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 ~~June~~September 3029, 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		~~August~~November 32, 2023
Common stock, par value $.01 per share		16,~~044~~094,~~815~~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	3536
Item 4.	Controls and Procedures	3536
Part II Other Information
Item 1.	Legal Proceedings	3637
Item 1A.	Risk Factors	3638
Item 2.	Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds, and Issuer Purchases of Equity Securities	38
Item 3.	Defaults Upon Senior Securities	3938
Item 4.	Mine Safety Disclosures	3938
Item 5.	Other Information	3938
Item 6.	Exhibits	4039

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~~Three Quarters Ended
	June 30, 2023			July 1, 2022		June 30, 2023			July 1, 2022
	September 29, 2023			September 30, 2022		September 29, 2023			September 30, 2022
Revenue	$	7471,~~588~~291		$	8275,~~759~~002	$	~~152~~224,~~790~~081		$	~~172~~247,~~176~~178
Cost of services		5351,~~593~~824			6356,~~009~~773		~~111~~163,~~660~~484			~~131~~188,~~831~~604
Gross profit		2019,~~995~~467			1918,~~750~~229		4160,~~130~~597			4058,~~345~~574
Selling, general and administrative expenses		20,~~710~~071			1615,~~577~~976		4060,~~138~~209			3349,~~973~~949
Operating income		285			3,173		992			6,372
Operating income (loss)		(604	)		2,253		388			8,625
Interest and other income		7250			99133		~~200~~250			~~190~~323
Interest and other expense		~~436~~545			~~484~~525		~~794~~1,339			~~832~~1,357
Income (loss) before income taxes		(791,099	)		21,~~788~~861		~~398~~(701	)		57,~~730~~591
Provision for income taxes		51			748		213			1,450
Provision (benefit) for income taxes		(228	)		759		(15	)		2,209
Net income (loss)	$	(~~130~~871	)	$	21,~~040~~102	$	~~185~~(686	)	$	45,~~280~~382
Net income (loss) per share:
Basic	$	(0.0106	)	$	0.1408	$	(0.0105	)	$	0.3037
Diluted	$	(0.0106	)	$	0.1307	$	(0.0105	)	$	0.2836
Weighted average shares outstanding:
Basic		14,~~832~~903			14,~~419~~480		14,~~768~~813			14,~~309~~366
Diluted		14,~~832~~903			15,~~122~~157		1514,~~399~~813			15,~~050~~086

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~~Three Quarters Ended
	June 30, 2023			July 1, 2022			June 30, 2023			July 1, 2022
	September 29, 2023			September 30, 2022			September 29, 2023			September 30, 2022
Net income (loss)	$	(~~130~~871	)	$	21,~~040~~102		$	~~185~~(686	)	$	45,~~280~~382
Foreign currency translation adjustment		~~110~~(1,777	)		(3,~~238~~257	)		~~1,054~~(723	)		(47,~~567~~824	)
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
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 income (loss)		170			(2,658	)		1,158			(3,656	)
Other comprehensive loss		(1,602	)		(2,700	)		(444	)		(6,356	)
Comprehensive income (loss)	$	40		$	(618	)	$	1,343		$	624
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)

	June 30,			December 31,
	September 29,			December 31,
	2023			2022
Assets
Current Assets:
Cash and cash equivalents	$	1924,~~137~~069		$	25,140
Accounts receivable, net of allowances of $406 and $397 in 2023 and 2022, respectively		70,457			70,979
Accounts receivable, net of allowances of $421 and $397 in 2023 and 2022, respectively		64,433			70,979
Prepaid and other current assets		4,~~992~~930			3,769
Total current assets		94,586			99,888
Income taxes receivable		142			—
Property, equipment and capitalized software, net		5,725			5,061
Total current assets		93,574			99,888
Operating lease right-of-use assets		19,398			18,506
Property, equipment and capitalized software, net		6,045			5,061
Deferred income taxes		3,815			2,886
Operating lease right-of-use assets		19,478			18,506
Acquired intangibles, net		12,210			12,943
Deferred income taxes		4,386			2,886
Goodwill		36,245			35,998
Acquired intangibles, net		11,639			12,943
Cash surrender value of life insurance, net		4,202			4,120
Goodwill		35,487			35,998
Other assets		2,320			2,101
Cash surrender value of life insurance, net		4,822			4,120
Investments		155			116
Other assets		2,308			2,101
Total assets	$	178,656		$	181,619
Investments		174			116
Total assets	$	177,913		$	181,619
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	149,~~389~~661		$	14,254
Accrued compensation		1418,~~859~~521			19,016
Advance billings on contracts		4,~~030~~492			5,480
Short-term operating lease liabilities		56,~~584~~186			5,905
Other current liabilities		79,~~864~~674			7,066
Income taxes payable		68—			212
Total current liabilities		4648,~~794~~534			51,933
Long-term debt		—			—
Deferred compensation benefits		6,~~796~~720			6,424
Long-term operating lease liabilities		13,~~686~~412			12,466
Deferred income taxes		1,~~365~~226			1,482
Other long-term liabilities		2,~~262~~442			3,335
Total liabilities		7072,~~903~~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,~~250~~269			109,868
Retained earnings		~~114~~113,~~836~~965			114,651
Less: Treasury stock of 10,973,009 and 11,274,171 shares at cost, in 2023 and 2022, respectively		(100,455	)		(103,504	)
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		(1415,~~148~~750	)		(15,306	)
Total shareholders’ equity		~~107~~105,~~753~~579			105,979
Total liabilities and shareholders’ equity	$	~~178~~177,~~656~~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 Two Quarters Ended
	For the Three Quarters Ended
	June 30, 2023			July 1, 2022
	September 29, 2023			September 30, 2022
Cash flow from operating activities:
Net income	$	185		$	4,280
Net income (loss)	$	(686	)	$	5,382
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense		12,~~755~~750			12,~~400~~051
Equity-based compensation expense		~~867~~1,077			1,~~176~~869
Deferred income taxes		(1,~~090~~730	)		~~155~~(138	)
Deferred compensation benefits		~~528~~555			(97152	)
Loss on the sale of property and equipment		94			—
Changes in assets and liabilities that provide (use) cash, excluding the effects of acquisitions:
Accounts receivable		16,~~303~~247			411,~~256~~614
Prepaid and other current assets		(~~1,201~~923	)		(~~423~~395	)
Other long-term assets		(~~216~~213	)		(2241	)
Cash surrender value of life insurance		~~241~~(55	)		~~429~~525
Accounts payable		(~~447~~5,089	)		(710,~~203~~159	)
Accrued compensation		(~~4,473~~394	)		(~~3,023~~63	)
Income taxes payable / receivable		(~~147~~378	)		~~442~~1,189
Advance billings on contracts		(1,~~529~~026	)		~~455~~670
Other current liabilities		~~683~~3,536			~~1,005~~151
Other long-term liabilities		(~~1,073~~893	)		46
Net cash provided by (used in) operating activities		(4,605	)		2,834
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		(~~908~~1,288	)		(~~280~~479	)
Additions to capitalized software		(~~637~~1,207	)		—(285	)
Proceeds from sale of property & equipment		24			9
Premiums paid for life insurance		(~~323~~647	)		(~~450~~594	)
Net cash used in investing activities		(13,~~784~~056	)		(~~721~~17,917	)
Cash flow from financing activities:
Proceeds from long-term debt		1620,~~924~~653			—
Payments on long-term debt		(1620,~~924~~653	)		—
Proceeds from stock option plan exercises		84			215
Payment of contingent consideration		(913	)		—
Taxes remitted for shares withheld from equity-based compensation transactions		(628	)		(1,229	)
Proceeds from stock option plan exercises		174			215
Proceeds from Employee Stock Purchase Plan		108			84
Taxes remitted for shares withheld from equity-based compensation transactions		(629	)		(1,230	)
Change in cash overdraft, net		444			223
Proceeds from Employee Stock Purchase Plan		108			131
Net cash provided by (used in) financing activities		8			(707	)
Change in cash overdraft, net		474			—
Effect of exchange rates on cash and cash equivalents		378			(1,511	)
Net cash used in financing activities		(786	)		(884	)
Net decrease in cash and cash equivalents		(6,003	)		(105	)
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	$	1924,~~137~~069		$	3526,~~479~~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
(amounts in thousands)
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
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
(amounts in thousands)
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
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		—		—		(~~204~~331	)		—			(2450	)		~~288~~505			—			84174
Restricted stock plan share issuance/forfeiture		—		—		(3,~~251~~315	)		—			(~~262~~268	)		2,~~623~~686			—			(~~628~~629	)
Equity-based compensation		—		—		~~867~~1,077			—			—			—			—			~~867~~1,077
Net income		—		—		—			185			—			—			—			185
Net loss		—		—		—			(686	)		—			—			—			(686	)
Foreign currency adjustment		—		—		—			—			—			—			~~1,054~~(723	)		~~1,054~~(723	)
Pension loss adjustment, net of tax		—		—		—			—			—			—			~~104~~279			~~104~~279
Balances as of June 30, 2023		27,018	$	270	$	107,250		$	114,836			10,973		$	(100,455	)	$	(14,148	)	$	107,753
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		—		—		(312	)		—		(916	)		87143			—			84131
Stock Option Plan share issuance, net		—		—		(233	)		—		(49	)		448			—			215
Restricted Stock Plan share issuance/forfeiture		—		—		(2,~~380~~503	)		—		(~~111~~124	)		1,~~151~~274			—			(1,229	)
Equity-based compensation		—		—		1,176			—		—			—			—			1,176
Acquisition share issuance		—		—		(418	)		—		(174	)		1,596			—			1,178
Net income		—		—		—			4,280		—			—			—			4,280
Acquisition stock option issuance		—		—		391			—		—			—			—			391
Foreign currency adjustment		—		—		—			—		—			—			(4,567	)		(4,567	)
Equity-based compensation		—		—		1,869			—		—			—			—			1,869
Pension loss adjustment, net of tax		—		—		—			—		—			—			911			911
Net income		—		—		—			5,382		—			—			—			5,382
Balances as of July 1, 2022		27,018	$	270	$	108,890		$	112,322		11,499		$	(105,579	)	$	(20,596	)	$	95,307
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 ~~second~~third quarter began on ~~April~~July 1, 2023 and ended on ~~June~~September 3029, 2023. The 2022 ~~second~~third quarter began on ~~April~~July 2, 2022 and ended on ~~July~~September 130, 2022. There were 6463 billable days in both the 2023 and 2022 ~~second~~third quarters, and ~~128~~191 and ~~129~~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 ~~On August 9, 2023, subsequent~~ to the end of the ~~fiscal~~2023 ~~second~~third quarter on ~~June~~September 3029, 2023, ~~the~~one ~~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~~former ~~common~~executives ~~stock~~covered ~~in a tender offer, as required~~ by ~~the~~one ~~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’~~Company's ~~acquisition~~life ~~subsidiary~~insurance ~~will~~policies bepassed ~~merged~~away. ~~into~~The ~~CTG,~~Company ~~and~~expects ~~any remaining shares of common stock of CTG will be cancelled and converted into the right~~ to receive ~~the~~approximately ~~same~~ $101.503 ~~per~~million ~~share~~ in ~~cash.~~non-taxable ~~After~~death ~~closing,~~benefit ~~CTG~~proceeds ~~will~~in ~~become~~the a2023 ~~privately~~fourth ~~held company and shares of CTG common stock will no longer be listed on any public market~~quarter.

