BTS Group AB (publ)

Good morning, everyone. My name is Richard Engberg, and I'm an equity research analyst at Eric Penzer Bank. With me here, I have Henrik Ekeland, CEO of BTS Group, and Jessica Parisi, head of US BTS Group, to present another record quarter for BTS Group. Thank you very much, Richard.

And thank you everyone for calling in. And I'm happy to report to all the listeners and the shareholders another record-breaking quarter. And if we compare with 2019, which is... What we think is mostly relevant, you know, 2020 numbers are so easy to beat. So we don't want to compare with 2020. We're compared with 2019, the year before the pandemic. That was a really strong year. And we increased revenues 12 percent if we adjust for changes in the currencies. You know, the corona grew stronger and the earnings went up 40 percent compared to the strong 2019. So after the difficult investment and crisis year of 2020, We are delivering a new record quarter, and we're very happy for that. I also want to mention that the market has developed in an interesting way. The pandemic has really created a lot of challenges for our customers, the big companies of the world. And they are coming with new strategies, with new organizations, with new initiatives. And that drives more demand for our services. And interestingly, one year ago, basically, or a little bit more, every training was physical. Now, 100% is virtual. And that is now fully accepted. And that's the way how you conduct these programs. Very interesting market change. And BTS has become... through the crisis and through the investments we made, and even more attractive partners, because we made a fast move into virtual ahead of our competitors, and we're stronger in virtual today, and we're winning because of that. We also retained all our people last year, which is very good for us now when demand is coming back strongly. And we also continue to invest long-term in product development and marketing. And the final point I want to highlight is innovation. Virtual delivery, which is over Zoom with a teacher facilitator in the room, has taken over. But now we see digital. When you learn yourself in front of the computer, that is growing. And we are investing quite a lot more in that during 2021. We're taking more costs. Already took that in Q1. And we see that as a very interesting opportunity going forward. So that's a quick summary of this record first quarter. And I just want to talk a little bit more about our thinking in 2020. You know, in a crisis like the pandemic, it was a crisis for us because we were facing a potential 70 percent revenue loss. It's easy that you take the short-term view and you cut and you become a bit desperate. We have really taken the long-term view. Last year, we did not maximize profit. We thought about building for the future, building for a new era of growth. And We're getting there by growing the customer base. We added a lot of new customers last year and is continuing to do that. Secondly, building a broader offering. Thirdly, we've strengthened our organization. We've increased our marketing to be out there to win more business. And the bottom line is that this, you know, creates potential. potential for a new, long growth era for BTS going forward. And we're happy and proud how we handled the pandemic, thinking long term. And we think this is the interest of everyone, our employees, our customers, and certainly our shareholders. Q1, strong rebound, as I said, 12% up on revenue, 40% on earnings. And you can see, you know, the comparison numbers with 2020 are ridiculously high. Easy to beat those numbers. That's why we try to compare primarily with 2019, which was a normal, strong BTS year. Margin up. three percent units compared to 2019, which was a strong year. We're very happy about that. And if you look at this slide here, you can see on the Q1 that the earnings in Q1 is way above what we've ever delivered before. So that's, and you can see 2020, the bars are very low. So to come back like this is something that makes us very proud and gives us a lot of confidence for the future. Looking here at Q1, you see 70% growth compared to last year, and the profit growth is, again, ridiculously high on all the lines. And if we look at the units, we can see that growth. Jessica here beside me at North America, amazing revenue growth and margin growth. Most of the world also that. Europe actually a little bit not the same development. They had quite a strong economy. Q1 in 2020, they were not hit by the pandemic in last year's Q1. But overall, you know, a very, very positive development. If we take the long-term view, if you look at BTS from 2001 up until 2019, you can see that we've grown revenues 14% per year, year after year on average, and earnings 18%. So that's a very long, very stable and strong track record. And then you can see the 2020 bar, the crisis year when everything dives down. And we think that in 2020, which has been a transformation year for us, an investment year, we've made the right moves to create the same positive development going forward in 2021 and forward. to continue that growth in revenues, growth in earnings, year after year after year. This again looks at if you put some money into the stock market when we went public in 2001, or you put it into BTS. The shareholders on the call who put money into us in 2001 can see that, yes, you made quite a good, nice bet with your move then. Now, The underlying factors which have created all these years of revenue growth and profit growth still remain as we now move into 2021 and into the future. And first of all, you know, BTS, we have a very strong position. we are very, very competitive with our offering. We still only have 1% in this market, so there's a lot of room to grow. So that's really that position of being very competitive in a market that is fragmented, that is growing, that creates a huge opportunity for us to grow in the future. The second point is our track record. We grow year after year. And why do we grow? We grow because we have a great offering, because we have a fantastic talent base, because we invest in growth, in marketing and in product development, and because we make acquisitions. And we will continue to do that, and that's why we will grow year after year from 2021 and moving forward. So the outlook for this year, is physical deliveries will come back gradually during this year, but virtual, we think, will remain the majority. We see that the digital solutions, there is more demand. That's an interesting opportunity for us to address. And the outlook. is the same as after the Q4. We always keep the outlook. We never increase it after Q1. So we're saying that we will reach an earnings level that is in line with 2019 and then way, way better than 2021. And with that summary, I'm happy to let my colleague since 22 years, Jessica Parisi, present a little bit about BTS North America.

