 2023			April 1, 2022
	June 30, 2023			July 1, 2022
Cash flow from operating activities:
Net income	$	~~315~~185		$	24,~~240~~280
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		~~837~~1,755			~~716~~1,400
Equity-based compensation expense		~~345~~867			~~573~~1,176
Deferred income taxes		(~~460~~1,090	)		~~135~~155
Deferred compensation benefits		~~411~~528			~~103~~(97	)
Loss on the sale of property and equipment		49			—
Changes in assets and liabilities that provide (use) cash, excluding the effects of acquisitions:
Accounts receivable		~~(183~~1,303	)		84,~~530~~256
Prepaid and other current assets		(1,~~271~~201	)		(~~340~~423	)
Other long-term assets		(69216	)		(~~122~~22	)
Cash surrender value of life insurance		~~159~~241			~~262~~429
Accounts payable		~~647~~(447	)		(87,~~467~~203	)
Accrued compensation		(24,~~348~~473	)		(13,~~646~~023	)
Income taxes payable / receivable		~~293~~(147	)		~~271~~442
Advance billings on contracts		(1,~~926~~529	)		~~998~~455
Other current liabilities		~~1,933~~683			1,~~153~~005
Other long-term liabilities		(1,~~255~~073	)		24
Net cash provided by (used in) operating activities		(24,~~568~~605	)		42,~~408~~834
Cash flow from investing activities:
Cash paid for acquisitions, net of cash acquired		82			—
Additions to property and equipment		(~~529~~908	)		(61280	)
Additions to capitalized software		(~~241~~637	)		—
Proceeds from sale of property & equipment		12			—9
Premiums paid for life insurance		(10323	)		—(450	)
Net cash used in investing activities		(~~697~~1,784	)		(61721	)
Cash flow from financing activities:
Proceeds from long-term debt		516,~~429~~924			—
Payments on long-term debt		(416,~~060~~924	)		—
Proceeds from stock option plan exercises		6884			90215
Taxes remitted for shares withheld from equity-based compensation transactions		(~~447~~628	)		(~~971~~1,229	)
Proceeds from Employee Stock Purchase Plan		56108			3784
Change in cash overdraft, net		77444			—223
Net cash provided by (used in) financing activities		~~1,123~~8			(~~844~~707	)
Effect of exchange rates on cash and cash equivalents		~~302~~378			(~~363~~1,511	)
Net increase (decrease) in cash and cash equivalents		(1,840	)		3,140
Net decrease in cash and cash equivalents		(6,003	)		(105	)
Cash and cash equivalents at beginning of year		25,140			35,584
Cash and cash equivalents at end of quarter	$	2319,~~300~~137		$	3835,~~724~~479

The accompanying notes are an integral part of these condensed consolidated financial statements.

COMPUTER TASK GROUP, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(amounts in thousands)

(Unaudited)

																	Accumulated
					Capital in												Other			Total
	Common Stock				Excess of			Retained			Treasury Stock						Comprehensive			Shareholders’
	Shares		Amount		Par Value			Earnings			Shares			Amount			Income (Loss)			Equity
Balances as of December 31, 2022		27,018	$	270	$	109,868		$	114,651			11,274		$	(103,504	)	$	(15,306	)	$	105,979
(amounts in thousands)
Employee Stock Purchase Plan share issuance		—		—		(13	)		—			(7	)		69			—			56
Stock Option Plan share issuance, net		—		—		(117	)		—			(18	)		185			—			68
Restricted stock plan share issuance/forfeiture		—		—		(1,843	)		—			(137	)		1,396			—			(447	)
Equity-based compensation		—		—		345			—			—			—			—			345
Net income		—		—		—			315			—			—			—			315
Foreign currency adjustment		—		—		—			—			—			—			944			944
Pension loss adjustment, net of tax		—		—		—			—			—			—			44			44
Balances as of March 31, 2023		27,018	$	270	$	108,240		$	114,966			11,112		$	(101,854	)	$	(14,318	)	$	107,304
Employee Stock Purchase Plan share issuance		—		—		(17	)		—			(8	)		69			—			52
Stock Option Plan share issuance, net		—		—		(87	)		—			(6	)		103			—			16
Restricted stock plan share issuance/forfeiture		—		—		(1,408	)		—			(125	)		1,227			—			(181	)
Equity-based compensation		—		—		522			—			—			—			—			522
Net loss		—		—		—			(130	)		—			—			—			(130	)
Foreign currency adjustment		—		—		—			—			—			—			110			110
Pension loss adjustment, net of tax		—		—		—			—			—			—			60			60
Balances as of June 30, 2023		27,018	$	270	$	107,250		$	114,836			10,973		$	(100,455	)	$	(14,148	)	$	107,753

																Accumulated
					Capital in											Other			Total
	Common Stock				Excess of			Retained		Treasury Stock						Comprehensive			Shareholders’
	Shares		Amount		Par Value			Earnings		Shares			Amount			Income (Loss)			Equity
Balances as of December 31, 2021		27,018	$	270	$	110,330		$	108,042		11,668		$	(107,265	)	$	(16,940	)	$	94,437
(amounts in thousands)
Employee Stock Purchase Plan share issuance		—		—		(2	)		—		(4	)		39			—			37
Stock Option Plan share issuance, net		—		—		(94	)		—		(20	)		184			—			90
Restricted Stock Plan share issuance/forfeiture		—		—		(1,385	)		—		(45	)		414			—			(971	)
Equity-based compensation		—		—		573			—		—			—			—			573
Net income		—		—		—			2,240		—			—			—			2,240
Foreign currency adjustment		—		—		—			—		—			—			(1,329	)		(1,329	)
Pension loss adjustment, net of tax		—		—		—			—		—			—			331			331
Balances as of April 1, 2022		27,018	$	270	$	109,422		$	110,282		11,599		$	(106,628	)	$	(17,938	)	$	95,408
Employee Stock Purchase Plan share issuance		—		—		(1	)		—		(5	)		48			—			47
Stock Option Plan share issuance, net		—		—		(139	)		—		(29	)		264			—			125
Restricted Stock Plan share issuance/forfeiture		—		—		(995	)		—		(66	)		737			—			(258	)
Equity-based compensation		—		—		603			—		—			—			—			603
Net income		—		—		—			2,040		—			—			—			2,040
Foreign currency adjustment		—		—		—			—		—			—			(3,238	)		(3,238	)
Pension loss adjustment, net of tax		—		—		—			—		—			—			580			580
Balances as of July 1, 2022		27,018	$	270	$	108,890		$	112,322		11,499		$	(105,579	)	$	(20,596	)	$	95,307

The accompanying notes are an integral part of these condensed consolidated financial statements.

COMPUTER TASK GROUP, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(amounts in thousands)

(Unaudited)


																Accumulated
					Capital in											Other			Total
	Common Stock				Excess of			Retained		Treasury Stock						Comprehensive			Shareholders’
	Shares		Amount		Par Value			Earnings		Shares			Amount			Income (Loss)			Equity
Balances as of December 31, 2022		27,018	$	270	$	109,868		$	114,651		11,274		$	(103,504	)	$	(15,306	)	$	105,979
Employee Stock Purchase Plan share issuance		—		—		(30	)		—		(15	)		138			—			108
Stock Option Plan share issuance, net		—		—		(204	)		—		(24	)		288			—			84
Restricted stock plan share issuance/forfeiture		—		—		(3,251	)		—		(262	)		2,623			—			(628	)
Equity-based compensation		—		—		867			—		—			—			—			867
Net income		—		—		—			185		—			—			—			185
Foreign currency adjustment		—		—		—			—		—			—			1,054			1,054
Pension loss adjustment, net of tax		—		—		—			—		—			—			104			104
Balances as of June 30, 2023		27,018	$	270	$	107,250		$	114,836		10,973		$	(100,455	)	$	(14,148	)	$	107,753


																Accumulated
					Capital in											Other			Total
	Common Stock				Excess of			Retained		Treasury Stock						Comprehensive			Shareholders’
	Shares		Amount		Par Value			Earnings		Shares			Amount			Income (Loss)			Equity
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		—		—		(3	)		—		(9	)		87			—			84
Stock Option Plan share issuance, net		—		—		(233	)		—		(49	)		448			—			215
Restricted Stock Plan share issuance/forfeiture		—		—		(2,380	)		—		(111	)		1,151			—			(1,229	)
Equity-based compensation		—		—		1,176			—		—			—			—			1,176
Net income		—		—		—			4,280		—			—			—			4,280
Foreign currency adjustment		—		—		—			—		—			—			(4,567	)		(4,567	)
Pension loss adjustment, net of tax		—		—		—			—		—			—			911			911
Balances as of July 1, 2022		27,018	$	270	$	108,890		$	112,322		11,499		$	(105,579	)	$	(20,596	)	$	95,307

The accompanying notes are an integral part of these condensed consolidated financial statements.

