Webstep ASA

OSE:WSTEP

Earnings Call Analysis

Earnings Call Transcript 2022-Q4

[Save Asmervik, executive]

Welcome to this presentation of Webstep. My name is Save Asmervik, Webstep's CEO. I will take you through the agenda for the fourth quarter and full year 2022.

Let me start with the highlights. I will start with the revenue. Based on a long series of quarters with strong growth in capacity, the sales efforts has given a solid increase in yearly revenue again. Revenues for the quarter ended at NOK 245 million, which is a 13% increase compared to the same period last year.

For the full year of 2022, the revenue rose with almost 15% to NOK 888 million. Throughout the year, we have experienced a stable growth rate in revenues. The increase is primarily due to a higher number of employees and hourly rates, while negatively affected by lower utilization rate for the last couple of quarters.

EBIT for the fourth quarter was almost NOK 12 million and for the full year, close to NOK 55 million, both are lower compared to the corresponding period last year. EBIT has been negatively impacted by one-off costs related to the reduction of future overhead costs as well as the write-down of a lease obligation due in 2023.

Excluding these extraordinary costs, the adjusted EBIT stands at NOK 17 million for the quarter. For the full year, adjusted EBIT amounts to NOK 60 million. The reduction of overhead costs, which will be effective from this year, is part of our ongoing efforts to improve profitability. Sales activities include focus on long-term strategic customers, reallocating resources from recruitment to sales and building and nurturing a sales-oriented culture and more. We expect that the impact following these activities will show in the following quarters.

Then a few words on the Webstep employees, our most important assets and the key to continued growth. By the end of 2022, we were 538 employees, which means that we, over the past 12 months are counting 60 more employees. In addition to share price appreciation, Webstep has an ambition to create a long-term shareholder value in form of dividend payments.

The dividend proposal from the Board of Directors is NOK 1.70 per share and will be on the agenda of the Annual General Meeting in the start of May. I'm glad to share that Ida Amalie Oma was appointed Webstep's CFO 1st of January. She comes from the role as a group controller in the company, another example of a great internal management recruitment. She brings a strong business understanding and relevant financial background to the table. This is key for the future development of Webstep.

For the business review, I would like to start with some market insights. Digital technology is a key enabler for developing this society, markets and customers are facing a changing macroeconomic environment. Geopolitical instability, energy crisis, high interest rates and supply disruptions can affect buying behaviors in certain segments. But the strong long-term trend of digitalization has not changed.

To help business deliver on their digital journey, strong IT competence and experience are necessary. This requires reliable IT resources and predictability as well as a focus on building long-term strategic partnerships. This is especially true when dealing with team deliveries, tailored solutions and large-scale IT projects.

Fortunately, this scenario is well suited for Webstep's current service portfolio and go-to-market model, which I will cover shortly. The market prediction from Radar, a leading vendor of fact-based market insights show 4 distinct areas related to the IT consultant markets, and Webstep covers all 4. We are well positioned to build, assemble and deliver their required competencies.

In addition, we are also continuously building competence leveraging our partnerships with the global dominating tech vendors and platforms. This is key to maintaining our reputation as a credible tech partner.

Now I will give you a brief recap on 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 customer demand.

Our Team-as-a-Service offering allows Webstep to construct cross-disciplinary teams to solve customer challenges. This is the fastest-growing delivery concept and confirms our growth strategy. Team deliveries are also correlated with stronger strategic partnerships which is why they are a focus area for us in the coming months.

Our third delivery method is our Projects and 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. When we are combining the focal pool of experts on our delivery platform with the flexibility of our operational model, we can quickly adapt to the changing market condition and go for new opportunities.

I'm excited to finally be able to share with you a major Webstep achievement in the enterprise market. In short, our focus on the enterprise market is giving results. Step by step, Webstep has built deliveries to DNB during 2022, amounting to 25 Webstep experts spread across several business areas. Recently, DNB has added a dedicated Webstep team for their pension portal.

Team efficiency is crucial for productivity and time to market. It's more to a team than an aggregated list of individual skill sets. Team training and preparation based on recognized methods, tools and techniques are core elements in the Webstep Team-as-a-Service deliveries. The added value of Webstep teams derives from experience from a wide range of deliveries to high-performing customers.

