Webstep ASA

OSE:WSTEP

Earnings Call Transcript 2021-Q3

[Save Asmervik, Chief Executive Officer]

Good morning. Welcome to the presentation of the third quarter results for Webstep ASA. My name is Save Asmervik. I will take you through the highlights, the business and financial review, as well as share a few words about the outlook. Let us start with the highlights from the quarter. Overall, it has been a very good quarter for Webstep. Third quarter ended with a revenue about NOK 166 million, which is up about 14% from last year. A cumulative revenue over the last 12 months reaching NOK 745 million are also in line with our ambitions. Actual EBIT in the third quarter was approximate NOK 10 million, which is 2% up from last year. For the quarter, earnings are influenced by nonrecurring costs of NOK 2 million. Taking into consideration an extensive recruiting period and nonrecurring costs, we see an actual EBIT margin of 8% over the last 12 months. Recruiting is key for Webstep and 2021 has been a strong recruiting year so far. By the end of the third quarter, the number of employees is 470, which is up 31 from last quarter and 54 from last year. Now let me take you through the business review. At the end of third quarter, we can conclude that our platform for growth is yielding and that we are making good progress in key areas. 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 continued growth. 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, for our customers, to hire the needed experts. These services will continue and grow based on strong customer demand and stay at the core of the company. There is, however, an increasing demand for team-as-a-service, allowing Webstep to construct cross-disciplinary teams and to solve business and IT challenges. Sometimes the team is under supervision from the customer, and sometimes, we are taking full responsibility for delivering defined services. Our third delivery method is our Projects & Solutions business. This includes delivering development projects, even complete solutions with a mix of third-party software and system development. As an IT expert house, all our deliveries are based on profound expertise in market-leading technologies. In order to stay competitive and relevant in the market, we need to master emerging technologies. Cloud, AI, blockchain, IoT and security are all drivers in the race for digitalization. And I'm proud to say that we are delivering advice and IT services, leveraging these key technologies. In total, we represent a solid delivery platform, capable of solving larger and more complex business challenges than ever before. Webstep has a diversified customer base across most sectors. We support our customers in solving business challenges within industries such as transportation, retail, finance, health care, energy and public sector. This is key as we are less vulnerable to challenges affecting specific sectors. Also, the split between private and public sector is a healthy sign for our company. Demand in public sector has over time proven more stable. Top 10 customers represent about 30% of total revenues, reflecting that we have a broad customer base. Now let me present a couple of customers that we are working closely with. Ladeklar is a pretty young company with great aspirations that is focusing on car charging facilities in Norway. The company is owned by 2 major players in the renewable industry, BKK and Hafslund Eco. Our main task at Ladeklar is to construct a scalable platform to handle business processes and management tools. Several consultants are already in place in this new deal, developing a booking system as well as designing web pages. Another customer we are working closely with is a Swedish customer Björn Lundén. This is a good example on how Webstep is able to renew our customer relationships and help support our customers in business-critical projects. Björn Lundén is a knowledge and software company that for more than 30 years have been serving small- and medium-sized companies. Our consultants in Sweden working on Björn Lundén are focusing on developing more effective ways of handling everyday tasks for the end users. The agreement is a team-as-a-delivery service, covering both project management, solutions architecture, architecture and development. Last but not least, I want to highlight PubGene, who is working in the health care industry. Supporting PubGene on their mission to enable personalized medicine is definitely a project that is of societal interest and, if I may add, in line with Webstep vision of developing for tomorrow. PubGene's mission is to empower people with cancer and other life-threatening diseases to live longer and better lives by discovering the most precise and effective treatment. Consultants from Webstep play a key role in designing, building and maintaining PubGene's IA assisted applications. Now let me share a few words about our organization and our people. Webstep firmly believes in the importance of strong local offices. This gives us first-hand knowledge of both customers and local markets. At the same time, it's natural for us to collaborate across departments in order to deliver the best possible services. We invest continuously in our employees to strengthen the consultants' expertise and competence. As the society is reopening and we're facing the post-COVID era, we are