Computer Task Group, Incorporated
Q3 2014 Earnings Call Transcript

Published: 21 Oct 2014

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the CTG Quarterly Conference Call. Now at this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions) As a reminder, today’s call is being recorded. Your first speaker today, Jim Culligan. Please go ahead, sir.

[Jim Culligan:]

Thank you, Kevin, and good morning everyone. We certainly appreciate your time and your interest in CTG. On the call today, we have CTG’s Non-Executive Chairman, Daniel Sullivan, Interim Chief Executive Officer, Brendan Harrington, and Treasurer, John Laubacker. Dan will provide some opening remarks and Brendan and John are going to review the results for the third quarter of 2014 and then update you on the company's strategy and outlook. We'll follow with an opportunity for Q&A. If you don’t have the news release discussing our financial results, you can access it at the company’s website at ctg.com. Before we begin, I want to mention that statements in the course of this conference call that state the company’s or management’s intentions, hopes, beliefs, expectations and predictions for the future are forward-looking statements. It’s important to note that the company’s actual results could differ materially from those projected. These forward-looking statements are based on information as of this date. The company assumes no obligation to update these statements based on information from and after the date of this conference call. Additional information concerning factors that could cause actual results to differ from those in the forward-looking statements is contained in our earnings release, as well as in the company’s SEC filings. You can find these at our website or the SEC's website at sec.gov. Please review our forward-looking statements in conjunction with these precautionary factors. With that, I'd like to turn it over to Dan to begin the discussion.

[Daniel J. Sullivan:]

Thank you, Jim. Good morning, ladies and gentlemen. This is Dan Sullivan, Non-Executive Chairman of the Board of CTG. Before we turn this call over to Brendan to discuss our Q3 financial results, I would like to take a moment to say a few words about Jim Boldt, CTG's Chairman and CEO, whom as I am sure you all know passed away unexpectedly on Monday, October 13. I had worked with Jim as a Director of CTG since 2002. More then just a fellow Director, Jim was a friend and trusted colleague, always willing to discuss the business of CTG or other [lots], finance, information technology and host of other topics. He was an interesting very intelligent man. Jim had the vision of where to guide CTG, following some very difficult times for the technology industry, namely Y2K and the crash of the dot-com market. After being named CEO in 2001, Jim implemented a strategy that was founded on CTG's core competencies, which included the higher growth vertical markets with which you are familiar with the greatest emphasis on healthcare. Largely, because of Jim's direction and perseverance, CTG became a leader in healthcare IT, while becoming financially strong. Jim had an extraordinary business acumen and a growing financial mind. He was a strong leader of high integrity and he was greatly respected by the people of CTG, our customers, as well as everyone in the local and national business communities with whom he came in contact. The entire CTG family will miss Jim greatly, by honoring him by doing all we can to move his vision of CTG forward. And finally our thoughts sand prayers remain with Jim's wife Mary and his entire family during this difficult time. Our succession plan dictated the elevation of our CFO, Brendan Harrington to Interim CEO until we complete a search for the CEO position. Brendan has done a fine job leading CTG's very sound financial and administrative functions, as well as assisting Jim with investor and analysts relations. Brendan is totally committed to this Interim role and we are fortunate to have someone of this experience. So I look forward to working with Brendan over the next few months as we continually shape CTG strategy and improve results. I will say as well, that we have an excellent team of exceptional senior executives that currently lead our several lines of business in the United States and Europe. They too are duty bound to CTG and I do not expect us to skip a beat in the day-to-day sales and operations of our company. The board has formed a search committee and retained Heidrick & Struggles to guide that effort. I am encouraged that Heidrick & Struggles already has some good ideas. The search will include qualified internal candidates as well. I will be meeting personally with H&S this week. I don’t have much more to add now about this process, but I am confident that we will do a thorough job of quickly filling the CEO position. So thank you very much for your attention this morning and your sincere concern about Jim's passing. I would like now to turn the call over to Brendan. Brendan?