COMPUTER TASK GROUP, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Financial Statements

The condensed consolidated financial statements included herein reflect, in the opinion of the management of Computer Task Group, Incorporated (“CTG” or “the Company”), all normal recurring adjustments necessary to present fairly the condensed consolidated financial position, results of operations, comprehensive income (loss), cash flows, and shareholders’ equity for the periods presented. Certain prior period amounts were reclassified to conform to the current year’s presentation. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's latest Annual Report on Form 10‑K filed with the SEC.

The Company's fiscal year-end is December 31. During the year, the quarters generally consist of a 13-week fiscal period where the last day of each of the first three quarters is a Friday. The 2023 ~~first~~second quarter began on ~~January~~April 1, 2023 and ended on ~~March~~June 3130, 2023. The 2022 ~~first~~second quarter began on ~~January~~April 12, 2022 and ended on ~~April~~July 1, 2022. There were 64 billable days in both the 2023 and 652022 second quarters, and 128 and 129 billable days in the 2023 and 2022 ~~first~~year-to-date ~~quarters~~periods, respectively.

Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

These condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the SEC rules and regulations. 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. All intercompany accounts have been eliminated.

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 condensed consolidated financial statements and accompanying notes, which could be impacted by existing market conditions and factors, including among others lingering effects of the COVID-19 pandemic, current macroeconomic conditions such as inflation, and the unpredictability and severity of a civil unrest or outbreak of war or hostilities. Such estimates primarily relate to the recognition of revenue, leased assets and liabilities, the purchase accounting for acquisitions and the valuation of goodwill, the valuation allowance for deferred tax assets, actuarial assumptions including discount rates and expected return on assets, as applicable, for the Company’s defined benefit plans, the valuation of stock options and restricted stock for recording equity-based compensation expense, the allowance for credit losses, investment valuation, legal matters, other contingencies, and estimates of progress toward completion and direct profit or loss on contracts, as applicable. Management believes that the information and disclosures provided herein are adequate to present fairly the condensed consolidated financial position, results of operations, comprehensive income (loss), cash flows, and shareholders’ equity of the Company.

~~There~~Subsequent were no subsequent events as of the date of this filing from the end of the fiscal first quarter on March 31, 2023 that require recognition or disclosure in these unaudited interim condensed consolidated financial statements.Event

~~The~~ ~~Company~~On ~~operates~~August in9, ~~three~~2023, ~~segments~~subsequent ~~within~~to ~~its~~the ~~business,~~end ~~North~~of ~~America~~the ITfiscal ~~Solutions~~second ~~and~~quarter ~~Services~~on June 30, ~~Europe~~2023, ITthe ~~Solutions~~Company and ~~Services,~~the ~~and~~IT ~~Non-Strategic~~solutions ~~Technology~~provider ~~Services.~~Cegeka ~~The~~Groep ~~Company~~nv ~~provides~~(“Cegeka”), ~~information~~a ~~and~~company ~~technology-related~~headquartered ~~services~~in toHasselt, ~~its~~Belgium, ~~clients.~~entered ~~CTG~~into ~~provides~~a ~~these~~transaction ~~services~~for Cegeka to purchase all of the ~~markets~~outstanding ~~that~~shares itof ~~serves~~CTG for $10.50 ~~The~~per ~~services~~share ~~provided~~in ~~typically~~cash, ~~encompass~~which represents an implied equity value for the ITCompany ~~business~~of ~~solution~~approximately ~~life~~$170 ~~cycle~~million. The closing of the transaction will be subject to customary conditions, including ~~phases~~the ~~for~~expiration ~~planning,~~or ~~developing,~~termination ~~implementing,~~of ~~managing,~~certain ~~and~~regulatory ~~ultimately~~periods ~~maintaining~~and the ITtender ~~solution.~~of ~~These~~shares ~~services~~representing ~~ensure~~at ~~that~~least ~~the~~two-thirds ~~Company'~~of CTG’s ~~clients~~outstanding ~~utilize~~common stock in a tender offer, as required by the ~~right~~merger ~~information~~approval ~~technology~~requirements under applicable New York law. The transaction is expected to ~~meet~~close ~~their~~later ~~business~~in ~~needs,~~2023. ~~maximize~~Upon ~~their~~the ITsuccessful ~~systems~~completion of the tender offer, Cegeka’s ~~value~~acquisition subsidiary will be merged into CTG, and ~~operate~~any ~~efficiently~~remaining shares of common stock of CTG will be cancelled and ~~effectively.~~converted Ainto ~~typical~~the ~~client~~right isto anreceive ~~organization~~the ~~with~~same ~~large,~~$10.50 ~~complex~~per ~~technology,~~share ~~information~~in cash. After closing, CTG will become a privately held company and ~~data~~shares ~~processing~~of ~~requirements~~CTG common stock will no longer be listed on any public market.

6The Company operates in three segments within its business, North America IT Solutions and Services, Europe IT Solutions and Services, and Non-Strategic Technology Services. The Company provides information and technology-related services to its clients. CTG provides these services to all of the markets that it serves. The services provided

The segment revenue for the quarters ended March 31, 2023 and April 1, 2022 was as follows:

For the Quarter Ended:					Year-over-Year
(amounts in thousands)	March 31, 2023		April 1, 2022		Change
North America IT Solutions and Services	29.6 %	$23,196	22.9 %	$20,435	13.5 %
Europe IT Solutions and Services	51.3 %	40,093	47.5 %	42,478	(5.6)%
Non-Strategic Technology Services	19.1 %	14,913	29.6 %	26,504	(43.7)%
Total	100.0 %	$78,202	100.0 %	$89,417	(12.5)%

The Company focuses a significant portion of its services through five vertical market focus areas: healthcare (which includes services provided to healthcare providers, health insurers (payers), and life sciences companies), financial services, manufacturing, technology service providers, 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.

The Company’s revenue by vertical market as a percentage of total revenue for the quarters ended March 31, 2023 and April 1, 2022 was as follows:

	For the Quarter Ended
	March 31, 2023			April 1, 2022
Healthcare		18.7	%		17.4	%
Financial services		17.4	%		16.5	%
Manufacturing		16.4	%		13.9	%
Technology service providers		16.1	%		23.8	%
Energy		6.3	%		5.3	%
General markets		25.1	%		23.1	%
Total		100.0	%		100.0	%

Revenue 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 (i.e. progress billing), 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. Revenue recognition over time best portrays the Company’s performance in transferring control of the goods or services to the client. On most fixed price contracts, revenue recognition is supported through contractual clauses that require the client to pay for work performed to date, including cost plus a reasonable profit margin, for goods or services that have no alternative use to the Company. On certain contracts, revenue recognition is supported through contractual clauses that indicate the client controls the asset, or work in process, as the Company creates or enhances the asset. On a given project, actual salary and indirect labor costs incurred are measured and compared with the total estimate of costs of such items at the completion of the project. Revenue is recognized based upon the percentage-of-completion calculation of total incurred costs to total estimated costs. The Company infrequently works on fixed-price projects that include significant amounts of material or other non-labor related costs that could distort the percent complete within a percentage-of-completion calculation. The Company’s estimate of the total labor costs it expects to incur over the term of the contract is based on the nature of the project and the Company's experience on similar projects, and includes management judgments and estimates that affect the amount of revenue recognized on fixed-price contracts in any accounting period. Losses on fixed-price projects are recorded when identified.

