Welcome to Sleep Cycle Q4 2023 Report Presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now, I will hand the conference over to CEO, Erik Jivmark, and CFO, Per Andersson. Please go ahead.
Hi, everyone. Thank you for joining us today, and welcome to the presentation of Sleep Cycle's Quarter Four and the Year-End Report 2023. My name is Erik Jivmark, and with me presenting today, I have our CFO, Per Andersson. Today's agenda will be the Q4 earnings and development. We will talk about our latest release, Cough Radar. After that, I will share my first impressions as CEO, and then Per, our CFO, will deep dive into the financials. Then we will end with the possibility for questions. There are three key takeaways that I want you to bring with you. One is that we show that we can grow subscribers for the second consecutive quarter, meaning we have a solid core business.
Secondly, we are taking the necessary actions to create a focus and pave the way for new initiatives and a higher growth pace, both when it comes to the organization as well as what we spend our time on. And thirdly, we see a strong margin and also continued good effects from the cost efficiency program that we implemented in Q2. So, for anyone new to Sleep Cycle, we are the world's leading sleep platform. We are available on all the major platforms and smartwatches in more than 150 countries, with over 1 million daily active users. We have a proprietary AI platform that we use to help our users to never wake up tired, with an alarm that knows the ideal time for you to wake up. We also help our users to understand their sleep and provide tools to improve their sleep.
And now recently, we are providing our users with real-time coughing data, helping them to make health-conscious decisions. So the development in KPIs for Q4. Subscriptions were down -1% versus last year. However, we saw growth from the previous quarter. We closed at 893,000 subscribers, which was up 6,000 additional subscribers from Q3. It was a challenging start to 2023, with a decline in subscription, and we managed to turn the trend in Q3, and I'm very happy that we continued on that positive path also in Q4. So in Q4, we kept up good conversion rates. We managed to attract new users at a low customer acquisition cost. We also managed to convert freemium users to premium, so all in all, very efficient user acquisition.
When we look at ARPU, it continued to grow in quarter four by 12% to 272 SEK. We continue to see effects of the price increases implemented last year, and it's also driven by FX. Revenues grew 11%. We closed the full year with an 11% growth rate versus 2022. Given the challenging start of the year and also how we managed to decrease our cost base and improve our margin, it's a good number, but we aim for more. EBIT margin in Q4 was 21%, and that included the margin. Included in that is the write-down of SEK 6.3 million, without any cash impact. Excluding that, the EBIT margin was 31%.
So when I came in, we started to evaluate the strategy, and one action that we took in Q4 has been to terminate the Sleep Cycle Kids app, which has resulted in this write-down. Also, in the beginning of 2024, we decided to consolidate our business into one office. We're unifying the team under one roof, and we believe that's vital to our growth strategy. Removing silos, we're shortening decision paths, and we will enhance collaboration. Per will describe closer how that will impact the financials going forward. Also, I'm looking forward to present a new strategy later on this quarter, but these two decisions that we have taken so far, they are taken to free up resources to allow us to increase the focus on the core product and to gather the teams for improved efficiency. So moving on.
We had continued growth in subscriptions in the fourth quarter. It's still a challenging market, and we are affected by the price increases in 2022. We continue to improve conversion rates and also invested in the product to attract new users. I have a positive outlook on the subs development also for Q1. On the revenue side, revenues were in line with Q3. Due to accrual effects, we haven't seen yet the full impact from the subscription growth. And also revenues in Q4 is a result of a fairly weak subscription development in the beginning of the year. So with subscription growth in the second half of 2023 and the growing ARPU, we expect a continued revenue growth in the coming quarters.
Once our new strategy is implemented, we expect current growth to serve as a foundation when we now add new initiatives on top. I want to spend some time talking about how we leverage data, both in our product development, but also beyond. So through our product, we collect a vast amounts of data in real time, and this enables continuous product development, ensuring also a high quality experience for the user, but it's also available, a valuable base for new products. One such example is the newly launched feature, Cough Radar. So Cough Radar is pretty remarkable. So through a combination of real-time anonymized audio data, and then our machine learning algorithms and geolocation, Cough Radar enable us to basically compile a comprehensive statistics on coughs globally.