[Brendan M. Harrington:]

Thanks, Dan. Good morning, everyone. Thank you for joining us this morning for our third quarter earnings conference call. As you've seen in our news release, revenues and earning per share for the third quarter were at the mid point of our guidance provided in our second quarter earnings release. In aggregate, our revenue declined by 4% in the 2014 third quarter, revenue from our solutions business which represented 36% of our total revenue decreased by 11%. The decline in our solutions business came from our healthcare vertical where we had more EMR projects ending than starting. We started the third quarter of 2014 with 12 active EMR projects. During the quarter there were no projects that started, and 5 projects that were completed. Therefore at the end of third quarter we had 7 active EMR projects. As noted, we continue to believe that our EMR business will be constrained, while we have seen some EMR project start earlier this year, more large hospitals are attempting to staff the projects with their own resources. Often these organizations realize that they do need outside consultants in many of the key positions. As a consequence, we are getting more requirements to provide experienced resources to support EMR projects on a staffing basis, rather than through an RFP. While the demand for large scale EMR support has declined, there is increasing demand in the healthcare market for external assistance in other areas where CTG is offering to support these changing client needs. We've recently seen an increase in a number of - our fees we are receiving for outsourcing the management of healthcare applications. In the current type provider spending environment, application management outsourcing is a good opportunity for us as it creates significant immediate savings for hospitals without requiring them to make a large financial investment. We have a solid reputation in this area and these engagements are typically for multiple years, providing an annuity like revenue stream. We are also starting to see increased market demands for our healthcare IT and business consulting support, particularly in areas affected by healthcare reform. As we noted on our last call, we initiated a big data analytics project in the second quarter. That project started in April and will run until year end 2014. For the third quarter as expected our data analytics solutions added $1.9 million to our revenue and approximately $0.06 to our third quarter earnings per share. Having covered healthcare, I would also like to talk about the other three verticals – vertical markets on which we focus. Our revenue from the technology service provider market which is our lower margin staffing business increased in the third quarter of 2014. We saw an increase in demand from our largest customer’s current need for external IT resources in the quarter. Our financial services vertical had another good quarter and most of the revenue gain came from our European operations. Our energy business revenue decreased when compared to the third quarter of 2013. Turning to our staffing business, revenue increased by 1% compared to the third quarter of 2013 as we saw a pick-up in demand in the US. I would like to briefly address IBM's announcement yesterday of the sales of their semiconductor unit which is a subset of the systems and technology group, we expect the sale would have a minimal impact on our business as we have fewer than 10 people currently associated with the semiconductor unit. We would also expect that there may be an opportunity to transition these people and to work with Globalfoundries upon the closing of this transaction. I am going to talk more about the expectations for the fourth quarter and the full year. But I am going to ask John to review our financial results. John?

[John M. Laubacker:]