The Company ~~operates~~has inevaluated ~~three~~all ~~segments~~subsequent ~~within~~events ~~its~~through ~~business,~~the ~~North~~filing ~~America~~date ITof ~~Solutions~~this ~~and~~Form ~~Services,~~10-K ~~Europe~~with ITthe ~~Solutions~~SEC and ~~Services,~~there ~~and~~were ~~Non-Strategic~~no ~~Technology~~other ~~Services.~~subsequent ~~The~~events ~~Company~~which ~~provides~~required ~~information~~recognition, ~~and~~adjustment ~~technology-related services~~ to ~~its~~or ~~clients.~~disclosure ~~CTG~~in ~~provides these services to all of~~ the ~~markets~~financial ~~that it serves~~statements. ~~The services provided~~

Acquisition of CTG by Cegeka

~~typically~~a ~~encompass~~tender ~~the~~offer, ITas ~~business~~required ~~solution~~by ~~life~~the ~~cycle,~~merger ~~including~~approval ~~phases~~requirements ~~for~~under ~~planning,~~applicable ~~developing,~~New ~~implementing,~~York ~~managing,~~law. ~~and~~The ~~ultimately~~transaction ~~maintaining~~is ~~the~~expected ITto ~~solution.~~close ~~These~~later ~~services~~in ~~ensure~~2023. ~~that~~Upon the ~~Company's~~successful ~~clients~~completion ~~utilize~~of the ~~right~~tender ~~information~~offer, ~~technology~~Cegeka’s toacquisition ~~meet~~subsidiary ~~their~~will ~~business~~be ~~needs~~merged into CTG, ~~maximize~~and ~~their~~any ITremaining ~~systems’~~shares ~~value,~~of ~~and~~common ~~operate~~stock ~~efficiently~~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.

~~The~~Additional ~~segment~~information ~~revenue~~related ~~for~~to the ~~quarter~~tender ~~and~~offer ~~two~~can ~~quarters~~be ~~ended~~found ~~June~~within 30the Form 8-K filed by the Company on August 9, 2023, ~~and~~Cegeka's ~~July~~Tender 1Offer Statement on Schedule TO filed by Cegeka on August 23, ~~2022~~2023, ~~was~~the asCompany's ~~follows:~~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.

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	)%

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.

For the Two Quarters Ended:											Year-over-Year
(amounts in thousands)	June 30, 2023					July 1, 2022					Change
North America IT Solutions and Services		32.2	%	$	49,193		23.7	%	$	40,773		20.7	%
Europe IT Solutions and Services		51.4	%		78,486		46.2	%		79,638		(1.4	)%
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 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 ~~two~~three quarters ended ~~June~~September 3029, 2023 and ~~July~~September 130, 2022 was as follows:

	For the Quarter Ended						For the ~~Two~~Three Quarters Ended
	June 30, 2023			July 1, 2022			June 30, 2023			July 1, 2022
	September 29, 2023			September 30, 2022			September 29, 2023			September 30, 2022
Healthcare		23.48	%		1719.61	%		2021.98	%		1718.50	%
Financial services		1615.71	%		15.31	%		1716.14	%		15.86	%
Technology service providers		14.83	%		2422.24	%		15.52	%		23.95	%
Manufacturing		13.75	%		1516.29	%		1514.16	%		1415.52	%
Energy		6.56	%		65.67	%		6.45	%		5.98	%
General markets		2426.97	%		2120.18	%		25.05	%		2221.49	%
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.~~Revenue 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. Recognition

The Company’s recognizes revenue ~~from~~when ~~contracts~~control ~~accounted~~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 ~~under~~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 ~~methods~~calculation asof 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 ~~consolidated~~the ~~revenue~~total ~~for~~labor costs it expects to incur over the ~~quarter~~term of the contract is based on the nature of the project and ~~two~~the ~~quarters~~Company's ~~ended~~experience ~~June~~on 30similar projects, ~~2023~~and includes management judgments and ~~July~~estimates 1,that ~~2022~~affect ~~was~~the asamount ~~follows:~~of revenue recognized on fixed-price contracts in any accounting period. Losses on fixed-price projects are recorded when identified.

	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’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:

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

For the Quarter Ended:	June 30, 2023					July 1, 2022					Year-over-YearChange
(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	)%

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

For the Two Quarters Ended:	June 30, 2023					July 1, 2022					Year-over-YearChange
For the Quarter Ended:	September 29, 2023					September 30, 2022					Year-over-YearChange
(amounts in thousands)
North America		48.35	%	$	7334,~~829~~605		5355.03	%	$	9141,~~304~~500		(1916.16	)%
Europe		51.75	%		7836,~~961~~686		4744.07	%		8033,~~872~~502		(29.45	)%
Total		100.0	%	$	~~152~~71,~~790~~291		100.0	%	$	~~172~~75,~~176~~002		(114.39	)%


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 ~~June~~September 3029, 2023, the aggregate transaction price allocated to unsatisfied or partially unsatisfied performance obligations for fixed-price contracts was approximately $610.80 million. Approximately $64.67 million of the transaction price allocated to unsatisfied or partially unsatisfied performance obligations is expected to be earned in 2023, and approximately $05.23 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 ~~June~~September 3029, 2023 and December 31, 2022, the carrying amounts of the Company’s cash of $1924.1 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 ~~June~~September 3029, 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 June 30, 2023, the insurance policies that have been borrowed against have a gross cash surrender value of $30.1 million, outstanding loans and interest totaling $26.8 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 June 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~~Life ~~would~~Insurance ~~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.~~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 ~~June~~September 3029, 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 $27.07 million ~~and zero~~ trade accounts receivable sold under the factoring agreement during the quarters ended ~~June~~September 3029, 2023 and ~~July~~September 130, 2022, respectively. Total trade accounts receivable sold under the factoring agreement were approximately $12.4 million and $412.52 million in the year-to-date periods ended ~~June~~September 3029, 2023 and ~~July~~September 130, 2022, respectively. Fees for the factoring arrangement were recorded in cost of services and were ~~less~~zero ~~than $0.1 million~~ and $0.1 million in the quarter and year-to-date period ended ~~June~~September 3029, 2023, respectively, and were ~~zero and~~ less than $0.1 million in both the quarter and year-to-date ~~period~~periods ended ~~July~~September 130, 2022~~, respectively~~.

Property, Equipment and Capitalized Software Costs

Property, equipment and capitalized software at ~~June~~September 3029, 2023 and December 31, 2022 were recorded as follows:

(amounts in thousands)	~~June~~September 3029, 2023			December 31, 2022
Property, equipment and capitalized software	$	16,~~243~~600		$	15,086
Accumulated depreciation and amortization		(10,~~518~~555	)		(10,025	)
Property, equipment and capitalized software, net	$	56,~~725~~045		$	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 June 30, 2023 and July 1, 2022 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, beginning balance	$	1,508	$	1,573		$	1,484	$	1,607
Additions		714		—			714		—
Foreign currency translation		26		(89	)		50		(123	)
Capitalized software	$	2,248	$	1,484		$	2,248	$	1,484

~~Capitalized~~Depreciation ~~software~~expense ~~amortization~~for ~~periods~~the ~~range~~Company ~~from~~totaled ~~three~~$0.6 tomillion ~~five~~and ~~years~~$0.4 million in the quarters ended September 29, 2023 and ~~are~~September ~~evaluated~~30, ~~periodically~~2022, ~~for~~respectively, ~~propriety~~and $1.5 ~~Amortization~~million ~~expense~~and $1.3 million in the year-to-date periods ended September 29, 2023, and ~~accumulated~~September ~~amortization~~30, ~~for~~2022, ~~these~~respectively. The Company capitalizes software projects developed for commercial use. The change in the Company’s capitalized software cost balance during the quarter and ~~two~~three quarters ended ~~June~~September 3029, 2023 and ~~July~~September 130, 2022 ~~are~~was as follows:

	For the Quarter Ended						For the ~~Two~~Three Quarters Ended
(amounts in thousands)	~~June~~September 3029, 2023			~~July~~September 130, 2022			~~June~~September 3029, 2023		~~July~~September 130, 2022
Accumulated amortization, beginning balance	$	1,315		$	1,050		$	1,232	$	978
Capitalized software, beginning balance	$	2,248		$	1,484		$	1,484	$	1,607
Amortization expense		126			34			209		106
Additions		162			—			876		—
Accumulated amortization	$	1,441		$	1,084		$	1,441	$	1,084
Foreign currency translation		(39	)		(83	)		11		(206	)
Capitalized software	$	2,371		$	1,401		$	2,371	$	1,401

~~During~~Capitalized ~~the~~software ~~quarter~~amortization ~~and~~periods ~~two~~range ~~quarters~~from ~~ended~~three ~~June~~to 30five years, ~~2023~~and are evaluated periodically for propriety. Amortization expense and ~~July~~accumulated 1,amortization ~~2022,~~for these projects for the ~~Company's~~quarter ~~change~~and inthree ~~work-in-progress~~quarters ~~costs~~ended ~~related~~September to29, ~~software~~2023 ~~projects~~and ~~being~~September ~~developed~~30, ~~was~~2022 are as follows:

	For the Quarter Ended					For the ~~Two~~Three Quarters Ended
(amounts in thousands)	~~June~~September 3029, 2023			~~July~~September 130, 2022		~~June~~September 3029, 2023			~~July~~September 130, 2022
Capitalized software, work-in-progress, beginning balance	$	714		$	—	$	473		$	—
Accumulated amortization, beginning balance	$	1,441		$	1,084	$	1,232		$	978
Additions		396			—		637			—
Amortization expense		103			27		312			133
Placed into service		(714	)		—		(714	)		—
Accumulated amortization	$	1,544		$	1,111	$	1,544		$	1,111
Capitalized software, work-in-progress, ending balance	$	396		$	—	$	396		$	—

During the quarter and three quarters ended September 29, 2023 and September 30, 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 Three Quarters Ended
(amounts in thousands)	September 29, 2023			September 30, 2022		September 29, 2023			September 30, 2022
Capitalized software, work-in-progress, beginning balance	$	396		$	—	$	473		$	—
Additions		570			—		1,207			—
Placed into service		(162	)		—		(876	)		—
Capitalized software, work-in-progress, ending balance	$	804		$	—	$	804		$	—

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 $1.4 million and $3.0 million at ~~June~~September 3029, 2023 and December 31, 2022, respectively, and have expiration dates ranging from ~~July~~September 2023 through October 2034.