~~The~~typically ~~Company’s~~encompass ~~revenue~~the ~~from~~IT ~~contracts~~business ~~accounted~~solution life cycle, including phases for ~~under~~planning, ~~time-and-material~~developing, ~~progress~~implementing, ~~billing~~managing, and ~~percentage-of-completion~~ultimately ~~methods~~maintaining asthe aIT ~~percentage~~solution. ofThese ~~consolidated~~services ~~revenue~~ensure ~~for~~that the ~~quarters~~Company's ~~ended~~clients ~~March~~utilize 31the right information technology to meet their business needs, ~~2023~~maximize their IT systems’ value, and ~~April~~operate 1efficiently and effectively. A typical client is an organization with large, ~~2022~~complex ~~was~~technology, asinformation, ~~follows:~~and data processing requirements.

	For the Quarter Ended
	March 31, 2023			April 1, 2022
Time-and-material		78.6	%		77.2	%
Progress billing		15.3	%		18.9	%
Percentage-of-completion		6.1	%		3.9	%
Total		100.0	%		100.0	%

The segment revenue for the quarter and two quarters ended June 30, 2023 and July 1, 2022 was as follows:

The Company recorded revenue in the quarters ended March 31, 2023 and April 1, 2022 as follows:


For the Quarter Ended:											Year-over-Year
(amounts in thousands)	June 30, 2023					July 1, 2022					Change
North America IT Solutions and Services		34.8	%	$	25,997		24.6	%	$	20,339		27.8	%
Europe IT Solutions and Services		51.5	%		38,393		44.9	%		37,160		3.3	%
Non-Strategic Technology Services		13.7	%		10,198		30.5	%		25,260		(59.6	)%
Total		100.0	%	$	74,588		100.0	%	$	82,759		(9.9	)%

For the Quarter Ended:	March 31, 2023			April 1, 2022			Year-over-YearChange
For the Two Quarters Ended:												Year-over-Year
(amounts in thousands)	June 30, 2023						July 1, 2022					Change
North America	48.4 %		$37,859	51.7 %		$46,262	(18.2)%
North America IT Solutions and Services		32.2	%	$	49,193			23.7	%	$	40,773		20.7	%
Europe	51.6 %		40,343	48.3 %		43,155	(6.5)%
Europe IT Solutions and Services		51.4	%		78,486			46.2	%		79,638		(1.4	)%
Total	100.0 %		$78,202	100.0 %		$89,417	(12.5)%
Non-Strategic Technology Services		16.4	%		25,111			30.1	%		51,765		(51.5	)%
Total		100.0	%	$	152,790			100.0	%	$	172,176		(11.3	)%

The Company focuses a significant portion of its services through five vertical market focus areas: healthcare (which includes services provided to healthcare providers, health insurers (payers), and life sciences companies), financial services, technology service providers, 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.

The Company’s revenue by vertical market as a percentage of total revenue for the quarter and two quarters ended June 30, 2023 and July 1, 2022 was as follows:


	For the Quarter Ended						For the Two Quarters Ended
	June 30, 2023			July 1, 2022			June 30, 2023			July 1, 2022
Healthcare		23.4	%		17.6	%		20.9	%		17.5	%
Financial services		16.7	%		15.3	%		17.1	%		15.8	%
Technology service providers		14.8	%		24.2	%		15.5	%		23.9	%
Manufacturing		13.7	%		15.2	%		15.1	%		14.5	%
Energy		6.5	%		6.6	%		6.4	%		5.9	%
General markets		24.9	%		21.1	%		25.0	%		22.4	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

Revenue Recognition

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 quarter and two quarters ended June 30, 2023 and July 1, 2022 was as follows:


	For the Quarter Ended						For the Two Quarters Ended
	June 30, 2023			July 1, 2022			June 30, 2023			July 1, 2022
Time-and-material		74.5	%		77.7	%		76.6	%		77.6	%
Progress billing		18.6	%		17.7	%		16.9	%		18.1	%
Percentage-of-completion		6.9	%		4.6	%		6.5	%		4.3	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

The Company recorded revenue in the quarter and two quarters ended June 30, 2023 and July 1, 2022 as follows:


For the Quarter Ended:	June 30, 2023					July 1, 2022					Year-over-Year Change
(amounts in thousands)
North America		48.2	%	$	35,970		54.4	%	$	45,042		(20.1	)%
Europe		51.8	%		38,618		45.6	%		37,717		2.4	%
Total		100.0	%	$	74,588		100.0	%	$	82,759		(9.9	)%


For the Two Quarters Ended:	June 30, 2023					July 1, 2022					Year-over-Year Change
(amounts in thousands)
North America		48.3	%	$	73,829		53.0	%	$	91,304		(19.1	)%
Europe		51.7	%		78,961		47.0	%		80,872		(2.4	)%
Total		100.0	%	$	152,790		100.0	%	$	172,176		(11.3	)%

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 the satisfaction of performance obligations or determining the 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. We determine standalone selling price 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. We estimate variable consideration and reduce revenue recognized based on the amount we expect to provide to clients.

Contract Balances

For time-and-material and progress billing contracts, the timing of the Company’s satisfaction of its performance obligations is consistent with the timing of payment. For these contracts, the Company has the right to payment in the amount that corresponds directly with the value of the Company’s performance to date. The Company uses the right to invoice practical expedient that allows the Company to recognize revenue in the amount for which it has the right to invoice for time-and-material and progress billing contracts. Bill schedules for fixed-price contracts are generally consistent with the Company’s performance in transferring control of the goods or services to the client. There are no significant financing components in the Company's contracts with clients. Advance billings represent contract liabilities for cash payments received in advance of the Company's performance. Unbilled receivables are reported within “accounts receivable” on the consolidated balance sheets. 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 ~~March~~June 3130, 2023, the aggregate transaction price allocated to unsatisfied or partially unsatisfied performance obligations for fixed-price ~~and all managed-support~~ contracts was approximately $76.38 million ~~and $55~~.6 ~~million, respectively.~~ Approximately $386.16 million of the transaction price allocated to unsatisfied or partially unsatisfied performance obligations is expected to be earned in 2023, and approximately $240.82 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~~for time-and-material and progress billing contracts, therefore, no disclosure is required for unsatisfied performance obligations for contracts in which the Company recognized revenue at the amount to which it has the right to invoice for services performed.

Taxes Collected from Clients

The Company records taxes collected from its clients for remittance to governmental authorities, primarily in its international locations, on a net basis in the condensed consolidated financial statements.

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 ~~March~~June 3130, 2023 and December 31, 2022, the carrying amounts of the Company’s cash of $2319.31 million and $25.1 million, respectively, approximated fair value.

As described in Note 3 of the condensed consolidated financial statements, the Company acquired 100% of the equity of Eleviant in the 2022 third quarter. 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 has 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. During the 2023 second quarter, the Company paid approximately $0.9 million related to the earn-out based on the achievement by Eleviant of the revenue and gross profit targets for fiscal 2022. The fair value of the contingent consideration as of ~~March~~June 3130, 2023 was $43.01 million.

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 currently on 16 individuals, whose average age is 7980 years old. Those policies have generated cash surrender value and the Company has taken loans against the policies. At ~~March~~June 3130, 2023, the insurance policies that have been borrowed against have a gross cash surrender value of $2930.71 million, outstanding loans and interest totaling $26.48 million, and a net cash surrender value of $3.3 million. At December 31, 2022, these insurance policies had 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. The net cash surrender values are included on the condensed consolidated balance sheets in “Cash surrender value of life insurance, net” under non-current assets.

At ~~both~~June ~~March 31~~30, 2023 and December 31, 2022, the total death benefit for the remaining policies was approximately $37.8 million and $37.0 million, respectively. Currently, upon the death of all of the remaining plan participants, the ~~Company would expect to receive approximately $10.3 million after the payment of obligations, and, under current tax regulations, record a non-taxable gain of approximately $6.9 million.~~

Company would expect to receive approximately $10.8 million after the payment of obligations, and, under current tax regulations, record a non-taxable gain of approximately $7.5 million.

