Welcome to the Sleep Cycle Audio Cast Teleconference Q4 2021. For the first part of this call, all participants will be in listen only mode, and afterwards there will be question and answer session. Today, I'm pleased to present CEO, Carl Johan Hederoth, and CFO, Per Andersson. Speakers, please begin.
Thank you. Hi, everyone, and thanks for joining us today. My name is Carl Johan Hederoth, CEO of Sleep Cycle. With me here today, I have Per Andersson, CFO. For today, I will quickly talk about the quarterly performance, before looking at our strategic initiatives and going a bit deeper on our product strategy, something you will hear us talk more about going forward. Per will after that provide further details around our financial results. As previously discussed, we have during the year increased our investment in Sleep Cycle, first and foremost in our product, but also in commercial initiatives such as new channels and marketing. We have doubled the teams, and we're in a good position to execute on our initiatives going forward. We are already seeing good trends.
The business right now is doing well. Q4 was a good quarter for Sleep Cycle as our core business metrics subscribers is showing a re-accelerated growth compared to last year. 2020 was a challenging year, and looking at full year 2021, it's clear to me that we are bending the curves upwards again. Last month of the quarter showed very good traction, primarily due to a set of product launches and optimizations, that the teams has been working really, really hard on. Next slide, please. What we see is a 14% subscriber growth. As a reminder, our full year subscriber growth in 2020 was 10%. We are now at 901,000 subscribers, driving a 22% adjusted revenue growth.
Margins are on track, and Per will dive deeper into the cost later on. Next slide, please. Short recap on our strategic initiatives. First, to the left, most important to us is the product, and basically we're focused on two areas, expanding our tracking capabilities, and secondly, deepening our offering by providing insights, content, and tools that helps our users to improve their sleep. Moving to the middle, we're also investing in new channels. We want to leverage partnership, ranging from technical partnerships where we provide the technology, as in our venture with Samsung, and also partnerships where we can extend the value of Sleep Cycle by offering, for example, clinical pathway to user who suffers from common sleep conditions or sleep problems.
Secondly, in the middle, we want to help companies and organizations put sleep on their agenda and help their employee with their sleep through our corporate offering. To the right, marketing, we're also adding a layer to our growth initiatives by investing in marketing, but yet again, we're prudent here as we want fast return on our investment in these channels. Our main inflow of customers still comes from organic channels through our position on app stores and referrals. Next slide, please. Looking at the progress across these initiatives, we're doing good. To the left product, two important releases this quarter are Sleep Goal and Other Sounds on the Android platform.
Sleep Goal lets user set their sleep schedule, and it's being followed up on a weekly basis. It is an important feature from two perspectives. First, we're getting tons of important data on how users want to sleep, how they perform against it, and how and what they are doing to change it. Second, we have seen good results in terms of engagement and retention. Early stage retention is key to us as it's a leading indicator of our renewal rates. Other Sounds on the Android platform, a feature that has been available on the iOS platform, but now also available on Android. Other Sounds is the feature where we detect additional sounds such as coughing, baby screaming, sleep talking, and so forth.
It is truly an amazing piece of technology, and we are in a good position data-wise to extend the capabilities even further, such as detecting teeth grinding, breathing disorders, and other sounds that might indicate a sleep issue or a more severe sleep problem. Moving to the middle reach, corporate wellness will continue onboarding new customers, and we learn a lot. We're still seeing a very high interest among companies, and we will be scaling up the efforts during 2022. Same with partnerships. We're currently focusing on partners that are able to join forces with us to provide pathway and clinical pathway for the many thousands of Sleep Cycle users that suffers from clinical conditions such as insomnia and sleep apnea. Last to the right, marketing.
During the quarter, we have reallocated marketing resources to campaigns and conversion optimization and also product. These initiatives have been very successful, especially in the last weeks of the quarter. At the same time, we have managed to spend our marketing money better than ever and seeing an even lower subscriber acquisition cost. To me, this is showcasing the power of our marketing position and the force in our organic user inflow. Performance marketing is a great tool for acceleration, something we can scale up when we see opportunities during certain seasons or in conjunction with feature releases. It's not something that we're dependent on for our future growth. Today, in these times of current events regarding recent restriction in IDFA and rising paid acquisition costs, that is where we want to be.
