BTS Group AB (publ)

Welcome to BTS Group Q1 Report 2025. During the question and answer session, participants are able to ask questions by dialing pound T5 on the cell phone keypad. Now we'll hand the conference over to CEO Jessica Skåne. Please go ahead.

Thank you very much. Hello, everybody. I hope everyone's having a nice morning so far. First quarter 2025. For us, we can summarize the first quarter by basically stability. A stable first quarter despite the macroeconomic volatility. Major revenue contributions across the firm were coming from. The rebound continues in BTS Europe, actually reaching double digit 10% growth in the first quarter. The sounding board coaching platform acquisition we announced at the last earnings call is off to a really strong start. Our AI solutions, about three quarters ago, we brought in a tech startup called Wonderway and their conversational AI practice bots before, during, and after those pivotal moments and difficult conversations is global. It's in over 40 of our clients, 40 or 50 clients now globally. They've hit two million in bookings and it's off to a very strong positive start. And then we made the acquisition SEAC in Thailand in Southeast Asia. And not only did that contribute positively to our revenue growth in the first quarter, but they also have a very strong sales pipeline. I think the first quarter was also marked appropriately so by us redirecting some of our sales efforts to focus on the companies and the industries that we believe would continue to invest despite the volatility and overall conservatism fears. So that's what Q1 is marked by. If we look to BTS Europe, the rebound continued that we started to experience in the fourth quarter. And this is due to large contract wins. In fact, on that note, for the win rate of going after nuclear and the heavy competitive RFP situations, our win rates have improved from about 35% on average to over 60% in the last four months. We won a lot of large work and large deals last year, and those continue to be executed. None of those have been delayed. We continue to have high pipeline sales, pipeline volume with a strong win rate that I mentioned. And of course, there's been some companies who are starting to show some conservatism or wanting to start projects a month later and so forth, but this has nicely balanced those delays. We see strong growth for us with the exception of Germany in the first quarter. Overall net sales increased 10%. Profit is from 9.8 to 14.3 million SEC. And EBITDA margin improved from 9.6 to 12.6%. Obviously, BTS Europe's moves that they made in the last six quarters are on removing the low performers. increasing their productivity, high billability, good management of external contractors, and even lower office expenses all contributed to the bigger margin. Let's turn to our biggest market now, BTS North America. Of course, there's some increased uncertainty that we're feeling around the economic policy and the shifts and potential tariffs and so forth. I would say that our customers trend towards the cautious and conservatism that's continuing, although many companies in the first quarter also just ran the course. I would say we're starting to see a bit more increase in conservatism now, more so than we experienced in the first quarter. Of course, we spent time thinking and talking to our customers and seeing their thoughts on potential recession or tariff fears and what they're going to do about it. And, of course, we're focusing on the places where we believe we'll be less impacted, like pharma, bio, utilities, healthcare, U.S.-based manufacturing, and so forth. We continue to increase investments in sales, bringing AI as fast as we can across our services and portfolio, and spending as much time as possible with customers being creative long-term. BTS Other Markets. Their first quarter felt a lot like the fourth quarter in a way, but the acquired company SEAC continued a strong performance with a healthy pipeline. The recovery remains slow, both in Spain and China for us. One of the things that sometimes hurts BTS other markets is if the big global deals generated out of North America and Europe slow down, which is what happened to them in the first quarter. On the bright, well, one more thing that hurt them is early holidays in the Middle East. This year slowed down some of the volume there, but it's picking back up. On the bright side, we had some several key, very strategic, big projects, being one in our Australian office, Asia, and Southern Europe, which for BTS Other Markets is some of the biggest deal sizes we've closed historically. And there's three of them. And so that's building one. I will say BTS Other Markets is expected to pick up growth as we move forward. An exciting news was we made an acquisition of a really cool company in Sao Paulo, Brazil. So it's almost a bringing together of equals in terms of size of the business there. And they focus on culture and culture change. They also spend most of their time working with CEOs and CEOs teams doing definitional culture work. And they're very excited to join BTS because we have the scaled behavior change services to support the definitional work. There's a team is over 20 of them. So in addition to culture transformation, they do leadership development, employee value proposition, and innovative culture and vision alignment. They're currently about 2.1 million US dollars in revenue. and they have a strong portfolio of both local and multinational clients in the Brazilian market. So we are thrilled to join forces with the Nexo team. And if you look over at overall revenue performance and profit performance of the three markets, we have BTS North America, which only grew 3% in the first quarter. I'd say one of the reasons behind the margin drop from 10.7 to 9.8 was we had... acquisition-related costs, legal fees, and so forth of the sounding board deal in the first quarter. And because the growth of our coaching business, so the executive coaching and overall coaching business requires us to use externals, those expenses are going up while we don't have enough work for the full-time people at only 3% growth. So that affected the EBITDA margins. BTS Europe, we already talked about, double-digit growth, great second quarter in a row in terms of the rebound and wonderful improvement in terms of EBITDA margin. BTS other markets at 2% growth, primarily thanks to the SEAC acquisition with margin of 7% versus 7.5. And then we have APG shrinking about 9% and a drop in margin as well. And just one thought there on APG is just overall change in revenue mix. Their buyers are buying smaller average deals and reduced customer commitments just due to the nervousness of the market in the States. So something exciting as well is in the last four months, I would say we've taken the next step towards maturity of overall AI adoption across the 22 markets. countries. It's no longer kind of just grassroots and experiments and all of that, but we've put in a major operation called Operation Archimedes. where all the consultants on all new projects are using prompts and have an AI advisor supporting them so that they can learn the absolute latest and best prompts from any office around the world. And it's having a big impact. I would say for sure people have more joy in the work because of AI, but we just did a big global survey and on average, our consultants are saying it's saving them four hours a week, which if that's the average is quite significant. And it's not just the consultants. We're also seeing pretty significant productivity gains from our software engineers, our operations people, the folks that work in help desk and so forth. And then on top of that, because we purchased sounding board primarily not just for their global coaches, but also for their absolutely fantastic tech platform. I can honestly say feedback from big multinational companies right now is telling us it's the best coaching platform on the market. which is wonderful feedback to get. But we're starting to migrate our existing work over to their operations team in tech because they're 8x more efficient than we are. And so we will start to see those savings in overall maintenance, OpEx, and SG&A over the next three quarters. So for this, I would call it phase one of productivity gains due to the automation of moving work over to sounding board and the internal adoption of really cool prompts And AI is, for this first phase, we have line of sight of $5 million in cost savings that will start to benefit us in the third quarter, the fourth quarter, and then it will be fully realized through the first quarter of 2026. And with that, I'll leave you with the slide you're used to seeing quarter after quarter, but we continue to be very proud of being the story of the long-term profitable growth year after year. It feels good to provide stability despite what's happening in the market. And you can see here's our overall performance since we went public in 2001. Our average growth is 12% CAGR and the average EBITDA growth is 15% per year. We also have stable and growing dividends since our IPO, and the dividend for 2024 is 6.1 sec. And the goal is to distribute 40 to 65 percent of profit after tax in the long run. Finally, in terms of our outlook for 2025, the outlook remains unchanged. So we continue to believe that our result EBITDA will be better than in 2024. And we will say that we say that with some reservations about the currency developments given the current uncertainty and volatility surrounding the U.S. dollar. And with that, dear investors, I will turn it over to you for questions.