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. The Company does not fund its bank accounts for the checks it has written until the checks are presented to the bank for payment. In the event the Company has no available cash at the bank for which it writes its checks, the "change in cash overdraft, net" line item on the condensed consolidated statement of cash flows would be present, and represent 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 ~~March~~June 3130, 2023 and 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.

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 associated with its largest client 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 condensed consolidated statements of cash flows. There were $102.40 million and ~~$4.5~~zero ~~million~~ trade accounts receivable sold under the factoring agreement during the quarters ended ~~March~~June 3130, 2023 and ~~April~~July 1, 2022, respectively. Total trade accounts receivable sold under the factoring agreement were approximately $12.4 million and $4.5 million in the year-to-date periods ended June 30, 2023 and July 1, 2022, respectively. Fees for the factoring arrangement were recorded in cost of services and were less than $0.1 million and ~~less than~~ $0.1 million in the ~~quarters~~quarter and year-to-date period ended ~~March~~June 3130, 2023, respectively, and ~~April~~were zero and less than $0.1 million in the quarter and year-to-date period ended July 1, 2022, respectively.

Property, Equipment and Capitalized Software Costs

Property, equipment and capitalized software at ~~March~~June 3130, 2023 and December 31, 2022 were recorded as follows:

(amounts in thousands)	~~March~~June 3130, 2023			December 31, 2022
Property, equipment and capitalized software	$	1516,~~541~~243		$	15,086
Accumulated depreciation and amortization		(10,~~105~~518	)		(10,025	)
Property, equipment and capitalized software, net	$	5,~~436~~725		$	5,061

Depreciation expense for the Company totaled $0.5 million and $0.4 million in the quarters ended June 30, 2023 and July 1, 2022, respectively, and $0.9 million in both of the year-to-date periods ended June 30, 2023, and July 1, 2022. The Company capitalizes software projects developed for commercial use. The change in the Company’s capitalized software cost balance during the quarter and two quarters ended ~~March~~June 3130, 2023 and ~~April~~July 1, 2022 was as follows:

	For the Quarter Ended					For the Two Quarters Ended
(amounts in thousands)	~~March~~June 3130, 2023		~~April~~July 1, 2022			June 30, 2023		July 1, 2022
Capitalized software, beginning balance	$	1,~~484~~508	$	1,~~607~~573		$	1,484	$	1,607
Foreign currency translation		24		(34	)
Additions		714		—			714		—
Capitalized software	$	1,508	$	1,573
Foreign currency translation		26		(89	)		50		(123	)
Capitalized software	$	2,248	$	1,484		$	2,248	$	1,484

Capitalized software amortization periods range from three to five years, and are evaluated periodically for propriety. The Company capitalized a total of $0.2 million of costs related to the development of software for sale or license for the quarter ended March 31, 2023 that has not yet been placed in service.11

Capitalized software amortization periods range from three to five years, and are evaluated periodically for propriety. Amortization expense and accumulated amortization for these projects for the quarter and two quarters ended ~~March~~June 3130, 2023 and ~~April~~July 1, 2022 are as follows:

	For the Quarter Ended				For the Two Quarters Ended
(amounts in thousands)	~~March~~June 3130, 2023		~~April~~July 1, 2022		June 30, 2023		July 1, 2022
Accumulated amortization, beginning balance	$	1,~~232~~315	$	~~978~~1,050	$	1,232	$	978
Amortization expense		83126		7234		209		106
Accumulated amortization	$	1,~~315~~441	$	1,~~050~~084	$	1,441	$	1,084

During the quarter and two quarters ended June 30, 2023 and July 1, 2022, the Company's change in work-in-progress costs related to software projects being developed was as follows:


	For the Quarter Ended					For the Two Quarters Ended
(amounts in thousands)	June 30, 2023			July 1, 2022		June 30, 2023			July 1, 2022
Capitalized software, work-in-progress, beginning balance	$	714		$	—	$	473		$	—
Additions		396			—		637			—
Placed into service		(714	)		—		(714	)		—
Capitalized software, work-in-progress, ending balance	$	396		$	—	$	396		$	—

Guarantees

The Company has a number of guarantees in place in its European operations that support office leases and performance under government contracts. These guarantees totaled approximately $1.34 million and $3.0 million at ~~March~~June 3130, 2023 and December 31, 2022, respectively, and have expiration dates ranging from ~~April~~July 2023 through October 2034.

Goodwill

The goodwill recorded on the Company's condensed consolidated balance sheet at ~~March~~June 3130, 2023 relates to previous acquisitions, including Eleviant in 2022. 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. There were no impairment indicators noted in the quarter and two quarters ended ~~March~~June 3130, 2023 and ~~April~~July 1, 2022.

10The changes in the carrying amount of goodwill for the two quarters ended June 30, 2023 are as follows:

The changes in the carrying amount of goodwill for the quarter ended March 31, 2023 are as follows:


(amounts in thousands)
Balance at December 31, 2022	$	35,998
Working capital adjustment - acquisitions		(82	)
Foreign currency translation		329
Balance at June 30, 2023	$	36,245

(amounts in thousands)
Balance at December 31, 2022	$	35,998
Acquisitions		(82	)
Foreign currency translation		313
Balance at March 31, 2023	$	36,229

The Company's goodwill by segment at June 30, 2023 and December 31, 2022 was as follows:

The Company's goodwill by segment at March 31, 2023 and December 31, 2022 was as follows:


(amounts in thousands)	June 30, 2023		December 31, 2022
North America IT Solutions and Services	$	18,700	$	18,753
Europe IT Solutions and Services		17,545		17,245
Total goodwill	$	36,245	$	35,998

(amounts in thousands)	March 31, 2023		December 31, 2022
North America IT Solutions and Services	$	18,673	$	18,753
Europe IT Solutions and Services		17,556		17,245
Total goodwill	$	36,229	$	35,998

Acquired Intangible Assets

Acquired intangible assets at ~~March~~June 3130, 2023 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,~~403~~404	)	$	(~~129~~128	)	$	—
Technology	10 years		1,141		(~~205~~234	)		(1713	)		~~919~~894
Customer relationships	7-13 years		17,196		(4,~~483~~886	)		(~~1,003~~994	)		11,~~710~~316
Total		$	19,869	$	(6,~~091~~524	)	$	(1,~~149~~135	)	$	12,~~629~~210

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

Estimated amortization expense for the remainder of 2023, the five succeeding years, and thereafter is as follows:

Year	Annual Amortization
(amounts in thousands)
2023 (remaining)	$	~~1,280~~854
2024		1,~~707~~709
2025		1,~~707~~709
2026		1,~~707~~709
2027		1,~~299~~300
2028		1,218
Thereafter		3,711
Total	$	12,~~629~~210

Recently Issued Accounting Standards

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The objective of this ASU is to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this ASU are elective and apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Then in December 2022, the FASB issued ASU No. 2022-06 “Deferral of the Sunset Date of Topic 848” which amends and extends the sunset date to December 31, 2024. The Company ~~does~~has not ~~expect~~elected any of the practical expedients or scope exceptions to date related to this standard. We will continue to review our contracts and arrangements that will be affected by a ~~significant~~discontinued ~~impact~~reference ~~from~~rate during the transition period.

adoption of this standard as provisions have been made in our Credit Agreement to use an alternate benchmark interest rate when the use of LIBOR is discontinued.

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 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.

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 fair value of the remaining contingent consideration liability was determined to be approximately $43.01 million as of ~~March~~June 3130, 2023. Approximately $21.56 million and $1.5 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 ~~March~~June 3130, 2023. The Company ~~expects~~made ~~to make~~ a payment of $0.9 million ~~for~~related ~~Eleviant's~~to the earn-out based upon achievement by Eleviant of revenue and gross profit targets for the 2022 fiscal year in the 2023 second quarter.

