Good morning, and welcome to the Upsales Technology Q2 2022 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing Star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then one on your telephone keypad. To withdraw your question, please press Star then two. Please note this event is being recorded. I would now like to hand the conference over to Mr. Daniel Wikberg, CEO. Please go ahead.
Good morning, everybody, and thank you for joining our call today, for the second quarter results for Upsales. Today's agenda, as usual, I will do a company presentation and talk about our current business plan, our growth strategy, and then an update on what's going on there. I will hand over to Elin, our CFO, for a financial update from the last quarter. Moving on to slide number two, introducing Upsales. When we talk about Upsales, we describe ourselves as a software as a service company. We have a long track record of profitable organic growth, and more than 90% of our revenue comes from recurring contracts. We are a company with no debt, with SEK 43.7 million in net cash.
The second quarter of 2022 marks our 77th quarter with growth. 51% of the business is management-owned, and we are a profitable company with positive cash flow and trailing twelve-month, we have a 15% free cash flow margin. Next slide, what we do at Upsales, our mission is to help our customers who are B2B companies to find new opportunities and leads and to win more deals and increase their revenue. We do this by providing a CRM marketing and sales tool, which we sell to a niche segment of the market, where we focus on fast-growing mid-size B2B companies in a number of sectors.
By focusing on this niche, we are able to be significantly better and more effective than our international larger competitors. We have been doing this for almost 20 years. The business was founded by me in 2003. We have our head office in Stockholm, Sweden. We are a team of 65 people, and we are working with around 1,800 customers in a total of 11 countries.
Moving on to slide number four, what we have seen in the last few quarters is that by focusing on improving customer satisfaction and raising the bar as to our targets when it comes to customer satisfaction and customer success, we are seeing a very strong momentum from a lower churn rate and from happy, successful, satisfied customers who are adding more services to their existing contracts. This is a strategy we started working with in 2019 with the aim of driving growth, accelerating growth, and also increasing our average contract value. We focus on three core areas. The first one being improving the scalability in our product and the way we deliver the product.
The second one is, as I mentioned, improving customer success and making sure that our customers get the results they were looking for when they came to Upsales. The third one is to have a best-in-class, a world-class selling process, to have a very effective, sales organization. It's also worth mentioning that we focus a lot more on the total ARR and the average contract value, than the actual number of customers since our customer base is far from homogeneous, having a few customers paying several million SEK per year and the smallest, a long tail of small customers that pay only a few thousand SEK per year. Moving on to next slide.
We continue to invest in the product with the aim of making it easier and faster to get started and get the results you're looking for when you start using Upsales. If we go back a few years, we used to deliver more professional services and more consulting hours than we do today to be able to solve sort of the top ten problems our customers have. Then we started working tirelessly to incorporate these solutions into the standard platform. What our customers get today is they get a lot of flexibility.
We solve the same problems we used to solve a few years ago, but we don't have to spend a minute of consulting or custom programming to do it, which is, of course, very appreciated by the customers, and it makes us a more scalable company as well, not having to support custom solutions on a per customer basis. Moving on to the next slide. We also put a lot of focus on improving the customer success and making sure our customers are happy. Of course there is a lot of things that goes into this. I want to highlight some of the things we've been working on lately.
We've had a lot of focus on improving the initial customer onboarding, since we saw in our data that although we have a low churn, the customers who do churn tend to churn in the first year. We believe that churn starts even in the selling process before the customer becomes a customer. We try to focus on selling to the right type of customers and making sure that their onboarding is world-class, so they get a good start. We also invest more now in having dedicated people in the organization, working dedicated with training, since we also saw in our data that the more trainings you attend, the more usage you have and the more growth we will see from those customers.
We're very happy with the results we're seeing in this area, both in the financials, in the numbers, but also in the kind of more soft KPI such as Net Promoter Score and customer satisfaction. The third area I want to talk about is what we're doing in our go-to-market, in our sales and marketing. Upsales has adopted a land and expand way of selling, which means that we don't try to go for the huge mega deals when we bring in new customers. We try to make it as easy and simple the decision to become an Upsales customer as humanly possible.
We work with a customer over time to grow their account. This also simplifies recruiting and onboarding of new members to the sales team. I also want to, when I get questions about this from investors, I mean, one of the most important explanations as to how Upsales is able to accelerate growth and improve profitability at the same time. It's kind of counterintuitive. It's not what you're used to see, especially in the tech industry. I would like to highlight the scalability of the product is a very important piece of that puzzle.
Also, having a relentless focus on efficiency in the selling process and how we work with the sales organization. We put a lot of focus on we have to experiment, we have to innovate, but we always want to learn fast from our mistakes. We don't want to burn cash for quarter after quarter after quarter on an initiative without seeing any result. If you do that, you get a very high level of efficiency in the business overall. Moving on to the next slide. We are expanding to the U.K. We started doing this a little bit more than a year ago. We still have a very long runway of growth in Sweden.
We believe that Sweden can take Upsales to more than SEK 1 billion in ARR. Almost 10 times the size of the company we are today. We believe that over time, we want to have the international expansion becoming more of an important piece for us. It's a long-term initiative, and we're still in kind of an experimental phase. However, we are closing deals every quarter. We are getting very good feedback from the customers we close. We're putting a lot of focus on tailoring and customizing the offering specifically for U.K. customers.