And the result is a dynamic and up-to-date, real-time presentation of elevated cough activity in different regions. So for a user, they can even zoom into their own neighborhood. So with the help of Cough Radar, they can make health-conscious decisions in, you know, their everyday life, but they can also share unique insights with their friends and family. And we see that people like this, and they talk about it. So just in a few weeks following the release of Cough Radar, and it's still in beta, we already noticed that there is a substantial interest in the market. And some of the highlights that I wanted to point out is that we got a lot of media coverage and also 3 million views on social media globally.
We've been featured on App Store, which also speaks to the good relationship we have with them, on with 9 million impressions, and we have 350,000 unique users that have interacted with this, and all of this while we are still in beta. So of course, while this fills us with confidence, we still need to better understand how can we monetize features like this in a better way. And that leads me to the future strategy. So obviously, I will not go into depth on the future strategy today. However, I just wanted to give you a little glance of what our thinking is. So our road to accelerated growth will build upon a solid foundation, where our efforts are concentrated on user acquisition and user engagement. We will double down on the core product.
This is where the majority of our focus will be. This is ours to win. On top of this, we are investigating how to leverage our proprietary platform and also the vast amounts of data that we have, so we can create additional growth. Cough Radar is. It's the first proof point that leveraged data could be of value beyond our traditional core product. We also have the unique proprietary technology that we today only use for our own application. So as I said before, our decision to close down the Kids app and also to consolidate the business into one office should be seen as the first step towards unifying the company behind our growth strategy. I will go into more details, of course, when we present the full strategy on what bets we will take within these three focus areas.
But before I hand over to Per, I just want to summarize my first impressions. First of all, we have a solid foundation. There is a potential for higher growth. We are a company with a very good purpose, which helps us in many ways, not least when it's attracting talent. We have a positive market trend working in our favor within both health and mHealth. We have a leading market position with a first-mover advantage. We have a healthy organic growth, and the user intake that we do is at a very attractive customer acquisition cost. We have a highly profitable business model and scalable, that we have proven that we can grow now in two consecutive quarters, and that creates a solid foundation for the future.
When it comes to areas of opportunities, well, we will improve our commercial focus going forward. We have already, as I've shared a little bit about today, and we will continue to do so, increase the clarity and the focus. As I said, I see an interesting opportunity in our data and platform. The new strategy will be presented in Q1, and of course, it will also include then an updated plan for the increased growth. Now I'm handing over to our CFO, Per.
Thank you, Erik. As Erik explained before, we continue to deliver on the cost efficiency program launched in Q2. Excluding the write-down, our EBIT margin was 31% in the quarter, where we also succeeded in growing our subscriber base. Revenues grew 10.6% in the quarter, which was 5.7% currency adjusted. Compared to previous quarters, we now see less FX impact and more impact coming from the actual business. As it says in the headline, we have made a correction of SEK 0.3 million on revenues related to an adjustment for VAT. Normally, VAT is handled by the platform owners, but after a review, we have concluded that we need to file for VAT locally on some certain markets.
The impact going forward will be limited, and for Q3-Q4 in 2023, and previous year, the question was SEK 0.3 million. Going down the P&L, platform fees developed in line with revenues. Other OpEx decreased compared to last year. This is mainly a result of less marketing spending and cost related to the public offer that was included in last year's OpEx. On staff costs, we see a reduction from last year due to the efficiency program that was launched in Q2, and fewer employees as a result. Under depreciation and amortization, we made a strategic decision in Q4 to terminate the development of the new Sleep Cycle Kids app.
We are currently working on an updated strategy, and when reviewing our activities, we came to the conclusion to decommission that project in order to focus on the core product and to free up resources for other initiatives. The financial impact from this decision is a SEK 6.3 million write-down, but with no cash flow impact. Including this write-down, the EBIT margin was 21% in the quarter. Excluding the write-down, the EBIT margin was 31%. The adjusted EBIT margin grew significantly from last year. All in all, the measures taken in Q2 2023 are paying off, which is now reflected in the margin development. In total, we generated SEK 16 million in cash flow during Q4, and we held SEK 133.5 million in cash at period end.