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
Working capital adjustment		(82	)
Fair value of contingent consideration		4,000
Fair value of purchase consideration	$	22,869

12The following table summarizes the preliminary allocation of the aggregate purchase price consideration to the fair value of the assets acquired and liabilities assumed as of September 29, 2022:

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		17,357
Total assets acquired	$	27,630

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	$	22,869

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.

The intangible assets acquired in this acquisition consisted of the following:


(amounts in thousands)	Fair Value		Estimated Useful Life
Technology	$	550	10 years
Customer relationships		6,700	10 years
Fair value of purchase consideration	$	7,250

The Company incurred acquisition-related expenses related to retention bonuses, and amortization of intangible assets of approximately $0.43 million and $0.7 million in the quarter and year-to-date period ended ~~March~~June 3130, 2023, respectively, 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 first quarter of 2023, including a working capital adjustment of $0.1 million, but the preliminary purchase accounting for intangible assets has not yet been finalized as of ~~March~~June 3130, 2023.

13Net Income (Loss) Per Share

~~Net~~Basic ~~Income~~and ~~Per~~diluted ~~Share~~earnings per share (EPS) for the quarter and two quarters ended June 30, 2023 and July 1, 2022 were as follows:

Basic and diluted earnings per share (EPS) for the quarters ended March 31, 2023 and April 1, 2022 were as follows:


	For the Quarter Ended					For the Two Quarters Ended
(amounts in thousands, except per-share data)	June 30, 2023			July 1, 2022		June 30, 2023		July 1, 2022
Weighted-average number of shares outstanding during period		14,832			14,419		14,768		14,309
Common stock equivalents from incremental shares under equity-based compensation plans		—			703		631		741
Number of shares on which diluted earnings per share is based		14,832			15,122		15,399		15,050
Net income (loss)	$	(130	)	$	2,040	$	185	$	4,280
Net income (loss) per share
Basic	$	(0.01	)	$	0.14	$	0.01	$	0.30
Diluted	$	(0.01	)	$	0.13	$	0.01	$	0.28

	For the Quarter Ended
(amounts in thousands, except per-share data)	March 31, 2023		April 1, 2022
Weighted-average number of shares outstanding during period		14,704		14,199
Common stock equivalents from incremental shares under equity-based compensation plans		643		778
Number of shares on which diluted earnings per share is based		15,347		14,977
Net income	$	315	$	2,240
Net income per share
Basic	$	0.02	$	0.16
Diluted	$	0.02	$	0.15

Weighted-average shares represent the average number of issued shares less treasury shares, and for the basic EPS calculations, unvested restricted stock.

~~Certain~~For the quarter ended June 30, 2023, the diluted share amount reported is equal to the basic per share amount as the Company was in a net loss position and as a result, any dilution from incremental shares under equity-based compensation plans would be considered anti-dilutive. If the Company had net income, and assuming dilution, certain options representing 01.80 million and 0.56 million shares of common stock were outstanding at ~~March~~June 3130, 2023 and ~~April~~July 1, 2022, respectively, but would not have been or were not included in the computation of diluted earnings per share as their effect on the computation would have been anti-dilutive.

Lease Commitments

The Company records a right-of-use asset and liability for substantially all leases for which it is a lessee, in accordance with 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 condensed consolidated balance sheets. 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 does 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 quarter and two quarters ended ~~March~~June 3130, 2023 and ~~April~~July 1, 2022 were as follows:

	For the Quarter Ended				For the Two Quarters Ended
(amounts in thousands)	~~March~~June 3130, 2023		~~April~~July 1, 2022		June 30, 2023		July 1, 2022
Operating lease costs	$	1,~~815~~835	$	1,~~821~~625	$	3,650	$	3,447
Variable lease costs		~~104~~108		8984		212		173
Short-term lease costs		~~124~~135		~~101~~111		259		212

14Maturities for the Company’s lease liabilities for all operating leases as of June 30, 2023 are as follows:

Maturities for the Company’s lease liabilities for all operating leases as of March 31, 2023 are as follows:


	Total
Year	Operating Leases
(amounts in thousands)
2023 (remaining)	$	3,235
2024		5,129
2025		3,888
2026		2,727
2027		1,545
2028 & thereafter		3,843
Total undiscounted operating lease payments		20,367
Less: Interest		(1,097	)
Total present value of operating lease liabilities	$	19,270

	Total
Year	Operating Leases
(amounts in thousands)
2023 (remaining)	$	4,731
2024		4,812
2025		3,609
2026		2,531
2027		1,433
2028 & thereafter		3,810
Total undiscounted operating lease payments		20,926
Less: Interest		(2,442	)
Total present value of operating lease liabilities	$	18,484

Operating lease payments exclude $1.3 million of legally binding lease payments for leases signed, but not yet commenced. The weighted average remaining lease terms and discount rates for all operating leases as of June 30, 2023 and July 1, 2022 were as follows:

Operating lease payments exclude $0.8 million of legally binding lease payments for leases signed, but not yet commenced. The weighted average remaining lease terms and discount rates for all operating leases as of March 31, 2023 and April 1, 2022 were as follows:


	June 30, 2023			July 1, 2022
Weighted average remaining lease term (years)		5.39			5.79
Weighted average remaining discount rate		2.39	%		2.34	%

	March 31, 2023			April 1, 2022
Weighted average remaining lease term (years)		5.26			5.89
Weighted average remaining discount rate		4.26	%		2.12	%

Supplemental cash flow information related to the Company’s operating leases for the 2023 year-to-date period is as follows:

Supplemental cash flow information related to the Company’s operating leases for the first quarter of 2023 is as follows:


(amounts in thousands)	June 30, 2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflow from operating leases	$	3,650
Right-of-use assets obtained in exchange for new operating lease liabilities		2,127

(amounts in thousands)	March 31, 2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflow from operating leases	$	1,815
Right-of-use assets obtained in exchange for new operating lease liabilities		1,061

Debt

The Company has an asset-based lending revolving credit agreement (“Credit Agreement”), which 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. 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. 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.

At March 31, 2023 and December 31, 2022, there were $1.4 million and zero outstanding under the Credit Agreement, respectively. 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.16

~~The~~At ~~maximum~~both ~~amounts~~June ~~outstanding~~30, ~~under~~2023 ~~the~~and ~~Credit~~December ~~Agreement~~31, in2022, ~~the~~there ~~2023~~were ~~and~~zero ~~2022~~outstanding ~~first~~under ~~quarters~~the ~~were~~Credit $3Agreement.4 ~~million~~The ~~and~~Company ~~zero,~~borrows ~~respectively,~~or ~~while~~repays ~~borrowing~~its ~~during~~debts ~~those~~as ~~quarters~~needed ~~averaged~~based ~~$0.4~~upon ~~million~~its ~~and~~working ~~zero.~~capital ~~The~~obligations, ~~weighted~~including ~~average~~the ~~interest~~timing ~~rate~~of ~~for~~ the ~~2023 first quarter borrowings was 8~~U.4%S. bi-weekly payroll.