To summarize this slide, good traction across all initiatives, especially happy to see that our investment in product is gaining momentum, since that is our most important driver for long-term growth. It's also our single most important priority for 2022. I'm going to talk a little bit more about product in the next slide. During the year, we have made heavy investment into our teams, where we effectively doubled the amount of people working with the product. During the year, we have rolled out almost one update per week to our users across our platforms, and we see the speed of shipping is picking up. As a direct effect of this, we have seen positive trends in both new user acquisition, conversion, and retention during the last quarter.
We will be relentlessly focused on shipping features and updates to our users. During this year, you will see an even accelerated pace in developing our core offering. Today, I wanna talk about three major areas which will be our main priorities going forward. First, sleep improvement. Sleep Cycle as of today is a great sleep tracker and a great first touch point when it comes to sleep. P eople want more than data and trends on their sleep. Even if the first step to better sleep is to get an understanding of it, people today expect more. They want concrete guidance and clear insights, and they want results. We're going to help people on our platform overcome the most common sleep issues.
We're doing that by providing engaging and scientifically validated content and coaching to make it easy, engaging, and fun to improve your sleep. The second area, tracking. Here we want to expand our capabilities. We recently launched support for Android Wear OS, and we can see that number of users is still small, but increasing week by week. You will also see better support for existing platforms, better audio classification, and a more seamless user journey on Apple Watch. Our main goal here is to be best in class on the major platforms available, and to make the most out of the data that this platform provides. The third area is where we go deeper into specific sleep verticals, such as insomnia and sleep apnea, stress, or coaching parents with infants.
I mean, each of these verticals, which are very clearly visible in our user base, represents fantastic opportunities for future growth. Our approach to this will differ from case to case, but will for sure be a combination of in-house product development, partnerships, and acquisitions. With that, I will hand over to Per to talk about the financial performance.
Thank you, Carl Johan. Next page, please. Now we're on slide number six. Starting looking at the graph to the left, our total subscription base ended up at 901,000 subscribers. That was an increase by 14.3% versus last year, and up from a growth rate of 10.1% the year before. Quite a good growth compared to last year. During 2021, we saw very stable subscription growth quarter by quarter, as seen on the graph to the left. Looking a bit closer to the numbers, we see that the growth rate between Q3 and Q4 in 2021 was net 17,000 subscriptions.
I would say that too was a good accomplishment compared to the growth between Q3 and Q4 in 2020, which was only 6,000 subscriptions increase. From 2019, we have a very large cohort in Q4, which affected the 2020 numbers. In Q4 2021, we actually managed to increase the net add from a very high base. In total, we are very happy about the accelerated growth in the subscription base, which is our most important KPI. Looking at the graph on the right-hand side, revenues grew 15% in Q4, and that was 21.7% adjusted for FX. Full-year revenues grew 21.6% adjusted for FX.
To sum up where we are right now, I believe we have managed to increase the growth speed in subscriptions, which is our most important KPI. With stable underlying growth in volumes, we will work with ARPU to better reflect that growth in revenue score going forward. Next page, please. Going through the P&L for the quarter, revenues ended up at SEK 48 million. As said on the previous slide, the revenue growth adjusted for FX was 21.7%. The main drivers were subscription volume increase, supported by new product launches, marketing, and effective campaigns. Going down, platform fees developed as in previous quarters, meaning we've seen a continued slight decrease in relation to revenues. The decrease was about one percentage point from last year.
Other OPEX was SEK 17 million with no NRIs recognized for the period, compared to last year and adjust for the NRIs in Q4 2020, the increase is driven by marketing spending, more consultants and a generally larger organization, that is in line with our scale up strategy. Total marketing spending was SEK 9.7 million in the quarter, while performance marketing spending was SEK 7.5 million. With that, we had a CAC of around SEK 250. Staff cost developed as planned and has increased, with a growing organization that is now almost doubled compared to one year ago. EBIT margin was 16.7% in the quarter, which compared to last year obviously was impacted by investment in staff and marketing, which is to drive the accelerated growth going forward.
Next page, please. For the full year, revenues grew to SEK 183 million, up 21.6% adjusted for FX. Compared to 2020, revenues grew 26.9%, although the underlying subscription volume growth was only 10%. As I said before, I believe we have a very good starting point for 2022 with a good underlying subscription growth. With some work on ARPU and pricing, we can turn that subscription growth into a really good revenue going forward. Going down the table, other OPEX almost double compared to last year with the deviation explained by non-recurring items and increased marketing investments in particular.
