Good morning, all, and good evening, Jessica. It's Daniel Thorsson here from ABG, who will host this morning's conference call with BTS and the CEO, Jessica Skon. 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. Just saying 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 -16% if you adjust for foreign currency exchanges and -25% if you include the currency effect. Let's walk you through and kind of demystify what's behind the profit drop in the third quarter. There are 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. North America, you can see the decline of SEK 10.3 million 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.
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 to the bottom line compared to our other services. 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 roundtables in the third quarter compared to a year ago. Of course, it's also the adverse currency impacts, which makes up 50% of the decline in BTS other markets' profit. BTS Europe had a plus.
They performed well. They increased their profit in the third quarter. They continued to do well. Still a tough market in Europe, but they have been performing quite strongly. We do see some slowed growth happening or happening right now in the fourth quarter. The 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. Because it is a high license deal compared to a year ago, it 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 are one quarter in. We have changed the leadership team and put a lot of efforts into turning this market around. We see the turnaround still as on track.
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 of highlights to talk about BTS North America: that phase I 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 per 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 hypergrowth 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's sold through the channel, the profit was stable in the third quarter, even though the revenue was soft. 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. Sounding Board, the scaled 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. Yeah, I mean, bottom line on 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. 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.
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. 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've 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.
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 APG's reporting structure to me since I'm in the North America market, and I can drive faster synergies and energy there again. 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 impacts specifically in Southeast Asia and specifically in Thailand, which contributed to slower growth than we were expecting in the third quarter. We continue to see it being soft in the fourth quarter as well. Balancing to that, though, however, in the 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. 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 SEK 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 SEK 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'd call bottoms-up kind of grassroots AI innovation. 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 some—we 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.
Just actually in the last couple of weeks, we kind of hit the—I do not know if it is the final breakthrough, but it is the big breakthrough across our most complex simulation platform. We have officially completely redesigned or retrofitted how we build simulations across our practices. This has strategic implications for how many people we have in our operations teams, how many people we are going to put on the client project teams, the economics for our clients. I announced this breakthrough to 90 of our existing clients in BTS North America, and they were absolutely thrilled to hear about the values for them. We are now moving from, I would call it, breakthrough AI value experimentation and innovation to scaling this new way of working globally. 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 a great tech platform, which would allow us to scale. Our movement of existing workloads over to their platform is on track, and we are continuing to do that through the first quarter. Additional savings in OpEx will be coming beginning in the second quarter of 2026. For those of you who have been with us for a long time, you are very used to seeing the slide that we are used to average growth of 12% CAGR since 2001 and an average profit growth of 15% per year. It has been a tough year specifically for one reason. That is BTS North America's core business, which is why we did the leadership change in early June. 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 is looking good. 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. 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. 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, the 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?
There's not a particular sector behind it, and it's not a particular office. Our London team's pipeline is a little bit softer than the others, but no, it's more that they had a really strong first half. When we look at their full year performance, it's still going to be really good with great margins and growth and all of that. To also kind of balance the softening in the fourth quarter, we do not believe that that's going to carry over into 2026. The pipeline and the deals and the work that we have lined aside on already in the first quarter shows strong growth.
It is more like a softer end to a really big year for Europe.
Okay, that is clear. Then on the U.S. market, some positive words on the U.S. tech sector here in the report. We can all follow the huge AI investments, of course. Is this what partly drives demand for you as well, that the tech sector in general is more willing to do investments, or are there any other drivers behind this comment?
No, it is a mixed bag with tech. We can already start to see kind of the new hyperscalers compared to the older tech who are still trying to compete for the growth rates that they have been used to.
In some cases, for example, we have one of our larger software clients who's just gone through a major reorg, and with that, we expect their spend with us in the fourth quarter to be down quite a lot. At the same time, we've just brought in new software tech clients that are more on the hyperscale side, and we expect that to ramp really quickly. It's a mixed bag.
I see. I see. In general, in the market, do you see any noticeable price pressure or price competition in some markets for general management consulting services today?
Not really. I mean, not so significantly.
There is less interest in paying for content license, which for us has never been a very big part of our business, but it's something that I'm sure is affecting the training industry as a whole and any competitors who mainly have a content-first play. Our pricing compared to traditional consulting firms, especially on the AI implementation side, is very affordable. We are not seeing any pricing pressure there. We are not seeing pricing pressure on our new AI platforms and technology. One of the breakthroughs with all of the simulation redesign work we've been doing is we'll be able to build simulations faster. I do think we're going to see a shift in our client revenue, perhaps less upfront because we can do it more quickly, but faster to deploy, right?