~~Under~~The ~~the~~maximum ~~Credit~~amounts ~~Agreement,~~outstanding under the ~~Company~~Credit isAgreement ~~required to meet one financial covenant~~ in ~~order~~the to2023 ~~maintain~~and ~~borrowings~~2022 ~~under~~second ~~its~~quarters ~~revolving~~were ~~credit line, pay dividends, and make acquisitions~~$3.6 ~~The~~million ~~covenant is measured quarterly,~~ and ~~at March 31~~zero, ~~2023 represented a fixed charge coverage ratio~~respectively, ~~where~~while ~~for~~borrowing ~~the~~during ~~trailing~~those ~~twelve~~quarters ~~months~~averaged ~~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.~~$0.6 ~~times~~million ~~the consolidated interest expense paid in cash~~ and ~~any scheduled principal payments~~zero. The ~~fixed~~weighted ~~charge~~average ~~coverage~~interest ~~ratio~~rate isfor ~~only tested if availability, subject to a maximum of~~ the ~~commitment~~2023 ofsecond ~~$50.0~~quarter ~~million,~~borrowings onwas ~~the measurement date is less than the greater of 12~~8.5%. ~~of the total loan availability~~

15Under 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 June 30, 2023 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. Total availability as of June 30, 2023 was approximately $40.1 million. The Company’s compliance with its financial covenant was not required to be tested at June 30, 2023 as the availability under the Credit Agreement was in excess of 12.5% of the total loan availability. The Company was also in compliance with its applicable covenants at July 1, 2022.

orEleviant ~~$5.0~~has ~~million. Actual borrowings by CTG under the Credit Agreement are subject to~~ a ~~borrowing~~revolving ~~base,~~credit ~~which~~facility istotaling 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. Total availability as of March 31, 2023 was approximately $381.73 million. The Company’s ~~compliance~~did ~~with its financial covenant was~~ not ~~required~~have toany beamount ~~tested~~outstanding atunder ~~March~~this ~~31,~~line ~~2023~~ as ~~the availability under the Credit Agreement was in excess~~ of ~~12.5%~~June of30, ~~the total loan availability~~2023. The ~~Company~~interest ~~was~~rate ~~also~~on inborrowings ~~compliance~~when ~~with~~made ~~its~~is ~~applicable covenants at April 1, 2022~~8.75%.

As part of the Eleviant acquisition, the Company has $0.1 million outstanding under a revolving line of credit as of March 31, 2023. The interest rate is 8.25%, and the amount outstanding is included in "Accounts Payable" on the Company's Consolidated Balance Sheet.

Accumulated Other Comprehensive Loss

The components that make up accumulated other comprehensive loss on the condensed consolidated balance sheets at ~~March~~June 3130, 2023 and December 31, 2022 are as follows:

(amounts in thousands)	~~March~~June 3130, 2023			December 31, 2022
Foreign currency translation adjustment	$	(109,~~049~~939	)	$	(10,993	)
Pension loss, net of tax of $739 in 2023 and $755 in 2022		(4,269	)		(4,313	)
Pension loss, net of tax of $715 in 2023 and $755 in 2022		(4,209	)		(4,313	)
Accumulated other comprehensive loss	$	(14,~~318~~148	)	$	(15,306	)

During the 2023 and 2022 ~~first~~second ~~quarters~~quarter and year-to-date periods, actuarial losses were amortized to expense as follows:

	For the Quarter Ended						For the Two Quarters Ended
(amounts in thousands)	~~March~~June 3130, 2023			~~April~~July 1, 2022			June 30, 2023			July 1, 2022
Amortization of actuarial losses	$	~~106~~107		$	~~130~~125		$	213		$	255
Income tax		(24	)		(21	)		(48	)		(42	)
Net of tax	$	8283		$	~~109~~104		$	165		$	213

The amortization of both prior service cost and actuarial losses, with the exception of the actuarial gains related to the post retirement benefit plan, are included in determining net periodic pension cost. See Note 9, "Deferred Compensation and Other Benefits" for additional information.

Income Taxes

The Company’s effective tax rate (“ETR”) is calculated quarterly based upon current assumptions relating to the full year’s estimated operating results and various tax-related items. The 2023 second quarter and year-to-date ETR was (64.6)% and 53.5%, respectively, and the 2022 ~~first~~second quarter and year-to-date ETR was 3426.08% and 2325.93%, respectively.

The ETR was higher in the 2023 ~~first~~second quarter and year-to-date periods as compared with the corresponding 2022 ~~period~~periods primarily due to the ~~tax~~increased ~~benefit~~losses of the Company's foreign subsidiaries for ~~windfalls~~which ~~from~~no ~~equity-based~~tax ~~compensation~~benefit ~~transactions~~can inbe ~~the~~recorded ~~2022~~due ~~first~~to ~~quarter~~valuation allowances.

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.

Deferred Compensation and Other 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 ESBP 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. The NDBP was curtailed for additional contributions in January 2003.

The Company maintains a fully funded pension plan related to CTG Belgium and CTG Health Solutions (Belgium) employees (“BDBP”). The BDBP has active employees and the Company expects to make future contributions.

The Company maintains an unfunded pension plan related to the current Soft Company employees (“FDBP”). The Company does not anticipate making contributions to the FDBP. No benefit payments were made in 2022 and none are expected to be paid in 2023.

The Company maintains an unfunded pension plan related to the current StarDust employees (“SDBP”). The Company does not anticipate making contributions to the SDBP. No benefit payments were made in 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 does not anticipate making contributions to the IDBP. No benefit payments were made in 2022 and none are expected to be paid in 2023.

Net periodic pension cost for the quarter and two quarters ended ~~March~~June 3130, 2023 and ~~April~~July 1, 2022 for the plans is as follows:

	For the Quarter Ended						For the Two Quarters Ended
(amounts in thousands)	~~March~~June 3130, 2023			~~April~~July 1, 2022			June 30, 2023			July 1, 2022
Service cost	$	90113		$	~~109~~104		$	191		$	213
Interest cost		~~239~~252			8984			487			173
Expected return on assets		(~~167~~169	)		(~~170~~162	)		(336	)		(332	)
Amortization of actuarial loss		106			~~131~~126			212			257
Net periodic pension cost	$	~~268~~302		$	~~159~~152		$	554		$	311

The ESBP is deemed to be unfunded as the Company has not specifically identified 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 deemed to be sufficient to reimburse the Company for the costs associated with the plan for those participants (see Note 2 for “Life Insurance Policies”). The Company does not anticipate contributing to the plan other than for benefit payments as required in 2023 and future years. In the 2023 ~~first~~second quarter and year-to-date period, the Company made benefit payments totaling $0.1 million and $0.2 million, respectively, and expects to make payments in 2023 totaling approximately $0.5 million. The Company made benefit payments totaling approximately $0.12 million and $0.3 million in the 2022 ~~first~~second quarter and year-to-date period, respectively.

As the NDBP was curtailed for additional contributions in January 2003, no contributions were made in 2022 and none are expected to be made in 2023. 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 at any point in time. The fair value of the assets is determined using a Level 3 methodology (see Note 2 for “Fair Value”). In 2023, the plan investments have a targeted minimum return to the Company of 4.0%, which is consistent with historical returns and the 4.0% return guaranteed to the participants of the plan. The Company, in conjunction with Aegon, intends to maintain the current investment strategy of investing plan assets solely in government bonds throughout 2023.

The BDBP is considered fully funded. The Company made contributions of $0.2 million in both the 2023 and 2022 first quarters. The Company made benefit payments totaling less than $0.1 million in both the 2023 and 2022 first quarters, and expects to make payments in 2023 totaling $0.1 million.18

with historical returns and the 4.0% return guaranteed to the participants of the plan. The Company, in conjunction with Aegon, intends to maintain the current investment strategy of investing plan assets solely in government bonds throughout 2023.

The BDBP is considered fully funded. The Company made contributions of $0.2 million and $0.1 million in the 2023 and 2022 second quarters, respectively, and $0.4 million and $0.3 million in the 2023 and 2022 year-to-date periods, respectively. The Company made benefit payments totaling less than $0.1 million in both the 2023 and 2022 second quarters, and expects to make payments in 2023 totaling $0.1 million.

The assets for the BDBP are held by Allianz, a financial services firm 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 are based on employees’ current salaries. The benefit payments to be made in 2023 are expected to be paid by Allianz from plan assets. The assets for the plan are included in the overall portfolio of assets held by Allianz. 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). The fair value of the assets is determined using a Level 3 methodology (see Note 2 “Fair Value”). Allianz does 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.

The Company maintains various other defined contribution retirement plans covering ~~European~~ employees from Europe and India. Company contributions charged to operations were $0.1 million in both the 2023 and 2022 ~~first~~second quarters, and $0.2 million in both the year-to-date periods ended June 30, 2023 and July 1, 2022.

