BTS Group AB (publ)

Good morning, everybody. Hello, dear BTS investors. Nice to be with you all. I am calling in from late in the evening in San Francisco and hope you're all having a good start to your morning. We're going to talk about BTS's Q4 2024 results. But given that Q4 is the end of the year, it feels more natural as well to just open up with a couple big picture comments on 2024 overall. So from our perspective, 2024 was defined by 6% EBITDA growth, despite it being a challenging, tougher market. So growth, despite a tough market, not at the clip we like, but 6% nonetheless. It was also defined by a rebound in BTS Europe and very good momentum on our AI tools from the Wonderway acquisition and bringing that around the world. If we transition now to just specifically the fourth quarter, and here's some of the details around the overall 2024 results. But if we specifically transition to the fourth quarter, let's talk about really the star of the show, which is BTS Europe. Overall for the company, group net sales grew 3%. Our EBITDA was down 2%, and EBITDA margin was 17 compared to 18.1% the year before. And I'll spend more time on most of the world and North America in just a minute. But first, the star performer. of the fourth quarter. So in 2024, BTS Europe had a tough first half. We saw a rebound beginning in the third quarter. It continued into the fourth quarter with really impressive results. So what was behind the continuing of the rebound? The projects that were postponed in the first half of the year continued to progress nicely. Overall pipeline was up. Profitability improved significantly due to cost efficiency measures that were taken about four quarters before that. New projects were won. The pipeline grew in all of the different markets. As a result, net sales increased 22% in the fourth quarter. The profit EBITDA increased 35 from 21.9, but it was a tough year the year before. And for 2024, total net sales is 470, with an EBITDA margin improving 1%. So if we go to BTS North America in the fourth quarter, it only grew 3%. And let me share a little bit of the reasons behind a slowdown in the growth there compared to the three quarters previously. We had a couple of projects that were rescheduled into 2025 in the fourth quarter. Some of our larger clients continue to do reorganizations, which often stalls some of our work. Of course, at the beginning of the fourth quarter through November, there was quite a lot of uncertainty. Frankly, there's still a lot of uncertainty in terms of what people are expecting in terms of the implications. But anyways, we felt the uncertainty in the first half of the fourth quarter. And if you look at the industry perspective, the pharma and biotech industry continue to show strength for us. That's been one that's been growing over the last three years. as did financial services. And the slower growth in the fourth quarter of 3%, from our perspective, appears to be temporary. If we go to BTS other markets, it was negative 1% growth for the year. And if I kind of break down other markets into their pieces, the acquisition we made SEAC, which is a really strong team bolstering the strength of our Southeast Asia market, they're in Thailand. They continue to show strong development in the fourth quarter and they have a very robust, healthy sales pipeline for Southeast Asia moving forward. Very similar story to the third quarter with Italy and Spain essentially dragging down the rest of most of the world. So they continued to struggle in the fourth quarter as clients continued to delay projects. Also, fewer global deals were generated out of North America and Europe and some of the large global accounts there, which typically feed BTS other markets with some services associated with those. And those were down in the fourth quarter compared to the fourth quarter a year before. And then demand for the government entities in the Middle East leveled off in the fourth quarter after delivering quite a lot of growth in the first three quarters earlier in the year. So that's pretty much the story on BTS other markets. If you look at the summary, Of the quarter, you can see the breakdown here, North America at 3%, margins dropping from 18 to 16.8%. The core reason behind this was we had faster growth in the demand for our coaching services. Coaching services are done with external contractors as opposed to full-time employees. And we had lower demand than we were expecting for the work that feeds our full-time employee base. So the mix, the portfolio mix in the fourth quarter is essentially what's behind the drop in margin. And we can take that intelligence as we move into 2025 and kind of do a more accurate job of forecasting the right type of resources for the work. BTS Europe, as I mentioned, it was return to growth, very high utilization, billability of their full-time employees, and the overall efficiency measures from four quarters earlier that played into their big jump in EBITDA margins. And BTS other markets, it was essentially the lower shrinking revenue performance of BTS Spain and Italy because they're bigger in percentage of the markets. That's bringing down the margins here. Well, Southeast Asia continues to be strong demand and the Middle East overall as well. So in summary, 3% growth in the fourth quarter, 17% margin compared to 18.1 the year before. And APG you can see is struggling a bit there due to several significant license renewals that were postponed to 2025. Another thing that marks the fourth quarter and 2024 overall is our progress in AI. As you remember, we acquired the Wonderway company last summer. They have a platform named Verity, which delivers AI conversational bots to companies. It's now in all of our global markets, all three geographical areas. It's starting to be used at scale. We've had three clients who have used it for thousands of people at a time. And it's getting integrated into our core value propositions, proposals. UpTick is ticking along very, very nicely. I would say internally, last year was the year of a lot of grassroots experimentation across all of our practices, the consultant offices and the functional areas. And we have had a lot of learning. And so starting in the second quarter, it's all hands on deck licenses for all of the consultants. And we have an intense initiative designs that all product projects are using it. all at the same time. So we expect to see a lot more productivity gains from that this year compared to last year. And we're already seeing a reduction in contractor spend in our budgets for 2025 as a result of what we've learned