BTS Group AB (publ)

BTS investors. I'm Jessica Skan, CEO of BTS Group. Welcome to our Q2 report. Hope you're all having a lovely summer. I am joining you from San Francisco for this report. And we'll start with the good news. For basically 80% of our business, our two biggest markets, BTS North America and BTS other markets, grew by 12% in North America and 8% in other markets. And together we had an increase in combined EBITDA of 23%. Now, if we look at the group level, our sales only grew 3% and our EBITDA improved 4% to 110 million kroner. The reason for this is because BTS Europe had a tough quarter. Their revenue shrunk by 23%. So despite the poor showing of BTS Europe in terms of their revenue performance, BTS margins continue to remain solid at 15.1%. And our profit after tax remains stable. So let's dive into a little bit more detail. Start with our biggest unit, which in the second quarter was also the fastest growing unit, and that's BTS North America. So we're very happy that we've had two quarters in a row of back to double digit growth. And if I just share a little bit more what's behind that. It's a growth in the pharma biotech sector. Fast-moving consumer product goods can also continue to grow. We saw some decline in our work with our financial services clients. This is kind of interesting. Our revenue grew with some of our professional services firms. So while that's been a shrinking part of the portfolio for BTS Europe the last four quarters in North America, it's actually back to growth. We are noticing in general that we've had less conservativism amongst clients, but we'd say in general, the tight cost control remains. On the coast, which is our biggest unit in BTS North America, our tech and software clients drove the growth primarily there. And then if we look across the portfolio of services, it was about a year ago that we acquired the Bodo Group, which gave us a very strong value proposition in executive coaching, one-on-one services. And our overall growth and leadership coaching business was on a faster growth trajectory in the second quarter than some other parts of the portfolio, thanks in part to that acquisition and our strong competitiveness now in that area. So that's our biggest hit with double-digit growth. Let's go to the opposite extreme now, and we'll talk about BTS Europe. So it was a tough quarter. There's absolutely no doubt about it. Just a little bit of background as to essentially what happened or some details behind the numbers. BTS Europe had about 30% of their revenues be delayed, get canceled, or essentially disappear. And you kind of break that down into thirds. The first third was due to... Bigger projects, specifically in the Nordics that were winding down, and then the team was not able to secure the second project after that. And in a couple of those clients, there was a complete kind of company-wide cost freeze that went into effect. Another group of a third had to do with cancellations, and the reason cited by those clients was industry-related. And another third was project delays. I think we had six different projects that delayed just in the last six quarters of the quarter as well, which was not great. But at the end of the day, we just didn't have a big enough pipeline to make up for all of that change in the second quarter. So, look, I've been talking about this for four quarters, maybe five quarters now, that we've continued to be all hands on deck, focusing on, you know, our best job to find the clients that are spending and are investing in change and, you know, building up the capabilities of their people. We're continuing to do that. And at the same time, we're really continuing to double down on what we might call more of an entrepreneurial growth mindset for the team. So we're doing that by absolutely everything we can to extend and maximize time with clients. We're working from the client sites more than in the past. All of our partners are engaged and billable on client projects and apprenticing the talent and building relationships. We're hosting more client meetings, more client events, and so forth. We are increasing, not increasing, we're expanding the people who can be incentivized for finding opportunities and for leads and building relationships. So essentially increasing the number of our sales force and then working on new ways to bring the full portfolio to the market, like the total access partnership I mentioned last quarter, partnering globally with different experts from around the world to support some of the European markets as well. And You know, it was a tough quarter. These things have been in the works for a while. We're doubling down as well. And at the moment, our assessment is telling us that this steep decline is temporary, and we expect BTS Europe to be back to growth in the second half. So, again, despite Europe, BTS Group continues to grow, both offline and offline. can see here by our three different markets. So BTS North America improved their margin from 14.5 to 15.5%. BTS Europe, we've already talked about, I mean, on the margin side, that is clearly because of the revenue drop. BTS other markets is developing really well, right? Not only did they have 8% growth, but their margins improved from 15.4 to 18.2%. And You know, when we see the margins jump like this, it has a lot to do with the efficiency gains from the year before carrying its way forward this year. They do a great job of sharing teamwork from across their geographies and around the world, continue to have good operational discipline, tight controls on costs and pricing and scoping. And overall in APG, they had a bit of a change in service mix in the second quarter. They ended up selling services that are actually less profitable for them, but in a strange way helps BTS Group because it's more customized services that BTS has to