Good morning, everybody, and welcome to this presentation of the third quarter results for Upsales. Talking now is me, Johan Kallblad. I am doing my first report as CEO of Upsales, and I am here together with my CFO, Kristina Fridheimer. If you have any questions, you can ask them during the Q and A portion of the webcast player, and we will try to answer on the call. After the call, you can always email ir@upsales.com with additional questions or if you want to schedule a one-on-one meeting. For the agenda, first, I will do a short reminder of what it is that we do at Upsales, and after that, I will talk a little bit about my first impressions of the company. After that, Kristina will go through the financials for Q3 and the first nine months of the year. Sorry about that.
When we have covered the financials, I will spend some time on what we are doing in terms of priorities to build a platform for future growth. First, get on with the reminder of what the company is. We are a profitable Nordic SaaS company. We deliver an AI-powered revenue platform, and we will get back to what we mean by that. That is currently being used by more than 1,000 companies. We have been around for 20 years. We have been a public company since 2019, and we have never used external capital, which is a source of pride for us. The revenue platform is a unified platform for CRM, marketing automation, customer support, subscription management, and analytics. You could call it an ERP for sales and marketing operations.
An important feature is that we deliver the system with included company data and credit data for 14 European markets, which are the most important markets for our customers. Europe is our key market, and we run on European cloud, GDPR native, with integrations to the most common ERP systems in our geographies. I am going to share some short notes about my impressions from the first three months with the company. Nothing exceptional here. I have had the opportunity to touch base with both customers, prospects, partners, investors, and of course, the team. Overall, my view is that the team has a lot of qualities, and they are well-functioning with an organization that works well for all operational matters. Of course, I am trying to implement my way of managing a business, and in general, I think that the capacities are there.
Personally, I would describe my leadership probably as more mission-driven rather than detail-oriented, and it takes some work on company culture and communications to be able to understand each other, of course. I would like to mention that a pleasant experience for me, as being an old Upsales customer and user of the product, is that the product capabilities have increased a lot over the last couple of years. With a very well-engineered core, which gives the customers a lot of flexibility and the possibility to adapt to custom sales processes. It is rather delightful, actually. The use of AI tools is very widespread in the organization, and AI functionality is also very much included in the user experience. With that, I will hand over to Kristina to guide us through the Q3 numbers.
Thank you, Johan, and good morning, everyone. I will take you through the numbers for Q3. Net sales were SEK 42.3 million , up around SEK 38 million in the same quarter last year. That is an increase of 10.9%, and that is four quarters in a row with growth over 10%. At the end of the quarter, ARR was SEK 154.6 million, and that is up 4.7% from a year ago. Recurring revenue was 92.4% of net sales, and Johan will talk more about ARR growth later on. Moving on to profitability. EBITDA was SEK 19.5 million, up from SEK 13.4 million last year, and that gives a margin of 46.1%, compared to around 35% last year. The higher margins are driven by 10.9% revenue growth, a strong cost control, and Aira no longer in the cost base.
The vacation period also lowers staff costs in Q3, so we should not expect quite the same margins in the coming quarters. But we now have a solid earnings foundation. EBIT was SEK 16.4 million, a margin of 38.7%, and net income was SEK 13.1 million, up from almost SEK 9 million last year. Finally, the balance sheet and cash. At the end of September, net cash was SEK 36.4 million, and that is up from SEK 32.5 million at the end of June, and from around SEK 20 million a year ago. Operating cash flow for the quarter was SEK 4.9 million, compared to around SEK 2 million last year. As in Q3 last year, it is lower than our earnings, and that is because customers pay their subscriptions in advance. So, in Q3, we book more revenue than we invoice. Free cash flow after investments in product development was SEK 4 million.
All in all, we have good, solid earnings and a strong balance sheet. And that is all for the numbers.
