Webstep ASA

OSE:WSTEP

Earnings Call Transcript 2021-Q1

[Save Asmervik, Chief Executive Officer]

Welcome to the presentation of the first quarter results for Webstep ASA. My name is Save Asmervik, and together with our interim CFO, Fredrik Skuland, I will take you through the highlights, business and financial review as well as share a few words about the outlook.Let us start with the highlights from the quarter. The first quarter ended in revenues just below NOK 195 million, which is up about 6% from last year. Actual EBIT in Q1 was NOK 18 million, which is 40% up from last year. Recruiting is key for Webstep, and the strong recruiting we saw in Q4 has continued into the first quarter. By end of Q1, the number of employees is 435, which is up 20 from year-end. The strong recruiting activities in Q1 has resulted in a number of new signings. More on this in the outlook.We have also been keeping ourselves busy on the sales side. And as previously announced, we signed a multi-year contract with Equinor with an initial value of NOK 85 million. The project is run out of Stavanger and Bergen office. Several other significant engagements have also been recently won by Webstep. Notably, several of these engagements include team and project deliveries, in addition to experts for hire. We will talk more about this in a moment.Now let me take you through the business review. I've held the position as CEO of Webstep since 15th of February. After 100 days in-charge of the company, I am pleased to state that we are on the right track. To kick off the business review, I would like to give you a brief recap on our go-to-market model and how we are positioned for growth.In short, our wide range of highly skilled tech experts are delivering services on 3 levels based on the go-to-market strategy presented back in November 2019. The traditional way of delivering advisory services [ has been ] for our customers to hire the needed experts. This is what we did in our deliveries to the car charging company, Mer. These services will continue and grow based on strong customer demand.The demand in the marketplace is, however, changing, and we see our customers wanting more from us. There is an increased demand for Team-as-a-Service, allowing for Webstep to construct cross-disciplinary teams to solve business and IT challenges. Sometimes the team is under the supervision of the customers. And other times, we are taking the full responsibility for delivering defined services.Our recently published deal with Equinor includes several teams supporting Equinor's digital transformation. The third delivery method of services from Webstep is our Project & Solutions business. This includes delivering development projects and even complete solutions with a mix of third-party software and system development. There's a great market potential in this segment, and we are already well into our first wave of delivery projects, like the solution we are developing for Amedia and Aller making digital advertising services easier and more accessible.Since we launched our go-to-market strategy 18 months ago, Webstep has steadily grown the business for teams, projects and solutions. Currently, we have more than 50 experts engaged in these kind of deliveries.Webstep has a diversified customer base across most sectors. We support our customers in solving business challenges, whether it be industries such as transportation, retail, finance, healthcare, energy and public sector. Many of our customers are influencing our daily lives and solving societal challenges, and that is something we are proud of. We are indeed developing for a better tomorrow. This is key as we are less vulnerable to challenges affecting specific sectors, such as the pandemic affecting the travel industry. Also, the split between private and public sector is a healthy sign for us as a company. Demand in public sector has, over time, proven more stable.Now let me briefly dive into a couple of examples to illustrate our mode of operation. The leading car charging company, Mer's goal is to make electric mobility easy and accessible for everyone, so they can create a better tomorrow. Webstep can also stand behind this. Webstep is delivering experts on user design and user experience to Mer's projects. The company is owned by Statkraft.Secondly, we have our deal with Equinor, announced earlier in Q1. The agreement has a duration of 3 years and represent an initial value of approximate NOK 85 million. The purpose of the framework agreement is to provide Equinor with increased capacity for DevOps teams to further develop the software portfolio in close collaboration with Equinor. The agreement is a part of a digital transformation of Equinor, and Webstep will be delivering autonomous development teams. 2 Webstep teams are already engaged in software development in the plant sector at Equinor.Norwegian media houses are experiencing major changes, both as a result of the global platforms and the changes around the use of digital cookies. As a direct response to this, Norwegian DIAR is now developing the [indiscernible], where it will be easier for advertisers and agencies to buy digital advertising projects at 130 websites that DIAR represents, and which has more than 3 million weekly readers. This is a development project delivered by Webstep to DIAR. The project is a setup with experts from several departments and locations. Webstep has had success with strong local offices spread across Norway and Sweden. The mode of operation has contributed to unique customer proximity and has made us well-positioned to pursue local businesses. Our strong local presence also makes it easier to act as a strategic adviser to our customers. We have maintained this model over the years, at the same time as we have facilitated even better collaboration across departments throughout the group.Our go-to-market model ensures continuity for delivering experts competency and advisory services. At the same time, we are broadening our services through providing more Team-as-a-Service and project deliveries.Building expertise and knowledge with high-quality competence events has been an important investment in our experts. As an IT expert house, we need to be focused on professional development among the consultants in order to stay relevant in the marketplace.Regarding recruiting and hiring, there is still a tough competition for the best IT experts in the market. But with a strong recruiting focus, we ended Q1 with 435 employees in total, which is up 20 from year-end.Now let me hand it over to our interim CFO, Fredrik, who will take us through the financial results.