Looking at EBIT and the adjusted margin, it ended on 19.9%, which is where we expect to be during this phase when we scale up investment in organization and marketing to reach a higher revenue growth going forward. As of December 31, 2021, we had a cash position of SEK 165 million. That is a lot of firepower and we will come back with what opportunities we see that we can use that for. Next page, please. To sum up our outlook and what our main focus areas are, starting with the growth, our main goal. As we accrue sales over the subscription period, we have a very good visibility of future revenues.
What we can see now is that it took some time to reach the sales levels in 2021 that corresponds to the 30% revenue growth target for 2022. In Q4 in 2021, we were on those sales levels. Since almost 50% of our revenues in 2022 comes from sales in 2021, we see it will become challenging to reach the 30% revenue growth target on the full year. The 30% growth target remains and our strategy lies firm. We do expect to reach the growth target on quarterly basis by end of 2022. As I said, it will be challenging to reach it on the full year basis. Going down to profitability, our main focus is growth and we already saw in Q4 that investment in product development started to really pay off.
We expect to continue to invest during 2022, and we expect to deliver an adjusted EBIT margin of approximately 20% on the full year, in line with our target. Organizational recruitment has progressed according to plan and we have now ramped up the organization compared to one year ago. We expect to employ five to 10 more people during the year. The main focus now is to leverage the organizational growth from 2021 and speed up the product development and the launch of new features. Lastly, opportunities and as I have talked about in previous presentations, that there are a number of opportunities for expansion that have followed with the IPO. During the fall, we have been working on our strategy, and we have evaluated what areas are most interesting.
In short, there are three areas we see that can speed up growth further. First, technical integration, similar to what we did with Samsung, we see several opportunities to integrate with different platforms where we can own the sleep space, so to say. Second is the partnerships. There are numerous opportunities for partnerships. In short, we see the best opportunities in partnerships where we can leverage a big client base or where we can funnel our users to a third party, for example, for treatment of sleep disorders. Last, when evaluating these growth areas, we also consider M&A and acquisitions as a way to speed up things. Before we end for Q&A, I will leave to Carl Johan to sum up the year.
Thank you, Per. I just want to summarize by stating that we're really excited about the business, this coming year. Even though we had a somewhat slower 2021 than expected, and the 30% growth for 2022 will be challenging, we have a strong confidence in our strategy and our acceleration in product development and innovation. For the short term, I mean, we have a great toolbox for 2022 that beyond growth by improving the product and pricing, also encompasses opportunities and partnerships and new platforms and acquisitions. Long term, I believe digital sleep improvement is still in a very early stage, and sleep is an enormous market, almost impossible to overlook.
There are numerous huge and growing verticals that allows us for future growth. With our position in the market, being the first touch point for so many users, and with our data and technology stack, I think we're in a great position going forward. With that said, I leave it over to questions.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero and one on your telephone keypad. The first question is from Mark Siöstedt, Redeye.
Hello. Thank you very much. Hello, Carl Johan and Per, thanks for taking my question. It seems like your product roadmap for 2022 is quite stacked and will the launch just be spread out across 2022, or will it be more second half of the year heavy? Any of the new upcoming features that you are especially excited about, both for like helping for better sleep, but that could also perhaps drive better conversion rates?
Yeah. Thank you. First part of the question, whether we're aiming for bigger releases in the latter of the year, I would say that we have a lot of great features in the pipeline already. Some of them are being in final testing as of now. I think you will see a pretty even pace of releasing new product features. I mean, we're more towards releasing very early and testing that on our user base than to work really long on our own and then having a big shot at it. The second question about conversion rates, yes, of course. I mean, these are. We can already see that in Q4.
When we release product, new features and new product experience to our customers, that drives conversion rates. That is a high driver of conversion rates. That is our main focus for 2022 to drive conversion rates and renewal rates with new product features.
All right. Thank you. How is the subscriber acquisition cost developing? Are you starting to test performance marketing outside of English-speaking countries as well? I saw that the marketing expenses were slightly down quarter-over-quarter. Was it because of the TV campaigns in the third quarter, or did some keywords increase in price, or why was that?
Yeah, sure. Maybe I can comment on the marketing spend, and then Per can jump in to talk a little bit more about our acquisition costs. Basically, what I've been talking to and discussing in the intro here, we have allocated more resources to product development and conversion optimization. It's not really dependent on that we have higher cost. We just see that as a better place to put our money right now. I mean, performance marketing is a great exploration tool, but I don't look at that as our main platform for growth. Also I would say, I mean, these conversion optimization and product launches do have a direct effect on our subscriber acquisition cost by increasing the conversion. These investment that we're doing in the product also paves the way for us to scale the marketing even further.
