BTS Group AB (publ)

Good morning all and good evening Jessica. It's Daniel Toshin here from ABG who will host this morning's conference call with BTS and the CEO, Jessica Schoon. So very much welcome for all joining. Analysts have joined through a separate link, so you should be able to ask questions verbally in the Q&A session. I will open up for that in the end. But just say welcome to Jessica and feel free to go ahead and present the Q3 report. Thank you very much.

Super. Thank you very much, Daniel. Hello, BTS investors. Welcome to the Q3 report from BTS. We're not happy with the quarter. It was a tough quarter. At the group level, we grew 3%, but we had a profit decline of negative 16% if you adjust for foreign currency exchanges and negative 25% if you include the currency effect. So let's walk you through and kind of demystify what's behind the profit drop in the third quarter. There's really two big reasons. Number one is something I'm going to tell you about in North America, and number two is negative currency effect. So North America, you can see the decline of 10.3 million SEC in the third quarter. One big reason for this, 65% behind North America's drop. has to do with one particular customer engagement sold through our APG channel of a more traditional BTS product. And the reason why this was particularly painful is because it's kind of a pure license play, which means the value drops, the vast majority drops at the bottom line compared to our other services. And when you compare this license revenue through the APG channel in this quarter compared to a year ago, it had a significant impact on the profit. If you look at the impact of the weak dollar, it's about 28% behind North America's profit drop. If we look at BTS other markets, it's really two things. One is we decided to increase our marketing investments. So they had a lot of client events and dinners and round tables in the third quarter compared to a year ago. And then of course it's also the adverse currency impacts, which makes up 50% of the decline in BTS other markets profit. And BTS Europe, had a plus. They performed well. They increased their profit in the third quarter. They continue to do well. Still a tough market in Europe, but they've been performing quite strongly, and we do see some slowed growth happening right now in the fourth quarter. So bottom line is the poor results in profit in the third quarter despite a 3% growth is because of the negative effect on currency and also the one client deal through the APG channel. But because it's a high license deal compared to a year ago had a disproportionate impact on the profit. If we go to North America, our biggest market, which to remind you, we are in turnaround mode. We're one quarter in. We've changed the leadership team and put a lot of efforts into turning this market around. We see the turnaround still as on track. And on track for us means we shared with you last time that we expected to get back to growth in the first half of 2026. A couple highlights to talk about BTS North America, that phase one of our AI efficiency has been moved into full effect. The benefits of this in the third quarter is the underlying costs for BTS North America have been reduced by 2% and our revenue employee is up by 10% in the core business. We have also added more sellers into the third quarter. We have much higher win rates. I'm very proud of this just to give you a sense At the lowest point in North America this year, towards the end of the first quarter, our win rates were mid to high 20%, which is pretty unacceptable. We are back up to our sweet spot of 61% win rates across all deals in the third quarter and 71% win rates across deals over 500,000. We've also won some really new great strategic clients, both some of the new tech hyper growth companies as well as in other industries. If you look at the profit performance of what I'd call NAM's organic profit outside of the APG channel and the profit that sold through the channel, the profit was stable in the third quarter, even though the revenue was soft. So we're feeling good about that. Our executive coaching business continues to grow. It's very successful. That was from the BOTA acquisition a couple of years ago. And then sounding board, the skilled coaching acquisition from the first quarter turned a profit in the third quarter as well. They're performing on plan. The integration is going well and we continue to win very big end to end global coaching deals, which was the whole idea behind the acquisition. So. Yeah, I mean, bottom line in BTS North America, we're still in the turnaround. No quick hit win, one quarter in. Historically, when we have to turn around parts of the business, it typically takes three quarters. And right now we feel like everything we're seeing in terms of top of the funnel activities and win rates and presence in the market, we believe that we'll be back to growth in the first half of 2026. BTS Europe continued to grow in the third quarter after a super strong start to the year, and they have a healthy margin. The demand is gradually slowing down to more kind of typical rates that you would see from a BTS business. And in the fourth quarter, we do think that the revenue is actually going to soften a bit. That said, they have a really strong pipeline. Their win rates are super competitive and high. Their activities were, I think, up 60% in the third quarter compared to Q3 a year ago. And so we feel pretty strong about Europe's 2026 start to the year. APG, which is the channel in BTS North