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Hi everyone, and welcome to this interim report for the period April to June. I'm Erik Jivmark, I'm the CEO at Sleep Cycle, and with me I have Elisabeth Hedman, our newly appointed CFO and Head of Investor Relations. Elisabeth, I'm very happy to have you with me on this call. Please introduce yourself.
Thank you, Erik, and hi everyone. I am very happy to be here on my first quarterly report for Sleep Cycle. I am excited about the journey that lies ahead of us and believe that there is a lot of potential for Sleep Cycle that we are setting us up to capture. A few words about my background: I have a Master of Science in Business Administration from Linköping University, and I have spent roughly 15 years of working as a finance professional for companies with digital business models. I spent around 10 years at Norion Bank in different positions, but mainly I headed up the business control function. I was also part of the team that worked on the IPO of Norion Bank, taking the company public to Nasdaq Stockholm. After Norion Bank, I joined TimeEdit, which is a SaaS company within the edtech sector.
I spent three years at TimeEdit successfully supporting the growth, which pretty much meant tripling the revenue as well as the organization. All these previous experiences are very valuable for me here at Sleep Cycle. I see a lot of potential, both in leveraging the core product, but also in exploring the value of more partnerships, the very impressive technology that we fully own, and the vast amounts of anonymized data that we possess. This data helps us to constantly improve our core product, but I also strongly feel that it has a value of its own. Two things that I am very impressed with here at Sleep Cycle are the high profitability and the passion about our core product. The higher profitability will allow us to invest in the future.
People here at Sleep Cycle are passionate about our core product, helping people sleep better and therefore improving their health. There is also a new commercial focus, which I believe is very valuable for us to find our way in exploring new opportunities.
Thank you, Elisabeth. So for those of you that are new to Sleep Cycle, I thought I would give you a quick introduction to our product. So we are a consumer subscription service, and we operate and provide our product globally. And what is so great with our product is that all that it takes is a smartphone to use it. And we're available on all common smartphones as well as all common wearables.
And as you all know, we all live our lives with the phones in our hands, and currently there are almost 4 billion people using smartphones. Smartphones are the key to access many things in life: your finances, your children's schedule, your work, and communicating with your loved ones. They are the one piece of technology that is in the center of our life. That is our market. Those are our potential users.
We're proud of our achievements so far: three billion nights of data collected, one million daily users in 150 markets across the world. Our technology spans across iOS, Android, and smartwatches, making us a global leader in sleep analysis. So we help our users to fall asleep easily with our coaching programs and sound library. We help our users to wake up well-rested thanks to our patented Smart Alarm. We help our users to analyze and provide insights to their sleep habits, and we use that data to coach them to better sleep. We remain committed to our strategy and the three identified focus areas. One, user acquisition. We want to improve the upper funnel traffic. We want to be visible in more channels and expose Sleep Cycle to more potential users.
We will leverage known tactics to build brand and awareness without spending marketing dollars and work with partners to reach adjacent segments. Secondly, user engagement. We will continue to invest in the product and improve data quality. We will work with conversion, increase engagement, and thereby decrease churn. And finally, we will look to add a new level of revenues, monetize data and technology. One and two are about doubling down on the core product. We are the market leaders, and we will remain so. Also, to support the strategy, we have consolidated our team in Gothenburg and reorganized to enable more cross-functional collaboration and to support the customer journey.
With the hiring of Elisabeth as our new CFO and also Petter Höglander as the new CPO, together with Peter Alsterberg, that you heard from at the last quarterly report as our Chief Commercial Officer , we have finalized the leadership team and the organization. Now our focus is to execute on the strategy. The updated growth target that we shared earlier this year stands firm. We aim to double the revenue in the midterm, three to four years of time, with around 25% EBIT on an annual basis and an unchanged dividend policy of 40%-60% net profit every year. So if we zoom in on the last quarter, quarter two of this year, the number of paying subscribers is up from last quarter and also versus the same period last year.
We are at 898,000 subscribers, which is up 21,000 subscribers from the same period last year and 5,000 from Q1 this year. We have managed to do this growth with a healthy ARPU of SEK 282. We are up 13% in net revenue year-over-year, or SEK 65.4 million, this with an EBIT margin of 32% or SEK 21 million. I believe we delivered a good quarter financially while completing our organizational changes throughout the organization. With that, I'll hand over to Elisabeth to give you some more details.
So as Erik said, we had a good growth in the number of subscriptions and also in the net revenue during the second quarter. We are up with 21,000 subs compared to last year and 5,000 subs compared to last quarter. Last Q3 was unusual compared to previous years. We saw a spike in July, breaking the usual seasonal pattern when it comes to growth. We are, regardless, the strong comparison numbers in Q3, committed to grow revenue quarter-over-quarter and year-over-year. And if we look at the net revenue, it was SEK 65.4 million for the quarter. It has continued to grow at a steady pace, and it grew with 12.9% in the second quarter compared to previous year.
