Good morning and welcome to the earnings call for the third quarter for Upsales. My name is Daniel Wikberg. I'm the CEO and founder of Upsales, and I will be doing this presentation today together with my colleague Elin Lundstrom, who is the CFO. If you wish to ask a question, you can do so throughout the presentation by using the Q&A button in the toolbar in your Zoom window, and all questions will be answered during the Q&A section. I will start by doing a company presentation covering Upsales, the product strategy, the growth strategy, and a growth update. Elin will cover the financial highlights from the third quarter. Let's get started. The mission for us at Upsales is to build the best AI agents and AI tools to help CEOs and Sales Executives create revenue growth in a predictable, effective, and automated way. We are a software-as-a-service company.
We've been around since 2003. We have a long track record of profitable organic growth. We currently have an annual recurring revenue of around SEK 148 million. We have a very scalable business model with more than 95% of revenue being recurring revenue. We are a net cash company with zero debt. The company is management-owned by almost 44%, and we have a trailing 12 months EBITDA margin of around 23%. We are in the middle of a strategic pivot that has been going on now for around 18 months. Our legacy is building and delivering CRM solutions, so sales and marketing tools to B2B companies. Since more than one and a half years ago, we have been focusing a lot on becoming an AI revenue platform. I believe that every software company needs to become an AI company to stay relevant.
We, as most of the people in the industry, see a huge upside for customers using these kinds of tools, applying AI to be more effective and to drive more revenue, basically. How are we doing this? What's our differentiator when it comes to building AI? We have a long history of letting customers access the data they need inside the Upsales product. If you have any experience from using CRM tools or from seeing typical CRM implementations, you see that the problem is usually within the data. Data quality is low. It's dependent on people putting in data manually. For more than 10 years, Upsales has had a strategy of working with third-party partners, buying data, letting our customers access the company and financial data they need without the need for adding it manually.
What this means now with AI is that if you want to build AI agents, if you want to build AI automations, they simply do not work if you don't have 100% high-quality data. I think Upsales is very well positioned to solve the use cases and problems that customers have now when it comes to AI because of this data approach. It's a very exciting time for everyone in the company and for our customers as well. Let's talk a little bit about the growth from the last quarter. Both ARR and revenue growth rate continue to increase in Q3. We still have a higher ambition, so we want to grow faster than we are currently doing, but it's positive to see that the positive trend we've had for many quarters now continues.
Looking at the niche and the positioning we've had for the last 12 months in our new sales team continues to show very good progress in terms of new customers. We are building the team. We need to invest in building the organization. We added several new members to the commercial team in the last quarter, and we continue to have a very ambitious hiring plan going forward. What we see is that in the short term, at least, the biggest opportunity to take Upsales from where we are now to 10% and 20% and 30% annual growth is tapping into the potential in the existing customer base.
What I hear when I'm talking to my colleagues in the sales team is that when we are meeting our existing clients, they have a lot of things they need to solve, a lot of problems they need help solving to support their growth. We are very well positioned when it comes to the product and what we can deliver to solve these problems for our clients. Almost all of our clients we meet have AI and automation in general on the agenda. They want to do these kinds of things. They want to invest in these kinds of things. That is my main focus when it comes to increasing growth, to find ways to improve how we continue to support our existing customers. Let's talk a little bit about the product. I mentioned this in my previous earnings call. We released the Upsales agent platform a while back.
It's now live. It's being used by customers, and more and more customers are signing up every week to start using these tools. I'll share some examples of what you can do with these agents. We've invested a lot of time and money into building the agent platform, which consists of two sections. We have the pre-built agents, which is kind of like an app store where customers can buy and activate pre-built agents. For example, there's a note-taker agent that joins your calls and transcribes your meetings. There's a meeting research agent that does research for you before your next customer meeting and so on. The second part is building your own agents. Customers are able to create custom agents for the specific use cases they have in their company. Here are some examples of things you can do with the agents.
The first area is sales-related, streamlining sales operations, helping the sales rep save time and not spend too much time on administration. The second area is the agent that helps the finance team in terms of reviewing contracts, making sure invoices go to the right place, and so on. We see a big upside in helping clients to streamline their entire finance team. The business upside for customers by doing this is that you could basically double your company size without adding more people to the finance team. The third example is within marketing, where customers can use AI to generate leads. You can use AI to run very personalized outreach to your clients, making your communication more relevant. The final area is in customer service, where you can use the agents in Upsales to automate your customer support.
You can have agents assisting you in solving customer problems and so on. We are now live with these features, allowing customers to build their own agents. It's very exciting to see the use cases our customers are talking about and thinking about. This is an important area. We will just continue to invest more time and money to stay relevant and support our customers. All right, that was it from the third quarter and the product update. I'll hand over to Elin for the financials.