17The change in the fair value of plan assets for the plans for the two quarters ended June 30, 2023 and July 1, 2022 was as follows:

The change in the fair value of plan assets for the plans for the quarters ended March 31, 2023 and April 1, 2022 was as follows:


	For the Two Quarters Ended
(amounts in thousands)	June 30, 2023			July 1, 2022
Fair value of plan assets at beginning of period	$	19,723		$	19,956
Return on plan assets		336			332
Contributions		704			581
Benefits paid		(453	)		(457	)
Effect of exchange rate changes		349			(1,615	)
Fair value of plan assets at end of quarter	$	20,659		$	18,797

	For the Quarter Ended
(amounts in thousands)	March 31, 2023			April 1, 2022
Fair value of plan assets at beginning of period	$	19,723		$	19,956
Return on plan assets		167			170
Contributions		313			295
Benefits paid		(218	)		(258	)
Effect of exchange rate changes		334			(486	)
Fair value of plan assets at end of quarter	$	20,319		$	19,677

The Company 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. The Company made no cash contributions in either the 2023 or 2022 second quarter or year-to-date periods for amounts earned in the previous year. 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 exchange for the cash 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 units purchased during the 2023 or 2022 second quarter or year-to-date periods.

The Company maintains the ~~Key Employee~~ Non-~~Qualified~~Employee Director Deferred Compensation Plan for ~~certain~~its ~~key~~non-employee ~~executives~~directors. The Company ~~contributions~~made tocash ~~this~~contributions ~~plan,~~of ifless ~~any,~~than ~~are based on annually defined financial performance objectives~~$0.1 ~~The~~million ~~Company~~during ~~made~~both ~~no cash contributions in either~~ the 2023 orand 2022 ~~first~~second quarters, ~~for~~and ~~amounts~~less ~~earned~~than ~~in the previous year~~$0.1 ~~Participants~~million induring both the ~~plan~~2023 ~~have~~and ~~the~~2022 ~~ability~~ year-to-date ~~purchase~~periods. ~~stock~~The ~~units~~remaining ~~from~~contributions ~~the~~deposited ~~Company~~in atthe ~~current~~directors’ ~~market~~accounts ~~prices~~in ~~using their available investment balances within~~ the ~~plan.~~2023 Inand ~~exchange~~2022 ~~for~~second ~~the~~quarter ~~cash~~and ~~received,~~year-to-date ~~the~~periods ~~Company~~consisted ~~releases shares out~~ of ~~treasury~~equity ~~stock~~grants ~~equivalent~~from to the ~~number~~2020 ofEquity ~~share~~Award ~~units purchased by the participants~~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. ~~There were no stock units purchased during the 2023 or 2022 first quarters.~~

10.

The Company maintains the Non-Employee Director Deferred Compensation Plan for its non-employee directors. The Company made cash contributions of less than $0.1 million during both the 2023 and 2022 first quarters. The remaining contributions deposited in the directors’ accounts in the 2023 and 2022 first quarters consisted of equity grants from the 2020 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.

Equity-based Compensation

During the 2023 second quarter and year-to-date period, the Company granted restricted stock totaling 185,368 and 398,390 shares, respectively. During the 2022 ~~first~~second ~~quarters~~quarter and year-to-date period, the Company granted restricted stock totaling ~~213~~139,~~022~~315 and ~~151~~290,~~556~~871 shares, respectively. All grants in 2023 and 2022 were funded out of treasury stock.

Director Board fees are paid in part with quarterly grants of stock units. Of the total shares granted during the 2023 first quarter, 14,515 shares represented restricted stock units that were granted to Board members. The shares vest over the quarter in which they were granted and the Company is expensing these grants as such. Grants of similar units to the Board members totaled 12,335 shares of restricted stock units in the 2022 first quarter. 19

OfDirector ~~the~~Board ~~shares~~fees ~~granted~~are inpaid ~~the 2023 first quarter, 198,507 shares were granted to senior management, of which 132,340 shares included a performance condition. The shares will only vest,~~ in part, towith ~~senior~~quarterly ~~management~~grants ~~if at least 80%~~ of astock ~~three-year~~units. ~~cumulative~~Of ~~target~~the ~~for~~total ~~diluted~~shares ~~earnings~~granted ~~per~~during ~~share~~the is2023 ~~met~~second ~~for~~quarter ~~the~~and ~~three-~~year-to-date period, ~~ended December 31~~15,260 ~~2025.~~and ~~If at least 80% of the three-year EPS target is not met~~29,775 ~~the grants will expire. Of the~~ shares ~~granted~~represented ~~during~~restricted ~~2022~~stock ~~first~~units ~~quarter,~~that ~~139,221 shares~~ were granted to ~~senior~~Board ~~management~~members, ~~of which 92,815 shares included a performance condition~~respectively. The shares ~~will only~~ vest inover ~~part,~~the toquarter ~~senior~~in ~~management~~which ifthey atwere ~~least~~granted ~~80%~~and ofthe aCompany ~~three-year~~is ~~cumulative~~expensing ~~target~~these ~~for~~grants ~~diluted~~as ~~earnings~~such. ~~per~~Grants ~~share~~of issimilar ~~met~~units ~~for~~to the ~~three-year~~Board ~~period~~members ~~ended~~totaled ~~December~~12,200 31and 24,535 ~~2024.~~shares Ifof atrestricted ~~least~~stock ~~80%~~units ofin the ~~three-year~~2022 ~~EPS~~second ~~target~~quarter isand ~~not~~year-to-date ~~met~~period, ~~the grants will expire~~respectively.

~~There~~Of ~~were~~the noshares ~~other~~granted in the 2023 first quarter, 198,507 shares were granted ~~during~~to senior management, of which 132,340 shares included a performance condition. The shares will only vest, in part, to senior management if at least 80% of a three-year cumulative target for diluted earnings per share is met for the ~~2023~~three-year ~~and~~period ended December 31, 2025. If at least 80% of the three-year EPS target is not met, the grants will expire. Of the shares granted during 2022 first ~~quarters~~quarter, 139,221 shares were granted to senior management, of which 92,815 shares included a performance condition. The shares will only vest in part, to senior management if at least 80% of a three-year cumulative target for diluted earnings per share is met for the three-year period ended December 31, 2024. If at least 80% of the three-year EPS target is not met, the grants will expire. Management continually evaluates the probability of these performance conditions being met.

The remaining shares granted in the 2023 and 2022 second quarter and year-to-date periods include shares that vest ratably over a period of three or four years, beginning one year from the date of grant.

The restricted shares granted are considered outstanding, can be voted, and are eligible to receive dividends in the event any are paid. However, these 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 basic earnings per share calculation. The shares and share units granted in 2023 and 2022 were from the 2020 Equity Award Plan.

A total of 168,136 stock options were granted during the 2023 first quarter on March 17, 2023 from the 2020 Equity Award Plan. The options have a fair value of $3.05 per share using the Black-Scholes valuation model. The assumptions used to calculate the fair value include the price on the date of grant of $7.75 per option, an expected life of 4.3 years, expected volatility of 43.2%, an expected dividend yield of zero, and a risk free rate of 3.4%. The options vest ratably over three years, and are being expensed over that period. A total of 134,790 stock options were granted during the 2022 first quarter on March 18, 2022 from the 2020 Equity Award Plan. The options have a fair value of $3.14 per share using the Black-Scholes valuation model. The assumptions used to calculate the fair value include the price on the date of grant of $9.12 per option, an expected life of 3.4 years, expected volatility of 44.6%, an expected dividend yield of zero, and a risk free rate of 2.1%. The options vest ratably over three years, and are being expensed over that period.

11.

expected volatility of 43.2%, an expected dividend yield of zero, and a risk free rate of 3.4%. The options vest ratably over three years, and are being expensed over that period. A total of 134,790 stock options were granted during the 2022 first quarter on March 18, 2022 from the 2020 Equity Award Plan. The options have a fair value of $3.14 per share using the Black-Scholes valuation model. The assumptions used to calculate the fair value include the price on the date of grant of $9.12 per option, an expected life of 3.4 years, expected volatility of 44.6%, an expected dividend yield of zero, and a risk free rate of 2.1%. The options vest ratably over three years, and are being expensed over that period.