Goodwill

The goodwill recorded on the Company's condensed consolidated balance sheet at ~~June~~September 3029, 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~~three quarters ended ~~June~~September 3029, 2023 and ~~July~~September 130, 2022.

The changes in the carrying amount of goodwill for the ~~two~~three quarters ended ~~June~~September 3029, 2023 are as follows:

(amounts in thousands)
Balance at December 31, 2022	$	35,998
Working capital adjustment - acquisitions		(82	)
Foreign currency translation		~~329~~(429	)
Balance at June 30, 2023	$	36,245
Balance at September 29, 2023	$	35,487

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		17,245
Total goodwill	$	36,245	$	35,998

The Company's goodwill by segment at September 29, 2023 and December 31, 2022 was as follows:


(amounts in thousands)	September 29, 2023		December 31, 2022
North America IT Solutions and Services	$	18,429	$	18,753
Europe IT Solutions and Services		17,058		17,245
Total goodwill	$	35,487	$	35,998

Acquired Intangible Assets

Acquired intangible assets at ~~June~~September 3029, 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,~~404~~365	)	$	(~~128~~167	)	$	—
Technology	10 years		1,141		(~~234~~257	)		(1328	)		~~894~~856
Customer relationships	7-13 years		17,196		(45,~~886~~158	)		(~~994~~1,255	)		1110,~~316~~783
Total		$	19,869	$	(6,~~524~~780	)	$	(1,~~135~~450	)	$	1211,~~210~~639

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

Amortization expense for the Company's acquired intangibles was $0.5 million and $0.2 million in the quarters ended September 29, 2023 and September 30, 2022, respectively, and $1.3 million and $0.7 million in the year-to-date periods ended September 29, 2023, and September 30, 2022, respectively.

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)	$	~~854~~420
2024		1,~~709~~682
2025		1,~~709~~682
2026		1,~~709~~682
2027		1,~~300~~284
2028		1,~~218~~205
Thereafter		3,~~711~~684
Total	$	1211,~~210~~639

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 has not 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 discontinued reference rate during the transition period.

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 $3.1 million as of ~~June~~September 3029, 2023. Approximately $1.6 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 ~~June~~September 3029, 2023. The Company made a payment of $0.9 million related 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

The 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:

(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 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		1,375
Prepaids and other current assets		219
Property and equipment, net		437
Taxes receivable		48
Acquired intangibles		7,250
Goodwill		17,111
Total assets acquired	$	27,195

Liabilities Assumed:
Accounts payable	$	262
Short-term debt		601
Accrued compensation		355
Long-term debt		982
Deferred compensation benefits		324
Deferred tax liability		1,802
Total liabilities assumed	$	4,326
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 $0.34 million and $01.71 million in the quarter and year-to-date period ended ~~June~~September 3029, 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 ~~the preliminary~~ purchase ~~accounting~~price allocation for ~~intangible~~this ~~assets~~acquisition ~~has~~was ~~not yet been~~ finalized asin ofthe ~~June~~2023 ~~30,~~third ~~2023~~quarter.

Net Income (Loss) Per Share

Basic and diluted earnings per share (EPS) for the quarter and ~~two~~three quarters ended ~~June~~September 3029, 2023 and ~~July~~September 130, 2022 were as follows:

	For the Quarter Ended					For the ~~Two~~Three Quarters Ended
(amounts in thousands, except per-share data)	~~June~~September 3029, 2023			~~July~~September 130, 2022		~~June~~September 3029, 2023			~~July~~September 130, 2022
Weighted-average number of shares outstanding during period		14,~~832~~903			14,~~419~~480		14,~~768~~813			14,~~309~~366
Common stock equivalents from incremental shares under equity-based compensation plans		—			~~703~~677		~~631~~—			~~741~~720
Number of shares on which diluted earnings per share is based		14,~~832~~903			15,~~122~~157		1514,~~399~~813			15,~~050~~086
Net income (loss)	$	(~~130~~871	)	$	21,~~040~~102	$	~~185~~(686	)	$	45,~~280~~382
Net income (loss) per share
Basic	$	(0.0106	)	$	0.1408	$	(0.0105	)	$	0.3037
Diluted	$	(0.0106	)	$	0.1307	$	(0.0105	)	$	0.2836

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

For the quarter and year-to-date period ended ~~June~~September 3029, 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 1.0 ~~million and 0~~.6 million shares of common stock were outstanding at ~~June~~both 30September 29, 2023 and ~~July~~September 130, 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~~three quarters ended ~~June~~September 3029, 2023 and ~~July~~September 130, 2022 were as follows:

For the Quarter Ended

For the ~~Two~~Three Quarters Ended

(amounts in thousands)

~~June~~September 3029, 2023

~~July~~September 130, 2022

~~June~~September 3029, 2023

~~July~~September 130, 2022

Operating lease costs

1,~~835~~870

1,~~625~~620

35,~~650~~520

35,~~447~~067

Variable lease costs

~~108~~111

8479

~~212~~323

~~173~~252

Short-term lease costs

~~135~~109

~~111~~98

~~259~~368

~~212~~310

~~Maturities for the Company’s lease liabilities for all operating leases as of June 30, 2023 are as follows:~~16

	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

Maturities for the Company’s lease liabilities for all operating leases as of September 29, 2023 are as follows:

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:


	Total
Year	Operating Leases
(amounts in thousands)
2023 (remaining)	$	1,758
2024		5,745
2025		4,264
2026		3,060
2027		1,858
2028 & thereafter		4,135
Total undiscounted operating lease payments		20,820
Less: Interest		(1,222	)
Total present value of operating lease liabilities	$	19,598

	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	%

The weighted average remaining lease terms and discount rates for all operating leases as of September 29, 2023 and September 30, 2022 were as follows:


	September 29, 2023			September 30, 2022
Weighted average remaining lease term (years)		5.24			5.63
Weighted average remaining discount rate		2.71	%		3.12	%

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

(amounts in thousands)	~~June~~September 3029, 2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflow from operating leases	$	35,~~650~~520
Right-of-use assets obtained in exchange for new operating lease liabilities		25,~~127~~276

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~~ceased ~~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.

16At both September 29, 2023 and December 31, 2022, there were no amounts outstanding under the Credit Agreement. The Company borrows or repays its debts as needed based upon its working capital obligations, including the timing of the U.S. bi-weekly payroll.

AtThe ~~both~~maximum ~~June~~amounts ~~30,~~outstanding ~~2023~~under ~~and~~the ~~December~~Credit ~~31,~~Agreement in the 2023 and 2022, ~~there~~third quarters were ~~zero~~$2.6 ~~outstanding~~million ~~under~~and ~~the~~zero, ~~Credit~~respectively, ~~Agreement.~~while ~~The~~borrowing ~~Company~~during ~~borrows~~those orquarters ~~repays~~averaged ~~its~~$0.2 ~~debts~~million asand ~~needed~~zero, ~~based~~respectively. ~~upon~~The ~~its~~weighted ~~working~~average ~~capital~~interest ~~obligations,~~rate ~~including~~for the ~~timing~~2023 ofthird ~~the~~quarter ~~U.S.~~borrowings ~~bi-weekly~~was ~~payroll~~8.9%.

~~The~~Under ~~maximum~~the ~~amounts~~Credit ~~outstanding~~Agreement, ~~under~~ the ~~Credit~~Company ~~Agreement~~is required to meet one financial covenant in ~~the~~order ~~2023~~to ~~and~~maintain ~~2022~~borrowings ~~second~~under ~~quarters~~its ~~were~~revolving $3credit line, pay dividends, and make acquisitions.6 ~~million~~The covenant is measured quarterly, and ~~zero~~at September 29, ~~respectively~~2023 represented a fixed charge coverage ratio, ~~while~~where ~~borrowing~~for ~~during~~the ~~those~~trailing ~~quarters~~twelve ~~averaged~~months $0the consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) adjusted for, amongst other items, equity-based compensation and severance expenses, must be greater than 1.60 ~~million~~times the consolidated interest expense paid in cash and ~~zero~~any scheduled principal payments. The ~~weighted~~fixed ~~average~~charge ~~interest~~coverage ~~rate~~ratio ~~for~~is only tested if availability, subject to a maximum of the ~~2023~~commitment ~~second~~of ~~quarter~~$50.0 ~~borrowings~~million, ~~was~~on 8the 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

Under the Credit Agreement, the Company is required to meet one financial covenant in order to maintain borrowings under its revolving credit line, pay dividends, and make acquisitions. The covenant is measured quarterly, and at 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, 2022.17

~~Eleviant~~based ~~has~~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 ~~revolving~~factoring ~~credit~~arrangement ~~facility~~for ~~totaling~~those receivables. Total availability as of September 29, 2023 was approximately $136.31 million. The Company’s ~~did~~compliance with its financial covenant was not ~~have~~required ~~any~~to ~~amount~~be ~~outstanding~~tested ~~under~~at ~~this~~September ~~line~~29, 2023 as the availability under the Credit Agreement was in excess of ~~June~~12.5% ~~30,~~of ~~2023~~the total loan availability. The ~~interest~~Company ~~rate~~was onalso ~~borrowings~~in ~~when~~compliance ~~made~~with isits 8applicable covenants at September 30, 2022.~~75%.~~

Eleviant has a revolving credit facility totaling $1.3 million. The Company did not have any amount outstanding under this line as of September 29, 2023. The interest rate on borrowings when made is 9.0%.

