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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 September 29, 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		November 2, 2023
Common stock, par value $.01 per share		16,094,564

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	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36

Part II Other Information
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39

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 Three Quarters Ended
	September 29, 2023			September 30, 2022		September 29, 2023			September 30, 2022
Revenue	$	71,291		$	75,002	$	224,081		$	247,178
Cost of services		51,824			56,773		163,484			188,604
Gross profit		19,467			18,229		60,597			58,574
Selling, general and administrative expenses		20,071			15,976		60,209			49,949
Operating income (loss)		(604	)		2,253		388			8,625
Interest and other income		50			133		250			323
Interest and other expense		545			525		1,339			1,357
Income (loss) before income taxes		(1,099	)		1,861		(701	)		7,591
Provision (benefit) for income taxes		(228	)		759		(15	)		2,209
Net income (loss)	$	(871	)	$	1,102	$	(686	)	$	5,382
Net income (loss) per share:
Basic	$	(0.06	)	$	0.08	$	(0.05	)	$	0.37
Diluted	$	(0.06	)	$	0.07	$	(0.05	)	$	0.36
Weighted average shares outstanding:
Basic		14,903			14,480		14,813			14,366
Diluted		14,903			15,157		14,813			15,086

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

COMPUTER TASK GROUP, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(amounts in thousands)

(Unaudited)


	For the Quarter Ended						For the Three Quarters Ended
	September 29, 2023			September 30, 2022			September 29, 2023			September 30, 2022
Net income (loss)	$	(871	)	$	1,102		$	(686	)	$	5,382

Foreign currency translation adjustment		(1,777	)		(3,257	)		(723	)		(7,824	)
Change in pension, net of taxes of $36 and $43 in the 2023 and 2022 third quarters, respectively, and $76 and $121 in the first three quarters of 2023 and 2022, respectively		175			557			279			1,468
Other comprehensive loss		(1,602	)		(2,700	)		(444	)		(6,356	)

Comprehensive loss	$	(2,473	)	$	(1,598	)	$	(1,130	)	$	(974	)

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)


	September 29,			December 31,
	2023			2022
Assets
Current Assets:
Cash and cash equivalents	$	24,069		$	25,140
Accounts receivable, net of allowances of $421 and $397 in 2023 and 2022, respectively		64,433			70,979
Prepaid and other current assets		4,930			3,769
Income taxes receivable		142			—
Total current assets		93,574			99,888
Property, equipment and capitalized software, net		6,045			5,061
Operating lease right-of-use assets		19,478			18,506
Deferred income taxes		4,386			2,886
Acquired intangibles, net		11,639			12,943
Goodwill		35,487			35,998
Cash surrender value of life insurance, net		4,822			4,120
Other assets		2,308			2,101
Investments		174			116
Total assets	$	177,913		$	181,619
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	9,661		$	14,254
Accrued compensation		18,521			19,016
Advance billings on contracts		4,492			5,480
Short-term operating lease liabilities		6,186			5,905
Other current liabilities		9,674			7,066
Income taxes payable		—			212
Total current liabilities		48,534			51,933
Long-term debt		—			—
Deferred compensation benefits		6,720			6,424
Long-term operating lease liabilities		13,412			12,466
Deferred income taxes		1,226			1,482
Other long-term liabilities		2,442			3,335
Total liabilities		72,334			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		107,269			109,868
Retained earnings		113,965			114,651
Less: Treasury stock of 10,940,680 and 11,274,171 shares at cost, in 2023 and 2022, respectively		(100,175	)		(103,504	)
Accumulated other comprehensive loss		(15,750	)		(15,306	)
Total shareholders’ equity		105,579			105,979
Total liabilities and shareholders’ equity	$	177,913		$	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 Three Quarters Ended
	September 29, 2023			September 30, 2022
Cash flow from operating activities:
Net income (loss)	$	(686	)	$	5,382
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense		2,750			2,051
Equity-based compensation expense		1,077			1,869
Deferred income taxes		(1,730	)		(138	)
Deferred compensation benefits		555			(152	)
Loss on the sale of property and equipment		4			—
Changes in assets and liabilities that provide (use) cash, excluding the effects of acquisitions:
Accounts receivable		6,247			11,614
Prepaid and other current assets		(923	)		(395	)
Other long-term assets		(213	)		(41	)
Cash surrender value of life insurance		(55	)		525
Accounts payable		(5,089	)		(10,159	)
Accrued compensation		(394	)		(63	)
Income taxes payable / receivable		(378	)		1,189
Advance billings on contracts		(1,026	)		670
Other current liabilities		3,536			151
Other long-term liabilities		(893	)		6
Net cash provided by operating activities		2,782			12,509
Cash flow from investing activities:
Cash paid for acquisitions, net of cash acquired		82			(16,568	)
Additions to property and equipment		(1,288	)		(479	)
Additions to capitalized software		(1,207	)		(285	)
Proceeds from sale of property & equipment		4			9
Premiums paid for life insurance		(647	)		(594	)
Net cash used in investing activities		(3,056	)		(17,917	)
Cash flow from financing activities:
Proceeds from long-term debt		20,653			—
Payments on long-term debt		(20,653	)		—
Payment of contingent consideration		(913	)		—
Proceeds from stock option plan exercises		174			215
Taxes remitted for shares withheld from equity-based compensation transactions		(629	)		(1,230	)
Proceeds from Employee Stock Purchase Plan		108			131
Change in cash overdraft, net		474			—
Net cash used in financing activities		(786	)		(884	)
Effect of exchange rates on cash and cash equivalents		(11	)		(2,539	)
Net decrease in cash and cash equivalents		(1,071	)		(8,831	)
Cash and cash equivalents at beginning of year		25,140			35,584
Cash and cash equivalents at end of quarter	$	24,069		$	26,753