Thank you, Henrik. Okay, so a quick summary of BTS North America. First, our locations and the team, and then I'll build on Henrik's point of coming out stronger and share what we're doing to drive continued growth. You can see our major locations here. The core consulting offices are San Francisco, New York, Chicago, and Austin. Our digital offices are Toronto and Philadelphia, and then we have a big operational location in Phoenix. You can see our major practices on the right. So we help our clients with their big change and transformation initiatives. We also do leadership development from top to bottom of the house, and we help our clients with their go-to-market sales and marketing functions as well. So now to build on Henrik's point of what are we doing to drive continued growth, both top line and EBITDA improvement. First point is a larger customer base, both bringing in and attracting new clients, as well as growing our existing market share with our existing clients. So first one is we had an even stronger, more successful new client acquisition team and success in 2020, leading to growth in Q1. We're also focusing on expanding the number of client budgets that we're going after, and in our accounts where we've done that, we're seeing significant account size growth. And then we've had an industry focus specifically targeting software and pharma bio industries, and it's paying off. You can see that together they accounted for 24% of our revenue in 2019 versus 45% in 2021 to date. Second area, a broader offering. Just as Henrik mentioned, I mean, the acceleration of 2020 and our ability to give our customers total consumption choice has been really phenomenal. So now we can do all of our services, both in-person and virtual, and a combination that they want thereof. I agree with Henrik. We're seeing some demand for in-person coming in already in Q3. So we believe we'll have a mix for the coming quarters. And further integrating all of our seven practices is resulting in increased spend per initiative with our clients. And as we continue to make investments in both our platform and broader digital solutions, it's allowing us to be our partners for our clients at greater scale. So all leaders in the company, all employees in the company, helping to accelerate their big initiatives. And finally, a strong organization. We're doing a lot to drive productivity and scalability of the org, as well as to attract and retain our people. So on the scalability side, working on being the consulting firm that brings a lot of creativity to our clients and also holding a platform mindset, and we're working with them with our digital solutions. We're doing a lot of work in terms of providing pricing guidance and scoping guidance to our project teams so that each project is profitable. We're investing a lot in further automation of our internal systems and a one-team approach, putting down some of our silos in service of speed and simplicity. Retention of talent. As Henrik mentioned, it was absolutely the right decision to keep our people last year because without them, we would be struggling to deliver on the growth in Q1. And attracting talent. So given the DEI shifts and momentum in North America, we have also shifted both our sources for getting interns as well as the colleges and universities that we're recruiting from. We have an internal inclusion-made personal initiative, which is really key in terms of improving and strengthening both our culture and ability to retain diverse talent. And you can see our acceptance rate. So in 2020, we had a 90% acceptance rate of all of the offers we gave out, and currently in 2021, 85%. Turn it back over to Anna.