Yeah. C ommenting on the acquisition cost, I mean, we have been working the whole year basically to increase efficiency in performance marketing. Our goal is really to not slide away when it comes to user acquisition costs. For the fourth quarter, we have seen that SAC has gone down. As I said before, we have spent about SEK 7.5 million in the quarter, about SEK 2.5 million each month. We have had almost the same number of new users coming in from performance marketing as we had in previous periods. I can really assure that we have been able to be more efficient. As Carl Johan said, that also gives us the opportunity to reallocate marketing spending where we get the most out of it, so to say.
Okay. Interesting. A question, what were the main reasons behind the increased ARPU despite the currency headwinds? Could you comment on that and maybe also on how you are working with the pricing aspect in general?
If I start with the pricing in general and Per, you can jump in on the mix of subscriptions. I'd say, I mean, ARPU in general with that, we've been on the same pricing a couple of years now, and we don't have any direct plans on increasing the pricing aggressively. O f course, I mean, being on the same price for four years, and also compared to our direct competitors, we are fairly low priced. In combination with the release of new products, of course we see an opportunity in adjusting the pricing, and that will have a direct effect on ARPU going forward.
Yeah. ARPU then was SEK 215 for the fourth quarter, compared to between SEK 209 and SEK 211 for the previous quarters. I would say the uplift there is a combination of well, some FX, but also the mix of the renewal versus new customers, meaning we're taking new users on the higher price levels while renewal is normally on the price level the user came in on.
Yeah, maybe I have two more questions. How does the received award Best of Wear affect your sales pitch, and/or collaborations with new partners? Could you comment a little bit on the pipeline or general interest of new technical integrations? What are you looking for in a potential partnership?
No. Start with the Google partnerships. I mean, seen a really good interest. I mean, branding wise to be in the same category as Calm and other very big actors is of course very good to see. It brings a lot of interest to Sleep Cycle and really shows our position in the sleep space. I mean, we will be continuing investing in the Android Wear. They are very early. I mean, Samsung and Google are really early in this project, so we'll see a lot of opportunities going forward.
I mean, in terms of Google, we're having them pretty close right now, and also seeing further projects that we are going to do together in this upcoming year. We're keeping them close, which I'm happy to see. Regarding the partnership with Samsung, I'm really happy with that. We still have an inflow of subscribers coming from Samsung channels. We are in good discussions. We have the foot in there. It's a big company to work with. They and we are really happy with the first part in the partnership, having a good discussion with Samsung. Health is a priority for them and Sleep Cycle fits right into that, I would say.
All right. Thank you very much.
The next question is from Dennis Berggren, Carnegie. Your line is open. Please go ahead.
Good morning. Thank you for taking my questions. I was thinking of starting off by asking on the subscriber growth progression during Q4. I think you highlighted that you especially saw a good traction during the last month of Q4. What kind of initiatives more specifically are driving this growth? And can you also provide some color on the sort of monthly progression throughout Q4?
Yeah. Basically the main driver of the subscriber growth in the last month and the last weeks of Q4 is primarily due to product launches. Seeing a good trend on the Android platform when releasing Other Sounds, it's a big driver of conversions. Also, I mean, the conversion optimization we have done and the campaigns we have been rolling during the last month or two, really good traction.
I think we can add that, looking at the three months of Q4, December was our strongest. I think the reason for that was that we really managed to combine launches of new features on both Apple and Android platforms. We had a few campaigns running that were really successful. Then we did some performance marketing. C ombining this, we got really good efficiency and we saw good outcomes, so to say.
All right. Perfect. Also following up on the marketing question, can you elaborate a bit more on the sort of importance of marketing for you? How should we think about the strategy of scaling marketing activities going forward? Especially, I mean, given that we saw a lower absolute investment in marketing activities compared to Q2 and Q3. I think you clearly highlighted that you're not dependent on sort of marketing activity to drive growth, but still, it has been, at least my understanding, a sort of strategic growth initiative that, well, that is important to drive growth. How do you think about this?
I mean, just on a very high level, taking a step back. I mean, we started with basically performance marketing just a couple of years ago. My goal with this is to get it up on a level and get it as an efficient tool in our toolbox to enhance the growth. A s I was alluding to, and as you're talking to here as well, that it's not that we see that 50% of our growth will come from performance marketing. Not at all. I mean, we're starting to see good CACs. I think we believe with the product improvement that we have, that we will see even better CACs in the future.