Thanks, Brendan. And good morning, everyone. For the 2014 third quarter CTG’s revenue was $96.8 million, a decrease of $3.9 million or 3.9% compared with the 2013 third quarter. The decrease was mostly due to lower revenue in our healthcare solutions business. 2014 third quarter had 63 billing days the same as the 2013 third quarter. Solutions revenue in the 2014 third quarter totaled $35.3 million, a decrease of $4.6 million or 11.4% compared with the 2013 third quarter. This decline was primarily due to lower revenue from electronic medical record projects which was partially offset by additional revenue from data analytics project which began in the 2014 second quarter and is scheduled to be completed in the 2014 fourth quarter. As a percentage of total revenue, solutions revenue was 36% in the third quarter, as compared with 40% a year ago. Revenue from electronic medical records projects in the third quarter was $8.1 million, a decrease of $6.8 million or 46%. Staffing revenue in the quarter increased $630,000 or 1% to $61.5 million. In the vertical markets in which we primarily focus, revenue as a percentage of total company revenue in the 2014 third quarter as compared with the 2013 third quarter was as follows. Healthcare decreased to 27% from 31.4%. Technology service providers increased to 29.3% from 26.7%. Financial services increased to 7.8% from 6.7%. Energy decreased to 5.9% from 6.2%, while general markets increased to 30% from 29%. In the 2014 third quarter, revenue from IBM, our largest customer was $25.1 million compared with $23 million in the 2013 third quarter. As a percentage of total revenue, revenue from IBM increased to 26% in the 2014 third quarter compared with 22.9% of total revenue in the 2013 third quarter. Revenue from our European operations was $18.3 million, a 0.6% increase from the $18.2 million recorded in last year's third quarter. The effect of foreign currency fluctuations during the 2014 third quarter increased revenue by approximately $100,000. On a local currency basis, our European revenue was flat compared with the 2013 third quarter. Direct costs, as a percentage of revenue were 80.3% in the third quarter, compared with 79% in the 2013 third quarter. Medical expenses for the quarter were approximately in line with the estimate we used in the updated quarterly and annual guidance that we provided in July 2014. SG&A expenses decreased approximately $663,000 from the 2013 third quarter, primarily as a result of fewer non-billable personnel and lower incentive compensation expenses. The billable travel expenses included in the 2014 third quarter revenue and direct costs balances totaled $1.9 million while the billable travel expenses for the 2013 third quarter totaled $2.8 million. Third quarter operating income was $4.6 million, a decrease of approximately $1.5 million or 24.5% year-over-year. The operating margin in the third quarter was 4.7% of revenue, 130 basis points lower than the 2013 third quarter. The primary item that impacted operating income in the quarter was a negative leverage from lower electronic medical records revenue, which was partially offset by lower SG&A expenses. Net income in the third quarter was $2.7 million, a decrease of $1.1 million or 29.4% compared with the 2013 third quarter. On a per diluted share basis, net income was $0.17 for the quarter, a $0.06 decrease compared with the 2013 third quarter. The decrease in earnings per share is due to lower electronic medical records revenue and a higher income tax rate in 2014 third quarter. The tax rate for the third quarter was 39.9% compared with 35.2% in the 2013 third quarter. Last year's third quarter benefited from the reversal of certain tax reserves and the recognition of certain federal tax credits. The federal tax credits were not recognized in the 2014 third quarter as a legislation to extend those tax credits into 2014 has not yet been passed. We expect the tax rate in the 2014 fourth quarter to be between 33% and 35%, as we expect the legislation necessary to extend those credits to be passed before the end of 2014. Projected rate for the 2014 full year is between 38% and 40%. The tax rate for the 2013 full year was 35.6%. Both the 2014 and 2013 third quarter results include equity compensation expense of approximately $0.03 per diluted share, net of tax. Our headcount at the end of the third quarter was 3900, 100 people more than at the end of the trailing 2014 second quarter and 100 more than at the end of the 2013 third quarter. The increase in headcount from the end of June this year relates to an increase in requirements from several clients in our staffing business. Of the 3900 employees at the end of the 2014 third quarter, 92% were billable resources. As part of adopting requirements of Patients Protection and Affordable Care Act beginning in 2015, we are in the process of offering compliant healthcare coverage to our hourly employees. Although its difficult to estimate the financial impact to this coverage, our intention is to pass these additional costs on to the customers where our hourly employees who will elect this coverage are engaged. At the end of the third quarter, we had $28.3 million of cash and no debt on the balance sheet compared with $31.5 million of cash and no debt at the end of the 2013 third quarter. Both the 2014 and 2013 third quarters ended on bi-weekly payroll date. Our day’s sales outstanding were 67 days at the end of the third quarter compared with 68 days at the end of the 2013 third. The decrease in DSO was due to timing of cash proceeds received at the end of the comparative quarters. Our cash used in operations in the third quarter was approximately $2.4 million as compared with cash provided from operations of approximately $3 million in the 2013 third quarter. With the difference here we are primarily being attributable to lower net income in 2014 and changes in working capital. In the third quarter, we incurred $735,000 in capital expenditures and recorded depreciation expense of $680,000. Finally, we did not repurchased any shares of CTG common stock during the third quarter. On a year-to-date basis we repurchased 386,000 shares of stock at a cost of approximately $6.4 million. Our current repurchased authorization is for approximately 750,000 shares. Brendan?