Last year, the FX effects were a substantial part of the growth, but now the FX adjusted growth was 10.5%, meaning it is the underlying business that is growing. As part of our updated strategy, we have presented some strategic KPIs which support our goals and which we believe will help us to reach our financial targets. We will double the revenue in a medium term with an EBIT margin around 25%. I want to spend a few minutes on how we are developing against these KPIs. As for the number of installs, we want on a yearly basis to reach 8-9 million new installs. During the second quarter, we had a positive development with a 9% increase compared to last year. We still need a bit more growth before reaching the targets. The target for conversion to premium customers is set out to 8%.
We are right now at 7% and on track with slowly increasing this figure. Our renewal rate increased slightly during the second quarter to 46%, but we still wanted to improve by 2 to 3 percentage points. As of the ARPU, we wanted to exceed SEK 300 . New customers are gained at a higher ARPU, and as these renew, the ARPU will go over SEK 300 . We are right now at SEK 282 , which is an increase of SEK 19 since last year. Looking at the P&L, the second quarter resulted in a continued top-line growth and a strong margin. Let's walk through the P&L. The revenue growth is a result of the subscriptions from the last 12 months since a large part of our sales is recognized over 12 months.
The new subscriptions are on average 80% organic, meaning that we see a good market fit and impact of our strong brand. As I previously also said, the FX adjusted growth was 10.5%, which shows that our underlying organic business is growing at a good rate without large FX impacts. Last year, this figure was 1.1%. We have also seen a positive development within revenue from our existing partnership. As of expenses, there are no non-recurring items for the second quarter of this year, and our platform fees are largely developing in line with the revenue, with small changes between new and renewed subscriptions as well as different platforms. The other external costs were SEK 13.6 million, which is a slight increase from previous year.
After the organizational changes made during the first quarter, we now largely use an external marketing agency, which means that we have higher external costs for the marketing function and less staff. All in all, we have good cost control. The staff costs are significantly lower compared to last year. Q2 2023 included non-recurring items of SEK 4.5 million related to the cost efficiency program. The decrease in staff costs is also related to the organizational changes that we made last quarter. The EBIT was SEK 21 million for the second quarter, with an EBIT margin of 32%. Comparative figures for previous year are SEK 12.7 million and 22%. Adjusted for the non-recurring items, it was SEK 17.3 million or 29.8%. During the second quarter, a dividend of SEK 46.6 million was paid out. At the end of the quarter, the liquidity was SEK 120.4 million.
Sleep Cycle has a strong and solid financial profile, and we are very happy with the financial figures from this quarter. Looking at the first half of 2024, we can conclude that we showed a stable revenue growth with a strong EBIT margin. The net revenue grew with 13% to SEK 128.9 million, and the adjusted FX growth was 10.8%, which again shows that it is the underlying business that is growing organically. Capitalized expenses were lower during the first half of 2024 compared to previous year. Previous year included work for the kids' app, which was later discontinued.
The store platform fees have been stable, and other external expenses have decreased with 2.4% in line with our focus on cost efficiency. Staff costs are overall stable during this period and affected by non-recurring items of similar amounts during both this and last year. During the first half of 2024, we delivered a strong EBIT. The margin was 27%, and adjusted for NRIs, it was 31.5%.
Thank you, Elisabeth. So, to wrap up, my key takeaways from this period is that the work we put in to getting the organization in order and the focus that we have created. I'm starting to see the result from this in both revenue and subscription growth. Also, I'm very pleased with having finalized the leadership team changes, gathering the team in one place, and also successfully transitioned marketing to our external partners. So while we had a focus on operational changes, we kept a very tight cost control and protecting our subscriber growth. I believe this speaks loudly about the discipline we have, and I'm feeling positive when I'm looking ahead about the things we're putting into work, helping us achieve our growth objectives, both when it comes to the core business, but also the potential I see in our data and the platform.
I believe we are capable of solving more difficult user problems with the platform than we do today. The reason why I believe so is because, unlike our competitors, we own our own technology. As I said before, I'm expecting to see the results of the new strategy during the later half of the year. That would include exploring the new revenue streams and leveraging the platform and the data. With that, we are happy to take any questions. I think we have them in writing, Elisabeth, right?
Yes, we do. Let me read them, and we will go through them. First, we have a question regarding the organizational changes that we have made. It says that we have let 40% of our employees go. How has this affected the rest of the employees?
Yeah, I mean, we have also increased the focus on what we do. So I would say that it's true that we have decreased the number of employees, but we have also focused the remaining team on fewer tasks. And then we should also remember, when we look at this number of reducing staff, we have also outsourced marketing. So it means that some things that were previously done internally are now done by external competence.