Supplemental disclosure of non-cash transactions
Acquisition share issuance	$	—		$	1,178
Acquisition stock option issuance	$	—		$	391

The accompanying notes are an integral part of these 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 June 30, 2023		27,018	$	270	$	107,250		$	114,836			10,973		$	(100,455	)	$	(14,148	)	$	107,753
Stock Option Plan share issuance, net		—		—		(127	)		—			(26	)		217			—			90
Restricted stock plan share issuance/forfeiture		—		—		(64	)		—			(6	)		63			—			(1	)
Equity-based compensation		—		—		210			—			—			—			—			210
Net loss		—		—		—			(871	)		—			—			—			(871	)
Foreign currency adjustment		—		—		—			—			—			—			(1,777	)		(1,777	)
Pension loss adjustment, net of tax		—		—		—			—			—			—			175			175
Balances as of September 29, 2023		27,018	$	270	$	107,269		$	113,965			10,941		$	(100,175	)	$	(15,750	)	$	105,579


																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 July 1, 2022		27,018	$	270	$	108,890		$	112,322		11,499		$	(105,579	)	$	(20,596	)	$	95,307
Employee Stock Purchase Plan share issuance		—		—		(9	)		—		(7	)		56			—			47
Restricted Stock Plan share issuance/forfeiture		—		—		(123	)		—		(13	)		123			—			—
Acquisition share issuance		—		—		(418	)		—		(174	)		1,596			—			1,178
Acquisition stock option issuance		—		—		391			—		—			—			—			391
Equity-based compensation		—		—		693			—		—			—			—			693
Net income		—		—		—			1,102		—			—			—			1,102
Foreign currency adjustment		—		—		—			—		—			—			(3,257	)		(3,257	)
Pension loss adjustment, net of tax		—		—		—			—		—			—			557			557
Balances as of September 30, 2022		27,018	$	270	$	109,424		$	113,424		11,305		$	(103,804	)	$	(23,296	)	$	96,018

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		—		—		(331	)		—			(50	)		505			—			174
Restricted stock plan share issuance/forfeiture		—		—		(3,315	)		—			(268	)		2,686			—			(629	)
Equity-based compensation		—		—		1,077			—			—			—			—			1,077
Net loss		—		—		—			(686	)		—			—			—			(686	)
Foreign currency adjustment		—		—		—			—			—			—			(723	)		(723	)
Pension loss adjustment, net of tax		—		—		—			—			—			—			279			279
Balances as of September 29, 2023		27,018	$	270	$	107,269		$	113,965			10,941		$	(100,175	)	$	(15,750	)	$	105,579


																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		—		—		(12	)		—		(16	)		143			—			131
Stock Option Plan share issuance, net		—		—		(233	)		—		(49	)		448			—			215
Restricted Stock Plan share issuance/forfeiture		—		—		(2,503	)		—		(124	)		1,274			—			(1,229	)
Acquisition share issuance		—		—		(418	)		—		(174	)		1,596			—			1,178
Acquisition stock option issuance		—		—		391			—		—			—			—			391
Equity-based compensation		—		—		1,869			—		—			—			—			1,869
Net income		—		—		—			5,382		—			—			—			5,382
Foreign currency adjustment		—		—		—			—		—			—			(7,824	)		(7,824	)
Pension loss adjustment, net of tax		—		—		—			—		—			—			1,468			1,468
Balances as of September 30, 2022		27,018	$	270	$	109,424		$	113,424		11,305		$	(103,804	)	$	(23,296	)	$	96,018

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 third quarter began on July 1, 2023 and ended on September 29, 2023. The 2022 third quarter began on July 2, 2022 and ended on September 30, 2022. There were 63 billable days in both the 2023 and 2022 third quarters, and 191 and 192 billable days in the 2023 and 2022 year-to-date 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.