Thank you, Daniel, and good morning, everyone. Let's start with looking at ARR and revenue. Annual recurring revenue grew by SEK 1 million in Q3 and was SEK 147.7 million at the end of the quarter. This compared to SEK 138.4 million during Q3 2024. This corresponds to a growth year-on-year of 6.8%. Net sales grew to SEK 38.2 million compared to SEK 35.7 million in Q3 2024. Looking at revenue, we divide our revenue between the recurring revenue from subscriptions and one-off revenue such as onboarding and consulting. In Q3, recurring subscription revenue accounted for 95.9% of total net sales. Looking at profitability, our EBITDA increased to SEK 13.4 million compared to SEK 11 million in Q3 2024. This corresponds to an EBITDA margin of 35.1% compared to 30.8% during the same period in 2024.
We had an EBIT of SEK 10.9 million compared to SEK 8.8 million in Q3 2024. Net income of this quarter was SEK 8.8 million. Looking at cash flow, we had an operating cash flow of SEK 2.1 million compared to negative SEK 1.9 million during the same period in 2024. Net cash as of the end of the quarter was SEK 20.5 million. That was all of the financial highlights. Let's continue to the Q&A section.
All right. If you wish to ask a question, just use the Zoom toolbar and we will answer these questions. First question about the ARR growth in Q3, which increased by SEK 1 million. What concrete initiatives will bring us to SEK 5 million plus levels? Q3 has some seasonality, so Q3 is usually lower if you look historically also. The initiatives we're doing are basically we're investing in the product to make sure that we can address the use cases that both existing and new customers have. Then it's a question of go-to-market. To build the sales team, to find the right talent, and to make sure that the sales team has the best possible opportunities to hit their targets, basically. Next question about EBITDA margin hit 35%. Which elements are structural versus temporary? Is 30% plus sustainable into 2026 and beyond?
There is some seasonality in profitability, specifically for Q3, being the summer and vacation quarter. If you look into the financials, you see that personnel costs are typically slightly lower in Q3, which always gives a boost to profitability. We are in a good place with our cost base, but the number one priority for me and the feedback I get from when I meet all of our investors is that growth is way more important than maintaining a certain percentage of EBITDA. We are a profitable company. We've always been a profitable company. We have been growing ARR by 30% per year and showing 20%- 30% EBITDA at the same time. That opportunity still exists. Having said that, we always prioritize growth.
If we see an opportunity for a specific quarter to do some investments or something that we believe will create long-term value, we will not wait to do such initiatives in the interest of short-term margins. That's how I view the balance between profitability and growth. Next question. If your product is as good as you say, why is your market share still quite small and its growth practically stagnant? The low growth rate is not because of the product. It's because of go-to-market. This is a question of go-to-market and building the team, finding more people to the team. If you zoom out and look on a five-year perspective and you compare the numbers when Upsales was growing 20%- 30%, our churn is not higher now than when we were growing 30%. That tells me that it's not a positioning problem. It's not a churn problem.
It's not a product problem. It's a go-to-market issue. I think we have been seeing improvements every quarter now, five quarters in a row. Maybe I'm not happy with the current growth rate, but I'm happy with the progress. We have a question about our selling cycles, how quickly, how long it takes for us to go from first contact to a signed contract, and also a question about how we recognize revenue. Basically, we have quite a short selling cycle. Typically, it's two to three months from the first contact with the customer. When the customer signs, that's when the contract is activated. That's when we recognize the ARR. We get the ARR the same day as the customer signs the contract, but the ARR is, of course, recognized over the period.
A customer paying an invoice for a one-year contract, that one year will be spread out during 12 months in terms of revenue. The cycle to do the implementation is also quite short. I think that's one of the things that's very appreciated by customers, that it only takes a few weeks to get started with Upsales. Next question about the competition. When we win or lose, who do we typically win and who do we lose to, and what are the main reasons behind those outcomes? I would say there's no clear answer to, like, if we go up against competitor X, we typically lose more often than we win. Looking at our biggest competitors, the typical competitors we meet are HubSpot, Salesforce, and Microsoft. We tend to win more often than we lose when we go head-to-head. There are also local Nordic players.
I think our win rates are slightly higher when we compete with them because the competition from the local providers is not as tough as the international ones. We have a question about the long term. By 2030, what scale and margin profile would define success for Upsales? What would need to happen? I will answer from a personal perspective, how I see the company as the founder and the main shareholder. These are not financial targets communicated to the stock market. I want to take this business to beyond SEK 1 billion in revenue. I think we have an opportunity to do that. I think we can do it in three to five years. The market is definitely there, and the positioning the product we have is definitely there as well. It's a question of go-to-market.
