Techstep ASA (TECH) Earnings Call Transcript & Summary

Hello, and welcome to the Q&A session. If you have any questions, please feel free to either post them in the chat or send them to the IR email. We are still on the journey of turning Techstep profitable, and we have gone through a good transformation, and we are now executing the final phase of the transformation. We see that we have a growth in our net gross profit of 7%. Our recurring revenue is growing 15%. And our ARR from owned software is also growing 15%. We still see in Q2 a market decline for the hardware business, but it was lower than in Q1. And the market expect that to -- the decline to slow down and start to recover during second half of 2023. We signed a very significant contract with Oslo Kommune of NOK 480 million. And together with signing the health [ citizenship ], a health agreement earlier this year, we have, in total, signed NOK 1.1 billion in frame agreements. This is a record for Techstep all-time high. We have also done refinancing to get more financial flexibility for Techstep after end of the quarter. And now with growth and the cost optimization, we see now a positive EBITDA adjusted for the third quarter in a row. And also for the last 12 months, we had NOK 8 million in EBITDA adjusted. So let us see what kind of questions we have gotten in, and I will see here and start off.

All right. Starting off with a question for you, Ellen. You have shown a strong development in adjusted EBITDA from last year and in the third quarter in a row with a positive EBITDA. But I can see that the adjusted EBITDA for Q2 was lower than Q1 and that you now have NOK 8 million in adjusted EBITDA year-to-date. Despite the revised outlook, is it still a way to go to NOK 40 million to NOK 50 million? Will you make it?

Well, first half year is always historically the slowest half part of the year. In our business, IT business, IT sector, the second half of the year is -- very often generates a majority of your EBITDA for the year. So we have shown in the first half that we have been able to grow our net gross profit and also our margins. And with all the agreements that came in, in the first half and what we see are now in the pipeline, we really expect exponential growth for the second half. So I think that will be fine.

Good. That's going to be great to follow and be part of. Let's see if we have gotten any more questions popping in here.

Okay, one for you, Borge. You presented that the revenue was lower in second quarter 2023 compared to second quarter 2022 due to a decline in hardware sales. How does this affect the next half year?

So our main focus is to drive our net gross profit up. That is where our goal is and we do not focus that much on the total revenue because the net gross profit is where we are earning the money. And since we are also turning towards higher margin revenue and that will not be that affected on the net gross profit, but that has -- with the hardware, when we're selling hardware that's a higher revenue contribution but lower margin. So the global market, as I mentioned in the introduction and also in the presentation, we have seen that the global market declined in Q1, 18% for the smartphone market and 11% in Q2. So it's going in the right direction. And the experts and the analysts, they expect that this will start to recover. So all in all, I think that we will and hope that we will see an improvement in second half that we usually do that. So that's the expectation. Then we have an external question here as well popping in, Ellen. So how does the liquidity for the company look for the next 6 months? Will you need a capital raise? Or will you manage with the revenue that's coming in?

Okay. Yes, I guess that's many people wonder about that. What we announced now in July is that we have managed to refinance our loans. And the structure of the refinancing is very well adapted and fitted to how we look at the future with an increase in our long-term debt, a better repayment profile and also availability of short-term credit facilities. And of course, the liquidity situation, I commented on that in the presentation is that the first half year and also in particular, the second quarter is very cash-intensive and it's difficult with the working capital changes in the second quarter. And we expect that liquidity situation to improve substantially during the second half when our EBITDA is improving. And with the refinancing, I think the way we look at things now, this should be quite a good financial stability for us going forward.

Yes. And usually, Q2 is stronger. Yes, second half is stronger.

Second half is stronger -- second half is so much stronger than first half year. And with the refinancing, I think we are good. That is our plan, the way we see the future now.

I just got another question coming in here. And the OpEx is up a couple of million quarter-over-quarter. Is this phasing effects given that you reiterate your OpEx target? Or how should we think about this?

