Webstep ASA

OSE:WSTEP

Earnings Call Transcript 2021-Q2

[Save Asmervik, Chief Executive Officer]

Welcome to the presentation of the second quarter results for Webstep ASA. My name is Save Asmervik, and I will take you through some highlights, some business and financial reviews and a few words about the outlook. Let us start with some highlights from the quarter. The second quarter ended with a revenue of NOK 196 million, which is up 13% from last year. Actual EBIT in Q2 was NOK 20 million, which was up 19% from last year. Recruiting is key for Webstep, and the strong recruiting we saw in Q1 has continued throughout the second quarter. By the end of Q2, the number of employees is 439, which is up 25 from last year. The strong recruiting activity in Q2 has resulted in a number of new signings. More on this in the outlook. We have strong growth in the Oslo region, both with the revenue with about 30% increase and in head count, which has 12% increase since last year. In general, we are experiencing renewed trust from our long-term customers as well a lot of new business. In a minute, we will go into more details on our deliveries to long-term customers, like Laerdal Medical, Altibox and KS. Now let me take you through the business review. Halfway through 2021, we can conclude that we are driving on the right tracks and that we have found our renewed direction. To kick off business review, I would like to give you a brief recap of our go-to-market model and how we are positioned for a continued growth. In short, our wide-ranged, highly skilled tech experts are delivering in 3-level-based go-to-market model. The traditional way of delivering advisory services has been for the customer to hire the needed experts. These services will continue and grow based on strong customer demand and stay the core of the company. The demand of market -- in the marketplace is, however, changing, and we see our customers are wanting more from us. There is an increased demand on a Team-as-a-Service, allowing for Webstep to construct cross-disciplinary teams and solve business and IT challenges. Sometimes the team is under the supervision of a customer, and sometimes we're taking full responsibility of the defined deliveries ourselves. The third delivery method of services is projects and solutions. This includes delivering development projects and even complex solutions with a mix of third-party components and system development. These are great -- there are great market potential in this segment, and we are already well into our first wave of project deliveries. Since we launched our go-to-market model, Webstep has steadily grown the business for teams, projects and solutions. Since last quarter, we have doubled the number of concessions engaged in these kind of deliveries. Webstep has a diversified customer base across most sectors. We support customers in solving business challenges within industries such as transportation, retail, finance, energy, health 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 challenging -- challenges affecting specific sectors. Also, the split between private and public sector is a healthy sign for our -- for us as a company. Demand in public sector has shown to be more stable over time. From last quarter, we are seeing a 15% shift towards our 10 largest customers. Now let me take a moment and shed a little light on some of our long-term customers, these are customers that over years have put faith and confidence in Webstep, in order to develop solutions and services needed to make progress in several areas. Laerdal Medical is a good example on how Webstep is able to renew our customer relationships and help support our customers in business-critical projects. Solutions from Laerdal Medical need to be both intuitive and user-friendly in order to deliver on their strategic mission: help save lives. Speed to market is essential. Since 2016, we have worked closely with Laerdal in both system development and project management. And lately, we have been a part of a team with a collaboration with the World Health Organization and the Gavi, the vaccine initiative. The goal of the project has been to increase the quality of the training for COVID-19 vaccination for health care personnel world around. Pretty impressive, I would say. Another customer we are working with closely is Altibox. The societal benefit from high-speed connectivity cannot be underestimated. Webstep is therefore thrilled to have one of the leading broadband service companies as a long-term valued customer. Currently, we have 9 people engaged in developing new solutions for further improved customer service. In addition, they are also coping with making sure that the ever-increasing amount of data is flowing seamlessly and secure across several different platforms and solutions. Supporting Altibox on their mission to deliver high-quality connectivity and solutions to their 1.2 million Norwegians is definitely a project that is of societal interest and in line with Webstep's claim to develop for tomorrow. The third customer I will talk about today is KS. The organization for all local governments in Norway has an overall responsibility to make sure that local and regional authorities have access to efficient digital tools and solutions. Webstep has for many years been a preferred partner and has recently renewed the agreement with KS. This has ensured a continued collaboration with KS to develop solutions and services needed to manage and govern local authorities. These 3 outstanding customers are located on the west side of Norway. But we have also dedicated teams of expert across both Norway and Sweden. This is key to Webstep as we firmly believe in the importance of knowing our local markets. I believe there is a strong -- I believe these strong office -- local offices are vital to Webstep. The mode of operation has contributed to unique customer proximity and has made us well positioned for future growth and to pursue local business. Our strong local presentation also make it easier to act as a strategic adviser to our