also seeing the need for honoring our long tradition of leveraging culture building activities to strengthen our company culture. This is helping set Webstep apart from our competitors and attract new talent. As the map indicates, most of the offices have had a significant decrease of employees since third quarter last year. With a mission to help shape the future, Webstep is also playing an active role to influence how society is being developed. In August, we participated at Arendalsuka, discussing how data and new technology can create jobs and improve productivity. We have also on several occasions been visible in editorials, focusing on the value of IT consultants and how society need expert advice in order to solve societal challenges. Together with [indiscernible], we have launched a branding campaign focusing on the importance of technology shaping the future. The objective of this campaign is to increase the awareness of the role of IT consultants. Last but not least, the month of October is also known as the security month. This has given us the opportunity to highlight one of our security experts that have been interviewed by key media outlets on relevant topics and cybersecurity issues. Good publicity for Webstep as well as for our consultants. 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 third quarter. I will not go through this in detail now, just mentioning a few highlights. Total revenues for the group ended about NOK 166 million in third quarter. Compared to last year, this is an increase of 14%. Year-over-year revenue has increased with 11%. Revenues from own consultants continues to grow and now represent around 90% of total revenues. The use of subcontractors will vary over time. Sometimes Webstep delivers through others and sometimes Webstep goes prime. EBIT For the third quarter ended at NOK 9.5 million, which gives us an EBIT margin of 5.7%. Margin was negatively impacted by nonrecurring costs related to write-off, fixed-price projects and external consultants. In addition, we have onboarded a high number of employees and executed culture building activities as planned. Let me explain. At the core of Webstep culture, there is an obligation towards making sure that our employees thrive and are being appreciated. Post-COVID, we therefore saw a strong need to kick off a new round of team building activities. These kind of activities have over time proven to be strengthening the organizational culture and the connection to the company. To summarize the group, we have a strong foundation for profitable growth. Let's move on and take a look at our 2 segments, starting with Norway. The Norwegian segment represents 87% of total revenues for the group with NOK 146 million for the quarter. The segment has a significant growth in revenue compared to last year. The revenue breakdown shows that the Oslo office has a significant growth of 33% in third quarter, followed by strong growth across regions. The revenue growth is mainly driven by increased number of consultants. EBIT for the quarter is approximately NOK 10 million, and the EBIT margin is close to 7%. Personnel costs have increased this quarter related to onboarding and culture building activities. In the third quarter, we also had some extraordinary write-offs. In addition, Webstep has started an internal project using external consultants. The purpose of this project is to improve operations and collaboration between offices and departments. I'm also very happy that we have moved our headquarters to Rebel in Oslo. This is the new home for tech people in Oslo. And we already see the benefit of being colocated with other leading tech companies. Let's move on to the Swedish segment. With NOK 21 million in revenue, Sweden accounts for 13% of the consolidated revenue for the third quarter. The negative change in EBIT and EBIT margin from corresponding quarter last year is primarily due to extensive onboarding of new consultants. At the end of third quarter, we had 76 employees in Sweden, which is up 13% from second quarter and 25% compared to same quarter last year. I believe the increased capacity in Sweden represents a solid platform for further growth. We can find the balance sheet -- you can find the balance sheet and cash flow statement in the quarterly report. I will not go through this in detail now. Free cash flow ended at NOK 7.5 million in the third quarter. Total cash balance at the end of third quarter was NOK 16.7 million. Next, I will take you through the outlook. So far, 2021 has been a good period for us and we are experiencing renewed trust from our long-term customers as well as seeing new business opportunities arise. Continued high demand for our services and shares assignments for new hires on-boarded in Q3. The recruitment drive has been strong during the year, and this will further strengthen our position in the market. We expect to be around 475 employees by the end of the year. Furthermore, our market focus will continue to be on organic growth in existing locations. However, M&A may be utilized as a strategic tool to access new customer relations or new expertise. To conclude, Webstep has established a solid platform for growth and is well positioned for -- to develop tomorrow and tomorrow's digital solutions and societies. If you have any questions, please contact us at [e-mail]. Thank you for your attention.