Accumulated Other Comprehensive Loss

The components that make up accumulated other comprehensive loss on the condensed consolidated balance sheets at ~~June~~September 3029, 2023 and December 31, 2022 are as follows:

(amounts in thousands)	~~June~~September 3029, 2023			December 31, 2022
Foreign currency translation adjustment	$	(911,~~939~~716	)	$	(10,993	)
Pension loss, net of tax of $715 in 2023 and $755 in 2022		(4,209	)		(4,313	)
Pension loss, net of tax of $679 in 2023 and $755 in 2022		(4,034	)		(4,313	)
Accumulated other comprehensive loss	$	(1415,~~148~~750	)	$	(15,306	)

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

	For the Quarter Ended						For the ~~Two~~Three Quarters Ended
(amounts in thousands)	~~June~~September 3029, 2023			~~July~~September 130, 2022			~~June~~September 3029, 2023			~~July~~September 130, 2022
Amortization of actuarial losses	$	107		$	~~125~~119		$	~~213~~320		$	~~255~~374
Income tax		(24	)		(2120	)		(4872	)		(4262	)
Net of tax	$	83		$	~~104~~99		$	~~165~~248		$	~~213~~312

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 ETR was ~~higher~~lower in the 2023 ~~second~~third quarter and year-to-date periods as compared with the corresponding 2022 periods primarily due to ~~the~~tax ~~increased~~benefits ~~losses~~from of the ~~Company's~~Research ~~foreign~~and ~~subsidiaries~~Development ~~for which no~~ tax ~~benefit~~credit ~~can be recorded due to valuation allowances~~(R&D).

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~~three quarters ended ~~June~~September 3029, 2023 and ~~July~~September 130, 2022 for the plans is as follows:

For the Quarter Ended

For the ~~Two~~Three Quarters Ended

(amounts in thousands)

~~June~~September 3029, 2023

~~July~~September 130, 2022

~~June~~September 3029, 2023

~~July~~September 130, 2022

Service cost

~~113~~96

~~104~~97

~~191~~287

~~213~~310

Interest cost

~~252~~245

8482

~~487~~732

~~173~~255

Expected return on assets

(169

)

(~~162~~153

)

(~~336~~505

)

(~~332~~485

)

Amortization of actuarial loss

~~106~~107

~~126~~121

~~212~~319

~~257~~378

Net periodic pension cost

~~302~~279

~~152~~147

~~554~~833

~~311~~458

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 ~~second~~third quarter and year-to-date period, the Company made benefit payments totaling $0.1 million and $0.23 million, respectively, and expects to make payments in 2023 totaling approximately $0.5 million. The Company made benefit payments totaling ~~approximately~~less than $0.21 million and $0.3 million in the 2022 ~~second~~third 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.

18The BDBP is considered fully funded. The Company made contributions of $0.2 million in both the 2023 and 2022 third quarters, and $0.6 million and $0.5 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 third quarters, and expects to make payments in 2023 totaling $0.1 million.

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 employees from Europe and India. Company contributions charged to operations were $0.1 million in both the 2023 and 2022 second quarters, and $0.2 million in both the year-to-date periods ended June 30, 2023 and July 1, 2022.

The 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:

	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

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 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 second quarters, and less than $0.1 million during both the 2023 and 2022 year-to-date periods. The remaining contributions deposited in the directors’ accounts in the 2023 and 2022 second quarter and year-to-date periods 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 second quarter and year-to-date period, the Company granted restricted stock totaling 139,315 and 290,871 shares, respectively. All grants in 2023 and 2022 were funded out of treasury stock.

~~Director~~The ~~Board~~Company ~~fees~~maintains ~~are~~various ~~paid~~other indefined ~~part~~contribution ~~with~~retirement ~~quarterly~~plans ~~grants~~covering ofemployees ~~stock~~from ~~units.~~Europe Ofand ~~the~~India. ~~total~~Company ~~shares~~contributions ~~granted~~charged ~~during the 2023 second quarter and year-~~to~~-date~~ ~~period,~~operations ~~15,260 and 29,775 shares represented restricted stock units that~~ were ~~granted to Board members, respectively~~$0.1 ~~The~~million ~~shares~~in ~~vest~~both ~~over~~ the ~~quarter~~2023 inand ~~which~~2022 ~~they~~third ~~were~~quarters, ~~granted~~ and ~~the Company is expensing these grants as such~~$0.3 ~~Grants~~million ofin ~~similar~~both ~~units~~the year-to-date ~~the~~periods ~~Board~~ended ~~members~~September ~~totaled 12~~29,~~200~~ ~~and~~2023 ~~24,535 shares of restricted stock units in the 2022 second quarter~~ and ~~year-to-date~~September ~~period~~30, ~~respectively~~2022.

OfThe ~~the~~change ~~shares granted~~ in the ~~2023~~fair ~~first~~value ~~quarter, 198,507 shares were granted to senior management,~~ of ~~which~~plan ~~132,340~~assets ~~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~~the ~~earnings~~plans ~~per share is met~~ for the three~~-year~~ ~~period~~quarters ended ~~December~~September 3129, ~~2025.~~2023 Ifand atSeptember ~~least 80% of the three-year EPS target is not met~~30, ~~the grants will expire. Of the shares granted during~~ 2022 ~~first~~was ~~quarter,~~as 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. follows:

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.


	For the Three Quarters Ended
(amounts in thousands)	September 29, 2023			September 30, 2022
Fair value of plan assets at beginning of period	$	19,723		$	19,978
Return on plan assets		505			485
Contributions		1,057			858
Benefits paid		(679	)		(686	)
Effect of exchange rate changes		(232	)		(2,765	)
Fair value of plan assets at end of quarter	$	20,374		$	17,870

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 third 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 third quarter or year-to-date periods.

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 third quarters, and $0.1 million during both the 2023 and 2022 year-to-date periods. The remaining contributions deposited in the directors’ accounts in the 2023 and 2022 third quarter and year-to-date periods 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.

10.

Equity-based Compensation

During the 2023 third quarter and year-to-date period, the Company granted restricted stock totaling 10,910 and 409,300 shares, respectively. During the 2022 third quarter and year-to-date period, the Company granted restricted stock totaling 13,835 and 304,706 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 third quarter and year-to-date period, 10,910 and 40,685 shares represented restricted stock units that were granted to Board members, respectively. 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 13,835 and 38,370 shares of restricted stock units in the 2022 third quarter and year-to-date period, respectively.

Of the shares granted in the 2023 year-to-date period, 198,507 shares were granted 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 three-year 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 year-to-date period, 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 third 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~~year-to-date ~~quarter~~period 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~~year-to-date ~~quarter~~period 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.

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 ~~second~~third quarter or year-to-date periods. As of ~~June~~September 3029, 2023 and ~~July~~September 130, 2022, the Company had approximately $7.7 million left in its current stock repurchase authorization.

The Company issued ~~208~~60,~~158~~731 and ~~452~~513,~~760~~491 shares during the 2023 ~~second~~third 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.

The Company issued ~~177~~187,~~935~~637 and ~~349~~537,~~491~~128 shares during the 2022 ~~second~~third quarter and year-to-date period, respectively, of which 173,802 shares were issued as part of the acquisition of Eleviant, while the remaining shares were issued to fulfill the requirements from the grant of restricted shares or units and the exercise of stock options.

12.

Significant Clients

In the 2023 ~~second~~third quarter, International Business Machines Corporation (IBM) was the Company’s largest client and accounted for $65.6 million or 87.8% of consolidated revenue compared with $1513.97 million or 1918.2% of consolidated revenue in the comparable 2022 period. In the 2023 year-to-date period, IBM accounted for $1420.84 million or 9.71% of consolidated revenue, compared with $3246.41 million or 18.87% of consolidated revenue in the comparable 2022 period. The National Technical Services Agreement with IBM ~~expires~~was renewed on October 27, 2023 and now expires October 31, 2026, with generally the same terms and conditions as the previous year. The Company’s accounts receivable from IBM at ~~June~~September 3029, 2023 and December 31, 2022 totaled $9.24 million and $14.0 million, respectively.

No other client accounted for 10% or more of the Company's revenue during the 2023 or 2022 ~~second~~third 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.

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.

21The operating results for the Company’s segments for the quarter and three quarters ended September 29, 2023 and September 30, 2022 were as follows:

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 September 29, 2023	North America IT		Europe IT		Non-Strategic
(amounts in thousands)	Solutions & Services		Solutions & Services		Technology Services		Total
Revenue	$	25,217	$	36,472	$	9,602
Direct costs		15,548		27,925		8,351
Gross profit		9,669		8,547		1,251
Sales, solutions, delivery, and recruiting expenses		4,528		4,649		307
Contribution profit	$	5,141	$	3,898	$	944		9,983
General and administrative expenses								10,587
Operating income							$	(604	)

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.


Quarter Ended September 30, 2022	North America IT		Europe IT		Non-Strategic
(amounts in thousands)	Solutions & Services		Solutions & Services		Technology Services		Total
Revenue	$	20,340	$	33,258	$	21,404
Direct costs		12,617		25,388		18,768
Gross profit		7,723		7,870		2,636
Sales, solutions, delivery, and recruiting expenses		3,594		4,406		575
Contribution profit	$	4,129	$	3,464	$	2,061		9,654
General and administrative expenses								7,401
Operating income							$	2,253


Three Quarters Ended September 29, 2023	North America IT		Europe IT		Non-Strategic
(amounts in thousands)	Solutions & Services		Solutions & Services		Technology Services		Total
Revenue	$	74,410	$	114,958	$	34,713
Direct costs		45,245		87,844		30,395
Gross profit		29,165		27,114		4,318
Sales, solutions, delivery, and recruiting expenses		14,040		14,989		1,043
Contribution profit	$	15,125	$	12,125	$	3,275		30,525
General and administrative expenses								30,137
Operating income							$	388


Three Quarters Ended September 30, 2022	North America IT		Europe IT		Non-Strategic
(amounts in thousands)	Solutions & Services		Solutions & Services		Technology Services		Total
Revenue	$	61,114	$	112,896	$	73,168
Direct costs		39,450		84,964		64,190
Gross profit		21,664		27,932		8,978
Sales, solutions, delivery, and recruiting expenses		10,256		14,490		2,086
Contribution profit	$	11,408	$	13,442	$	6,892		31,742
General and administrative expenses								23,117
Operating income							$	8,625

Depreciation allocated to Europe IT Solutions and Services totaled $0.1 million and $0.2 million in the quarters ended September 29, 2023 and September 30, 2022, respectively, and $0.4 million and $0.5 million in the 2023 and 2022 year-to-date periods, respectively. Depreciation allocated to North America IT Solutions and Services totaled $0.2 million and $0.1 million in the quarters ended September 29, 2023 and September 30, 2022, respectively, and $0.5 million and $0.3 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 September 29, 2023 and September 30, 2022, respectively, and less than $0.1 million in both of the 2023 and 2022 year-to-date periods, respectively.

