Webstep ASA

OSE:WSTEP

Earnings Call Transcript 2022-Q2

[Save Asmervik, executive]

Welcome to this presentation of Webstep ASA. My name is Save Asmervik, CEO of Webstep. And I will take you through this agenda for the second quarter and first half year of 2022.

Let us start with the highlights. By the end of the second quarter, we passed the 500 employee mark as indicated in our last quarter presentation. This represent an important milestone. Webstep's employees are our most important assets and a key to continued success.

Over the past 12 months, we are counting 68 more employees, and we are pleased with our growth rates. Revenues for the quarter ended at NOK 215 million, which is 10% increased compared to the same period of last year. Revenues for the quarter and the year-to-date have increased due to a higher number of employees and hourly rates, although negatively affected by lower level of utilization and higher absence.

Accumulated revenues for the past 12 months are NOK 833 million. EBIT for the quarter was NOK 13 million, down 32% compared to the same period last year. EBIT is affected by higher costs. In line with our strategy for further growth and visibility, we have implemented structural actions that are key to our platform for growth. These investments cover initiatives such as investing in our Team-as-a-Service delivery model, strategic improvements of the Webstep employee work experience, and improvements of our capacity within sales and talent acquisition.

Due to the continued effect of reopening after the pandemic, the cost, especially related to seminars and culture building activities are higher than the corresponding period in 2021. EBIT for the last 12 months are NOK 65 million.

Prior to the business review, I would like to share some exciting news about our new recruitment program, Webstep Initium, market fundamentals and give you a brief recap on our go-to-market model. Webstep has a proven track record of attracting highly skilled consultants with relevant work experience and our recruitment efforts continues at full scale. However, to meet the customer demand, Webstep has initiated a new recruitment program, Initium to attract more talent.

This program will increase our in-house capacity and supplement our successful team deliveries. Initium will consist of a small group of carefully selected young consultants with 2 to 3 years of work experience. The intention is to headcount qualified individuals to the program and offer the candidates a fast track for growing their skills.

The number of candidates selected for the Initium program is limited. This will ensure that Webstep continued to be perceived as an IT expert house. The Initium program was recently kicked off with 8 aspiring professionals located in Oslo and Trondheim.

Let's now do a little recap of our market fundamentals. Digital technology is a key enabler for developing the society. And demand for IT services is growing. We see -- you also see the need for more team deliveries, tailored solutions and projects. And as the market is changing, so is Webstep. The market prediction from Radar Ecosystem, a leading vendor of fact-based market insight, show 4 distinct areas related to the IT consultant market. These are areas where customers are investing and Webstep covers all 4.

We are well positioned to build, assemble and deliver the required competencies. In addition, we are also continuously building competence and knowledge leveraging our partnership with global tech vendors and platforms. This is key to our reputation as a credible tech partner to our customers.

Now let me take you through some of the core elements of our go-to-market model. In short, our wide range of highly skilled tech experts are delivering services on 3 levels. The traditional way of delivering advisory services has been our experts for hire business. These services will continue and grow based on strong customer demand.

Our Team-as-a-Service offering allows Webstep to construct cross-disciplinary teams to solve customer challenges. This is the fastest-growing business and confirms our growth strategy.

We're adding our Initium candidates to some of these teams for them to further develop their skills and add customer value. Our third delivery method is our Project & Solutions business. This includes development projects and even complete solutions with a mix of third-party software and system development.

Deliveries and services on all levels are based on profound expertise in market-leading technologies. In total, we have a solid delivery platform capable of solving complex business challenges.

Now let me present a couple of customers that we are working closely with. Webstep has several customers in the energy and utilities industry, and I have referenced some of them in previous presentations. The time -- this time, I would like to cover Easee which claims to be developing the world's smartest charging device for cars. We have been working with Easee since 2019, and I believe it's an honor to be working with the company aiming to ensure a green shift in the energy sector.

Multiple consultants from Webstep are offering a variety of services. We're contributing to projects related to developing Easee's IoT and data platform, which is receiving more than 3,500 messages per second.

Developers, data scientists and user experience consultants from Webstep are all working to optimize charging services and facilities for Easee. Another interesting customer of Webstep is Effera. Effera is a market leader in safety solutions for the construction and tunnel industry. They are focused on leveraging IoT technology, covering health environment and security, and Webstep is contributing with several consultants.

Our involvement covers developing digital solutions for tracking personnel, equipment maintenance and access management. I believe Effera is a great example of how technology combined with the right set of skills, can add value to safety and society.

Now let's take a look at how we are organized. Webstep firmer believes in the importance of strong local presence in order to be close to the customers and act as a strategic partner. As mentioned, we have over some time, been working on several structural actions.

One of the initiatives is improving the Webstep employee work experience. One of several outcomes is how our offices -- office locations are optimized for teamwork, hence our team and project deliveries. The way the workplace is critically designed contributes to generous sharing of knowledge. This is highly appreciated by our employees.