Summarizing 2023, we had a challenging start with the decline in subscriptions, but that was compensated by improved ARPU and FX impact. In the second half, we managed to turn the subscriber trend and deliver growth on a quarter-over-quarter basis. We did that with a considerably lower cost base and improved efficiency. In Q4, we saw strong revenue growth, also adjusted for FX. Given that we accrue our revenues, we expect the growing subscriber trend to contribute positively to revenue growth in 2024. Going through the P&L for 2023, revenues grew 11.4%, mainly due to currency and price adjustments. That compensated for declining subscription sales on a year-over-year basis. On the cost side, platform fees developed stable, while other OpEx was lower, mainly due to less marketing spending and lower cost for user acquisition.
Total staff costs grew, however, adjusted for non-recurring items related to the cost efficiency program, as well as costs related to change of CEO, the underlying staff cost is considerably lower than in 2022. The EBIT margin for the full year improved to 24%, which was 26% adjusted, both more than 30% up compared to last year. We generated an operational cash flow of SEK 53 million f or the full year, and the board of directors proposes a dividend of in total SEK 2.30 per share, or in total SEK 47 million for this year. Over to Erik, and he will give you a few comments on our focus areas.
Thanks, Per. So in Q4, we continued the positive trend. We have proven now that in Q4, that Q3 was not a one-time off. And I'm really looking forward to share our new strategy to boost our revenue even further without losing sight of our operational efficiency. With a solid 31% EBIT margin in Q4, excluding the write-down, it proves that we're not just growing. I mean, we're doing it wisely, and expect similar financial discipline as we chase higher revenues. We are consolidating our offices in Q1 this year to fuel growth. Yes, some non-recurring costs in Q1, but with neutral effect over the year. And although not everyone is joining the move, we're strategically filling the gaps, and we will also have an external partner for the majority of our marketing going forward.
Thank you very much for listening in, and we're happy to take questions, so please open 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 Mark Sjöstedt from Redeye. Please go ahead.
Thank you. Good morning, Erik and Per. Could you comment on the market in general and download trends? And has the environment improved or is it still cautious? What do you see?
We believe that the general market environment is quite unchanged from Q3, meaning that we still see a small decline when it comes to installs. What we have done well in Q4 has been that, as Erik said, we have had some new releases that have gained attraction and very good exposure in App Store. So for our sake, we haven't been that affected by the general climate. We also been better in converting users, which is the main reason why we are growing in Q4. So I would say that the market is still in a negative trend, but I believe that we have been better at compensating for that.
So, we haven't been that affected by lowering installs in this quarter as in previous.
All right. Could you expand on the efficient user acquisition you saw in the quarter?
Yeah, and that relates to the first question here, where we are better at converting users, mainly be driven by different product development initiatives. So when it comes to marketing spending, for instance, I think we spent half of what we did in last year, but we managed to acquire more users.
Mm-hmm. And when you write in the report, Erik, you see good opportunities to strengthen your commercial focus. What do you mean more specifically?
So I think, as I said before, the company is fantastic when it comes to product development. I think there is an opportunity to tap into potential new segments, while leveraging our core product, but also getting a better understanding on how can we leverage the platform and the data that we have, which is unique, in my opinion. So those are the things that we're thinking about when it comes to commercial opportunities, and I will, of course, share even more once we share the full strategy.
Yeah. Right. And could you comment, like, why did you decide to discontinue Sleep Cycle Kids rather than continue to develop it? Why didn't it take off as you wanted?
So when I came in, obviously, as a new CEO, you look at everything, and I couldn't see the growth that we want in order for us to take focus from us. We have a unique opportunity in the amount of users that download and come to our app every day. And I think we should be very focused on converting them and making that a good experience rather than focus our efforts on, in this case, the Kids app. So, and this is a general thing for me, that we need to do less things, and we need to do them more focused in order to also understand what we have done to create the effect that we wanted. And I think that will be the recipe for success going forward.