[Fredrik Rytter Skuland, Group Business Controller & Interim CFO]

Thank you, Save. You can find the income statement, balance sheets and cash flow statement in the Q1 report. And I will not go through this in detail now, just mention a few highlights.First, let me - let us have a look at the key figures for Q1. Revenue in Q1 was NOK 194 million, up by 6% compared to last year. The revenue growth is driven by increased headcount, higher utilization and higher hourly rates. This is partly offset by less use of subcontractors. The EBIT in Q1 was NOK 18 million and the EBIT margin was 9%, which is an increase of almost 40% compared to last year. The increased EBIT is explained by higher revenues from own consultants and cost savings related to travel, courses and social events. Free cash flow ended at NOK 7 million for the quarter. The equity ratio was 63%, and the cash balance at the end of Q1 was NOK 45 million.So let's have a look at the key figures for our 2 segments. The Norwegian segments represent around 85% of our revenues for the group. In Norway, revenues in Q1 was NOK 166 million, up by 7% from last year. The revenue growth is driven by increased headcount, higher utilization and higher hourly rates.We can see that the revenue growth in Norway is driven by the Oslo office in Q1, while the revenue growth in the regional offices is more or less flat. The EBIT in Norway was NOK 16 million and the EBIT margin was 10%, which is an increase of almost 50% compared to last year. The increased EBIT is explained by higher revenues from own consultants and cost savings related to travel, courses and social events.So let's move on to the Swedish segment. Sweden accounts for around 15% of consolidated revenues. In Sweden, revenues in Q1 was NOK 29 million, up by 3% from last year and continued its positive development. Revenues from own consultants grew by 5% in constant currency, mainly driven by higher utilization. The revenue growth is partly offset by less use of subcontractors. EBIT in Sweden was NOK 2 million, and the EBIT margin was 8%. The EBIT is impacted by lower margin from subcontractors, increased lease costs and COVID support offered by the Swedish government last year.In Q1, we had a free cash flow of NOK 7 million compared to NOK 16 million in Q1 2020. The decrease is mainly related to change in trade receivables and trade payables. The cash balance at the end of Q1 was NOK 45 million. We have an undrawn credit facility of NOK 110 million in Norway and SEK 5 million in Sweden. And we have not been in breach with any covenants. So with that, will you take us through the outlook, Save?

[Save Asmervik, Chief Executive Officer]

Yes. Let's have a look at the outlook. Thank you for having a run-through of the financial results. 2021 is looking promising as we see a high demand for Webstep experts, and we have a solid order book. We have recently signed contracts covering team and project deliveries, such as the ones with Equinor and DIAR. Q1 has been a strong recruiting quarter, and some of the signed experts will join us during Q2, while lots of them will be on-boarded in August. Hence, the number of employees at the end of Q2 will only increase slightly. We also see a reduced employee turnover in Q2, which is a positive sign.In the coming quarters, we will build on the strong growth momentum we are experiencing. We are seeing promising opportunities within teams and project deliveries. M&A may be utilized as a strategic tool to access new customer relations and new expertise.To conclude, I am proud to lead Webstep moving forward. As the world is going digital, we're experiencing a high demand for IT expert services to enable digital transformation. I believe we are well-positioned to develop tomorrow's digital solutions and societies. If you have any questions, please contact us at [e-mail]. Thank you for your attention.