Our centrally located offices are also being used frequently to build solid relationships to customers, employees and candidates. The office locations are making Webstep a more visible player in our local markets. We are strongly committed to build competence through continuous investment in our employees. We are relieved that we now can offer the same type of high-quality events and conferences to our employees as we did prior to the pandemic. Investing in building competence is crucial for what we can achieve as a company.

In terms of employee growth, we are pleased with the number of candidates attracted in the second quarter and the strong recruiting effort continues across all regions. We also see that our Team-as-a-Service delivery model has a positive effect on both recruiting, churn and utilization.

Next is a summary of the financial results. You can find the income statement, balance sheet and cash flow statement in the report for the second quarter. I will not go through this in detail, just mentioning some key figures. I will start with the consolidated overview for the group. We have, over the past 12 months, seen an increase in number of consultants. We have now 68 more employees compared to the same quarter last year.

Total revenue for the group for the second quarter ended at NOK 215 million, 10% up from the corresponding quarter. The growth is stable, although, as mentioned earlier, affected by lower level of utilization, we have both the Norwegian and Swedish segment experiencing a higher level of absence due to vacation, illness and parental leave.

Total revenue year-to-date is 15% up from the same period last year, NOK 448 million. EBIT ended at NOK 13 million, which is a reduction of NOK 6 million from corresponding quarter last year. The key drivers for changes in EBIT with a negative effect are as follows: lower utilization, higher office rental related to increased need for office areas suitable for Team-as-a-Service growth and work experience.

To deliver on our strategic initiatives, we have invested in additional resources. We have strengthened our leadership team, covering Team-as-a-Service as well as our sales and recruitment team working to support all regional offices across Norway.

Increased activity level compared to the corresponding quarter in 2021 for seminar attendance, culture building activities and so forth. The change is primarily due to that the society has fully reopened after pandemic and in contrast to the corresponding -- in contrast to the corresponding quarter.

For the first half year, EBIT ended up NOK 37 million, down 1.6% compared to first half of 2021. EBIT margin for the quarter was 6.3%, while for the first quarter, 8.3%. Let's now look at our 2 segments, starting with Norway. Over the past 12 months, the number of employees located in Norway has increased by 50. Compared to last quarter, we have 12 more employees.

With regard to revenue, the Norwegian segment represents 85% of total revenue for the quarter. Revenue from Webstep consultants after the quarter driven by higher headcount and hourly rates, as mentioned, negatively affected by lower level of utilization and higher absence. Revenue breakdown indicates a 13% increase in revenue for the regional offices and an 8% increase for the headquarter in Oslo.

In addition, the use of subcontractors in the second quarter was reduced by 15% compared to the corresponding quarter. EBIT ended at NOK 12.6 million, reduced by 32%. The reduction in EBIT is explained by the same reasons as mentioned for the group with regards to costs related to strategic initiatives and higher levels of activities compared to the corresponding quarter in 2021.

Let's move on to the Swedish segment. Our Swedish segment are counting 18 more employees year-over-year, which represents an increase of 28%. The last quarter, we have 4 more employees in Sweden. In terms of revenue, we see an increase of 17%, reaching almost NOK 32 million in the second quarter and NOK 62 million for the first half year. Our Swedish segment has also experienced a drop in utilization and higher absence for the quarter.

Revenue from both consultants increased by 28% for the quarter, while the use of subcontractors in Sweden was reduced by 16% in the period. EBIT was close to NOK 1 million, which is a reduction from NOK 1.3 million in corresponding quarter. EBIT was affected by higher costs for external seminars in addition to capacity increase within sales and recruitment.

Next, I will take you through the outlook. I believe Webstep is well positioned to take advantage of the strong IT market. Demand for services across our delivery model looks promising for the second half year of 2022. We will continue our strong recruitment efforts, and we expect to be 530 employees by the end of the third quarter.

The war for talent in the IT market continues. By implementing our new recruitment program Initium, we will take charge and develop new experts. Consultants on the Initium program will be an important resource for Webstep when taking on more team deliveries for which there is an increased demand.

Most importantly, the Initium program will ensure improved team dynamics and diversity. This is not only good for work environment, but also has a positive effect on customer deliveries. Through the structural actions implemented, we expect to see scaling effects and improved profitability by year-end. Margin improvements is 1 of our main focus areas.

Our go-to-market model remains relevant, and we will continue harvesting on each of the service lines. Overall, our go-to-market platform brings flexibility and value to both customers and our consultants and especially the team deliveries seems to be a game changer for Webstep in the enterprise segment.

Furthermore, strengthening and coordinating enterprise initiatives will be key to position Webstep as a strategic partner to our customers. Last but not least, we will focus on organic growth in existing locations and further develop the Webstep employee work experience.

To conclude, Webstep is well positioned to attract new experts and customer and ready to develop tomorrow's digital solutions. Please contact us if you have any questions. Thank you for your attention.