All right. And one last question: I believe you mentioned an external marketing partner at the end of the presentation. Could you comment on that? And is that also a refocusing from your part?
Yes. I mean, I have a little bit of experience, obviously, within the area of marketing, so there are different reasons why we wanted to go with an external partner. But we're not talking about, you know, inefficient brand building, et c., that we will use PR and partnerships for. What I'm talking about is how we can be more, even more efficient in converting our users that comes in to subscribers and have additional revenue. So we will use an external partner for that, to some extent.
All right. Thank you very much.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Axel Ericsson from shareholder. Please go ahead.
Morning, Erik. Morning, Per.
Morning.
I just had first a question for you, Per. Last quarter, you mentioned that you believe that the Q4 margins would be sort of well above 30%, but and adjusting for that one-off impairment with the Sleep Cycle Kids app, we end up at around 31% here. So I was just wondering if you could give any color on sort of what did not go as planned here?
No, I believe everything went as planned. I mean, we have had some... When we talk about 31 compared to, let's say, 34%, as we had in the third quarter, we talk about some. I mean, I can tell you that in Q4, what we've done now is that we are reviewing our strategy, for instance. We were using some external help for that. We've had some support for this VAT question. So when talking about percentage points of 1 or 2, I mean, that mainly comes down to, let's say, how we use consultants and if we run any additional projects and so on.
So, I believe the underlying business performed as planned, but we have chosen to initiate some additional business projects in this quarter.
Okay. Thank you. And I was also just wondering if you had perhaps an update on the different partnerships you have, you know, with Gympass and YuLife, and how those are going?
I mean, I think that it's encouraging to see that we have different models with partners that are very credible. We see that they continue to perform, and that's also strengthening one of my hypotheses that I had coming in, that to be able to commercialize this further, we need to use network effect and work with different partners. So, it is still an ongoing positive trend, and we will focus on that even more going forward.
Okay. Thank you.
Thank you.
The next question comes from Johan Boström, from Boström Capital Förvaltning AB. Please go ahead.
Yeah. Hello. Yes, I also wonder about the margin. It was because adjusted, it was 39% Q3. So, but if I understood you correctly, you said that the 31% is more where we will go in the future, but you also said that there was temporary costs in this quarter. So how should we look at the margin going forward?
No, I believe, as Erik said in the call, I mean, we will be in the same range as we are today. I'm not sure if I recall the figures you referred to, but no, I believe we will be around 30%, but obviously, we are trying to make to invest to improve our growth rates, and that we do, that might differ a bit from quarter to quarter. But I believe we will be around 30% in the coming quarter as well. That's what I can say.
Thank you. And about ARPU, we've seen it rising for a while. Where do you see the potential ARPU are with the current price levels?
No, I believe there is potential, and first of all, we haven't really seen the full impact from the price increases last year, because as you know, when we increase prices, the new prices mainly goes to the new subscribers coming in, while subscribers that renew, they renew on their the prices they had at the beginning, the initial price. So what we've seen this year is basically that we take in new users at higher price. Now, we also started to see that the users we took in last year, at the higher, the new price, are now re-renewing, meaning that we see that the ARPUs continuing to improve.
With that said, I mean, we have two price points right now, $40 and $30. So in the coming quarters, I believe we will see a continued price increase coming from ARPU. Then, of course, ARPU has also been affected by FX during this year, and we're not sure about that, how that will develop continuing. And then when it comes to ARPU pricing in general, I would say that is something we are currently reviewing. So two years ago, in Q2 2022, we started to increase prices. It's soon been two years since we did that, and we now have quite some data on how that affected our new user acquisition and so on.
So, I believe in, as part of our strategy work that we are working on right now, we will also consider how we can optimize pricing in different markets and so on, and if there is potential for even higher prices, maybe.
Thank you very much. That's all for me.
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.
Thank you very much for today. I'm looking forward to share the updated strategy with you and continue our growth journey. Thank you.