America, which is getting a lot of attention in this quarter report, they continue to decline. Slow market for them, reduced project scopes and the cancellation of licenses across some of their client base. As I mentioned to you, when BTS can sell our standard products through that channel, and typically that's like a standard simulation that the clients will facilitate themselves, that's pure profit for BTS North America's business. And one of the things we've done, just given APG's decline over the last quarters, plus the pain that we felt in the third quarter, we took some fast action. I shifted the APG's reporting structure to me since I'm in the North America market and I can drive faster synergies and energy there again. And then we've bolstered the plan and how we're going to support APG through two of our major practice areas. If we look at BTS other markets, we had, I would say more kind of macroeconomic impact specifically in Southeast Asia and specifically in Thailand, which contributed to slower growth than we were expecting in the third quarter. And we continue to see it being soft in the fourth quarter as well. Balancing to that though, however, in third quarter and in the fourth quarter is strength in the Middle East business. We also expect the fourth quarter to be strong in our Spain business, Latin America and so forth. And as we mentioned, BTS Other Markets did a lot of client events and dinners. They were very successful, very well received. They generated a lot of leads and those will start to pay off in the first quarter. From an AI perspective, I'm really proud of this. Our AI services are continuing to grow at kind of hyper speed. Our bookings of AI-related adoption services have now reached 10.3 million year to date, which is up 482% from the same period last year. Our Verity platform, which is part of the WonderWay acquisition a couple of years ago, bookings has now reached 4 million, which is 15 times bigger than the same period last year and 33% growth from the second quarter. We are having a lot of fun right now in terms of meeting with clients and partnering with them specifically on what we call bottoms up kind of grassroots AI innovation. So what we're seeing is a lot of companies are placing their kind of typical ways of looking at digital transformation, top down AI bets, but we believe there's a lot of value to be unlocked bottoms up and that value proposition is resonating very well in the third quarter. Specifically, we've also had a really big breakthrough in the third quarter, which is going to have implications on our talent and organizational model moving forward. I've mentioned to you in the last couple of quarters that our global simulation team had been experimenting with different AI tools. And we started to go live with our clients in the third quarter that continued to rapidly expand around the world. And just actually in the last couple of weeks, we kind of hit the, I don't know if it's the final breakthrough, but it's the big breakthrough across our most complex simulation platforms. So we have officially completely redesigned or retrofitted how we build simulations across our practices. And this has, strategic implications for how many people we have in our operations teams, how many people we're going to put on the client project teams, the economics for our clients. I announced this breakthrough to 90 of our existing clients in BCS North America, and they were absolutely thrilled to hear about the values for them. And so we're now moving from, I would call it breakthrough AI value experimentation, innovation to scaling this new way of working globally. And we will start to see material P&L gains already in the first quarter. From an automation update, part of the reason why we made the sounding board acquisition in the first quarter was they had great tech platform, which would allow us to scale. So our movement of existing workloads over to their platform is on track. And we are continuing to do that through the first quarter. So additional savings and OPEX will be coming beginning in the second quarter of 2026. So for those of you who've been with us for a long time, you're very used to seeing the slide that we are used to average growth of 12% KGAR since 2001 and an average profit growth of 15% per year. It has been a tough year specifically for one reason, that's BTS North America's core business, which is why we did the leadership change in early June. And that turnaround is on plan and progressing well. It's going to get a little tougher before we get back to the growth, but the plan is in the first half of the year, it's looking good. So given, although we see clear signs of the operational improvements and we have strong markets in Europe and most of the world, we do foresee revenue decline in BTS North America in the fourth quarter. So that fourth quarter dip combined with continued currency headwinds is the two major reasons behind why we are lowering our outlook to be significantly worse than what we said previously. And with that, I'm sure there's clarifying questions and comments, so I'm all yours.

Excellent. Wonderful, Jessica. I have a couple of questions in the beginning here, but I also tell the other analysts who have joined, just raise your hand and I'll let you ask questions to Jessica as well, of course. First, a question on Europe here. Somewhat softer demand into Q4 despite the strong year so far. Is there any particular market or sector behind the slowing trend in the fall or more the customer pipeline you are sitting on?