[Brendan M. Harrington:]

Thanks, John. As to our expectations for the fourth quarter of 2014 we are forecasting total revenue to be in the range of $100 million to $102 million. We are forecasting earnings per share in the fourth quarter of 2014 to be in the range of $0.20 to $0.22 per diluted share. While we are expecting an increase in staffing revenue in the fourth quarter, we lowered our EPS estimate for the fourth quarter by $0.01 to reflect lower than anticipated revenue from our healthcare vertical. For the 2014 full year we currently expect a range of $395 million to $397 million or 5% decrease at the mid point of our guidance when compared to 2013. Based upon our revenue forecast and the anticipated mix of business, we expect our 2014 net income per diluted share to be in the range of $0.76 to $0.78 or a 16% decrease from the 2013 at the midpoint of our guidance. These ranges exclude approximately $1.2 million net of tax or $0.07 net income per diluted share for the cost associated with the death of Jim Boldt, under his employment agreement. Consistent with what we said on our last conference call for our staffing business and our traditional IT solutions business, we set the guidance in the same way as we have in the past by estimating engagements that we are currently working on, as well as engagements that we anticipate will be signed later in the year. We grouped three of our newer solutions offerings together as our data analytics product suite because of the similarity in technology. The three data analytics offerings are our big data offering and our two sales offerings, which are clinical decision support system for chronic kidney disease and our fraud, waste and abuse offering. For these data analytics offerings, we have only included two engagements in our guidance for the year where we have signed contracts. These engagements include the big data project that we started up in the second quarter and the revenue that we received in the first quarter for a completed fraud, waste and abuse project. While we are currently still trying to close additional data analytics business this year, any new data analytics projects we closed would not have a meaningful impact on our 2014 financial results. Our overall forecast for 2014 for data analytics revenue remains at $6 million and the forecast for earnings per share contributions from these projects remains at $0.18 per share. Looking at our revenue guidance for the year. We currently estimate that our healthcare revenue will decline by approximately 14% in 2014. For our non-healthcare solutions business, we are projecting an increase of approximately 2% in 2014. We are now forecasting a 3% decrease in our staffing business for the year primarily driven by one customer. With that, I'd like to open the call to questions. Operator, would you please manage our question-and-answer period.

[Operator:]

Thank you. (Operator Instructions) Okay. First question is from the line of Brian Kinstlinger, Maxim Group. Please go ahead.

[Brian Kinstlinger:]

First, I want to say my thoughts and prayers are with Jim's family. I spent a handful of years working with him. He is a great person and great to work with.

[Brendan M. Harrington:]

Thanks, Brian.

[Brian Kinstlinger:]

First, can you expand on the ACA comments you made. I believe you're self-insured now. So is that changing and you know, how do you think about the difference in what it cost the company?

[Brendan M. Harrington:]

Yes, we are self-insured. Currently we offer the insurance plan to our salaried employees. However, we do not supplement the coverage for our hourly employees. So under the ACA in order to be compliant, we have to offer coverage to our hourly employees. The cost of the plan that we're offering is relatively expensive for the employees themselves. In most cases the employees are going to have to carry the majority of the cost themselves. And therefore we think the likelihood of the employees taking the plan is low.

[Brian Kinstlinger:]

Right.

[Brendan M. Harrington:]

Our intention is to pass the additional cost on to the customers where those hourly employees do take the coverage are engaged.