in using AI in 2024. If we look a little bit now into 2025, I would simply say that 2025 is the year that we are very focused on getting back to the place where we deserve, what we're used to running, and that's double-digit growth and improved margins. And on this slide is essentially our strategy on a page, which summarizes the major initiatives that have been launched, that we've been working on, and that we're focusing on for 2025 and beyond, and specifically on organic growth and then operational efficiencies at the bottom. So I'll just give you a couple of bullet points on each one of these, but I'll come back to this on a quarterly basis and share the metrics with you. So under organic growth, and this is one of the reasons we feel strongly about pace picking up in terms of organic growth for us in 2025, and that is we have more consultants who are generating revenue than we did a year ago today. And it's very simple. If more consultants have their own client relationships and they're bringing new opportunities to the firm, we will grow. And so that's the first piece of the equation. We have what we're calling Apprenticeship 4.0 as an initiative underway that was kicked off here in early January. We're doing a much better job of driving weekly leading indicator discipline from last year carrying forward into 2025. And we are advancing our ability to bring real-time data and insights to our clients, which improves the consulting muscle of our team. The second thing we're working on is continuing to strengthen what I would call our client relationship culture, as opposed to a culture that believes if we just do extraordinary quality and deliver value for clients, the next projects will flow. We'll be measuring the number of active client buyers per team on a regular kind of in-process measure. And things that we're doing to drive that include global teaming, so a lot more people from around the world supporting on different opportunities so that we can bring the full breadth of our portfolio to the market. We are focusing on a lot more in-person client roundtable dinner type of events on key trending topics all around the world. And the increase in revenue on consulting services, specifically on organizational change, has been going up. And when we win that work, we are more with our clients in the day-to-day. The final thing in the equation here for organic growth, obviously, is keeping the full breadth of our portfolio as competitive as possible and bringing the breadth into the account. So here we're measuring, we will continue to measure by practice area, the win-loss ratio, and then the growth rate of each of the centers of expertise in the company. And we have three major priorities when it comes to our overall portfolio. The first one is AI. And from that, there's two things that we're doing. Number one is we want the entire portfolio to be using AI in a way that clients are experiencing it with us. The first big pusher is obviously the Verity platform designed to deliver the conversational bots as a SaaS offering. The second thing is helping our clients, of course, in their own change management and adoption of AI implementation inside their organizations. Number two is we're going to continue to innovate and more specifically focus on the innovation across our simulations and our simulation platforms. So we can keep building them as fast as possible together with our clients. And we even have clients starting to ask to build them themselves. And so pushing our platforms to be able to do both of those will be a priority this year. And in addition, just thinking even more broadly about innovative partnerships, we kicked off the Total Access Partnership a year ago, which was designed to work with our clients at scale with an economic and partnering model that works for them. And we call that the Total Access Partnership. It was about 4% of our revenues last year, and we're continuing to go to market with that, which is a subscription-based approach along with consulting. And then we are also, I would say, having an even more abundant open mind around partnerships for technology, for different consulting capabilities and for content moving forward. So that's on the organic growth side. In terms of operational fuel and getting next-level efficiencies and productivity gains across the 24 countries, there's three things we're going to get done this year. One is automation for scale. That's both across our major service lines, especially more on-demand services like coaching and assessments and so forth, but it's also in our finance department of a big – initiative underway there as well. And then the AI, as I already mentioned, taking that across to all of our consultant teams in a very focused Q2 push. And then AI in terms of knowledge management will be a second half. focus for the firm. So in addition to these drivers of organic growth, getting us closer and better, you know, closer to the double digit organic growth, that's our target. We will also be continuing to focus on acquisitions and increasing the rate with which we're looking to acquire, basically to serve both the portfolio, the priorities on the first slide, and strengthen the geographical footprint of where we operate. So in general for 2025, I mean, we feel like we have a more positive outlook coming out of the more conservative market over the last couple of years. From our perspective, the underlying demand for change, for strategy implementation, for leadership, leadership development, sales enablement, the places that we play continues to remain solid. We're excited by the investments that we made in 2024, both with the AI capabilities and the acquisition in Thailand. Both will serve us well in 2025. We see the potential for margin improvement as we can take the lessons learned of the last 18 months with AI and really institutionalize them this year. I would say the overall market outlook is more positive. We expect a gradual market improvement in 2025 compared to the last two years. So, you know, as you know, for those of you who have been with us for a long time, we're sorry of long-term profitable growth year after year. That remains true for 2024. It's our focus to do the same and even better in 2025. We've issued the dividend as well today at 6.1 SEC, so up 7%. And as you know, the goal is to distribute 40 to 65% of the profit after tax in the long run. And with that, our outlook for the year is expected to be better than 2024. I'll turn it over to you now for questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Carl Norwin from SEB. Please go ahead.