Today's second Webstep story is about the Norwegian Environment Agency. This government agency serves under the Norwegian Ministry of Climate and Environment. The Norwegian Environment Agency has 700 employees in Trondheim and Oslo, together with experts at local offices. The agency aim for a clean and diverse environment. Primary tasks are greenhouse gas reductions, pollution prevention and nature resource management.

Succeeding Webstep's previous agreement, the agency recently signed a 4-year frame agreement. Among Webstep deliveries are an application that eases and enriches the agency's operations, digitizing hands on management of Norwegian nature and the environment.

Let us now have a look into the state of Webstep's organization and employees. Webstep firmly believes in the importance of a strong local presence, proximity to our customers and local market insights is making it easier to act as a strategic partner. This has been recognized through our enterprise initiatives, working closely with our large accounts.

Being a people company, we take good care of our employees, and we are constantly improving the Webstep employee work experience. Our go-to-market model is a key part in this. Webstep consultants can now work their way through project at customer premises, customer projects run from Webstep offices and even remote work.

Strong people policies working conditions, developing competencies and cultural building activities are all boosting belonging and countering churn.

Next is a summary of the financial results. You can find the income statement, the balance sheet and the cash flow statement in the report for the fourth quarter. I will just mention some of the key figures. I will start with a consolidated overview for the group. Total revenues for the group in the quarter were NOK 246 million, almost 13% up from the corresponding quarter. We have continued double-digit growth in revenues, despite the lower level of utilization in the quarter, primarily in the Norwegian segment.

Total revenue for the year ended at almost 15% higher compared to the last year at NOK 888 million. EBIT ended at NOK 12 million, which is a reduction of NOK 6.6 million from corresponding quarter last year. The negative change in EBIT is primarily due to one-off costs related to reducing future overhead costs and write-down of a 2023 lease obligation.

EBIT full year ended at close to NOK 55 million, with a reduction of 17% compared to 2021. Adjusted for one-off costs, the EBIT is down NOK 1 million in the fourth quarter and NOK 6 million for the year, in total, ending at NOK 60 million.

EBIT margin for the quarter was 5%, and the year-to-date EBIT margin ended at 6%. We have, over the past 12 months, seen an increase of almost 13% in number of employees with 538 employees at the end of this year.

Let's now look at our 2 segments, starting with Norway. Looking at the revenues, we see that despite the weakened utilization, we have a stable growth in revenue, both for the quarter and the full year. The positive impact commence mainly from higher number of employees and hourly rates.

EBIT for the quarter ended at NOK 10 million, which gives a reduction of 41%. EBIT came close to 50 -- sorry, NOK 48 million for the year, representing a reduction of 22% for the previous year. Adjusted EBIT is shown in the table as already discussed in the previous slide. I believe that we are positioned for improved operational efficiency going forward. At the end of the year, we had 41 more employees compared to last year.

Let's move on to the Swedish segment. We are very satisfied with the improved position and progress of our operations in Sweden with a 20% increase in revenue, both for the fourth quarter and for the full year, NOK 36 million and NOK 127 million, respectively. This gives a 15% of the consolidated revenue for the group. EBIT ended at NOK 1.8 million for the fourth quarter.

For the full year, EBIT was close to NOK 7 million, which represents an increase of 44% compared to 2021. Our offices in Sweden had by the end of 2022, 95 employees. This gives an increase of 20 employees year-over-year.

Next, I will take you through the outlook. The speed and scale of the digital transformation in the society has no historical precedence. The long-term trend of digitalization continues. Software development services are core in this market.

Digitalization of services and solutions ensure increased efficiency, improved customer service and ultimately better competitiveness. We believe that Webstep is well positioned to support our customers in the changing market conditions. It's all about making business smarter.

Profitable growth is key. Headcount growth provides increased capacity, but this also comes with a short-term cost affecting profitability. We now optimize our sales activities in order to improve utilization. In addition, we will focus on cost management. With the current initiatives in place, I believe that our profitability target is within reach going forward. In the long run, we are aiming at an EBIT margin above 10%.

To conclude, the market is more than ever facing continuous macroeconomic changes. The need for reliable experience support and deep IT competence is important to our customers, and we are offering a strong and flexible service portfolio. Based on our robust business model and our ability to adapt, I strongly believe that Webstep is well positioned to deliver on our promises to the market developing for tomorrow.

Please contact us if you have any questions. Thank you for your attention.