Perfect. We have some more questions regarding the organization and around that. Can we elaborate a bit on the current size of the organization? The average number of employees was 30 in the quarter. Are you seeking to add a few new FTEs in the second half of the year? And if yes, in what areas?
So we are, as I shared before, we're cautious about hiring. We hire when we have started with something that we feel that adding additional competence would help us to move faster than we hire. We don't hire to have people to figure out what to do, which sounds given, but it hasn't necessarily been in the past. So I think we will add a couple of more people, but we will be below what we have seen previous years.
Thanks. And tied to that question, the EBIT margin was 32%, significantly higher than the target of 25%. Can you discuss the upcoming investments in growth and their timing and margin impact?
The reason why we're keeping the margin high is because we are focusing the team. We are testing out some of the new strategic bets. As soon as we see that those bets start to gain traction in the market, then we will use the margin to go after them. But I mean, to be clear, we have said that we will be around 25%, and that's still what we're aiming for. We will make the investment when we see the potential in the market, and we will land around 25% at the end of the year.
Perfect. Then there was a question regarding partnerships. Since we mentioned in the CEO letter that it contributed to the growth and that we are optimistic about the progress in terms of partnerships, can we elaborate on the partnerships that drove growth this quarter and explain the reasons for your optimistic outlook?
I think there are two things here. In this quarter, we have, with the diligent work of Peter coming in, managed to expand current partnerships. That's what's been helping us to grow the quarter. What makes me excited when I look forward is that we have quite a few very interesting dialogues with partners that I hope that we will be able to share with you during Q3. That's why I expressed an optimistic outlook. It also speaks loudly to the strategy that we have in place, where partnerships is a key component to drive our commercial agenda and to reach adjacent segments. The dialogue that we have right now makes me optimistic.
Nice. Next question. Are there any specific initiatives you can point to driving the growth in new subscribers during this quarter?
I would say that it's good old focus, to be honest. I think we have stopped doing quite a few things that we have done in the past. We have focused the team on fewer actions, and that has resulted in the uptake that we see.
All right. Then we have a question regarding our pricing. Compared to some of your peers, you are way below in pricing. For example, in the U.S., peers' product costs $59, and in Sweden, as high as SEK 799. I don't understand why you price your product so much lower. Can you please explain?
Price is an area that we have identified that we will work much more with going forward. As some of you might know, we had a price hike. I have no other word to describe it, a couple of years ago now, which took a toll on the number of subscribers. Instead, we will work with price constantly. However, we need to put the right prerequisites in place because since we haven't worked with price diligently in the past, we need some supporting technology to be able to do it in an efficient manner. With that said, we are experimenting with price already in a more manual way in some markets to see if we can gain the traction, and we will continue to do so.
When you look at the prices and comparing us with the competitors, you have to keep in mind that one price is what they show, and then the other price is also what they actually get in terms of working with rebates, anchor prices, etc. All those tactics are known and something we will also explore further.
Perfect. We have a question regarding that from public data sites. You can see a spike of downloads from Brazil in the last week. Do we have any specific reasons to explain that?
We have made some good in-app events that gained traction in the market, and we have also a general upward trend in Brazil. So I think those things came together, and that's why we see a spike right now in Brazil.
Perfect. Then we have a question regarding the marketing costs in the quarter. This is not something that we have chosen to show right now. What we can say is that we work with effective marketing, and we have not increased the spend in this quarter dramatically. Then a question for Erik. Do you want to add something there?
No, sorry.
No worries. A question for you. You have been the CEO since November 1st, 2023, and you have purchased 4,000 shares in the open market. How do you view your own alignment with that of the shareholders? Are there any specific reasons for why you have not managed to increase your ownership?
I have also purchased 200,000 options. So that's how I have invested on top of this.
Yeah. And maybe we can add also that all management employees have invested in option programs. So we own 100,000 options each, which we have paid for ourselves.
Yep.
All right. Then there's a question regarding buybacks and dividends. These are not questions for us to ask. I believe it's up to the board. Then we have a question regarding net sales. Does it include any other revenue than subscription? Example from partnership? And yes, it does. There is a note that you can see the division between subscription revenue and other revenue. And then there's a question regarding the outlook for our margin. We have touched it before, and we don't believe that it will be specifically 25%, right?
No, it will be around 25%. Most likely slightly above.
Yeah. And then we have a last question. When will we see new products according to the new strategy?
We hope that we will see some things in the market in the future. It's hard to say exactly when. Also, features we are developing all the time. The team is very focused right now on mitigating churn and providing new features to increase the activation. That we will release. We have some exciting stuff coming out in quarter three. I'm looking forward to share those with you on the next call, what we have done and the results we've seen from that. We are also working diligently on the new iOS 18. We have quite some things in the pipeline. When we talk about completely new products, that is another story. We will let you know when we have more to share.
That was it as of questions.
Thank you very much for all the questions, and thank you for taking the time to dial in today.