Thanks. The first question is from Daniel Torsson from ABG Sandal Collier. Please go ahead. Your line is open.

Yes. Hi, Jessica. Good evening, I guess, from your time. So first one, I recall when we talked in March, you said that you expected both organic growth and higher margins in 2025. And now we're starting off Q1 here with 1% organic growth, slightly lower margin year over year, although you are sharing a quite positive outlook on the coming quarters. But do you still have the same confidence to see both these metrics and higher at year end?

I do. I do. Our original plan had a slow start to the year, which is never my preferred way to start the year. But because of that, I still have the same view.

Excellent. And then on this AI cost savings here in the end, that's quite interesting. Do you think that there is a risk that this is a sector-wide phenomenon and will therefore also reduce perhaps project and hourly prices, putting some pressure on sales while more near to the margins when all of your competitors are realizing this as well?

Yeah, it's a great question. We haven't seen that yet. However, there's some really cool advances our simulation team is starting to make right now. I mean, the large language models were not very good at math, right, or graphs or beautiful visuals up until just a few months ago. And because of that, now we're really pushing and rethinking our simulation platforms, which I find incredibly inspiring, to be honest. if those prove to work as well as we are hoping they will, but time will tell, and if our clients accept them and the risk that comes with that sort of platform, to your point, what could happen is we can build them really fast, right? So if we build them really fast, then it would probably reduce our price to build, but it would increase the spend on the utilization and the scale. So it will That's the only thing I can imagine, and that is not happening to us at the moment, but that could potentially be an implication. But there's a positive to that as well, because a lot of our clients wish that we could develop the SIMs more quickly and launch them more on demand. So I think that one would help us with our competitiveness.

Okay, makes sense. Interesting to follow indeed. Yeah. And then... Two more questions. I have one here. You mentioned in the report that you had some acquisition-related costs in North America in Q1. Could you quantify them roughly?

Yeah, 400,000, 450,000, something like that in legal fees.

Okay, that's fine. And then finally, can you share any thoughts on how North America has started off here in Q2, like in April and May? because that was really when the turmoil started.

