Welcome to the Upsales Technology Audiocast with Teleconference Q1 2022. For the first part of the call, all participants will be in listen-only mode, and afterwards, there will be a question and answer section. Please note that this call is being recorded. Today, I'm pleased to present Daniel Wikberg, CEO, and Elin Lundström, CFO. Please begin your meeting.
Thank you. Good morning, everybody, and thanks for joining the Q1 Conference Call for Upsales. My name is Daniel Wikberg. I'm the founder and CEO of Upsales. Today's agenda, we will look at. I will talk a bit about our growth strategy and what we're doing, what we've done in the quarter and what we're doing in the future to continue to grow and also do a short company presentation. Then Elin will talk about the financials from the Q1 . Introducing Upsales. Let's go to slide number two. Upsales is a software company. We sell our software as a subscription, so it's a software as a service business.
We build a platform that is used by sales organizations to identify and find new opportunities and leads and to win more deals. There's also a marketing aspect to our product. It's a combination of a sales and marketing tool that is used by almost 2000 fast-growing B2B companies. The company has been around since 2003 with our head office in Stockholm. We are a team of 66 employees and around 10-15 contractors working full-time with Upsales. Let's go to the next slide. The strategy that we've adopted since 2019 revolves around three core areas.
The first one is about building a product that is scalable, which makes it easy to bring in new customers. It makes it easy to onboard new customers and get them started and get value from the product. It also makes it a lot easier to onboard new hires in the sales team, in the support team, in all aspects of the business, compared to the more traditional approach of selling software where you do a lot of custom customizations on a customer per customer basis. The second part revolves around making sure that all the customers we bring in get the value they need from the product. No customers buy software because they want software.
They buy software because they want to solve some kind of business problem. In our case, it's usually about improving the selling process, finding more leads, or growing revenues. An important part of our business is working with onboarding and also customer success over time, making sure that our customers continue to get value from the product, which also facilitates the need for additional products from Upsales. It's a win-win. It's a win-win scenario where we help our customers get value, and they expand and increase the amount of money they pay Upsales as a result.
The third part, which is also very important at Upsales and probably at any SaaS company, it's about having a very effective sales process, and a high effectiveness looking at the amount of money you spend on sales and marketing versus the amount of new ARR or subscription revenue you get back. Upsales is a best-in-class company in that aspect, so we have a very high effectiveness. We have a positive ROI on our sales and marketing spend within the same quarter, which is one explanation as to how we are able to grow, to continue to grow and to accelerate our growth, without the need for a negative cash flow or raising a lot of money from investors. We do everything. All our growth is organic.
Let's move to slide number four. When we invest in the product, we look at two things all the time. We look at how we can accelerate the time to value for new users and new customers. The other thing is how we can solve more complex and specific problems that our customers have without the need to solve them on a customer per customer basis. We have a very good track record the last few years of building standardized plug-and-play integration to data sources and to other systems that our customers use, but with retained flexibility. Most of these plug-and-play integrations you encounter when looking at SaaS companies are quite simple. They solve one simple problem.
The difference with Upsales is that our integrations solve a lot of problems, but they're still plug- and- play, and you can get started within a matter of minutes. Let's move to the next slide, talking a little bit more about customer success. We continue to invest in the customer success team. In the last year, we've grown the onboarding team, we've grown the customer success team, and we invest also a lot more now than we used to do in training to make sure that our customers understand all parts of the product, which makes it easier for them to get value out of it. I want to mention that we've had a very positive trend with churn going down for some time now.
We expect it to continue, especially from the Q2 and Q3 , in 2022, which will facilitate even faster growth for us. I think a very important part of low churn, which is quite often overlooked in a lot of companies, is churn starts with the customers you bring in. If you have a problem with a customer, you usually have that problem in the sales process before the customer came in and started using your product. We've done a lot of analysis and research and looking at what are the best fit customers for Upsales. For the last few years, the quality of the customers we bring in, you know, have a continuous improvement.
Now you really see the results in the accelerated growth and in the lower churn. Going to slide number six, as I mentioned, having an effective sales process is a critical component for Upsales. Upsales has adopted a land and expand selling model, which means that we're not going for the mega deals when we bring in new customers, because we believe that the bigger the deal is when you start using a new product, the higher the risk. Because you learn a lot as you become a customer at a company, you start using a product. If you start small and you grow over time, the probability for success is a lot higher.
It's a great model. We've been using it for three years now, and it's a great model. It's a lot easier to onboard new hires as well. Another important part of the culture in all parts of Upsales, but especially in the sales and marketing team, is to learn fast from our mistakes. As any scale up, we need to experiment a lot. We need to try a lot of new things to drive innovation and to find new ways to reach our potential customers. We are very good at quickly identifying what's working and what's not working. You don't burn cash in a marketing campaign for six months until you realize that the ROI was zero.