With the faster deploy, we will see the license and the usage fees hitting quicker than normal.
Yeah, I see. That's clear. The clarifying question here on the guidance for 2025, you also include that revenue will decline as well as the EBITA. Is it also significantly worse on revenue, or how should we think about that addition?
No, we made a mistake, and we've already fixed it, and we'll be sending it. We were only relating to the earnings. It was a mistype. Top line for the full year, we still expect actually growth at the group level, just low single digits growth. That was our mistake. I'm sorry about that.
No problem. That's very clear. Let's see if any of the other analysts would like to ask a question.
We'll see how the format works here if they can raise their hand or just unmute. Let's see if Oscar or Johan, for example. Otherwise, we have a few from the chat. I'll take one from the chat. Just try to shout out, any of the other analysts. They seem to be joined correctly here, at least. We have a couple of questions from the chat, Jessica. The first one on license sales. Can you elaborate on the dynamics within license sales? Is it related to smaller deal size or fewer deals in total as well? Do you think that you are losing some deals to competitors and why? You also say that the lower license sales in Q3 was only temporary. Can you elaborate on that?
Yeah. The particular license deal that was extra painful to us that was sold through the channel, that was really just to one customer, and it was for one of our standard training simulations. Yeah, I would say just in addition to that, what I said before is still relevant in terms of clients not wanting to pay content license. If we have any old content license deals out there, and we do not have much, but those would be at risk. Now, the growth of the Verity platform, the BTS simulation usage, some of our other AI platform offerings, that growth, that subscription growth will outweigh any decline in content license or product license revenue. In Q3, it was just that one simple product through one customer.
I see. That is clear. On one-offs, are there any one-offs in this quarter in Q3?
Yeah, what was the underlying EBITA in that case? I think that you had like $5 million in Q1 and $14 million in Q2, if I remind correctly here. Anything in Q3?
Probably just a tiny little bit of extra severance, but not much. No, exactly. You do not state anything in the report,
I saw. On the cost savings program, what is the status of this cost savings program? How much of the cost savings were realized in Q3?
Nearly all of them. Yep. We will get 100% live on them in Q4, but the majority were realized in North America in the third quarter. What is interesting is what we are going to do for this next phase now that we have had the final breakthrough in using new technology across all of our simulations. We are very busy right now working through those implications.
We just hit the next level breakthrough just a week ago, and the teams are moving fast. This will have implications across consultant teams, our digital enablement teams, operations, project managers. I do not have enough clarity right now to share with all of you what to expect, but we are working on it very quickly.
I see. A linked question to that. In terms of number of employees going into 2026, do you expect this number to grow in 2026, or should we see top-line growth coming from increased sales per employee rather?
Yeah. We will bring in a few people here or there, probably revenue generators, but the total number of BTS employees will shrink in 2026. We will have revenue per employee improvement, not just from what we have already done this year, but from a second wave as well.
Okay. That is clear.
Then also a question here. In Q4 2024, you mentioned that two large clients canceled their annual events, which affected revenues by negatively $2 million. Are those clients back with their annual events in Q4 2025 now?
No. They're not back. And one of them is also most likely going to be behind another major drop in the fourth quarter. We're working on it right now, but yeah. That's one of them is why North America is going to have a tough time in the fourth quarter. That said, I can give you a little, I can give a little more context. That's one of the tech companies that's gone through a major reorg and have really changed their budgeting approaches, and they're not doing another big event in the first quarter this year.
The number of large company sales kickoffs and events that we are doing, however, is up across North America, but the average revenue spend is down. The team is really busy. The deal sizes are slightly smaller than they were last year. I think that's just a reflection of clients want to do something still, but they're spending less.
I see. A couple of written questions here from Johan Sundén. When during Q3 did the important licensing deal in North America fall away? What is the risk that more important clients do the same going forward?
Yeah. The third quarter, we found out about it in the last few weeks of the third quarter. We do not have that many other product license deals like that in the system. We do not have risk of that happening again in the fourth quarter.
I mean, yeah, it's not something that's so frequent across our revenue base. It's also the delta from Q3 last year with APG that made it particularly painful. Yeah. I don't see it as a particularly acute problem compared to the other things we're trying to do to get back to growth.
I see. I see. The second question from Johan here. How was sales and marketing costs in Q3 isolated to the other markets business? I guess the question is how large share of sales and marketing are related to other markets, roughly.
From a total sales and marketing spend?
I guess so.
Maybe I can clarify or.
Sure.
Yeah, feel free.
More like how isolated the step-up in sales and marketing cost is for Q3 and if there would be a similar kind of step-up in Q4.