[Brian Kinstlinger:]

Right. So essentially, you think that they will buy from the exchanges because they might be cheaper?

[Brendan M. Harrington:]

Either buy from the exchanges or continue to you know, not have coverage.

[Brian Kinstlinger:]

So it will have a little impact, but it doesn’t sound like a significant impact to next year?

[Brendan M. Harrington:]

Well, correct, and although we've been talking to our clients for a while now about these potential costs, the clients are waiting for some more definitive information before agreeing to allow us to pass on these additional costs.

[Brian Kinstlinger:]

Understood. And then you mentioned IBM the divestiture, their STG revenue was down 15% which was a disappointment. I am curious have they communicated cutting staff or do you anticipate that in 2015 I think in the past when their results have been getting weaker and there is been some shake-ups, it’s usually lead to a little bit slower demand for you, what are your thoughts there?

[Brendan M. Harrington:]

It’s somewhat hard to predict, for IBM we've had, we've seen the STG Group have decreasing revenues for the last several quarters and yet this past quarter we saw IBM revenue go up by about $3 million sequentially, or about $2.5 million. So, you know, the demand definitely picked up there certainly with lower revenues from the STG Group having lower revenue that you know, not a trend that we like to see. But, as we said it doesn’t necessarily always follow in terms of what impacts our revenue.

[Brian Kinstlinger:]

Okay. Last question I got Brendan is in the past you've guided to the solutions business having about a 10% operating margin, excluding analytics which is much higher in the EMR which I think was higher too in the [broad that is] [ph] 10%. I am curious what the rest of the operating margin looks like for that business as EMR is winding down?

[Brendan M. Harrington:]

Yeah, it’s good point Brian. Clearly, you know, the impact of the lower revenues from EMR has impacted our operating margins. As we've said in the past, the electronic medical records were at – definitely had higher – much higher than average operating margins compared to our other solution. So that is overall impacting the composite. Margins for the solutions were also trying to build up some additional our advisory group and we also have some – we're having a little bit more downtime between some of our projects. So that’s helping to unfortunately decrease the operating margin there as well.

[Brian Kinstlinger:]

Okay. Thank you. I am going to get back in the queue. I've got a question or two more…

[Brendan M. Harrington:]

Thank you…

[Brian Kinstlinger:]

Thanks.

[Operator:]

And the next question is from the line of Vincent Colicchio of Noble Financial. Please go ahead.

[Vince Colicchio:]

Good morning, guys. And if I could also [Inaudible] Jimmy was good guy.

[Brendan M. Harrington:]

Thanks, Vince.

[Vince Colicchio:]

I am curious is the extent of the EMR workers going in-house a surprise to management, I am curious about that?

[Brendan M. Harrington:]

Well, you know, we've definitely seen where hospitals are trying to conserve their cash and ultimately try to do as much work as they can to try and avoid using outside consultants. And so we've predicted that the EMR business would slow down and we definitely expected that hospitals would be trying to do more as they are trying to cut their costs and you know, ultimately trying to conserve their cash. And oftentimes, Vince, I will say too as, hospitals are trying to do the work on their own. They oftentimes still wind up calling in more support from EMR consultants and that’s where we can help them out. And you know, we're seeing fewer RFPs that’s for certain. But we're seeing activity more on a staffing basis where we're getting opportunities to fill in where they need the supplemented help.

[Vince Colicchio:]

Outside of EMR and application outsourcing revenue, are there any new service areas that are promising where you're seeing traction on the healthcare side?

[Brendan M. Harrington:]

Yeah, besides those two that you mentioned, you know, we see some other opportunities, demand for revenue cycle management have been increasing. The ACOs are another good example and you know ACOs are in a start-up mode for the most part they need people who come in and help them figure out how they are going to operate. These are basically brand new businesses that they are setting up and we can definitely help them out there. We're also working on another opportunity for EMR optimization in the long-term where hospitals put EMRs in, but can use them more effectively and we can help to come in and make some changes to their systems. So those are few of the other opportunities for us.

