Webstep ASA

OSE:WSTEP

Earnings Call Transcript 2022-Q3

[Save Asmervik, executive]

Welcome to this presentation of Webstep. My name is Save Asmervik, CEO of Webstep. I will take you through this agenda for the third quarter 2022. Let us start with the highlights.

We have, over a longer period of time, seen a healthy growth rate in number of employees. Our employees are the most important factor for what we can achieve as a company and deliver within technology services. At the end of third quarter, we were 535 employees, an increase of 66 employees over the last 12 months.

Revenues for the quarter rose with 17% from corresponding quarter last year and was close to NOK 194 million. The growth rate is solid. However, revenues have not reached its full potential due to lower utilization in the quarter. For the last 12 months, we have accumulated revenues of NOK 861 million. EBIT for the quarter came to NOK 5.5 million, a decrease of 42% from the corresponding quarter last year. The positive effect from higher revenue is offset by higher operating expenses, primarily related to culture-building activities and conferences. I will elaborate further on the importance of these activities on the upcoming slide.

I would also like to point out that we are not satisfied with the current level of EBIT. Our focus going forward will be to enhance profitability, improve cost management and optimize sales activities to contribute to improved margins.

I also need to comment on the changing macroeconomics. Throughout the quarter, we have seen changing market conditions and surging prices across multiple segments, affecting markets and customer behavior. However, the overall trend for the utilization across the society continues. The demand for experienced support and deep IT competence is still important to our customers. Webstep consultants are considered key in delivering services, supporting customers' digital journey.

Prior to the business review, I would like to give you a brief recap on our go-to-market model, then I will provide some market insights and share some background on why Webstep is investing in competence. 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. We are 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 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. In total, we have a solid delivery platform, capable of solving complex business challenges.

Let me now briefly present some insights related to the market fundamentals. Digital technology is a key enabler for developing the society. Markets and customers are facing a challenging macroeconomic environment. Geopolitical instability, energy crisis, increasing interest rates and supply disruptions can affect buying behavior in certain segments. But the long-term trend of digitalization has not changed. Strong experience and IT competence are needed to help business deliver on their digital journey. It's about reliable IT resources and fixability.

Long-term strategic partnerships are more important than ever, especially this is true when dealing with team deliveries, tailored solutions and large IT projects. This scenario fits well with Webstep's current service portfolio and go-to-market model that I will cover shortly.

The market predictions for Radar, a leading vendor of fact-based market insights, show 4 distinct areas related to IT consultant market, 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, leveraging partnerships with global tech vendors and platforms. This is key to maintain our reputation as a credible tech partner.

I will now share some background on why Webstep is investing in competence. Webstep continues to invest in talent. This is key to maintaining our position as an IT expert house. As access to talent is still limited, we have chosen a holistic approach to talent acquisition.

In third quarter, we initiated a recruiting program in, Initium, to attract more talents. This program has increased our in-house capacity and complements our successful team deliveries. Young aspiring consultants with 2 to 3 years of work experience kicked off their Webstep career in August, and we are very pleased with their progress and achievements so far.

In addition, we're also determined to making sure our senior consultants have the opportunity to grow their skills and build new competencies. Our in-house training is very popular, but we are also offering external instructions -- instructors and educational events. This is important to make sure we boost our organizational capacity in delivering on cutting-edge technologies. It's simply a question of staying relevant and do not fall behind on skills and competencies.

In third quarter, Webstep had the pleasure of being one of the key contributors on the most important developer conferences in Norway, JavaZone and NDC. Many of our consultants from around Norway chose to participate. Over a couple of days, they attended classes, met with clients and networks. We even had several Websteppers sign up as speakers.

For Webstep, these events are of great importance, not only to boost motivation and inspire our workforce, but also to get recognized as a key industry player. Visibility and awareness are important to attract new candidates. These events provide an excellent opportunity to promote the Webstep.

Now let me present a couple of customers that we are working closely with. OSAC springs out of SINTEF, Norway's largest research institution. OSAC have patented technology based on many years of research. Their vision is to contribute to a cleaner and more sustainable ocean as well as making the fishing industry more efficient. Their solution, PingMe, solves the problem of ghost fishing, making vessels more profitable through giving critical information about the fisheries to the skipper. And that's where Webstep's competence is applied. Our job was initially to develop a cloud solution for data storage and retrieval. However, it soon became evident that this was just part of the task. Other aspects of the solution, like security, remote management, software distribution and infrastructure had to be resolved as well.

During the project, other use cases for the data surfaced. The flexibility of the solution made these changes a breeze and could be implemented with a minimum set of changes. Over time, the data will be made accessible to scientists, researchers and authorities ensuring the well-being of the oceans.

Another good customer, we have been working to support is Ramirent. The company is offering equipment rental for construction and other services. Their mission is to help customers gear up on safety and efficiency by delivering great equipment and smooth service. Webstep has been assisting Ramirent since 2021. We're pleased that the cooperation continues and has expanded into new markets.

For Ramirent, we have helped to develop their analytics platform for the Norwegian segment. The platform is based on leading technologies like Snowflake and Matillion on Azure. Our services also cover working on their financial reporting solution based on Microsoft Power BI. In addition, we have assisted Ramirent in purchasing and implementing a new web-based rental system. We're now excited to enter our third year of cooperation with Ramirent.

Now let's move over to a customer located on the west coast of Norway. SEAM is a leading supplier of zero emission solutions to the maritime industry. They are helping maritime companies reach their efficiency and environmental goals. The company is a significant local employer with 130 employees located outside Haugesund.