Yes, good morning, Jessica, or maybe we should say good evening. A couple of questions from my side here. If we start on with other markets, I mean, it seems to be a bit slower demand, as you mentioned, in Spain and Italy. And I calculate the organic decline to be somewhat close to 10% for the segment, so to say. I'm just wondering... Really what you can say, you mentioned in the CEO letter that you see some projects coming back at the latter parts of Q4. Do you expect that segment to show growth again here in Q1, or how should we think about that would be our first question?

Yeah, I would say that towards the middle of the fourth quarter and towards the end, the slowdown started to reverse in terms of the pipelines were growing. Again, both in Netmind, which is the acquisition in Spain, Core Spain, and in Core Italy. Yeah, more opportunities. So pipelines were growing. The clip of the opportunities were kind of turning back around. I mean, it takes time still to win new work and all of that, but the general feeling was that it was moving in the right direction or turning itself around, if you will.

Okay, that's good. Sounds promising. And on Europe then, I mean, a very strong quarter here and it's a bit more volatile maybe than the US where it's more project-based, I'd say, but some larger deals happened here in the quarter. I mean, how sustainable do you think that the better development is in the European area? I mean, of course, we don't... expect 20% growth going forward, but I mean, do you still expect to see quite solid growth in the coming quarters here in Europe or what's the feeling?

Yeah, I do. I do. The pipeline continues to grow. It was quite strong in the fourth quarter. All the markets, pipelines were growing. I think Germany is still a little bit, as you said, volatile. Yeah, the team is busy. The win rates are strong. Yeah, I expect it to continue.

Okay. I just find it a bit fun because Europe is maybe the region which people see the worst developments right now. So it's interesting that you see quite strong development there right now. Yeah. But that's interesting.

I can also say as an American right now, it's seeming very attractive in Europe. Yeah.

And last question, maybe then on North America. I mean, in Q3, I think you mentioned it was some, you saw some postponements and uncertainties related to the election, which now is over, done, of course. I mean, do you think that that impacted Q4 in any meaningful way or?

Yeah, I mean, when kind of looked back at Q4, there was two particular deals of two clients who do usually big sales kind of kickoffs in January, which leads to a lot of revenue in the fourth quarter. And they just both canceled their events. It wasn't that they were canceling a project with BTS. They just canceled the big spend in January compared to the, you know, I think they had done it for three or four years in a row, basically. And so that, that, Essentially was the big difference in Delta between our forecast and actual. Now we should be able to make up for it. It's a big market. We have a lot of sellers, but that was the big thing.

Yeah. And if you compare it to the last one on the US as well, I mean, compared now to one year ago, would you say you're more or less positive about the development there going forward?

More. Yeah. It's less delays. It's deal flow moves more quickly. Right. There's more energy, I would say. Look, you still have some companies doing, you know, pretty big. One of our energy clients announced like a 15% layoff three weeks ago. So you still have things like that, but it's from a year ago at the market feels stronger.

Yeah, that's good. That's good. I know maybe if I can squeeze in one more on AI and I mean the costs or the possibilities to save costs, I mean, I saw that you reduced your number of personnel a little bit from the end of third quarter. I'm just wondering a little bit, how much more efficient do you think AR can make BTS? If you could put that in numbers, it would be very interesting. I know.