[Vince Colicchio:]

Is the company getting more active on the acquisition side and so what are you looking at in terms of types of companies?

[Brendan M. Harrington:]

Yeah, we've been looking for a while now on the acquisition front, so I'd say probably you know about the same level of activity and we're really focused on healthcare looking at tuck-in acquisitions and likely on a data analytics front is really where we've been trying to focus.

[Vince Colicchio:]

Okay. I'll go back in the queue. Thanks, guys.

[Brendan M. Harrington:]

Okay.

[Operator:]

Thank you. Next question is from the line of Kevin Liu, B. Riley & Company. Please go ahead.

[Kevin Liu:]

Hi. Good morning, guys.

[Brendan M. Harrington:]

Morning, Kevin.

[Kevin Liu:]

Just with respect to the healthcare business, you know, there is been quite a few EMR projects that wrapped up in Q3. I am wondering if you could update us on whether you would expect that pace of completions here in Q4 or perhaps just any sort of general timeframe for when these final seven projects could potentially wrap?

[Brendan M. Harrington:]

Yeah, typically we've probably seen two or three projects in a quarter and this quarter we obviously saw some more projects ending. So I guess that Kevin typically we would expect to see maybe two or three in a quarter end.

[Kevin Liu:]

Got it. And just with respect to new RFPs coming in on the EMR side I am wondering if you could talk a little bit about you know what you have currently in terms of RFPs and whether you expect to start to pick up based on what you're customers are talking about for projects for next year?

[Brendan M. Harrington:]

Yeah, on the RFP front we don’t have any current RFPs for EMR implementation. We've definitely seen a shift in how hospitals are buying there, they are not going through the EMR process as they had been before. We've seen more of the process being that they are trying to do this work on their own and then when they need supplemented staff in order to help them out they'll go out to firms like CTG and basically give us competitive opportunity to try and fill those slots. And we've got a couple of situations where we've got the project lead, or the lead director role in that – in those situations and we're working on [filling recs] [ph] for those projects. But those opportunities did not come through an RFP process.

[Kevin Liu:]

Got it. And just one last one healthcare, are you guys starting to hear customers you know thinking about their ICD-10 compliance initiatives again and are you starting to see you know projects build on a pipeline for that?

[Brendan M. Harrington:]

You know, ICD-10 is still somewhat on a backburner, I'll say that we wouldn’t currently expect to see ICD-10 projects start up in the fourth quarter. If the government sticks with the date of October of next year for the deadline then we would expect get opportunities in the 2015.

[Kevin Liu:]

Okay. Thanks for taking the questions. And let me add my condolence as well.

[Brendan M. Harrington:]

Thank you.

[Operator:]

Okay. Next question is from the line of Bill Sutherland, Emerging Growth. Please go ahead.

[Bill Sutherland:]

Okay, thanks. And good morning, guys and obviously my best wishes, I knew Jim for many years. The – just to make sure I am hearing what's going on with EMR, clearly so do you, did you say you ended with seven?

[Brendan M. Harrington:]

Correct.

[Bill Sutherland:]

Okay. So that was more completions then had expected.

[Brendan M. Harrington:]

And by vision in the quarter, yeah.

[Bill Sutherland:]

Okay. Okay. And then on the, I am going move over to the data analytics front, actually one more question on in terms of the in-law. There is a big, like $11 billion are military health system process going on for bids. I didn’t see you any of the prime teams, but have you guys had any discussions with any of the teams in terms of bidding?

[Brendan M. Harrington:]

Yeah, we have had discussions with one of the teams and – but I am not at this point in time I wouldn’t, I prefer not to comment any further on that Bill.

[Bill Sutherland:]

Yeah, and I understand that’s all – its all super preliminary anyway. Okay. And then the one thing you didn’t mention Brendan was HIEs as far as potential, are they still down the road a bit as far your enrollment?