As a lot of companies do, actually. Let's continue to slide number seven. I also wanted to talk a little bit about this. I've touched upon this subject many times in our previous reports and presentations that when you start on the mission of improving your customer relationships and improving the scalability in your product, there's a time lag before you see the actual results in terms of, in the end, in the financials. It starts with, you know, you start working with, okay, how can we improve the way we are working with our customers? How can we improve our customer service and so on? Then you start to see some operational KPIs improving. You see a higher customer satisfaction, you see a higher Net Promoter Score.
The next step is you start to see that we get fewer cancellations than we used to do. Finally, you see the actual churn going down, which translates into a higher growth rate. It's very rewarding that all the hard work we've done is finally starting to pay off. I mean, we've had a situation with fairly high growth for a long time and happy customers, but we're starting to reach an even higher level. I wanted to talk also briefly about our UK expansion if we go to slide number eight. For some time now, Upsales have been pursuing the UK market, which is a huge market. It's estimated to be almost 10 times bigger than the Swedish market.
What we've done here is that we've invested a lot in the product to make sure that we have the best integrations and the best data sources specifically for UK customers. We have a very competitive offering, and we get a lot of proof in that when talking to potential and existing customers in the market. This is a long-term play. It's still in the early stage, but we continue to close a few customers every quarter. We start seeing some increased momentum with regards to the UK expansion. Let's move to slide number nine.
I also wanted to talk a little bit about the Rule of 40, which is a popular SaaS metric for evaluating the effectiveness in the growth of a SaaS company. Measuring Rule of 40, you look at the ARR growth rate, the annual ARR growth rate, and you add the free cash flow margin, and the Rule of 40 says that any company that has the number 40 when doing that or higher is an effective company. We have seen a continuous improvement in terms of Rule of 40 at Upsales. The drivers of Rule of 40, if we move to slide number 10, I would say two things.
Upsales now is rated as Diamond Level when it comes to tech support and customer service, which is the 99th percentile. It's only 1.4% of those companies to reach this level. Really taking care of your customers and also, as I touched upon, making sure that the effectiveness in your sales and marketing is at a high level are the two primary drivers of a high Rule of 40. It also goes for the entire company, the discipline to maintain and set the high standards for anything you do. It goes for the innovation in the product, it goes for the effectiveness in the product team, basically the effectiveness of the entire company.
It's very nice to see that we've had a high effectiveness for a long time, but it's steadily improving and, you know, approaching world-class. Let's go to slide number 11. What we're seeing here is that our lower churn, together with our continued investments in growth, together with our ACV, average contract value, for existing customers are continue to improve. We expect to see a further acceleration of our growth rate in 2022, and that goes both for revenue and for ARR. Yeah, it's a very strong momentum at Upsales at the moment. That was everything I had. I will now hand over to Elin for the financials.
Thank you, Daniel, and good morning, everyone. Let's continue to slide 13. Our annual recurring revenue grew by 30.7% compared to the Q1 of 2021, and ARR as of the end of the period was SEK 120.4 million compared to SEK 92.1 million during the same period last year. Net sales increased by 35.6% to SEK 29.5 million. Let's continue to slide 14. We've been increasing our revenue growth for some quarters now, and revenue is currently growing slightly faster than the ARR in the comparison period. I am going to shed some light on the improvements that we've made that we're seeing right now in the growth rate. First, we have a lower churn, as Daniel mentioned.
A higher churn that occurs in the beginning of a quarter, which it usually does, eats up a revenue during that quarter. Meaning that, with a lower churn, we collect more revenue from ARR during the quarter. I've tried to illustrate this. The ARR changes every day, and you can think about it as if we have a higher churn during the quarter, we will collect more revenue from that churn. This is an effect that we're seeing on the revenue right now. Let's continue to slide number 15. A second reason is the timing on closed deals.
I believe that everyone that is listening that has ever worked within a sales organization knows that you tend to close most deals at the very last minute. For us, that is the end of the quarter, of course. As we defer our revenue, closing new deals at the very end of the quarter means that we don't collect that much revenue from the deal. As an example, we will get 90 days worth of revenue from a deal that's being closed the first day in the quarter, and one day's worth of revenue from a deal that's being closed in the last day of the quarter. Timing on closed deals has a large impact on revenue within the current quarter. Now we are seeing more deals being closed, more evenly distributed over a quarter.