I think -- I don't think OpEx is up quarter-over-quarter. But what we saw in the second quarter is that we do have decreased our OpEx costs. We have effectuated on our cost optimization plan, and we are where we should be. But as we see, we are also affected by inflation, plus inflation is very unstable at the moment, and we don't know how that's going to be looking forward. But what we have said and what we can show is that we have effectuated on our plans. We have decreased our headcount, our OpEx is down, our CapEx is down. And also, I commented on that in the second quarter, we did have a little bit of one-off effects on our OpEx. So it's not really representatives of the development going forward. Yes. New one, but yes. You said that you see a significant growth in tenders from the public sector, both in Norway and Sweden, but you have only communicated agreements in Norway. How is the tender activity in Sweden? And how is Techstep positioned in this market?

So we see an increase in tender activity, yes, both in Norway and in Sweden, as mentioned. And usually in Sweden, the tenders are asking for a pure hardware offer. But this gives us actually a very good position because the message that when we say to the customers that we can save 20% to 25% of your cost for your total mobile device fleet, that message is very, very strong. And we also are a part of an agreement with Kammarkollegiet and Kammarkollegiet is where you are able to sell your services and products to the public part of Sweden. And Kammarkollegiet has now said that they will come out with a new tender for mobile technology that will come based on our estimate end of this year, beginning of next year. So that's even more tailored towards what we will deliver. So based on that -- and based on that, we have a very strong track record with signing, of course, of [ citizenship ] and also Oslo Kommune. We have a very strong position. And Ellen, here is a new one for you as well. Employees are down another 4% quarter-over-quarter and are now at a level that seems lower than the original plan. Should we expect more OpEx reduction ahead? Or is this offset by inflation?

Yes. Number of employees are down. And like I said, we have effectuated on our plan. And it's not really lower than our original plan, but it's always moving your target on the exact date of the end of the quarter. In terms of OpEx reductions, like I said, we are now at where we should be and where our plan is to be. We are always looking at ways to optimize and cut costs and be more efficient. So in the longer term, we will look at efficiency gains. How can we get that? Where can we cut? So it's just a mindset. And of course, we are not entirely finished with our transformation and reorganization. So there might be possibilities going forward. If we see it, we'll take it. But in the current plan, we're at where we should be at the moment.

And we will continue also to have a strict cost focus in the business and optimize that going forward. And then how good would you say that the visibility for 2023 outlook is now? You imply a significant acceleration for the growth in H2.

Well, like we said previously, we have signed the biggest contracts ever in the first half in Techstep's history. I think it's a contract for NOK 1.1 billion in total with Oslo Kommune as partner. We also see that the pipeline and the sales activities now at the end of the quarter, the second quarter, is substantially picking up compared to what we have seen previously this year. In first quarter, we also commented on it was tender heavy. It was -- things took longer time to sell. So we see a lot more optimism now than we have previously. So yes, we believe in this growth. We really do. Yes, I think it's possible. At the same time, we also commented on the timing. We adjusted our targets from NOK 50 million EBITDA to NOK 40 million to NOK 50 million EBITDA. And that's because we are uncertain of the timing. When will it be possible to take out the profitability from these contracts that we are expecting. And that's not entirely up to us at the time. These are big institutions. So it's up to the customer when we are able to implement.

Yes, the customer needs to be ready to make this into a success for the implementation as well.

Yes. Okay, Borge. What are the most important improvement areas for Techstep short to medium term?

Our main focus is to make Techstep profitable. So that will be on top of our mind every single day going to work. We also need to have a strong focus on continuing to increase the sales momentum. We need to ensure that we increase activities. We need to ensure that we continue to win tenders. Yes. Well, we can -- short term or to summarize that, it's all about continuing to increase the momentum as we go along. And we will have the cost focus, and that will continue in the journey.

Yes.

All right. So that was the last question coming in. So thank you all for joining the Q&A session today. And we will then conduct this Q&A as done. Thank you all.

Thank you.

And see you all soon again.