Okay, thank you. So Jessica here, just so you know her background, she joined BTS as a junior consultant in 1999, her first job. And then she took over as leader of BTS USA, which is half of our business, in 2016, middle of 2016. And since she took over, we've had an amazing growth and even faster earnings growth in BTS USA. So that's a little bit about Jessica. This is a slide of our major shareholders. And with that, we complete the presentation and look forward to some sharp and exciting questions.

Thank you so much, Henrik. And my first question is, can you elaborate a bit about the pace of recovery in the different markets? And for example, in other markets, is it mainly Asia that's growing or is it some countries in Southern Europe?

Ah, OK. So, yeah, most of the world is coming back strongly. You know, they were other markets. They were first hit by the pandemic. And I think we're seeing a recovery actually in almost all of the markets. Asia was faster to recover, but all of the markets are coming back.

And if you look at Europe right now, would you say that it's accelerating or that it's starting to recover?

I mean, Europe is a bit slower than the U.S. and most of the world, but we expect that to join the coming back club as well.

Okay, good. And my next question is, is it a fair assumption to make that you can maintain a higher margin with a higher degree of virtual and digital delivery? Jessica, do you want to take that question?

I would say yes. Last year, I think we incurred a lot of costs in terms of retooling and retraining our people and making sure it was world-class across the board. And we feel the synergies of that now. And so, as I mentioned, for example, the pricing initiative and the scoping, now we're able to run the work now with less people per team and we're seeing the scale on the investment and digital side.

I mean, yes, I would echo that. And, you know, this is a big change, of course, shifting totally how we deliver things. And in the beginning, it was a big challenge with a lot of rework and investment. But every big change also gives an opportunity to find new innovative ways of doing. So it's clearly our goal to try to use this change to up the margin.

Okay, fair enough. And if we compare this quarter to the first quarter of 2019, can you please elaborate a bit about organic growth? Because you have made one acquisition this year. And, I mean, how much is FX? How much is acquired growth?

Yeah, it's a good point. I mean, it's – so 12% growth, currency adjusted, much less in krona because the krona is growing stronger. And we estimate that about 8% is organic and 4% is acquired. Okay. Good.

And right now, can you talk a little bit about the mix between physical and virtual delivery right now? And what do you think about going forward? Will it be more or less the same, or will you increase the physical delivery as well? I'll let Jessica start.

So in North America, it's still 100% virtual. However, we're getting client requests starting in around August for in-person. We'll see what the percentage ends up being, but I think we'll start to see physical in Q3.

Okay. And, you know, long-term, I mean, I don't know about your guess. My guess is that we will see long-term perhaps two-third virtual, one-third physical.

I'll go 50-50.

You'll go 50-50? Okay. Okay.

So perhaps somewhere in between. We'll see. And my next question is, can you please elaborate a bit about what industries are driving growth this quarter?

Yeah, I mean, because, Jessica, you've done an amazing turnaround. So would you want to cover for the U.S.?

The two main ones for North America is software and pharma bio.

Okay. And, you know, Rich, I would say all across BTS. The reason we're back to growth so solidly is also the fact that we last year moved sales resources to the customers and the customer segments that we're growing. So, you know, tech, pharma, bio, healthcare, financial services, consumer products. That's been a key element in our strategy.

Okay, fair enough. Anne, can you please elaborate a bit about the integration of your latest acquisition that you made earlier this year?

Well, that is a North American acquisition, so I think Jessica is the best person to answer.

I'm extremely pleased with the first quarter of integration. The teams have already won. a good number of deals together both ways, bringing BTS services to them and bringing their core C-suite advisory services to the traditional BTS accounts. They're a great culture add, and, yeah, I'm very pleased.

Okay. Do we have any questions from the telephone conference?

Ladies and gentlemen, if you wish to ask a question, please press 01 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 02 to cancel. Our first question is from Simon from ABG. Please go ahead.