No, isolated to Q3.
Perfect. But you said that there were some dinners now in Q4 as well, right?
Q3. Q3 is where most of the world did their increase in marketing events. I've been busy in North America in Q4 doing the dinners, but the expenses in most of the world that we're referring to was in the third quarter. Yeah.
Let me make it my
feel free, Johan.
Yeah. Perfect. Yeah. My final question is more like the AI breakthrough that you highlighted, Jessica, during the presentation. Just curious to hear your some initial thoughts on kind of impacts on unit economics. How has kind of feedback been from clients? Any worries that there will be fee pressures? And just curious to understand how the value created will be distributed.
I'll share with you exactly as I can see it at this moment.
It is wild how fast things are changing. You all know this, and you hear it probably from all your clients. Just to give you a sense, I have been waiting for the team to figure out if we can do this across our biggest SIMs. I got a phone call last week saying that Microsoft just released some new feature. That feature was kind of the final missing piece. No one could have dreamed that that feature would have come out a week ago, right? That is just kind of the world we are living in right now. Client feedback is coming in three different ways. One is we are able to demo in our sales meetings a real SIM, what we mean, a simulation of their business. That demo is blowing their minds.
They cannot believe that we're able to kind of visualize what they're expressing in their strategy in such a quick way. It is helping us move deals forward faster and have really high win rates. That's a good sign. Fee pressure has not hit us yet, and we are working through updating our pricing guidelines around use cases because what I shared with 90 of our customers, and many of them who've known us well, were nodding the whole time. Yes, we can build these a lot faster and still have high fidelity. For some instances, they'll choose not to do it faster because sometimes we get paid just to have the working sessions with our executive teams and align everybody through the process of modeling and simulating. Other times, the whole point is to get a simulation out as fast as possible.
When speed is of the essence, yes, the upfront build will be reduced. If it is a small simulation, I mean, it might be reduced from $100,000 to $50,000 or something like that to build it. The benefit for us is that we will go straight into licensing. Usually, what clients have always wanted to do is get more usage out of it as opposed to have some of their budget go towards the upfront build. We will reduce some of the upfront fees, but it has not happened yet. We will see kind of deal by deal how we shift that. On the other hand, getting the subscription and the usage and prioritizing that over the customization, I think, is better economics for the firm and allows us to deliver more value faster. Look, from an internal perspective, there are two major changes.
Before this, when we would build the simulations, we would basically first model it in Excel with some other software, and then we would move it back and forth between the Mumbai team, and they would build a different version of it or an updated skin or something and would go back and forth. That whole step is gone. Now the team is just coding or vibe coding and doing stuff right in front of the client together with the client. There is no need to go back and forth with other teams. We'll go from seven-person team to two-person teams in terms of the design. It's a pretty big implication.
Good. We have a few written questions from Oscar and Chris at SEB as well. First one, did any of the pushed-out revenues in Q2 become realized in Q3 in North America?
It's interesting. Yes.
The win rates are growing, and we're celebrating all of those as well. It has not been a Q3 in North America that felt like, "Oh, thank goodness, all that stuff materialized from Q2." It has been a balanced feeling of the work that got pushed plus the new client and logos that have been coming in. I do not have the exact percentage of revenue in the third quarter that was from the push. I can get back to you if you'd like.
Fair enough. The other question, I think it is related to Johan's question first on increased investments in other markets in the quarter and how temporary they are. Oscar's question here is, can we assume an increased margin ahead in other markets because of lower investments?
Yes. Yes. Yes, you should in the fourth quarter. Both better margins and revenue growth.
Yeah. Okay. Fair.
We have another question from the chat as well. License sales were down last year in Q4, 33% year- over- year. You should meet quite low comps this year in Q4. Do you think license sales will be lower year- over- year again here in Q4, or could they recover a bit?
There is one deal that we have been doing every year in the fourth quarter that I do not think we are going to do again. That deal is about $3 million in revenue. It is not that we are losing the client. It is just that they cannot make the economics work right now given the cost pressures that they are under. We are going to evolve from that way of working with them to scoping each individual project now for time and materials and subscription and all of that individually.
Yes, if you think about that, even though that's a different partnering model, if you think of that as license, you're going to see one more drop in the fourth quarter from that particular client.
Okay. That's very clear. I'm trying to scroll through the chat here. I don't think there are any further questions, actually. We got questions from all analysts I could see join the call and some of the audience. Thank you very much, Jessica, for the presentation. Have a good night's sleep. We will talk later today, Swedish time, and tomorrow for you.
Super. Thank you.
Thank you very much all for joining. Bye-bye.