We're adding integrations, we're adding data sources, and we're doing all these small tweaks in the product to make it a highly competitive offering specifically for U.K. customers. The feedback we get is very good in direct competition with huge international competitors. Of course, the U.K. market is a very exciting opportunity. It's estimated to be worth SEK 24 billion, the U.K. CRM market. It's a huge opportunity, but it's a very long-term play, and we believe that Sweden and the growth in Sweden will be dominant for the foreseeable future. Moving on to slide number nine. What we have seen now in a few quarters is the acceleration of our ARR growth rate.
This is driven by lower churn as a result of all the stuff we've been doing with our existing customers and also improvements in the product. It's also driven by the land and expand model really start to bear fruit, which we see in an increasing average contract value.
We expect to see a further acceleration, and a further profitable growth, for the remainder of this year and the next year. Now I will hand over to Elin for an update of the financials.
Thank you, Daniel, and good morning, everyone. Let's continue to slide number 11, looking at ARR and revenue. Annual recurring revenue grew by 31.5% compared to the second quarter of 2021, and ARR as of the end of the period was SEK 129.3 million, compared to SEK 98.4 million during the same period last year. Net sales grew by 46% to SEK 32.2 million. Let's continue to slide number 12. This was the eighth quarter in a row that we've increased our revenue growth rate. Revenue is growing faster than the ARR in the comparison period.
I've talked about this before, but I think it's good to again shed some light on the improvements that we made, that we're seeing in the revenue growth rates right now. First, lower churn. A higher churn in the beginning of a quarter eats off of revenue during that quarter. Meaning that with a lower churn that we're seeing, we can collect more revenue from the ARR during that quarter. I've tried to illustrate this. The ARR changes every day, of course, and you can think about this as if a higher average ARR during a quarter will give us more revenue from that quarter. This is an effect that we're seeing right now on revenue compared to the comparison period. Let's continue to slide number 13.
A second reason is the timing on closed deals. Typically, it's very common that sales organizations tend to close most deals at the very last minute, for us at the end of the quarter. As we defer our revenue from ARR, closing new ARR at the very last minute on the last day of the quarter will only give us one day's worth of revenue during that quarter, compared to closing a deal the first day of the quarter will give us 90 days' worth of revenue. Timing on the ARR growth also has a large impact on revenue during the current quarter. Our sales team has worked hard on this. Deals are now being closed more evenly during the quarter.
This is one of the effects that we're seeing on revenue at this quarter compared to the comparison period. Let's continue to slide number 14 and profitability. In terms of profitability, we're seeing a significant improvement despite negative impact from currency fluctuations. These are not directly related to our business, but having a lot of cash, we decided to diversify our cash in a number of currencies when we saw turbulence in the market during the beginning of this year. Our EBITDA was SEK 7.6 million, compared to SEK 4.1 million during Q2 2021. EBITDA margin was 23.4% compared to 18.5% during the same period last year. EBIT was SEK 5.8 million, and net income of the quarter was SEK 4.6 million.
I've spoke previously about that we made some investments, the biggest one being the move of our head office to a bigger space. We're now seeing increased margins and that we're starting to grow into this larger cost base. Let's continue to slide number 15 and cash flow. During this quarter, we had an operating cash flow of SEK 3.3 million compared to SEK 2.2 million during the same period in 2021. The total cash flow was negative due to that we paid a regular dividend and also an extraordinary dividend in May of a total of SEK 33.7 million. We're continuing to grow without any debt with a net cash at the end of the quarter of SEK 43.7 million. Thank you.
Let's continue to slide number 16 and the Q&A section.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Thank you. Your first question comes from Hjalmar Jernström from Erik Penser Bank. Please go ahead.
Yes, good morning, Daniel and Elin. Thanks for taking my question. My first question is on the ARR and the drivers of growth in the quarter. Could you elaborate a bit on whether the growth mainly comes from the adding of new customers or growth within the existing customer base? Maybe give some flavor on what we could expect going forward into 2022.
Yeah, sure. Good morning. Historically, around 50% of our growth has come from the customer base and 50% from new customers. We're seeing that starting to shift since we adopted the land and expand strategy in 2019. A little bit more now comes from existing customers since our definition of new customer ARR is the first contract we sign. Everything added by the customer after that is defined as expansion revenue or existing ARR revenue. Now we are at around 60%-70% from the existing customers. I don't have the exact number, but somewhere around there.
All right. Thank you. Second question, more of a macro question. Do you see any indicators at the moment, that the customers may be experiencing headwinds relating to inflation or other macro conditions, something, you know, that may make potential new customers act more restrictive?
We haven't seen any negative effects yet. I mean, since we're a net cash company, we're not kind of affected by the turbulence in the capital markets. You know, we're running a profitable business with 100% organic growth. When we talk to our customers, I think that the segment we're working with, like the medium-size, fast-growing businesses, since we're not really targeting the enterprise segments, and since buying Upsales is not a huge CapEx decision where you take a SEK 10 million investment like you need to do with other competing systems, I think we might be better positioned because of kind of the low threshold to start using Upsales.
Of course, we track this on a weekly basis, even on a daily basis sometimes, and to make sure that the companies we target when we go after new companies, that we target the ones that we have the highest chance of winning. I think that's the benefit of us being still a you know relatively small company. It's fairly easy for us to kind of switch our focus as to which industries we should target because you know no matter what happens to the economy, there's always some industry that's experienced growth and success.
All right. Very useful. Thank you.
Thank you. There are no further questions at this time. I would now like to turn the conference back over to Mr. Wikberg for any closing remarks.
Well, thank you very much for joining the call today. We are very happy with the results from the last quarter, and we continue to push for even faster growth in the future. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.