Treasury Stock

The Company’s Board of Directors has previously authorized the repurchase of up to $30.0 million of the Company’s stock. The Company did not purchase shares for treasury during the 2023 or 2022 ~~first~~second quarter or year-to-date periods. As of ~~March~~June 3130, 2023 and ~~April~~July 1, 2022, the Company had approximately $7.7 million left in its current stock repurchase authorization.

The Company issued ~~244~~208,~~602~~158 and ~~171~~452,~~556~~760 shares during the 2023 ~~and~~second ~~2022~~quarter ~~first~~and ~~quarters~~year-to-date period, respectively, to fulfill the requirements from the grant of restricted shares or units and the exercise of stock options.

The Company issued 177,935 and 349,491 shares during the 2022 second quarter and year-to-date period, respectively, to fulfill the requirements from the grant of restricted shares or units and the exercise of stock options

12.

Significant Clients

In the 2023 ~~first~~second quarter, International Business Machines Corporation (IBM) was the Company’s largest client and accounted for $6.6 million or 8.8% of consolidated revenue compared with $15.9 million or 19.2% of consolidated revenue in the comparable 2022 period. In the 2023 year-to-date period, IBM accounted for $14.8 million or 109.57% of consolidated revenue, compared with $1632.54 million or 18.58% of consolidated revenue in the comparable 2022 period. The National Technical Services Agreement with IBM expires on October 27, 2023. The Company’s accounts receivable from IBM at ~~March~~June 3130, 2023 and December 31, 2022 totaled $9.2 million and $14.0 million, respectively.

No other client accounted for 10% or more of the Company's revenue during the 2023 or 2022 ~~first~~second ~~quarters~~quarter or year-to-date periods.

13.

Segment Information

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. 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, and Cloud and Automated Testing.

The Company's strategy is to focus on providing digital services within its IT Solutions business in both North America and in Europe. As part of this strategy, 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. Additionally, the Company is 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 clients. These decisions are based on, among other factors, 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 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 its clients. The digital services the Company delivers include the Internet of Things, Intelligent Automation, Data and Analytics, Cloud and Automated Testing.

Non-Strategic Technology Services

The Company’s Non-Strategic Technology Services address a range of information and technology resource needs, from filling specific talent gaps to managing high-volume staffing programs. The Company recruits, retains, and manages IT talent for its clients, which are primarily large technology service providers and other companies with multiple locations and a significant need for high-volume professional IT resources. This segment consists of the lowest margin services the Company provides to its clients. This segment consists primarily of staffing services in North America, and a minor amount (less than 5% of revenue in this segment) of such services in Europe.

The Company makes decisions related to resource allocation based upon the contribution income of each of its segments. Contribution profit reflects gross profit less any expenses directly related to each respective segment. Those 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 the quarters ended March 31, 2023 and April 1, 2022 were as follows:

Quarter Ended March 31, 2023	North America IT		Europe IT		Non-Strategic
(amounts in thousands)	Solutions & Services		Solutions & Services		Technology Services		Total
Revenue	$	23,196	$	40,093	$	14,913
Direct costs		14,212		30,769		13,086
Gross profit		8,984		9,324		1,827
Sales, solutions, delivery, and recruiting expenses		4,797		5,052		363
Contribution profit	$	4,187	$	4,272	$	1,464		9,923
General and administrative expenses								9,216
Operating income							$	707

Quarter Ended April 1, 2022	North America IT		Europe IT		Non-Strategic
(amounts in thousands)	Solutions & Services		Solutions & Services		Technology Services		Total
Revenue	$	20,435	$	42,478	$	26,504
Direct costs		13,573		31,998		23,251
Gross profit		6,862		10,480		3,253
Sales, solutions, delivery, and recruiting expenses		3,130		5,229		810
Contribution profit	$	3,732	$	5,251	$	2,443		11,426
General and administrative expenses								8,227
Operating income							$	3,199

Depreciation allocated to Europe IT Solutions and Services totaled $0.2 million in both of the quarters ended March 31, 2023 and April 1, 2022. Depreciation allocated to North America IT Solutions and Services totaled $0.1 million in both of the quarters ended March 31, 2023 and April 1, 2022. Depreciation allocated to Non-Strategic Technology Services totaled less than $0.1 million in both of the quarters ended March 31, 2023 and April 1, 2022.

The Company has not provided any other expense or asset information for each of its segments as the Company’s CEO, who is the chief operating decision maker, does not use this information in any way to make resource decisions or to manage the segments. The Company does not prepare balance sheet or statement of cash flow information for its segments.

The Company's goodwill by segment at March 31, 2023 and December 31, 2022 was as follows:

(amounts in thousands)	March 31, 2023		December 31, 2022
North America IT Solutions and Services	$	18,673	$	18,753
Europe IT Solutions and Services		17,556		17,245
Total goodwill	$	36,229	$	35,998

The operating results for the Company’s segments for the quarter and two quarters ended June 30, 2023 and July 1, 2022 were as follows:


Quarter Ended June 30, 2023	North America IT		Europe IT		Non-Strategic
(amounts in thousands)	Solutions & Services		Solutions & Services		Technology Services		Total
Revenue	$	25,997	$	38,393	$	10,198
Direct costs		15,485		29,150		8,958
Gross profit		10,512		9,243		1,240
Sales, solutions, delivery, and recruiting expenses		4,715		5,288		373
Contribution profit	$	5,797	$	3,955	$	867		10,619
General and administrative expenses								10,334
Operating income							$	285


Quarter Ended July 1, 2022	North America IT		Europe IT		Non-Strategic
(amounts in thousands)	Solutions & Services		Solutions & Services		Technology Services		Total
Revenue	$	20,339	$	37,160	$	25,260
Direct costs		13,260		27,578		22,171
Gross profit		7,079		9,582		3,089
Sales, solutions, delivery, and recruiting expenses		3,532		4,855		701
Contribution profit	$	3,547	$	4,727	$	2,388		10,662
General and administrative expenses								7,489
Operating income							$	3,173


Two Quarters Ended June 30, 2023	North America IT		Europe IT		Non-Strategic
(amounts in thousands)	Solutions & Services		Solutions & Services		Technology Services		Total
Revenue	$	49,193	$	78,486	$	25,111
Direct costs		29,697		59,919		22,044
Gross profit		19,496		18,567		3,067
Sales, solutions, delivery, and recruiting expenses		9,512		10,340		736
Contribution profit	$	9,984	$	8,227	$	2,331		20,542
General and administrative expenses								19,550
Operating income							$	992


Two Quarters Ended July 1, 2022	North America IT		Europe IT		Non-Strategic
(amounts in thousands)	Solutions & Services		Solutions & Services		Technology Services		Total
Revenue	$	40,773	$	79,638	$	51,765
Direct costs		26,832		59,577		45,422
Gross profit		13,941		20,061		6,343
Sales, solutions, delivery, and recruiting expenses		6,663		10,083		1,512
Contribution profit	$	7,278	$	9,978	$	4,831		22,087
General and administrative expenses								15,715
Operating income							$	6,372

Depreciation allocated to Europe IT Solutions and Services totaled $0.2 million and $0.1 million in the quarters ended June 30, 2023 and July 1, 2022, respectively, and $0.3 million in both the 2023 and 2022 year-to-date periods. Depreciation allocated to North America IT Solutions and Services totaled $0.2 million and $0.1 million in the quarters ended June 30, 2023 and July 1, 2022, respectively, and $0.3 million and $0.2 million in the 2023 and 2022 year-to-date periods, respectively. Depreciation allocated to Non-Strategic Technology Services totaled less than $0.1 million in both of the quarters ended June 30, 2023 and July 1, 2022, and less than $0.1 million in both the 2023 and 2022 year-to-date periods.

The Company's goodwill by segment at June 30, 2023 and December 31, 2022 was as follows:


(amounts in thousands)	June 30, 2023		December 31, 2022
North America IT Solutions and Services	$	18,700	$	18,753
Europe IT Solutions and Services		17,545

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