[Brendan M. Harrington:]

Yes, we think HIEs are a good opportunity for us moving forward as well, certainly as healthcare providers continue to share data we think there is still lot of build-out that needs to be done on the HIE front and that should be another good opportunity for us.

[Bill Sutherland:]

Okay. And then finally just so swapping over to data analytics, kind of give us a sense of where you stand with the discussions the sale cycle with, I guess with the three offerings it seems like you know, obviously not much to talk about hearing now as far as what you expect to be happening. But do you feel like there is just a sale cycle stretch going on here or do you feel like the offerings just aren’t getting traction with the customers?

[Brendan M. Harrington:]

Yeah, it’s a – let me address that. We've been actively marketing the data analytics solutions. We've been trying leverage the engagement that we've already done. And you know we definitely see there is a difficult sale cycle and it’s been longer than we had anticipated, often the customer we're trying to sell to isn’t necessarily looking for that particular solution. So we've got to convince them that this is a solution that they need and that our solution is the right one for them. So these sales cycles or the sales themselves are far more complex than our traditional business and therefore the sale cycle has proven to be much longer than our traditional offerings and longer then we have expected.

[Bill Sutherland:]

Which of the three that are you feeling are more likely to you know, hit at some decision point you know ruffling their term?

[Brendan M. Harrington:]

Yeah, I think it’s more so the fraud ways than abuse product. We've made some changes to the offering there and if – that we've been talking to customers and potential customers in terms of what their looking for and we've modified the offerings so that we can do it – do the processing more real time. And we think that’s more likely the case that payers are going to want to not go back and try to collect money from their provider or rather then paying the claims and trying to go back collect it rather prevent the payments of erroneous claim prior to the money going out the door. So, that’s been a big change that we've made and we think that’s made the offering more appealing for our customers.

[Bill Sutherland:]

Yeah, okay. Actually one more on EMR, the five completions, were they kind of stretched to the – or did they kind of occur over the quarter or more towards the end and whether they – did they include the two particulars to fairly large ones?

[Brendan M. Harrington:]

They did include the two large ones, and the timing of the – the ramp down was you know, over the course of the quarter. So you know, the two larger ones definitely started to ramp down at the start of the quarter and continue to – as the quarter went down or went on the other ones gradually ended as the quarter went on.

[Bill Sutherland:]

Okay. Great. Thanks, Brendan.

[Operator:]

And next question is from the line of Rick D’Auteuil, Columbia Management. Please go ahead.

[Rick D’Auteuil:]

Yeah, just to start, I also would like to extend my condolences to Jim's family. We knew Jim through a very long period of time. He is a terrific CEO. So, on a few things, the staffing opportunities that you're seeing in the EMR businesses and the EMR projects that the hospitals are internalizing, are the margins – can you comment on the margins in that opportunity?

[Brendan M. Harrington:]

Yeah, that with your question Rick, you know, as far as the margins go regarding the staffing opportunities they are going to be lower than the EMR business that we've seen previously. There are more competitive as I said in terms of filling those slots and you know, we're seeing where we need to lower some prices and take some lower margin then we had seen before in order to win those slots.

[Rick D’Auteuil:]

What is you've done with the talent that you had locked up on these projects for a period of time are you know, reducing your bench time. I mean, clearly the pay rates on the staffing opportunities are not the pay rates that they saw after a year or two ago. So are these different people or what are you doing with…

[Brendan M. Harrington:]

Yeah, people coming on for assignments, we're trying to place those in other – place those people in other assignments where we see the opportunities or if the you know the first thing we tried to do and we're obviously trying to keep good people in place to put them on other assignments. In situations where we're not able to find spot for those people, we can maybe utilize them in perhaps our, you know, as more lead people on those engagements or unfortunately we have to let some talent go. And then sometimes we have to go out and find other people to fill the slots where these staffing opportunities are.