Thus, we have increased our revenue growth rate compared to the same period last year. Let's continue to slide number 16 and our profitability. In terms of EBITDA, it was SEK 5.6 million compared to SEK 6.5 million during Q1 2021. EBITDA margin was 19.1% compared to 29.8% during the same period last year. EBIT was SEK 3.9 million, and net income of the quarter was SEK 3.1 million. Overall, our margins have improved compared to the previous quarter, Q4 2021, but it's lower than the comparison period of Q1 2021. During this first quarter, we've made some investments that we needed to do. The biggest of them being moving to a larger office space for our head office in Stockholm.
We see ourselves growing into this larger cost base during this year. We believe that margins will catch up. Let's continue to slide number 17. During this quarter, we had an operating cash flow of SEK 5.2 million compared to SEK 16.4 million during the same period in 2021. Some cash was used for the investments that I spoke about earlier. Total cash flow was SEK 9.4 million compared to SEK 14.1 million in 2021. We're continuing to grow with a positive cash flow and without any debt.
Net cash at the end of Q1 was SEK 75.8 million compared to SEK 49.5 million in Q1 2021. As for our bank balance, our board has proposed a dividend of a total SEK 2 per share, where SEK 1 is ordinary and SEK 1 is an extra dividend. Thank you. Let's continue to slide number 18 and the Q&A section.
Thank you. If you do wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your questions, you may do so by pressing zero two to cancel. There will be a brief pause while questions are being registered. Once again, if you do wish to ask a question, please press zero one on your telephone keypad. As there are no questions at the moment. Sorry. We have the first questioner is Rikard Engberg from Erik Penser Bank. Please go ahead.
Good morning, guys, and congratulations to great numbers.
Good morning. Thank you.
I have two questions. The first question is to understanding the potential acceleration of growth. What would you say is the key drivers? Is it a strong retention rate? Is it the UK market or is it new customers?
I would say as in any quarter, the ARR growth is always a combination of new customers and existing customers. I mean, now we see a larger share of the growth from or a slightly larger share of the growth from existing customers due to increased ACV and also lower churn. With regards to the UK market, I mean, it's still at a very early stage, so the UK growth is still a small part of the overall growth.
Okay, good. My next question is regarding the cost base. If you look at both company cost and other costs, do you think that you are currently on a level that will be sustained during the year or are you looking to hire more, for example, in the sales team and the development team?
I mean, our overhead is a little bit higher than the previous quarter and especially compared to the Q1 last year, for numerous reasons. I mean, we invest more in marketing, we have a higher overhead with our new office and so on. I don't see that increasing that much during the year. I think that, I mean, both external costs and personnel costs will gradually increase as we continue to grow. We are planning to continue to grow the team, to continue to grow all of our investments in marketing and so on. I don't expect to see dramatic shifts in Q2 or Q3 compared to Q1. It would rather be a gradual increase.
Like Elin said, we expect to so to speak, grow into our higher overhead costs and see margins improve in Q2 and especially in Q3. Having said that, we are quite happy with the margins in Q1. As I communicated earlier in previous reports saying that we expected margins to be slightly lower in Q1 and Q2 due to a higher overhead, but margins were actually better than compared to Q4 last year. We are quite happy with the effectiveness that we're running the business with at the moment.
Okay. Thank you. That was all for me. Once more, congratulations for a great quarter.
Thank you, Rikard. Thank you.
Thank you, Rikard Engberg. We don't have any further questions, so I will pass it back to the speaker for the closing.
Yeah. All right. I actually had a question via email from a Philip. I can just answer that quickly. One of the questions was the number of employees decreased quite a bit. I don't think it was quite a bit. I think it was with one person. That's also one explanation as to our operating costs are increasing more than our personnel costs because we are using contractors that are working full-time for the company. We are growing the team by hiring people, but we are also growing the team by hiring outside contractors. That's the explanation to that question. Another question was regarding the cash flow.
That Q1 is usually a very strong quarter in terms of cash flow because of a lot of renewals and prepayments. The question was how come that does not seem to be the case this quarter? I think Elin touched upon that. We've had investments in. We have had a higher overhead, and we have some investments regarding to the move of the Upsales head office. There's also a timing effect. If you look at the working capital, you see quite a big difference. It's part of it is just the timing effect of this quarter.
You know, some large supplier invoices got paid at the beginning of January, and in the comparison period, those invoices were paid at the end of December. I think that's the case with any small company like Upsales, is that timing effects can have a big impact on the numbers. Yeah. Thank you, everybody, for joining us today, and hope to see you next time.
Thank you. This now concludes our conference call. Thank you all for attending. You may now disconnect your line.