customer. We have maintained this model over the years. And at the same time, we have facilitated even better collaboration across departments throughout the group. Our go-to-market model ensure continuity for deliveries of expert 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 competency events has been an important investment in our experts. As an IT expert company, we need to be focused on professional development among the consultants in order to stay relevant in the marketplace. Regarding the recruiting and hiring, there is still a tough market for getting the best IT experts. But with a strong recruiting focus, we ended Q2 with 439 employees in total, which is up 25% from last year. Our business is not purely commercial. As a tech company, we also have a responsibility to society. I believe our ability to understand societal challenges makes Webstep over time a more relevant and stable counterparty for our customers. Last year, Webstep became a member of Abelia, the business association of Norwegian knowledge and technology-based enterprises. Abelia is working closely with authorities and is considered a strong influencer. This year, Abelia invited one of our talented people to join forces with them during Arendalsuka and participate in a debate discussing how data can create jobs. The minister of digitalization also took part in the debate. This was another step forward in making sure Webstep is perceived as an organization that cares about society. We used this opportunity to position Webstep as a player in the tech and service space that have the ability to -- intention to support public and private businesses in developing and preparing for the future. We have also been very proactive in promoting the lack of gender balance in the -- our industry. I strongly believe that we need more diversity and better gender balance in order to develop the best solutions. We also -- we are also short of digital skilled candidates, which is another reason why we need to motivate more women to join the IT industry. Both the Tech TENK Camp (sic) [ TENK Tech Camp ] for girls between 13 and 18, which was held in August, and the Girls and Technologies, which will be held in November, are 2 examples of these kind of events. We are preparing the November event together with NHO. Diversity is another important aspect of our business. It's important that people can be who they are. It's about inclusion and tolerance. And I want Webstep to push these values also outside the company. We are currently -- we currently have people from 25 different nationalities working with us. This is an asset and reflects that we have been developed -- have developed a culture for inclusion. We are not putting people in boxes and neither should anyone else. Next is a summary of the financial results. You can find the income statements, the balance sheet and the cash flow statements in the Q2 report. I will not go through this in details here but just mentioning some highlights. Revenue in Q2 was NOK 196 million, up by 13% compared to last year. The revenue growth is driven by increased head counts, high utilization and higher hourly rates. The EBIT margin was 10%, and the EBIT was 20% -- NOK 20 million in Q2, which is an increase of almost 20% compared to last year. The increased EBIT is explained by higher revenues from own consultants and less use of subcontractors. The free cash flow ended at negative NOK 6 million for the second quarter. The equity ratio was 61%, and the cash balance at the end of Q2 was NOK 20 million. Let's have a look at our 2 segments. The Norwegian segment represent around 86% of our revenue. In Norway, revenues in Q2 was NOK 169 million, up by 16% from last year. The revenue growth, driven by increased head count, higher utilization and higher hourly rates. You can see that the revenue growth in Norway is driven by the Oslo office in Q2 as well as supported by the growth in the regional offices. The EBIT margin was 11%, and the EBIT was NOK 19 million, which is an increase of above 30% compared to last year. The increased EBIT is explained by higher revenue from our own consultants and less use of subcontractors. Let's move on to the Swedish segment. Sweden accounts for around 14% of our consolidated revenues. In Sweden, revenue in Q2 was NOK 27 million, up by 1% from last year and continues its positive development. Revenues from consultants grew by 2% in constant currency mainly driven by head count. EBIT in Sweden was NOK 1.3 million, and the EBIT margin was 5%. The EBIT is impacted by lower margins from subcontractors, increased lease cost and COVID support offered by the Swedish government last year. We have had an increased cost for recruiting and office locations to facilitate increased growth in the Swedish market. More on this in the outlook. In Q2, we had negative free cash flow of NOK 5.6 million. The decrease is mainly related to payment of dividend and change in trade receivables. The cash balance at the end of Q2 was NOK 20.5 million. Webstep has a credit facility of NOK 110 million in Norway and SEK 5 million in Sweden, and we have not been in breach with any covenant. Next, I will take you through the outlook. 2021 is looking very promising as we see continued strong demand for Webstep services. Q2 has been another strong recruiting quarter. The number of employees expected to increase to around 465 by the end of Q3, this gives us a growth of 12% in our delivery capacity compared to last year. Recruiting has also been especially good in Swedish -- in the Swedish region, matching our prior investments. We have a growing momentum in the long-term agreements with terms -- with teams and projects. This is creating a strong platform for further growth throughout the year and beyond. M&A might be utilized as a strategic tool to access new customer relations and new expertise. To conclude, I'm very proud to see Webstep moving forward and having such great prospects. As the world is going digital, we experience a high demand for IT experts 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.