[Rick D’Auteuil:]

Okay. With the deadline next year in October roaming both for ICD-10 and I think still remaining for you too, right or not?

[Brendan M. Harrington:]

Correct. Yeah.

[Rick D’Auteuil:]

So, I mean, are the hospitals with their current internal staffing able to address those – that deadline?

[Brendan M. Harrington:]

Likely for the ICD-10, likely not, so they would need some assistance there and you know in a lot of cases with meaningful use too hospitals that try to put their EMR systems in you know, basically just to be compliant with MU2. But there is opportunities, we think to do EMR optimization because they can use those systems better despite being compliant with MU2.

[Rick D’Auteuil:]

On that pocket, would that be comparable margins to what you were experiencing in the EMR project what you were doing?

[Brendan M. Harrington:]

Yes, we think the EMR optimization would be more likely margins that would be closer to what the EMR work was.

[Rick D’Auteuil:]

Okay. And lastly, the buyback with the stock coming down here significantly, you still having a pristine balance sheet, what's the current thinking of the board on that?

[Brendan M. Harrington:]

Yeah. We've – what we've done historically we probably used between $3 million and $7 million or our cash each year to buy stock. So far in 2014 we repurchased about $6.5 million and we've been in evaluation stage with regard to the buyback. So we're not we haven’t decided yet as to whether we will do additional purchases this year. But we are at the high end of – towards the high end of where the range has been and the other considerations are the cash flow and our other capital requirements, including potential acquisitions and dividend.

[Rick D’Auteuil:]

Okay. Thank you.

[Brendan M. Harrington:]

Thanks.

[Operator:]

Okay. Next question is from the – follow up from Brian Kinstlinger, Maxim Group. Please go ahead sir.

[Brian Kinstlinger:]

Yeah. Hi, Brendan. Just one question EMR in the past one of the discussion is been around the international opportunity. Do you expect to see anything materialize in terms of RFPs and where our discussions on that front please?

[Brendan M. Harrington:]

Yeah. Thanks, Brian. The opportunity is kind varied by country. We've been doing a consulting project for the last several months in one of the countries we operate in Europe. And as you know well, we're starting to see some more activity pickup in terms of hospitals that are putting in EMRs. And so that certainly is a good sign. The other side of it though is that you know, with the social life medicine in Europe they really need to be probably some government funding in the particular countries in order to allow the hospitals to fund those projects. So while we are starting to see some more activity there, there isn’t necessarily a compelling push or incentive or funding from the governments to hospitals to try and make that happen. So we are seeing that activity pick up and that may still be a little bit down the road.

[Brian Kinstlinger:]

Great. And actually one more question, do you have a separate sales force for data analytics versus the solutions that you provide – other solutions you provide and if so how many dedicated data analytics sales people do you have?

[Brendan M. Harrington:]

We do have people that are primarily focused on the data analytics. We also supplement them with some of our provider, sales force as well and we haven’t given out the number of people in the past and it’s not something I would do at this point.

[Brian Kinstlinger:]

No problem. Okay. Thank you so much, Brendan.

[Brendan M. Harrington:]

Thank you.

[Operator:]

Thank you. At this time we have no further questions in queue.

[Brendan M. Harrington:]

Great. Thank you. Just in closing, CTG is strongly established in the healthcare which represents almost 20% of the US GDP and its one of the fastest growing major industries. While in the short term our hospital clients have to deal with their reimbursement reductions imposed on them by the US Federal Government. The demographics of the US and Europe still point to an aging population. There will be more not less healthcare and therefore the need for more information technology support. Based on our offerings and experience in healthcare in the other areas of our business, we feel CTG is well positioned for the long-term. I'd like to thank you for you continued support for joining us this morning and thank you and have a good day.

[Operator:]

Thank you. Ladies and gentlemen, that does conclude you conference. We do thank you for joining or using AT&T executive teleconference. You may now disconnect. Have a good day.