Subsequent Event

Subsequent to the end of the 2023 third quarter on September 29, 2023, one of the Company’s former executives covered by one of the Company's life insurance policies passed away. The Company expects to receive approximately $1.3 million in non-taxable death benefit proceeds in the 2023 fourth quarter.

The Company has evaluated all subsequent events through the filing date of this Form 10-K with the SEC and there were no other subsequent events which required recognition, adjustment to or disclosure in the financial statements.

Acquisition of CTG by Cegeka

On August 9, 2023, the Company and the IT solutions provider Cegeka Groep nv (“Cegeka”), a company headquartered in Hasselt, Belgium, entered into a transaction for Cegeka to purchase all of the outstanding shares of CTG for $10.50 per share in cash, which represents an implied equity value for the Company of approximately $170 million. The closing of the transaction will be subject to customary conditions, including the expiration or termination of certain regulatory periods and the tender of shares representing at least two-thirds of CTG’s outstanding common stock in

a tender offer, as required by the merger approval requirements under applicable New York law. The transaction is expected to close later in 2023. Upon the successful completion of the tender offer, Cegeka’s acquisition subsidiary will be merged into CTG, and any remaining shares of common stock of CTG will be cancelled and converted into the right to receive the same $10.50 per share in cash. After closing, CTG will become a privately held company and shares of CTG common stock will no longer be listed on any public market.

Additional information related to the tender offer can be found within the Form 8-K filed by the Company on August 9, 2023, Cegeka's Tender Offer Statement on Schedule TO filed by Cegeka on August 23, 2023, the Company's Solicitation/Recommendation Statement on Schedule 14D-9 filed by the Company on August 23, 2023 and in future filings by the Company related to the tender offer.

The 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 typically encompass the IT business solution life cycle, including phases for planning, developing, implementing, managing, and ultimately maintaining the IT solution. These services ensure that the Company's clients utilize the right information technology to meet their business needs, maximize their IT systems’ value, and operate efficiently and effectively. A typical client is an organization with large, complex technology, information, and data processing requirements.

The segment revenue for the quarter and three quarters ended September 29, 2023 and September 30, 2022 was as follows:


For the Quarter Ended:											Year-over-Year
(amounts in thousands)	September 29, 2023					September 30, 2022					Change
North America IT Solutions and Services		35.4	%	$	25,217		27.1	%	$	20,340		24.0	%
Europe IT Solutions and Services		51.1	%		36,472		44.4	%		33,258		9.7	%
Non-Strategic Technology Services		13.5	%		9,602		28.5	%		21,404		(55.1	)%
Total		100.0	%	$	71,291		100.0	%	$	75,002		(4.9	)%


For the Three Quarters Ended:											Year-over-Year
(amounts in thousands)	September 29, 2023					September 30, 2022					Change
North America IT Solutions and Services		33.2	%	$	74,410		24.7	%	$	61,114		21.8	%
Europe IT Solutions and Services		51.3	%		114,958		45.7	%		112,896		1.8	%
Non-Strategic Technology Services		15.5	%		34,713		29.6	%		73,168		(52.6	)%
Total		100.0	%	$	224,081		100.0	%	$	247,178		(9.3	)%

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 three quarters ended September 29, 2023 and September 30, 2022 was as follows:


	For the Quarter Ended						For the Three Quarters Ended
	September 29, 2023			September 30, 2022			September 29, 2023			September 30, 2022
Healthcare		23.8	%		19.1	%		21.8	%		18.0	%
Financial services		15.1	%		15.1	%		16.4	%		15.6	%
Technology service providers		14.3	%		22.4	%		15.2	%		23.5	%
Manufacturing		13.5	%		16.9	%		14.6	%		15.2	%
Energy		6.6	%		5.7	%		6.5	%		5.8	%
General markets		26.7	%		20.8	%		25.5	%		21.9	%
Total		100.0	%		100.0	%		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 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 three quarters ended September 29, 2023 and September 30, 2022 was as follows:


	For the Quarter Ended						For the Three Quarters Ended
	September 29, 2023			September 30, 2022			September 29, 2023			September 30, 2022
Time-and-material		73.2	%		76.3	%		75.5	%		77.2	%
Progress billing		20.3	%		17.9	%		18.0	%		18.0	%
Percentage-of-completion		6.5	%		5.8	%		6.5	%		4.8	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

The Company recorded revenue in the quarter and three quarters ended September 29, 2023 and September 30, 2022 as follows:


For the Quarter Ended:	September 29, 2023					September 30, 2022					Year-over-Year Change
(amounts in thousands)
North America		48.5	%	$	34,605		55.3	%	$	41,500		(16.6	)%
Europe		51.5	%		36,686		44.7	%		33,502		9.5	%
Total		100.0	%	$	71,291		100.0	%	$	75,002		(4.9	)%


For the Three Quarters Ended:	September 29, 2023					September 30, 2022					Year-over-Year Change
(amounts in thousands)
North America		48.4	%	$	108,434		53.7	%	$	132,804		(18.4	)%
Europe		51.6	%		115,647		46.3	%		114,374		1.1	%
Total		100.0	%	$	224,081		100.0	%	$	247,178		(9.3	)%

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 September 29, 2023, the aggregate transaction price allocated to unsatisfied or partially unsatisfied performance obligations for fixed-price contracts was approximately $10.0 million. Approximately $4.7 million of the transaction price allocated to unsatisfied or partially unsatisfied performance obligations is expected to be earned in 2023, and approximately $5.3 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 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 September 29, 2023 and December 31, 2022, the carrying amounts of the Company’s cash of $24.1 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 September 29, 2023 was $3.1 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 80 years old. Those policies have generated cash surrender value and the Company has taken loans against the policies. At September 29, 2023, the insurance policies that have been borrowed against have a gross cash surrender value of $30.4 million, outstanding loans and interest totaling $26.6 million, and a net cash surrender value of $3.8 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 September 29, 2023 and December 31, 2022, the total death benefit for the remaining policies was approximately $37.9 million and $37.0 million, respectively. Currently, upon the death of all of the remaining plan participants, the Company would expect to receive approximately $11.1 million after the payment of obligations, and, under current tax regulations, record a non-taxable gain of approximately $7.2 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 September 29, 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.

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 zero and $7.7 million trade accounts receivable sold under the factoring agreement during the quarters ended September 29, 2023 and September 30, 2022, respectively. Total trade accounts receivable sold under the factoring agreement were approximately $12.4 million and $12.2 million in the year-to-date periods ended September 29, 2023 and September 30, 2022, respectively. Fees for the factoring arrangement were recorded in cost of services and were zero and $0.1 million in the quarter and year-to-date period ended September 29, 2023, respectively, and were less than $0.1 million in both the quarter and year-to-date periods ended September 30, 2022.

Property, Equipment and Capitalized Software Costs

Property, equipment and capitalized software at September 29, 2023 and December 31, 2022 were recorded as follows:


(amounts in thousands)	September 29, 2023			December 31, 2022
Property, equipment and capitalized software	$	16,600		$	15,086
Accumulated depreciation and amortization		(10,555	)		(10,025	)
Property, equipment and capitalized software, net	$	6,045		$	5,061

Depreciation expense for the Company totaled $0.6 million and $0.4 million in the quarters ended September 29, 2023 and September 30, 2022, respectively, and $1.5 million and $1.3 million in the year-to-date periods ended September 29, 2023, and September 30, 2022, respectively. The Company capitalizes software projects developed for commercial use. The change in the Company’s capitalized software cost balance during the quarter and three quarters ended September 29, 2023 and September 30, 2022 was as follows:


	For the Quarter Ended						For the Three Quarters Ended
(amounts in thousands)	September 29, 2023			September 30, 2022			September 29, 2023		September 30, 2022
Capitalized software, beginning balance	$	2,248		$	1,484		$	1,484	$	1,607
Additions		162			—			876		—
Foreign currency translation		(39	)		(83	)		11		(206	)
Capitalized software	$	2,371		$	1,401		$	2,371	$	1,401

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 three quarters ended September 29, 2023 and September 30, 2022 are as follows:


	For the Quarter Ended				For the Three Quarters Ended
(amounts in thousands)	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
Accumulated amortization, beginning balance	$	1,441	$	1,084	$	1,232	$	978
Amortization expense		103		27		312		133

COMPUTER TASK GROUP INC 10-Q