This maritime company has positioned itself as one of the leading suppliers of hybrid and fully electric solutions for ships in Norway. In order to tackle some of the world's biggest maritime challenges, Webstep provides additional support to SEAM's skilled development team. We are supporting them in building and configuring a new automation framework system for maritime electronic solutions. This is key to lower emission for the industry. This is important work carried out by senior Webstep consultants.

I will now cover our organization to see how the capacity has developed in the third quarter. Webstep firmly believes in the importance of 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 initiative, working closely with our large accounts. 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.

Being a people company, we take good care of our employees. We are constantly improving the Webstep employee work experience. Working conditions, developing competence, culture-building activities and an [ IHR ] policy designed to meet the needs of employees in different phases of life. These are all relevant topics and activities that counters churn and boost a sense of belonging.

In third quarter, all departments carry out their annual social gatherings. The initiatives are highly appreciated. In addition, we have, over time, also optimized our office locations, making them ideal for knowledge sharing and our team and project deliveries.

We are pleased with the overall employee growth in the third quarter. Especially, I would like to point out our Oslo office, which has successfully grown by 23 employees over the past 12 months. Our Swedish operation also is showing great strength in the number of employees, growing more than 19% year-over-year. The recruiting efforts continues across all regions.

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 just mention some key figures. I will start with a consolidated overview for the group.

We have, over the past 12 months, seen an increase of 14% in number of employees, with 535 employees at the end of third quarter. Total revenues for the group in the quarter were close to NOK 194 million, 17% up from the corresponding quarter. We have continued double-digit growth in revenues despite lower level of utilization in the quarter, primarily in the Norwegian segment.

The total revenue year-to-date grew 15% compared to the same period last year, ending at NOK 642 million. EBIT ended at NOK 5.5 million, which is a reduction of NOK 4 million from corresponding quarter last year. The negative change in EBIT is primarily due to higher operating expenses and lower utilization. I will explain the key drivers further in the key figures for Norway. EBIT year-to-date ended at almost NOK 43 million, with a reduction of 10% compared to same period in 2021. EBIT margin for the quarter was close to 3%, while for the year-to-date, EBIT margin is 6.7%.

Let's now look at our 2 segments, starting with Norway. For Norway, we ended the period with 51 more employees compared to September last year. Despite fierce competition for talent in the market, the accomplished growth over time is stable. Revenue rose with almost 14%.

Although revenue was positively affected by increased number of employees and hourly rates, we are experienced -- we experienced a drop in utilization. This is primarily due to consultants between projects, onboarding of new consultants and competence building activities. These activities, such as JavaZone and NDC, took place in third quarter. Same goes for our annual social gatherings for employees.

Influenced by these key drivers. EBIT for the quarter ended at NOK 4.3 million, which gives a reduction of 57%. For year-to-date, EBIT came to close to NOK 38 million, representing a reduction of 15% from last year.

Our main priority going forward will be improved profitability through cost management and high utilization. We have, over time, proven our capacity to grow in both numbers and employee -- or employees and revenue. Now it's time to improve the balance between the need for growth versus profit.

To deal with current market condition and a changing macroeconomic environment, we will focus on the enterprise market, Team-as-a-Service deliveries and strengthen across -- strength across regional activities. This will further position Webstep as a strategic partner to our customers. More on this in the outlook.

Let's move on to the Swedish segment. Our Swedish segment are approaching 100 employees, representing an important milestone for our 3 offices in Sweden. Year-over-year, we are counting [ 15 ] more employees, which gives an increase of 19%. Revenue rose by 35%, ending at NOK 28 million for the third quarter and close to NOK 91 million year-to-date.

The Swedish segment represents almost 15% of the consolidated revenue for the group. EBIT ended at NOK 1.2 million for the third quarter and NOK 5 million year-to-date, which is up by 54% compared to the same period last year. Overall, we are pleased with the solid progress for Swedish operation.

Next, I will take you through the outlook. The speed and scale of the digital transformation in society has no historical precedent. The long-term trend of digitalization continues. In parallel, we see a changing macroeconomic environment, giving us an opportunity to reflect on our business. However, digitalization of services and solutions ensure increased efficiency, improve customer service and ultimately better competitiveness.

We believe that Webstep is well positioned to support our customers in the changing market conditions. It's about making business smarter. We know that digitalization is helping our customers become more resilient businesses, and this calls for reliable experienced support. Given our reputation as IT expert house, we still believe that there are market opportunities awaiting for us.

Headcount growth provides increased capacity to deliver. But the growth also comes with a short-term cost effect in profitability, an improved balance is needed. This is why we intend to optimize our sales activities in order to improve utilization. This also includes our enterprise and key account initiatives.

Our recruiting activities will continue and are expected to yield by end of first quarter. There are just minor expectations for growth in the headcount for the fourth quarter due to seasonal variations. In parallel, we are working on retention to make sure consultants stay longer at Webstep.

Furthermore, we will focus more on cost management. It's vital that we balance the need for growth with the need for profitability. In the long run, we are aiming for an EBIT margin above 10%. With the current initiatives in place, improved cost management and activities optimizing our sales operations. I believe that our profitability target is within reach.

To conclude, the market is, more than ever, facing continuous macroeconomic changes. The need for reliable, experienced support and deep IT competence is still important to our customers, and we are offering a strong and flexible service portfolio. Based on our current activities, initiatives, I strongly believe that Webstep is well positioned to deliver on our promise to the market: Developing for tomorrow.

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