Yeah, I would say that, first of all, I agree that that's when the turmoil started. It really wasn't beforehand. And in the last few weeks, there's been an increasing number of examples of people insights that are coming from our teams talking to clients. So I would say four weeks ago, the only examples I had was from just a couple of manufacturing clients who do a very small amount of spend with us. And their CEO said that we're freezing everything. Our team offered them some additional things, was able to keep the deal, but that was it. Now, just in the last week, week and a half, there's a big tech company, It's got loads of cash, but they are putting all of their money, all of it into data center growth right now. Now, we are still doing projects and work with them, but that's the sentiment inside. The other sentiment in that particular firm is people are just waiting to be given direction. They're waiting to be given approval on their priorities for the year, which Usually tech companies stall that when they're just trying to hold on spending. But that's just one company. That's not an N of 30 or 40 or 50. We had one regional bank just in the last week say they're thinking about postponing a project we were going to start in the fourth quarter. So I would say, yes, it's starting to pick up. It's still an N under 10. in terms of volume and noise. And there's plenty of companies who are staying the course. So I hope that's helpful.

Okay. Yeah, absolutely. Interesting to hear those customer cases. Thank you very much.

My pleasure.

The next question is from Rikard Engberg from Carnegie Investment Bank. Please go ahead, Rikard.

Good afternoon and good evening, Jessica. Hello. I have a question regarding Wonderways. You are for the first time presenting bookings of US dollar two millions year to date. And can you talk a bit about how it has been received by the clients and what sort of volume can we look from this segment in the future?

Yeah, I'm so happy with this mini acquisition we did. First of all, we are now providing AI conversational practice bots in seven of our nine practices. So it's not just like it's a little standalone thing. It's kind of increasing the competitiveness across the board and the company. The clients are loving them right now in one of two moments. Moment number one is they're gonna do some training, often with our simulations, and they wanna inject conversational AI practice bots into the simulations. Easy, makes a ton of sense. It's just better, it's more accurate, and the data is more accurate in terms of how good their people are at doing certain things. So the reporting is better. And then when they start to use them in the simulations, then they are asking to prolong the license or put in place an annual subscription so that people can continue to use them and practice them whenever they need it. So those are the two main use cases. As I mentioned, And this has been for a while now, but we're using them in all three of the markets, other markets, BTS Europe, BTS North America. They're being used at clients like Coca-Cola, IBM, Salesforce, Thermal Fisher. Those are just a few off the top of my head and they are loving them. We are releasing next week. the do-it-yourself platform so our clients can build their own conversational practice bots now on our platform. They don't have to use our people to do it, but that also means that our team can whip them up pretty quickly as well. But the platform was really well architected for typical BTS use case because it honors the client's unique performance and high performance standards while also taking the BTS IP into effect. It's great. You know, for a first one-dotto push of putting AI across the simulations and the practices, I think it's absolutely fantastic. And at the same time, I think it opens our eyes and makes us excited about how to take this further, right? So we're also thinking about different versions of this that's maybe more integrated into our client's CRMs or their own platforms, and then what's possible if we're not only doing AR conversational bots, but we're also pumping the other simulations in through the same thing. But that will be something we explore longer term, but for a first 12 months, it's been really good.

Okay, great. And then one question about the cost saving problems from AI. Should we be looking at 2024 as a base for those 5 million US dollars? Or should we look at last year in 12 months?

2020, you can use 2024 as the base. That's what you asked, right? 2024? Yep.

Yep.

Yep.

Okay, great. Thank you. That was all my questions.

There are no more questions from the telco, so I hand the word back to you, Jessica and Mikael, for written questions.

Hello, this is Michael Wallen, head of investor relations. We've got a few questions here. I'll start with the first question from Alexander regarding acquisition-related costs. Can you specify the amount in order to understand underlying EBITDA in the quarter? I think you mentioned that, Jessica.

Yeah, the legal fees associated with the standing board acquisition hit North America. We're around 400, 450,000 in the first quarter.

Yeah, and this is also specified on page eight in the report. We'll move on. Question here from Carl Norian. You mentioned other markets is expected to get back to growth. Are we talking growth as in 10% or low single digit? Are we talking already Q2 or later?

Yeah, I mean, our view is it will be Q2. And I would call it mid to high single digits is what it's looking like at the moment. Of course, it can shift a little bit, but

And next question from Carl, how is SEAC performing? It looks a bit softer than expected in Q1. Appreciate some is related to holidays, but even despite this, it looks weak.

I mean, our view on SEAC is that it's been doing quite well, both in terms of the inorganic growth that's hitting and the pipeline. It was the Middle East that was soft in the first quarter compared to how they were performing in the second half of last year. And we expecting a rebound there already in the second quarter. So that's my view.

Yeah, there are no further questions, written questions at the moment. I don't know if there's anything still in the conference call.

No more at the telco.

I'll hand it over to you, Jessica.

Okay, well, if there's no more questions, I appreciate the time, everybody, and have a wonderful day.