Good morning, Henrik and Jessica, and congrats on a very strong quarter. I can imagine that finding good talent was easier than history in 2020, given the pandemic, but as we are now entering a period of economic recovery, meaning that other companies should also speak to return to recruiting, is it not more expensive to recruit?

I mean, that's a great question. Thank you for that, Simon. But, you know, Jessica, you're hiring so many people, so you're the right person to answer.

There's actually a force that's balancing that, and that is last year, less people that we were trying to recruit wanted to make life changes. And this year, kind of this stage of the maturity of the pandemic, more people are wanting to switch jobs. So actually, we haven't seen yet it become more difficult to recruit.

Okay, thank you. And can you talk a bit about how companies behave now compared with historical recessions? Naturally, COVID-19 is a unique crisis, but what type of similarities and unsimilarities do you see now compared with, for example, after the financial crisis?

So, I mean, if I start specifically for our industry, early recessions, we were not as hit at all. Well, we were hit, but not the same degree. Because in this recession, it was legally and physically impossible to deliver our services. We couldn't do anything. So in that respect, this recession was much tougher. I would also say that some customer segments... totally disappeared. Anything around retail, leisure, hospitality, travel, and a couple of other industries disappeared totally because their businesses went to zero. That has been a difference. Another key difference is that this has not only been a recession, this has been a change agent. So not only BTS, all our customers are coming out of the pandemic with new strategies, new initiatives, new ways of working. So it's been a driver of change. across the business world, and that creates more demand for our services. So it's been a unique experience. I wouldn't say it was pleasant last year. It was quite tough for us. But in hindsight, it kicked us into the future and has given us many opportunities. Any thoughts from you, Jessica?

I'll just add one more point. I think there's a heightened awareness to invest in care for other people. meaning they know everybody's emotionally tired from being in a pandemic. So at the start of this year, they wanted to double down and invest and excite them in their new strategy, equip their salespeople to sell differently, equip their executives and all to continue to lead virtually. So there's, I would say, a groundswell and an interest in aligning their people, equipping their people, making sure that people feel that the company is providing them what they need to be successful.

Thank you. And as a final question, if I may, in recent times, the M&A activity has been quite high, in particular in the Nordics, but I can imagine that it's been higher also in other markets. And that leads me to the question, given that you are partly an acquisition-driven company, how's the M&A pipeline? And do you see multiples now being at elevated levels compared with historical?

I mean, great question. I mean, we are primarily an organic growth company, but we also do a good amount of acquisitions. We've continued to look during the recession, continue to be as picky. But we think there are clearly interesting targets out there and interesting growth opportunities. Our view, possibly prices have gone up a bit, but much less in our segment, which are, you know, the small companies.

That's very clear. Thank you all.

Thank you. Yeah, and I think we have two questions from the web. The first one was, what was your pricing strategy during the recession of the pandemic? And how has it developed now when we see a recovery?

Jessica, you'll take that. This is your favorite subject.

I mean, when February and March hit, it became clear we wanted to do everything we could to continue to deliver the services that were important to our clients and make sure that there was nothing that would get in our way. So in March, we decided that we would convert immediately everything to virtual and proactively do that for our clients at no additional cost. And we've stopped doing that since. So does that answer your question?

Okay, yeah, that was a good answer.

I mean, so basically, you know, we invested a lot of money in converting our customers quickly to virtual. So you can see that in our low profit last year. But we're benefiting from that going into this year.

And the last question, which I got from the web, was basically, can you please elaborate a bit about your capacity right now? Are you filing on all cylinders and looking to hire more?

Yes.

Yeah. Yeah, anyone looking for a job, you know, give us a call.

So I think that was all from the lab. Henrik and Jessica, thank you for taking your time to come again to present the first quarter.

Thank you very much, Richard, for your questions. Jessica, thank you for coming over from San Francisco. And thank you all to your shareholders who kept the BTS share last year when we dipped 50%. Thank you for your confidence. And we're very happy that we can deliver this record quarter to you now. And we aim to deliver more record quarters. So thank you for all your confidence, dear shareholders.