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 ~~June~~September 3029, 2023 and December 31, 2022 was as follows:

(amounts in thousands)	~~June~~September 3029, 2023		December 31, 2022
North America IT Solutions and Services	$	18,~~700~~429	$	18,753
Europe IT Solutions and Services		17,~~545~~058		17,245
Total goodwill	$	3635,~~245~~487	$	35,998

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This quarterly report on Form 10-Q contains forward-looking information and statements made by the management of Computer Task Group, Incorporated (“CTG”, the “Company” or the “Registrant”) that are based on the beliefs of management as well as assumptions made by, and information currently available to, the Company, and are subject to a number of risks and uncertainties. Further, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate, including statements regarding the proposed acquisition of CTG by Cegeka (the "Proposed Acquisition". These forward-looking statements are current only as of the date of this quarterly report. The Company assumes no obligation to update these statements based on information from and after the date of this report. Generally, forward-looking statements include words or phrases such as “anticipates,” “believes,” “expects,” “might,” “plans,” “may,” “will,” “would,” “should,” “could,” “seeks,” “estimates,”, “project,” “predict,” “potential,” “currently,” “continue,” “intends,” “outlook,” “forecasts,” “targets,” and words and phrases of similar impact. The forward-looking statements include, but are not limited to, statements regarding future operations, industry trends or conditions and the business environment, and statements regarding future levels of or trends in business strategy and expectations, new business opportunities, cost control initiatives, business wins, market demand, revenue, operating expenses, capital expenditures, and financing. The forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Numerous factors and risks could cause actual results to differ materially from those in the forward-looking statements, including the following:

•

the ability of the parties to satisfy the closing conditions for the Proposed Acquisition on a timely basis or at all, including the possibility that a governmental agency may prohibit, delay, or refuse to grant approval for the consummation of the Proposed Acquisition

•

statements about the expected timetable for completing the Proposed Acquisition

•

uncertainties as to how many of CTG's shareholders will tender their shares in the offer

•

the possibility that competing offers will be made; the occurrence of events that may give rise to a right of one or both of Cegeka and CTG to terminate the merger agreement

•

negative effects of the announcement of the Proposed Acquisition on the market price of CTG's common stock and/or on it business, financial condition, results of operations, and financial performance (including the ability of CTG to maintain relationships with its customers, suppliers, and others with whom it does business)

•

the effects of the Proposed Acquisition (or the announcement thereof) on CTG's ability to retain and hire qualified professional staff and talent, including technical, sales and
management personnel

•

the availability to CTG of qualified professional staff

•

competition for clients and talent, including technical, sales and management personnel

•

increased bargaining power of large clients

•

the occurrence of cyber incidents and the Company's ability to protect confidential client data

•

the partial or complete loss of the revenue the Company generates from its largest client, International Business Machines Corporation (IBM)

•

the uncertainty of clients' implementations of cost reduction projects

•

the mix of work between IT Solutions and Services and Non-Strategic Technology Services, and the risk of disengaging from Non-Strategic Technology Services

•

currency exchange risks

•

risks associated with domestic and foreign operations, including uncertainty and business interruptions resulting from political changes and actions in the U.S. and abroad, such as the conflict between Russian and Ukraine and recent developments in China, and volatility in the global credit and financial markets and economy

•

renegotiations, nullification, or breaches of contracts with clients, vendors, subcontractors or other parties

•

the impact of current and future laws and government regulations, as well as repeal or modification of such, affecting the IT solutions and services industry, taxes and the Company's operations in particular

•

industry, economic, and political conditions, including fluctuations in demand for IT services

•

consolidation among the Company's competitors or clients

•

the need to supplement or change our IT services in response to new offerings in the industry or changes in client requirements for IT products and solutions

•

the risks associated with acquisitions

•

actions of activist shareholders

•

the continuing effects of the COVID-19 pandemic and the regulatory, social, and business responses thereto on the Company’s business, operations, employees, contractors, and clients

•

unpredictability and severity of catastrophic events, including acts of terrorism, outbreak of war or hostilities, civil unrest, adverse climate or weather events and pandemics or other public health emergencies, as well as our response to any of the aforementioned factors, and

•

the risks described in Item 1A of the Company’s most recently filed annual report on Form 10-K and from time to time in the Company's other reports filed with the Securities and Exchange Commission (“SEC”). These may be obtained through the Securities and Exchange Commission’s Electronic Data Gathering and Analysis Retrieval System (“EDGAR”) at www.sec.gov.

Subsequent Event

OnSubsequent ~~August 9, 2023, subsequent~~ to the end of the ~~fiscal~~2023 ~~second~~third quarter on ~~June~~September 3029, 2023, ~~the~~one ~~Company~~of ~~and~~ the ITCompany’s ~~solutions~~former ~~provider~~executives ~~Cegeka~~covered ~~Groep~~by nvone ~~(“Cegeka”), a company headquartered in Hasselt, Belgium, entered into a transaction for Cegeka to purchase all~~ of the ~~outstanding~~Company's ~~shares~~life ofinsurance ~~CTG~~policies ~~for~~passed ~~$10~~away.50 ~~per~~The ~~share~~Company inexpects ~~cash,~~to ~~which~~receive ~~represents an implied equity value for the Company of~~ approximately $~~170~~1.3 million. ~~The~~in ~~closing~~non-taxable ofdeath ~~the~~benefit ~~transaction~~proceeds ~~will~~in ~~be subject to customary conditions, including~~ the ~~expiration~~2023 orfourth ~~termination of certain regulatory periods and the tender of shares representing at~~ quarter.

24The 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.

~~least~~Acquisition ~~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.

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.

Trends Impacting the Business

Macroeconomic Trends

In recent years, interest rates remained at historically low levels, primarily due to impacts to the U.S. economy caused by COVID-19. More recently, higher consumer demand, lower interest rates, global supply chain disruption, and other factors have contributed to rapidly accelerating economic inflation. To offset the impacts of inflation, the Federal Open Market Committee ("FOMC") raised interest rates throughout 2022 and intends to continue raising rates into 2023. While the actual timing and extent of the future increases in interest rates remains unknown, higher long-term interest rates may have a material adverse impact to us as a higher cost of capital could significantly increase our interest expense on any debt we incur in the future. High inflation and interest rates are negatively impacting our clients spending, which may adversely impact our business, financial condition, cash flows and results of operations.

Foreign Currency Exchange Rate Fluctuations

Due to the nature of our operations, we have exposure to the impact of fluctuations in exchange rates associated with the Company’s European operations. Our foreign operations will continue to expose us to foreign currency exchange rate fluctuations. The impact of future foreign currency exchange rate fluctuations on our results of operations cannot be accurately predicted.

Industry Trends

The Company’s services include information and technology-related solutions. 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 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	%

~~projects.~~value, ~~Our~~and ~~industry~~operate ~~continues~~efficiently ~~to be impacted by the use of lower-cost offshore delivery capabilities (primarily India~~ and ~~other parts of Asia)~~effectively. ~~There~~A ~~can~~typical beclient nois ~~assurance~~an ~~that~~organization ~~we will be able to continue to compete successfully~~ with ~~existing~~large, orcomplex ~~future~~technology, ~~competitors~~information, ~~or that future competition will not have a material adverse effect on our results of operations~~ and ~~financial~~data ~~condition~~processing requirements.

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	%

The IT services industry is extremely competitive and characterized by continuous changes in client requirements and improvements in technologies. Our competition varies significantly by geographic region, as well as by the type of service provided. Many of our competitors are larger than CTG, and have greater financial, technical, sales, and marketing resources. In addition, the Company frequently competes with a client’s use of its own internal IT staff for projects. Our industry continues to be impacted by the use of lower-cost offshore delivery capabilities (primarily India and other parts of Asia). There can be no assurance that we will be able to continue to compete successfully with existing or future competitors or that future competition will not have a material adverse effect on our results of operations and financial condition.

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 ~~two~~three quarters ended ~~June~~September 3029, 2023 and ~~July~~September 130, 2022 was as follows:

	For the Quarter Ended						For the ~~Two~~Three Quarters Ended
	June 30, 2023			July 1, 2022			June 30, 2023			July 1, 2022
	September 29, 2023			September 30, 2022			September 29, 2023			September 30, 2022
Time-and-material		7473.52	%		7776.73	%		7675.65	%		77.62	%
Progress billing		1820.63	%		17.79	%		1618.90	%		18.10	%
Percentage-of-completion		6.95	%		45.68	%		6.5	%		4.38	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

Segments

The Company provides information technology and related services to its clients. These services include digital IT solutions and services, and 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 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 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 client. 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.

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.

~~The Company’s operating segments recorded revenue in the quarter and two quarters ended June 30, 2023 and July 1, 2022 was as follows:~~27

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	)%

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

For the Two Quarters Ended:											Year-over-Year
For the Quarter Ended:											Year-over-Year
(amounts in thousands)	~~June~~September 3029, 2023					~~July~~September 130, 2022					Change
North America IT Solutions and Services		3235.24	%	$	4925,~~193~~217		2327.71	%	$	4020,~~773~~340		2024.70	%
Europe IT Solutions and Services		51.41	%		7836,~~486~~472		4644.24	%		7933,~~638~~258		(19.47	)%
Non-Strategic Technology Services		1613.45	%		259,~~111~~602		3028.15	%		5121,~~765~~404		(5155.51	)%
Total		100.0	%	$	~~152~~71,~~790~~291		100.0	%	$	~~172~~75,~~176~~002		(114.39	)%


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	)%

Results of Operations

The table below sets forth data as contained in the condensed consolidated statements of income with the percentage information calculated as a percentage of consolidated revenue.