Thank you very much for that. As should be obvious, we are a very financially fit company. The big priority for me in the short to medium term is really not to improve margins, but to make sure that we have a foundation for growth going forward. The reason why solid margins and financials are so important to me is that I think it gives us the time on our side and our destiny in our own hands. It is a fact that ARR growth has not been the strong point of our financials for the last three years or so. We do a positive ARR growth in the quarter, and with Q3 being the slowest quarter of the year, this is probably all we should expect. There are several challenges in growth. It is a slow growth in general in the economy, in our target markets.
A little lack of focus perhaps in our own sales and marketing initiatives. Of course, it's a tough competition out there. We at Upsales have always run all the sales and implementation efforts ourselves, so there are really no other parties looking out for us, and that's just facts. Our priorities for building a solid growth foundation has three pillars. First, around the product. We are totally focused on creating the best experience for the sales professional. Technology is the tool. It's not the purpose. The product is built with a sales professional in mind, and our Q4 release, that we're going to release shortly, and we gradually already released portions of it into our customer base. It's built for sales success, a user interface that's easier to use. It's fewer clicks. It's almost four times faster load times. It's more integrations and less manual data entry.
We are doubling down on being the solution that the sales professional prefers and the number one CRM for Nordic companies that takes sales seriously. An obsession with the sales success and the sales and marketing success of our customers is our number one priority in our product. Second, I mentioned before that our platform has been re-engineered in a way that makes customizations much more attainable. In addition to giving this ability to our customers, we're using it ourselves, and we are configuring the platform in five vertical solutions around business verticals where we already have many customers. We will organize sales around these also, making it easier to onboard new salespeople and hopefully making time to value shorter for our customers. Third, we run an organization with a remarkable financial quality, and our sales metrics are quite strong.
I think there is an opportunity for us to grow our ARR the old-fashioned way by increasing our sales and marketing efforts, without compromising on quality, and without compromising on our financial metrics. It takes time to grow through organic sales, and we need to have patience, of course. I don't intend to elaborate much on the core verticals, but the analysis, like I said, is built around the fact that we have clusters of customers in these verticals. The market has already shown us that the software supports them well in these verticals. We don't have to search for a product market fit that isn't there. What do I mean by vertical configurations? We have one core software, but the business use cases are different in different industries.
In financial services, maybe Know Your Customer, KYC, and AML rules may be at the core of the sales activities. In tech and SaaS, you worry about net revenue retention and churn and ARR. In wholesale and logistics, a key aspect could be around pricing and the availability to promise delivery to the customer with deep ERP integration. The configurations that we do is around showing our capacities in a more packaged way to make it easier for the customer to understand the benefits of our platform and also to make it easier for our salespeople to communicate the benefits. These are the five core verticals that will be released gradually during Q4. One question that has been asked for companies like ours is if the AI revolution is making us obsolete.
And what I can say, looking at our data, is that AI has not slowed our growth. But of course, neither uncertainty nor inflated expectations are good for business, so we have added a lot of AI-augmented functions to our platform, and that's one of the reasons for why we win deals. Internal usage of AI is one of the keys to keeping us lean and having costs under control. To be honest, I don't have a set view on exactly what the future will bring. I try to stay flexible and adapt to whatever capacities technology brings us. So, overlaying what I've learned from Upsales so far with my prior experiences, there are some other growth vectors as well for us to explore and take into consideration.
With no specific order, we could look both at geographies, and we could look at partner-driven sales, and M&A with our strong balance sheet. I don't feel stressed or that we're time-constrained here. We're a small organization with limited capacities, and we try to be ready to do the best of opportunities that arise. But the most important thing is making sure that we do whatever we do with quality. So, in terms of the short term, what comes next? Q4 product release targeted at our core users. A gradual rollout of our vertical solutions. We will release our year-end report on February 17, 2027. In our year-end report, we will also define new long-term financial goals. So, we are obsessed. We're helping our customers succeeding in their sales and marketing operations. This concludes our presentation, and let's see if there are any questions.