We need to continue building the team, finding the right talent to make this happen. I also expect with AI in terms of product development and go-to-market, I expect this to be more effective in the future. I don't see costs increasing in general for SaaS companies. It's all about finding the right way forward and finding the right go-to-market. Next question. Your product has received critical public reviews in recent years, perhaps most often related to invoicing. How have you responded to this feedback, and have you made any changes to improve customer satisfaction? This is an interesting question. When I look at the churn KPIs and net promoter score and all the other ways which we measure customer satisfaction, I see a very positive and strong trend if I look from a five-year perspective. I absolutely don't see that we have a problem with dissatisfied customers.
On the contrary, we have very good customer relationships. However, we have a long tail of customers which are using Upsales from the previous partnership we had with Fort Knox. I think in the last two years, when I talk to other CEOs in the industry, people are a little bit more concerned about costs. You see interesting reactions when people have signed contracts that they, for some reason, want to get out of. We see people are using more loud voices in the last two years compared to the years before. We always try to improve the ways we are working with our customers, but I don't see this to be like a systemic or big problem. Next question about the Accelerate, our new product and our new packaging. Are you seeing clear signs of growing interest in Accelerate among existing customers?
When do you expect the impact from the existing customer base to start becoming more noticeable? This is a very good question. What we did is that we used to have another pricing model where you buy the license. You buy one license per user that's using the product, and then you add modules. We had almost 20 different add-ons. This created a lot of confusion for customers, both new and existing, because it was really hard to figure out, okay, what do I actually need? We changed this a year ago to a more all-inclusive package, if you will. This is called Accelerate. The Accelerate package is where you find all of the AI features. If you're an existing customer and you want to build agents or use AI, you have to upgrade to Accelerate. It is a very generous packaging.
Compared to buying all the add-ons we had before, it is a much better deal for our clients. We are out there meeting all customers every week, every month. It is hard to give a forecast of which quarter what will happen, but the overall trend and the signals I hear are very positive. The next question is about how we are using AI internally and what impact it is having on the organization. That is a very good question. I talked to my CTO who joins this CTO forum, which is a monthly CTO gathering. I think Upsales has been very good in using AI tools in product development to speed up time to market. I still think there is a big upside.
We are not talking 10%, 20%, 30% upside. We are probably talking two, three, four, five X in terms of productivity if you really use AI tools, if you maximize the use of them. Very few companies do, but I absolutely believe that the potential is there. We are also using all kinds of AI tools to drive go-to-market in a more effective way as well. The next question: you have been able to replace the drop of employees partly during the quarter. How do you see the need to further increase the number of employees short term? I think it is, in a way, a numbers game. In a way, it is not. When building the team, when you are a company like we are, around 70 employees at Upsales, I think it is all about finding the right people.
That goes for engineers in the product team and for salespeople in the sales team. We are trying to find ways of investing smarter in specific roles. We added a few roles like that to make everything work smoother in Q3, and I think we are already seeing the effects of that. We have to continue growing the consulting team to support all new customers onboarding. We need to increase the size of the sales team. The question I usually get is how will this affect margins. Since our cycles are quite short, we expect the right kind of salespeople to be up and running within a few months, and the selling cycles are also just a few months. It's kind of self-regulatory, if you will, because if we hire the right kind of salesperson, they will contribute to the growth, revenue, and profits quite quickly.
If we hire the wrong person, they will not be in the company six months later. That's my view on that. Okay, we have a question about capitalized development cost in the quarter. Maybe Elin can comment on the numbers, but my view is that we have been very modest historically in terms of how we book engineering costs compared to all of our peers, if you look at the numbers out there in similar companies. We have been doing a lot of investments in the product lately. Is there anything else to say about the actual number?
No, it's exactly like that. We've been increasing investments, but if you look at the numbers, the numbers aren't that big. We went from SEK 1.4 million- SEK 2.5 million.
Yeah, okay. Very small number.
It's a large increase in percentage, but we're investing in the product.
Yeah, exactly. All right, so last question. You have always claimed that it's your strategy and not the market that stopped you from growing. Have you not also experienced headwind in the current market conditions? Yes and no would be my answer. I mean, I think the performance we have seen in the new sales team working with new clients, that has actually been higher than the period where we were growing 30% per year. I don't think that would have been possible if the market would have been dead. The same thing goes for churn. If this would have been a market problem, I think we would have seen a lot higher churn numbers, which we are not seeing. I think it's mostly a sales effort in the team that's working with existing clients. That's still my view.
Of course, you can see, of course, there's a change in customers' behavior compared to three years ago. People and companies are a little bit more careful when it comes to costs. I think for Upsales, it's on the margin. It's not a major impact. I still believe that the results are in our hands within our circle of influence. All right, that was the last question. If you have any further questions, we have a few more minutes. Just add it to the Q&A section. All right, that concludes the presentation and the earnings call for the third quarter. Thank you very much for joining us today, and see you next time.