For the Quarter Ended:	~~June~~September 3029, 2023						~~July~~September 130, 2022
(amounts in thousands)
Revenue		100.0	%	$	7471,~~588~~291			100.0	%	$	8275,~~759~~002
Cost of services		7172.97	%		5351,~~593~~824			7675.17	%		6356,~~009~~773
Gross profit		2827.13	%		2019,~~995~~467			2324.93	%		1918,~~750~~229
Selling, general and administrative expenses		2728.71	%		20,~~710~~071			2021.13	%		1615,~~577~~976
Operating income		0.4	%		285			3.8	%		3,173
Operating income (loss)		(0.8	)%		(604	)		3.0	%		2,253
Interest and other expense, net		(0.57	)%		(~~364~~495	)		(0.45	)%		(~~385~~392	)
Income (loss) before income taxes		(0.1.5	)%		(791,099	)		32.45	%		21,~~788~~861
Provision for income taxes		0.1	%		51			0.9	%		748
Provision (benefit) for income taxes		(0.3	)%		(228	)		1.0	%		759
Net income (loss)		(01.2	)%	$	(~~130~~871	)		21.5	%	$	21,~~040~~102

For the Two Quarters Ended:	June 30, 2023						July 1, 2022
For the Three Quarters Ended:	September 29, 2023						September 30, 2022
(amounts in thousands)
Revenue		100.0	%	$	~~152~~224,~~790~~081			100.0	%	$	~~172~~247,~~176~~178
Cost of services		73.10	%		~~111~~163,~~660~~484			76.63	%		~~131~~188,~~831~~604
Gross profit		2627.90	%		4160,~~130~~597			23.47	%		4058,~~345~~574
Selling, general and administrative expenses		26.38	%		4060,~~138~~209			1920.72	%		3349,~~973~~949
Operating income		0.62	%		~~992~~388			3.75	%		68,~~372~~625
Interest and other expense, net		(0.35	)%		(~~594~~1,089	)		(0.4	)%		(~~642~~1,034	)
Income before income taxes		0.3	%		398			3.3	%		5,730
Income (loss) before income taxes		(0.3	)%		(701	)		3.1	%		7,591
Provision for income taxes		0.2	%		213			0.8	%		1,450
Provision (benefit) for income taxes		(0.0	)%		(15	)		0.9	%		2,209
Net income		0.1	%	$	185			2.5	%	$	4,280
Net income (loss)		(0.3	)%	$	(686	)		2.2	%	$	5,382

The Company’s strategic plan includes investing in IT solutions-based business development, marketing and solutions resources as part of a concerted effort to increase the mix of solutions services within its total revenue. Generally, solutions services have much higher bill rates and produce higher profits than IT staffing services. Additionally, within solutions, the Company is focused on expanding the digital solutions it provides, including cloud related activities, robotic process automation and artificial intelligence, in response to the demand in the end markets where services are provided. Finally, as a third part of its plan, the Company is on focused on disengaging from its lowest margin staffing business, which are included in the Non-Strategic Technology Services segment.

27On a consolidated basis, North America IT Solutions and Services revenue increased approximately $4.9 million year-over-year to $25.2 million, or 35.4% of consolidated revenue in the 2023 third quarter, and increased approximately $13.3 million year-over-year to $74.4 million, or 33.2% of consolidated revenue in the 2023 year-to-date period. This

provided. Finally, as a third part of its plan, the Company is on focused on disengaging from its lowest margin staffing business, which are included in the Non-Strategic Technology Services segment.

On a consolidated basis, North America IT Solutions and Services revenue increased approximately $5.7 million year-over-year to $26.0 million, or 34.8% of consolidated revenue in the 2023 second quarter, and increased approximately $8.4 million year-over-year to $49.2 million, or 32.2% of consolidated revenue in the 2023 year-to-date period. This compares with $20.3 million, or 24.6% in the corresponding 2022 second quarter, and $40.8 million, or 23.7% in the corresponding 2022 year-to-date period. The increase in North America IT Solutions and Services revenue in the 2023 second quarter was driven by the contributions from Eleviant, the Company's acquisition in 2022, and new customers or projects in digital IT solutions resulting from the business development investments the Company has been making in this segment.

Europe IT Solutions and Services revenue increased $1.2 million to $38.4 million and represented 51.5% of consolidated revenue in the 2023 second quarter, and decreased approximately $1.2 million year-over-year to $78.5 million, or 51.4% of consolidated revenue in the 2023 year-to-date period. This compares with $37.2 million or 44.9% of revenue in the corresponding 2022 second quarter, and $79.6 million or 46.2% of consolidated revenue in the 2022 year-to-date period. The Europe IT Solutions and Services revenue increase in the 2023 second quarter was primarily due to the strength of the value of the Euro as compared with the U.S. dollar. Approximately 99% of European revenue for the second quarter is in this segment, while the remaining 1% is in the Non-Strategic Technology Services segment. If there had been no change in the foreign currency exchange rates from the 2022 second quarter to the 2023 second quarter, revenue overall for the Company would have been approximately $0.8 million lower. If there had been no change in the foreign currency exchange rates from the 2022 year-to-date period to the corresponding 2023 period, revenue overall for the Company would have been approximately $1.2 million higher.

Non-Strategic Technology Services revenue decreased $15.1 million to $10.2 million and represented 13.7% of consolidated revenue in the 2023 second quarter, and decreased approximately $26.7 million year-over-year to $25.1 million, or 16.4% of consolidated revenue in the 2023 year-to-date period. This compares with $25.3 million or 30.5% of revenue in the corresponding 2022 second quarter, and $51.8 million or 30.1% in the corresponding 2022 year-to-date period. The Non-Strategic Technology Services revenue decreases in the 2023 second quarter and year-to-date period were primarily due to the Company continuing to disengage from a number of low margin, non-core staffing engagements in North America and the high inflationary macroeconomic conditions which lowered demand in this segment throughout 2023.

The Company recorded revenue by geography 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-YearChange
(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-YearChange
(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	)%

There were 64 billable days in both the 2023 and 2022 second quarters. Reimbursable expenses billed to clients and included in revenue were approximately $0.1 million and zero in the 2023 and 2022 second quarters, respectively.

There were 128 and 129 billable days in the 2023 and 2022 year-to-date periods, respectively. Reimbursable expenses billed to clients and included in revenue totaled $0.3 million in both the 2023 and 2022 year-to-date periods.

~~The~~compares ~~COVID-19~~with ~~pandemic~~$20.3 ~~had~~million, ~~limited~~or ~~financial~~27.1% ~~impact on the Company’s operations~~ in the ~~2023~~corresponding ~~and~~ 2022 ~~second~~third ~~quarters~~quarter, ~~although~~and ~~client~~$61.1 ~~demand~~million, ~~for~~or ~~Non-Strategic~~24.7% ~~Technology~~in ~~Services~~the ~~continued~~corresponding 2022 year-to-date ~~be low~~period. ~~During~~The ~~2023,~~increase toin ~~start~~North ~~the~~America ~~year,~~IT ~~the~~Solutions ~~Company faced challenging macroeconomic conditions~~ and ~~high~~Services ~~inflation.~~revenue ~~Although~~in the ~~COVID-19~~2023 ~~pandemic~~third ~~and~~quarter ~~macroeconomic~~was ~~conditions~~driven ~~continue~~by tothe ~~affect~~contributions ~~all~~from ofEleviant, the ~~countries where the~~ Company's ~~has~~acquisition ~~operations~~in 2022, ~~there~~and isnew nocustomers ~~clear~~or ~~visibility~~projects ~~into~~in ~~the~~digital ~~potential~~IT ~~magnitude~~solutions ofresulting afrom ~~downturn~~the inbusiness ~~operations~~development ~~that~~investments ~~could~~the ~~negatively~~Company ~~affect~~has ~~financial~~been ~~results~~making ~~for~~in ~~the~~this ~~remainder of 2023~~segment.

~~The~~Europe ~~Company~~IT isSolutions ~~experiencing~~and ~~significant~~Services ~~competition~~revenue ~~for~~increased ~~qualified~~$3.2 ~~resources~~million ~~due~~to $36.5 million and represented 51.1% of consolidated revenue in the 2023 third quarter, and increased approximately $2.1 million year-over-year to a$115.0 ~~general~~million, ~~shortage~~or 51.3% of ~~available~~consolidated ITrevenue ~~digital~~in ~~solutions~~the ~~talent~~2023 year-to-date period. WeThis ~~believe~~compares ~~this~~with ~~competition~~$33.3 ~~will~~million ~~continue~~or 44.4% of revenue in the ~~future~~corresponding 2022 third quarter, and ~~may~~$112.9 ~~have~~million aor ~~negative~~45.7% ~~impact~~of onconsolidated revenue in the ~~Company’s~~2022 ~~revenue~~year-to-date period. The Europe IT Solutions and ~~operating~~Services ~~profits~~revenue ifincrease wein ~~are~~the ~~unable~~2023 third quarter was primarily due to ~~hire~~the strength of the ~~resources~~value weof ~~need~~the Euro as compared with the U.S. dollar. Approximately 99% of European revenue for the third quarter is in this segment, while the remaining 1% is in the Non-Strategic Technology Services segment. If there had been no change in the foreign currency exchange rates from the 2022 third quarter to ~~meet~~the ~~demand~~2023 third quarter, revenue overall for the Company would have been approximately $2.7 million lower. If there had been no change in the foreign currency exchange rates from ~~our~~the ~~clients~~2022 onyear-to-date aperiod ~~timely~~to ~~basis~~the corresponding 2023 period, revenue overall for the Company would have been approximately $1.5 million lower.

~~The~~Non-Strategic ~~Company~~Technology ~~includes~~Services ~~all~~revenue ~~billable~~decreased ~~consultants,~~$11.8 ~~consisting~~million ofto ~~both~~$9.6 ~~employees~~million and ~~subcontractors~~represented 13.5% of consolidated revenue in the 2023 third quarter, and ~~its~~decreased ~~support~~approximately ~~services~~$38.5 inmillion ~~its~~year-over-year ~~headcount~~to ~~totals~~$34.7 ~~CTG’s~~million, ~~total~~or ~~headcount~~15.5% atof ~~June~~consolidated ~~30,~~revenue in the 2023 ~~was~~year-to-date ~~approximately~~period. ~~2,900,~~This ~~down~~compares ~~from~~with ~~approximately~~$21.4 ~~3,200~~million ator ~~July~~28.5% 1,of revenue in the corresponding 2022 third quarter, and at$73.2 ~~December~~million ~~31,~~or 29.6% in the corresponding 2022 year-to-date period. The ~~decrease~~Non-Strategic Technology Services revenue decreases in ~~headcount~~the 2023 third quarter and year-~~over~~to-~~year~~date isperiod were primarily due to the Company's ~~disengagement~~continuing to disengage from ~~its~~a ~~lowest~~number of low margin, non-core staffing ~~business~~engagements in ~~the~~North ~~Company’s~~America ~~Non-Strategic~~and ~~Technology~~the ~~Services~~high ~~segment,~~inflationary asmacroeconomic ~~well~~conditions aswhich ~~reduced~~lowered demand in ~~the~~this segment. throughout 2023.