Yeah. Just commenting on what we see going forward. I think it's important to step a bit back here and see that the subscription growth was actually 14% in 2021 compared to 10% the year before. We have managed to increase that growth by launching new features and by adding performance marketing. One should remember that it has been quite a challenging market when it comes to marketing and marketing investment, and we see that for our peers. Then as Carl Johan said, we do not rely on performance marketing as the only tool to drive growth.
Going forward, we rather see that we are on the investment level as we were in Q4, but with a good high efficiency, meaning that we in absolute numbers spend around SEK 2.5 million-SEK 3 million per month. Of course, if we see that we get good CAC levels, and as Carl Johan said, if we for instance can improve conversion and so on, I mean, we obviously will invest more. We will still be careful with how we spend money on marketing or performance marketing.
Understood. Very clear. Just to get a grip on the sort of magnitude of investments going forward, would it be reasonable to expect marketing investments to sort of stay at the full year 2021 level rather than sort of doubling in 2022, 2023?
Yeah, I think so. Yeah.
Great. Perfect. Then also, I think, I mean, Per, you elaborate a bit on the quarterly intake in Q4 compared to Q4 2020. Again, I mean, in Q4 2019, you saw this massive quarterly delta. Really how should we think about the sort of quarterly intake and also capturing COVID-19, but also seasonality effects in Q4? I mean, are you satisfied with the current progression seen in Q4 as a whole for 2021?
Yeah, I can just comment on 2019. Basically, we changed some periods in trial periods, moving from 30 to seven days. That is why you see a sudden very high increase in new subscribers at that time. In general, we're happy with particularly the trends we're seeing right now and comparing to 2020 and as of now. I think we're bending the curves upwards. We're moving the ship and we're on the right track. Of course, we can do much better as well.
Yeah.
Perfect.
I.
Okay.
I can just add, I think that, I mean, we managed to increase the subscription growth rate. I think now we are on a good track. We have lots of new features to be launched. On top of that, we also add on new initiatives. Besides that, I mean, I think we will work with our pricing subscriptions and so on to be able to see more impact on revenues going forward.
Perfect. Finally, I think you were pretty clear on the sort of expectations for 2022 and sort of how you see growth progressing given the current subscriber base and ARPU levels and so on. Looking back at the development in 2021, are there any sort of subscriber growth initiatives that have been less successful? I mean, just to get some more color on the 2021 development versus your own expectations and also impact for 2022 and targets. Thank you.
I mean, basically what we have been really focusing on in 2021 is to increase the organization to be able to invest more into the product. Just a comment on that is that we have been able to get a lot of new talents on board. I think we're happy with that. Also, I mean, the pace in our releases and how fast we can get out new features to our users has been a little bit below what we expected during the full year. Happy to see that we're kind of changing that trend, and we've seen direct effect of that now in Q4.
Okay, perfect. That was all. Thank you.
There are no further questions. I hand back to you, speakers.
Yeah, I have one question from Erik Larsson at SEB by email. We can go through them. I can read the first question. Have you experienced any significant marketing headwinds thinking about IDFA changes that have materialized during the year? I have, for instance, read that marketing on Facebook's platforms specifically have been less efficient. Any insight there on these dynamics?
Yeah. Quickly about that. I mean, of course, we have been impacted by IDFA in terms of what we can track and what good insights we have into our campaigns. We don't have that much exposure to Facebook platforms as of now. We have a pretty diverse set mixture in what channels we're using. We're not seeing any direct impact on the efficiency in our marketing.
Yeah. The next question is from the IPO, we know you had about 10% of subscriber intake from paid channels in 2020. Given you have stepped up marketing efforts but still emphasize importance of product launches as such, can you give us the ballpark figure of where this number landed in 2021? Yeah, I think we are on a slightly higher share of the total subscribers coming from performance marketing. I would say around 15%-20%. T aking into account that we grew our investment in marketing a lot in 2021 compared to 2020. A lso as Carl Johan mentioned, we didn't really see the speed in product launches as we had hoped.
I think for 2022, the impact, so to say, on the subscriber growth will be larger from new initiatives and product launches. The last question, marketing costs doubled this year, albeit from fairly low levels, so about SEK 20 million. If you can comment, is it more reasonable to expect an extra SEK 20 million in 2022 or is it too excessive? As we answered on the previous question here, I think the marketing investments will be on fairly the same level, 2022 as in 2021. Yeah, that's all questions we have got by email. Okay. If there aren't any further questions, we thank you for participating in the call and for the many good questions raised.
Yeah. Thank you.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.