I know. I mean, so... I think the last year we did a nice job, as I mentioned, of more grassroots. Like anybody who wanted to have AI, they had it and they could run experiments and we were capturing what they were learning. And so we have a lot of data on the various projects across the system and what the efficiency gains were within those pockets. And I would say on average, and I would report this out to the board every quarter, they would run from 1% to 17% productivity gain. That's kind of a range. And then we would extrapolate, well, how many people would actually do that task? And then what could we expect across the entire system? And this is, I'm going to give you a very boring number, okay? But even a 1% gain is, you know, a decent number of consultants, right? And so... We have a fairly conservative view, let's say one, one and a half percent right now in our in our planning right for this year. And we have all 24 heads of offices on deck, too. We have two out of the 24 who measured it for six months now, and they have much higher productivity gains than one percent. So I mean, I'd be happy to keep you every quarter I can tell you what we're seeing, right? And then it's a matter of what percentage are actually using it. So I think there's quite a bit opportunity for more lift, right? And we should kind of be gaining it quarter by quarter. And it's both with the full-time consultants. It's then with the functions. And then it's also with the contractors specifically in our assessment practice. They are the ones furthest out ahead. And actually, the contractor budget associated with that practice, we were able to reduce by $300,000 this year. Now, it's not a ton of money, but it is $300,000. And, you know, so it's 25% savings of that particular service line.

Sounds very promising. Looking forward to follow this.

Yeah, I think that's the point. It's like we still need to push it and we need to get full adoption and really, really change how we work. And it's still somewhat early days, but I agree with you that it feels promising.

That's good. That's all for me. Have a good night's sleep now. Thank you.

Thank you.

The next question comes from Rickard Engberg from Carnegie Investment Bank. Please go ahead. Good evening, Jessica. Hi.

So I have one question regarding Merity. It's in the report that you have a couple of clients, that you have three clients that use them for 7,000, 5,000, 4,000 participants. What is basically like a revenue profile for participants for Verity? And also, should this revenue be seen as a subscription revenue?

Yes, it's a license per user, subscription per user revenue model. And there's two different ways of using the product. One is what we call a conversational chatbot practice where we can very quickly customize if you want to practice a client conversation or customer success conversation or engineering or internal conversation. And then there's actually the more heavy duty SaaS offering that it was actually designed for, which is a plugin to Zoom or Teams and listening to the client conversations directly and providing the assessment data right afterwards. So we kind of have a light and a heavy. But in both cases, it's a per-user license subscription model.

And given that it seems that it has been quite well received by the numbers of users, will this growth continue during 2025? And will it be possible to see a contribution from subscription sales going forward?

Yeah, that's the plan. I mean, given that our first priority under the competitiveness of the portfolio is to embed AIs that our clients are experiencing it in our simulations, in our assessments, in our consulting services. And this right now is kind of the leader of that. I expected the usage of an adoption of it to go quite quickly, actually.

Okay, great. One more question. You mentioned in your presentation that you are looking for acquisitions. What is your main focus area? Is it new tech like Verity, or is it to gain a more, you've got a foot tall where we are not a strong debt?

Yeah, it's a great question. I would say it's both, and I will add a couple of comments to this. It makes, you know, given the 24 countries that we're in, there are some that are hyper growth or even huge markets that were still very small. Right. So that that one is an absolute no brainer. Just a matter of finding the right firms all around the world. On the other hand, to your point around where's the next wonder way and acquiring some of the latest tech. The only caveat I would say there is, yes, I think we're very interested and open in that. And I'm also just as open in partnering. And it may make a lot of sense to also partner before you buy, right? Or keep, you know, I think our portfolio is getting quite broad. And so we need to be very thoughtful about which of our own platforms and tech are we innovating internally? Who are we partnering with and what are we acquiring? So, but you're right. I mean, those are the two big buckets that I'm spending a lot of time in right now.

And also, it's a big follow-up on North America. If you could quantify these two projects that were canceled here in Q4, are they canceled or are they, so to say, that will be done in 2025?

So we had some projects that were postponed to 2025. The two projects that I mentioned, the sales kickoffs, where the companies actually canceled those events, they canceled the events. Because those are usually done in January as a kickoff to the year. And they bring in either their top executives or other sellers into an event, and they just didn't prioritize it this time. They did something much smaller, like a memo or a town hall or something like that.

Okay. Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

We have a written question here. from Alexander and it says, can you say something about those two canceled events from two large clients in the U.S. in Q4? Do you expect those to be back in 2025? And how much did BTS grow in the U.S. in Q4 excluding those two events?

so i would expect them to be back but not until the fourth quarter 2025 right um i would say there's greater than 50 chance they would do them again um and i can tell you that the value between both was over 2 million in the fourth quarter um But I am not going to be able to tell you exactly how much it grew outside of the $2 million. You just have to read $2 million lower than the fourth quarter revenues.

Okay. No more written questions so far.

Okay. Great. Well, thank you, everybody.