The ~~revenue decrease in Europe in the countries in which the~~ Company ~~operates~~recorded ~~(Belgium,~~revenue ~~France,~~by ~~Luxembourg,~~geography ~~and the United Kingdom) was impacted~~ in the ~~2023 second~~ quarter and ~~year-to-date~~three ~~period~~quarters byended ~~the~~September ~~weakness of the U.S. dollar as compared with the value of the Euro~~29, ~~the~~2023 ~~currency used in Belgium, France,~~ and ~~Luxembourg,~~September ~~and the British pound~~30, the currency used in the United Kingdom. Revenue in constant currency is measured by applying the current period's average exchange rate to the prior periods. Based on this methodology, revenue in the 2023 second quarter was $0.8 million higher due to foreign currency exchange fluctuations compared with the prior year second quarter, while operating income was about $0.1 million higher. If there had been no change in these exchange rates from the 2022 ~~year-to-date~~as ~~period to the corresponding 2023 period, revenue would have been approximately $1.2 million higher, while operating income would have been approximately $0.2 million lower.~~follows:

In the 2023 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 9.7% of consolidated revenue, compared with $32.4 million or 18.8% 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 June 30, 2023 and December 31, 2022 totaled $9.2 million and $14.0 million, respectively.


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	)%

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


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	)%

~~The~~There ~~Company~~were ~~recorded~~63 ~~operating~~billable ~~results~~days in both the 2023 and 2022 third quarters. ~~ended~~Reimbursable ~~June~~expenses ~~30,~~billed ~~2023~~to clients and ~~July~~included in revenue were approximately $0.1, ~~2022~~million and $0.2 million in ~~its~~the ~~operating~~2023 ~~segments~~and as2022 ~~follows:~~third quarters, respectively.

North America IT Solutions and Services
(amounts in thousands)	June 30, 2023	July 1, 2022	Change
Revenue	100.0%	100.0%	—
Direct costs	59.6%	65.2%	(5.6)%
Gross margin	40.4%	34.8%	5.6%
Sales, solutions, delivery, and recruiting expenses	18.1%	17.4%	0.7%
Contribution margin	22.3%	17.4%	4.9%

There were 191 and 192 billable days in the 2023 and 2022 year-to-date periods, respectively. Reimbursable expenses billed to clients and included in revenue totaled $0.4 million and $0.5 million in the 2023 and 2022 year-to-date periods, respectively.

Europe IT Solutions and Services
(amounts in thousands)	June 30, 2023	July 1, 2022	Change
Revenue	100.0%	100.0%	—
Direct costs	75.9%	74.2%	1.7%
Gross margin	24.1%	25.8%	(1.7)%
Sales, solutions, delivery, and recruiting expenses	13.8%	13.1%	0.7%
Contribution margin	10.3%	12.7%	(2.4)%

The COVID-19 pandemic had limited financial impact on the Company’s operations in the 2023 and 2022 third quarters, although client demand for Non-Strategic Technology Services continued to be low. During 2023, to start the year, the Company faced challenging macroeconomic conditions and high inflation. Although the COVID-19 pandemic and macroeconomic conditions have impacted all of the countries where the Company has operations, there is no clear visibility into the potential magnitude of a downturn in operations that could negatively affect financial results for the remainder of 2023.

Non-Strategic Technology Services
(amounts in thousands)	June 30, 2023	July 1, 2022	Change
Revenue	100.0%	100.0%	—
Direct costs	87.8%	87.8%	—
Gross margin	12.2%	12.2%	—
Sales, solutions, delivery, and recruiting expenses	3.7%	2.7%	1.0%
Contribution margin	8.5%	9.5%	(1.0)%

The Company is experiencing significant competition for qualified resources due to a general shortage of available IT digital solutions talent. We believe this competition will continue in the future, and may have a negative impact on the Company’s revenue and operating profits if we are unable to hire the resources we need to meet demand from our clients on a timely basis.

The Company ~~recorded~~includes ~~operating~~all ~~results~~billable consultants, consisting of both employees and subcontractors, and its support services in ~~the~~its ~~two~~headcount ~~quarters~~totals. ~~ended~~CTG’s ~~June~~total 30headcount at September 29, 2023 was approximately 2,800, down from approximately 3,250 at September 30, 2022, and ~~July~~decrease 1from 3,200 at December 31, 2022. The decrease in headcount year-over-year is primarily due to the Company's disengagement from its ~~operating~~lowest ~~segments~~margin staffing business in the Company’s Non-Strategic Technology Services segment, as ~~follows:~~well as reduced demand in the segment.

North America IT Solutions and Services
(amounts in thousands)	June 30, 2023			July 1, 2022			Change
Revenue		100.0	%		100.0	%		—
Direct costs		60.4	%		65.8	%		(5.4	)%
Gross margin		39.6	%		34.2	%		5.4	%
Sales, solutions, delivery, and recruiting expenses		19.3	%		16.3	%		3.0	%
Contribution margin		20.3	%		17.9	%		2.4	%

The revenue increase in Europe in the countries in which the Company operates (Belgium, France, Luxembourg, and the United Kingdom) was impacted in the 2023 third quarter and year-to-date period by the weakness of the U.S. dollar as compared with the value of the Euro, the currency used in Belgium, France, and Luxembourg, and the British pound, the currency used in the United Kingdom. Revenue in constant currency is measured by applying the current period's average exchange rate to the prior periods. Based on this methodology, revenue in the 2023 third quarter was $2.7 million higher due to foreign currency exchange fluctuations compared with the prior year third quarter, while operating income was about $0.2 million higher. If there had been no change in these exchange rates from the 2022 year-to-date period to the corresponding 2023 period, revenue would have been approximately $1.5 million lower, while operating income would have been approximately $0.4 million lower.

Europe IT Solutions and Services
(amounts in thousands)	June 30, 2023			July 1, 2022			Change
Revenue		100.0	%		100.0	%		—
Direct costs		76.3	%		74.8	%		1.5	%
Gross margin		23.7	%		25.2	%		(1.5	)%
Sales, solutions, delivery, and recruiting expenses		13.2	%		12.7	%		0.5	%
Contribution margin		10.5	%		12.5	%		(2.0	)%

In the 2023 third quarter, International Business Machines Corporation (IBM) was the Company’s largest client and accounted for $5.6 million or 7.8% of consolidated revenue compared with $13.7 million or 18.2% of consolidated revenue in the comparable 2022 period. In the 2023 year-to-date period, IBM accounted for $20.4 million or 9.1% of consolidated revenue, compared with $46.1 million or 18.7% of consolidated revenue in the comparable 2022 period. The National Technical Services Agreement with IBM was renewed on October 27, 2023 and now expires October 31, 2026, with generally the same terms and conditions as the previous year. The Company’s accounts receivable from IBM at September 29, 2023 and December 31, 2022 totaled $9.4 million and $14.0 million, respectively.

Non-Strategic Technology Services
(amounts in thousands)	June 30, 2023			July 1, 2022			Change
Revenue		100.0	%		100.0	%		—
Direct costs		87.8	%		87.7	%		0.1	%
Gross margin		12.2	%		12.3	%		(0.1	)%
Sales, solutions, delivery, and recruiting expenses		2.9	%		3.0	%		(0.1	)%
Contribution margin		9.3	%		9.3	%		—

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

~~Direct~~The ~~costs,~~Company ~~defined~~recorded asoperating ~~costs~~results ~~for billable staff including billable out-of-pocket expenses, were 59.6% and 65.2% of revenue~~ in the ~~North~~quarters ~~America~~ended ITSeptember ~~Solutions and Services segment in the 2023 and 2022 second quarter~~29, ~~respectively, and 60.4% and 65.8% in the~~ 2023 and ~~2022~~September ~~year-to-date periods~~30, ~~respectively. Direct costs in the Europe IT Solutions and Services segment were 75.9% and 74.2% in the 2023 and~~ 2022 ~~second quarter, respectively, and 76.3% and 74.8%~~ in ~~the~~its ~~2023~~operating and 2022 year-to-date periods, respectively. The decrease in direct costs year-over-year as a percentage of revenue in the North America IT Solutions and Services segment was due to a concerted effort to deliver higher margin, digital services in these segments and the inclusion of the results of Eleviant since it was acquired at the end of the 2022 third quarter. Eleviant's direct margins are in excess of 50%. The increase in direct costs year-over-year in the Europe IT Solutions and Services segment was due to significant increases in wages as mandated by a number of the governments in which we operate in Europe. In Belgium, wages increased for our employees by approximately 11% on January 1, 2023, which drove higher direct costs. The Company is in the process of increasing bill rates to compensate for the increase in wage rates but expects that it will take most of 2023 to pass the increases through to clients, and most of the increases will occur in the second half of the year. Direct costs in the Non-Strategic Technology Services segment were 87.8% of revenue in both the 2023 and 2022 second quarters, and 87.8% and 87.7% in the 2023 and 2022 year-to-date periods, respectively. follows:


North America IT Solutions and Services
(amounts in thousands)	September 29, 2023	September 30, 2022	Change
Revenue	100.0%	100.0%	—
Direct costs	61.7%	62.0%	(0.3)%
Gross margin	38.3%	38.0%	0.3%
Sales, solutions, delivery, and recruiting expenses	17.9%	17.7%	0.2%
Contribution margin	20.4%	20.3%	0.1%


Europe IT Solutions and Services
(amounts in thousands)	September 29, 2023	September 30, 2022	Change
Revenue	100.0%	100.0%	—
Direct costs	76.6%	76.3%	0.3%
Gross margin	23.4%	23.7%	(0.3)%
Sales, solutions, delivery, and recruiting expenses	12.7%	13.3%	(0.6)%
Contribution margin	10.7%	10.4%	0.3%

Selling, general and administrative (“SG&A”) expenses were 27.7% of revenue in the 2023 second quarter as compared with 20.1% in the corresponding 2022 period, and 26.3% in the 2023 year-to-date period as compared with 19.7% in the corresponding 2022 period. The increase in SG&A expenses as a percentage of revenue in the 2023 second quarter as compared with the prior year period was due to significant investments in business development resources in the Company's IT Solutions and Services segments, costs incurred for an enterprise resource planning (ERP) system implementation in 2023, costs incurred related to the evaluation of potential transactions, and a loss of operating leverage resulting from lower revenue in the quarter.


Non-Strategic Technology Services
(amounts in thousands)	September 29, 2023	September 30, 2022	Change
Revenue	100.0%	100.0%	—
Direct costs	87.0%	87.7%	(0.7)%
Gross margin	13.0%	12.3%	0.7%
Sales, solutions, delivery, and recruiting expenses	3.2%	2.7%	0.5%
Contribution margin	9.8%	9.6%	0.2%

~~Consolidated~~The ~~operating~~Company ~~income~~recorded ~~was~~operating ~~0.4%~~results ~~and 3.8% of revenue~~ in the ~~2023~~three ~~and~~quarters ~~2022~~ended ~~second~~September ~~quarters~~29, ~~respectively,~~2023 and ~~0.6%~~September ~~and~~30, ~~3.7%~~2022 ~~of revenue~~ in ~~the~~its ~~2023~~operating ~~and~~segments ~~2022~~as ~~year-to-date periods, respectively.~~follows:

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 second quarter and year-to-date ETR was 26.8% and 25.3%, respectively. The ETR was higher in the 2023 second quarter and year-to-date periods as compared with the corresponding 2022 periods primarily due to the increased losses of the company’s foreign subsidiaries for which no taxbenefit can be recorded due to valuation allowances.