execute on their behalf. So that's the reason for the decline on profit there. If we look just kind of at historical quarter over quarter growth, what you can see here is, again, despite the challenges in Europe, BTS continues to grow. And again, despite the challenges in Europe in the second quarter, we're seeing stability in our profit performance in the second quarter. And, you know, both of these slides are just a simple reminder of the strength in being across 24 different countries and around the world. So we were also really busy in the second quarter. We made two acquisitions that I'm really excited about. One of them was we acquired the Wonderway Group Group. And Wonderly is super cool. They're a startup. They're pioneering in AI. Their focus is on helping salespeople become better salespeople, helping companies become more competitive and generate faster revenue growth. And they've invented a product called the Verity product, which we're super excited about it. For the first time ever, it gives BTS the opportunity to not just pull people out of the job to help them practice and prepare and get better and raise their game and so forth. But we can actually coach them in their real moments. So the Verity product plugs into products like Microsoft Teams and Zoom. It listens to client conversations. It gives them a real-time assessment of their performance, fully custom to the client's sales methodology, sales plays, and what great selling looks like. So this is BTS being able to more day-to-day support our clients with accurate data on performance. which then helps us be more efficient in updating the training, the coaching, and the change work that we're doing. The other acquisition that we made was a really cool company out of Thailand. I've spent some time with them in the previous quarter. We have over 50 of their employees joining. They're the number one organizational development and leadership business in Thailand. You can see Irinia there. She's the founder. in the middle. She's really a trailblazer at thinking differently around how Thai companies transform themselves, how they develop their workforce, how they up their game. Their services range from CEO advisory and coaching all the way down to scale transformational services. They've got an amazing group of talent and market leadership, not only in the Thailand market, but across Southeast Asia. So we're really excited about that because of the growth potential in that market. and the synergies already that the teams are experiencing and all the energy that's coming out of this. Just an update as well on the continued experimentation and progress in AI. From our perspective, we're looking at it from three different ways. One is how does it differentiate our services in the market? Number two, the revenue that we're getting by helping our clients demystify AI through our training and change services, and then overall using it and tinkering with it to figure out what if any other productivity gains it might be providing for our people. So just quick updates here. Obviously the biggest move for us in terms of service differentiation in the second quarter is buying Wonderway and having the Verity product now to take that to market. We built four more bots. We're up at a total of 14 now. These bots are designed for continual practice and on-demand practice. We have 13 clients currently using them. One of them in particular is using eight of them right now and they're super happy. We also have a platform where we can customize bots for our clients very, very quickly. And then in terms of AI training, our overall pipeline and demand for this is growing. In the second quarter, we won a large deal with a large healthcare provider in North America to be their top-to-bottom training partner. Everything from the top 100 to the next 5,000 employees are going through BTS services and training to demystify it, to begin to use it, practice it, understand it, and so forth. And then in terms of internal productivity, I reported out last quarter that the teams who are using it and are running a bunch of experiments, some aren't working and many are, and the ones that are back in the first quarter, we were estimating about a 0.5% FTE savings across that team, right? Well, we have more people now tinkering around and using it, and now they are claiming 6.5% FTE savings. We have about 170 BTSers out of 1,200 who are finding productivity gains and it's coming from all the categories you can see below and look we haven't made a decision yet if we're going to go for the enterprise agreement or not I think we're I think we have the right discipline in place to really understand if in fact we will get some gains or not and with more clarity we'll make those decisions as we move into the new year so I mean that's that's the quick highlight on the second quarter um those of us who No, as well, we are very proud of this. BTS is a story of long-term profitable growth year over year. And we're continuing to experience that now, even though Europe said it had a tough quarter. So from the time it went public in 2001, we've had an average growth of 12% per year, average EBITDA growth of 15% per year. You can see our stable and growing dividend over the course of those years as well. And our outlook for 2024 is it remains unchanged. So we expect our EBITDA to be better than in 2023. And with that, I think we will open it up for questions.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Carl Norwin from SEB. Please go ahead.

Yes, hello. A couple of questions from my side. The first one on the North America, which now, as is mentioned, back to good growth again here for the second quarter. I mean, how much of that would you say is a result of the market has improved? And how much is the result of like the BTS has taken market share and works in new ways, etc.? ?