North America IT Solutions and Services
(amounts in thousands)	September 29, 2023			September 30, 2022			Change
Revenue		100.0	%		100.0	%		—
Direct costs		60.8	%		64.6	%		(3.8	)%
Gross margin		39.2	%		35.4	%		3.8	%
Sales, solutions, delivery, and recruiting expenses		18.9	%		16.7	%		2.2	%
Contribution margin		20.3	%		18.7	%		1.6	%

Net income was ($0.01) and $0.01 per diluted share in the 2023 second quarter and year-to-date period, respectively, as compared with $0.13 and $0.28 per diluted share in the 2022 second quarter and year-to-date period, respectively. Diluted earnings per share was calculated using 14.8 million and 15.1 million weighted-average equivalent shares outstanding in the quarters ended June 30, 2023 and July 1, 2022, respectively.


Europe IT Solutions and Services
(amounts in thousands)	September 29, 2023			September 30, 2022			Change
Revenue		100.0	%		100.0	%		—
Direct costs		76.4	%		75.3	%		1.1	%
Gross margin		23.6	%		24.7	%		(1.1	)%
Sales, solutions, delivery, and recruiting expenses		13.1	%		12.8	%		0.3	%
Contribution margin		10.5	%		11.9	%		(1.4	)%


Non-Strategic Technology Services
(amounts in thousands)	September 29, 2023			September 30, 2022			Change
Revenue		100.0	%		100.0	%		—
Direct costs		87.6	%		87.7	%		(0.1	)%
Gross margin		12.4	%		12.3	%		0.1	%
Sales, solutions, delivery, and recruiting expenses		3.0	%		2.9	%		0.1	%
Contribution margin		9.4	%		9.4	%		—

Direct costs, defined as costs for billable staff including billable out-of-pocket expenses, were 61.7% and 62.0% of revenue in the North America IT Solutions and Services segment in the 2023 and 2022 third quarter, respectively, and 60.8% and 64.6% in the 2023 and 2022 year-to-date periods, respectively. Direct costs in the Europe IT Solutions and Services segment were 76.6% and 76.3% in the 2023 and 2022 third quarter, respectively, and 76.4% and 75.3% in the 2023 and 2022 year-to-date periods, respectively. The decrease in direct costs year-over-year as a percentage of revenue in the North America IT Solutions and Services segment was due to a concerted effort to deliver higher margin, digital services in these segments and the inclusion of the results of Eleviant since it was acquired at the end of the 2022 third quarter. Eleviant's direct margins are in excess of 50%. The increase in direct costs year-over-year in the Europe IT Solutions and Services segment was due to significant increases in wages as mandated by a number of the governments in which we operate in Europe. In Belgium, wages increased for our employees by approximately 11% on January 1, 2023, which drove higher direct costs. The Company is in the process of increasing bill rates to compensate for the increase in wage rates but expects that it will be unable to pass all of these increases on to its clients. Direct costs in the Non-Strategic Technology Services segment were 87.0% and 87.7% of revenue in the 2023 and 2022 third quarters, respectively, and 87.6% and 87.7% in the 2023 and 2022 year-to-date periods, respectively.

Selling, general and administrative (“SG&A”) expenses were 28.1% of revenue in the 2023 third quarter as compared with 21.3% in the corresponding 2022 period, and 26.8% in the 2023 year-to-date period as compared with 20.2% in the corresponding 2022 period. The increase in SG&A expenses as a percentage of revenue in the 2023 third

quarter as compared with the prior year period was due to significant investments in business development resources in the Company's IT Solutions and Services segments, costs incurred for an enterprise resource planning (ERP) system implementation in 2023, costs incurred related to the acquisition of CTG by Cegeka, and a loss of operating leverage resulting from lower revenue in the quarter.

Consolidated operating income was (0.8)% and 3.0% of revenue in the 2023 and 2022 third quarters, respectively, and 0.2% and 3.5% of revenue in the 2023 and 2022 year-to-date periods, respectively.

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 third quarter and year-to-date ETR was 20.7% and 2.1%, respectively, and the 2022 third quarter and year-to-date ETR was 40.8% and 29.1%, respectively. The ETR was lower in the 2023 third quarter and year-to-date periods as compared with the corresponding 2022 periods primarily due to tax benefits from the Research and Development tax credit (R&D).

Net loss was $0.06 and $0.05 per diluted share in the 2023 third quarter and year-to-date period, respectively, as compared with net income of $0.07 and $0.36 per diluted share in the 2022 third quarter and year-to-date period, respectively. Diluted earnings per share was calculated using 14.9 million and 15.2 million weighted-average equivalent shares outstanding in the quarters ended September 29, 2023 and September 30, 2022, respectively.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires the Company’s management to make estimates, judgments and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The Company’s significant accounting policies, along with the underlying assumptions and judgments made by the Company’s management in their application, have a significant impact on the Company’s condensed consolidated financial statements. The Company identifies its critical accounting estimates as those that are the most pervasive and important to the portrayal of the Company’s financial position and results of operations, and that require the most difficult, subjective and/or complex judgments by management regarding matters that are inherently uncertain. The Company’s most critical accounting estimates set forth below are related to income taxes, specifically relating to the valuation allowance for deferred income taxes, accounting for business combinations and the valuation of goodwill.

Income Taxes—Valuation Allowances on Deferred Tax Assets

At ~~June~~September 3029, 2023, the Company had a total of approximately $4.5.0 million of deferred tax assets offset by a valuation allowance of approximately $0.76 million, resulting in a net deferred tax asset of approximately $34.84 million. Additionally, the Company had approximately $1.42 million of deferred tax liabilities recorded on its condensed consolidated balance sheet. The deferred tax assets and liabilities primarily consist of deferred compensation, loss carryforwards, and state taxes.

In assessing the realizability of deferred tax assets, management considers, within each taxing jurisdiction, whether it is more likely than not that all or some portion of the deferred tax assets will be realized, or that a valuation allowance is required. Management considers all available evidence, both positive and negative, in assessing realizability of its deferred tax assets. A key component of this assessment is management’s critical evaluation of current and future impacts of business and economic factors on the Company’s ability to generate future taxable income. Factors that may affect the Company’s ability to generate taxable income include, but are not limited to increased competition, a decline in revenue or margins, a loss of market share, the availability of qualified professional staff, and a decrease in demand for the Company’s services.

The Company’s deferred tax assets and their potential realizability are evaluated each quarter to determine if any changes should be made to the valuation allowance. Any change in the valuation allowance in the future could result in a change in the Company’s ETR. A 1% change in the ETR in the 2023 ~~second~~third quarter and year-to-date period would have increased or decreased net ~~income~~loss by approximately $~~700~~11,000 and $47,000, respectively.

3132

Business Combinations - Accounting

On September 29, 2022, the Company acquired 100% of the equity of Eleviant for approximately $19.0 million, including $17.4 million of cash on hand, common stock valued at $1.2 million, and stock options valued at $0.4 million. Additionally, an earn-out of $5.0 million can be earned, a portion of which will be payable in each period subject to the achievement of revenue and gross profit targets for fiscal 2022, 2023 and 2024. Assets acquired and liabilities assumed are generally recorded at their fair value in an acquisition, where the excess of the purchase price over the fair value of the net asset acquired is recorded as goodwill. The determination of fair value for identifiable assets, including intangible assets, and liabilities assumed requires management to make estimates which are based on available information and assumptions with respect to the timing and amount of future revenue and expense associated with an asset. Examples where estimates may be required in the accounting for a business combination include customer relationships, technology, and contingent consideration. Estimates within these areas may include the amount of revenue, earnings before interest expense, taxes, depreciation and amortization (EBITDA), cash flow, useful lives, discount rates and the cost of capital. The Company completes its accounting for business combinations with the aid of a third party expert.

Goodwill Valuation

As of ~~June~~September 3029, 2023, goodwill recorded on the Company's consolidated balance sheet totaled $3635.25 million, which relates to the acquisitions completed by the Company between 2018 and 2022. The acquisition of Soft Company in 2018 is in the France IT Solutions and Services reporting unit, the 2019 acquisition of Tech-IT is in the Luxembourg IT Solutions and Services reporting unit, the 2020 acquisition of StarDust is in both the North America and France IT Solutions and Services reporting units, while the 2022 acquisition of Eleviant is in the North America IT Solutions and Services reporting unit. As of ~~June~~September 3029, 2023, goodwill consisted of $18.74 million associated with the North America IT Solutions and Services segment, while the balance of $17.51 million is associated with the Europe IT Solutions and Services segment.

As of October 2022 fiscal month-end, we performed our annual goodwill impairment test for the Luxembourg and France IT Solutions and Services reporting units with the assistance of an external consultant and estimated the fair value based on a combination of the income (estimates of future discounted cash flows) and the market approach (market multiples for similar companies). The income approach uses a discounted cash flow (DCF) method that utilizes the present value of cash flows to estimate fair value of the reporting unit. The future cash flows for the reporting units were projected based upon on our estimates of future revenue, operating income and other factors such as working capital and capital expenditures. As part of our projections, we took into account expected industry and market conditions for the industries in which the reporting units operate, as well as trends currently impacting the reporting units. The market approach utilizes multiples of earnings before interest expense, taxes, depreciation and amortization (EBITDA) to estimate the fair value of the reporting unit. The market multiples used for our reporting units were based on competitor industry data, along with the market multiples for the Company and other factors.

Finally, we compared our estimates of fair value to the consolidated Company’s October 2022 month-end total public market capitalization, which included factoring in the business operations that do not have goodwill, and assessed implied control premiums. Based on the results of this analysis, we concluded that the estimated fair value determined under our approach for the annual goodwill impairment test for our France and Luxembourg reporting units in October 2022 was reasonable, and continues to be reasonable at the end of the 2023 ~~second~~third quarter.

From the impairment test, we noted the excess of the fair value over the carrying value for the France reporting unit is approximately 1%. The goodwill allocated to the France reporting unit at October 2022 month end totaled $12.2 million. While the reporting unit performed well and improved its results for the year ended October 2022 as compared with the prior year, there is no assurance it will continue to improve in the future. Additionally, challenges resulting from the

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