You can ask them in the Q and A field of the webcast player. Couple of questions here. Do you want me to read them? Do you want to read? I can read. "Good morning, Johan and Kristina. Could you elaborate on where the non-recurring income came from, which partner was involved, and what type of service did you perform or deliver?" Yes, I can do a little bit of elaboration. We don't disclose terms of partner deals with individual partners, and this is a non-public. This is not a public company, so we don't disclose exact details, but it's services rendered around sales and a sales volume and a revenue share situation where we accumulated a revenue share of SEK 1.6 million. That was due to the terms of the contract was invoiced and revenue recognized in this quarter because we hit this threshold together.
So, it's something that may happen again, but we shouldn't count on it happen again, and we shouldn't count on it on happening in exactly this quarter. But it's a regular invoice that was paid in this quarter. So, yeah. Second one, "Could you give some light on capital allocation going forward?" This is a very good question. Last one was good too. So, capital allocation, we've talked in the board a little bit. There are four major ways to allocate capital, right? One is to invest in expanding our own capacities, our own product. We're pretty happy there with the investments that we do. We have a strong tempo in development, and we don't expect that we would have to expand a lot on the internal capitalization and spend more on our own product. Second thing is to do M&A.
I have a lot of experience in M&A, and I do like that tools, but as an organization, we need to make sure that we have the core really, really strong. We are strong financially, but in terms of some of the other areas, we have some work to do. I have a positive view on doing M&A, but it has to be the right target and the right situation. That is something that we could consider if the situation shows up. Also, thirdly, you probably saw that we had an extra shareholders meeting where we were awarded the right to buy back shares when the lock-up is. I got another question about this also. We are allowed to do a share repurchase, and that is something that also could be considered. The fourth way is to distribute through dividend, and that is something we have a history of doing.
FTEs continue to decline. Is this a cause for?" We are a lean organization. We do intend to run it lean. We are using a lot of AI tools in development, and we are using a lot of our own product to support us in sales, and we get a high efficiency through that. I do expect FTEs to increase a little bit, but not by a lot, but it will be through very specific roles and specifically around sales and marketing, in the next couple of quarters. We do not actually need to be more people than we are in our development and support operation at this time. Let us see here. I got another question. "The likelihood of share repurchase from December when it starts to become possible. What affects the decision?" Well, obviously, we need to have the equity and the cash on hand.
We do have the cash on hand, but as with any capital allocation, we have to weigh it against other options. I do like in general, we feel that if our share is trading cheaper than any M&A options that we have and their pricing, I think it would make sense to repurchase our own shares. That is not something that, since this law is new from December, so it is not something that we have made any decisions on yet. Another question, "Could we elaborate on the sales and marketing investments you will make, how many hires, what type of marketing, et cetera?" The marketing will be based around the verticals, and we will try to be visible in the places where the customers in the verticals are present. Nothing exceptional with that. Maybe two, three hires, four perhaps. We should expect that over the next quarter.
We have such good margins, so I think it will be no problem doing these investments, and keeping on really good margins. But you need to have patience when you invest in sales and marketing. It takes time to get the money back, and I think we have the financial capacity to have that patience. Do I still believe in the growth guidance for the full year? I believe that would be the growth guidance for 2026, for this full year as well. I have not elaborated too much on what guidances we have given in the past. I think the reasons for giving a guidance this year was that it was very hard for an outside investor to understand the underlying profitability and growth of the Upsales organization before the spin out of Aira. So it was very difficult, and that is as a guidance to investors. We did some guidance.
I think a small company like us shouldn't really do guidances because one individual customer or two individual customers may change the revenue, and one individual hire or two individual hires could change the earnings. I have no reason to change the guidance, but I think it's better to work with long-term financial goals, rather than short-term guidances in a small company like this. Because individual things, like I said, a hire, an individual customer, a churn, or something like that, changes numbers more than what you could foresee in a guidance that you do three or six months before. I don't think guidances like that makes a lot of sense. With that being said, I think the guidance have been correct so far. Could you give any color to what to expect for financial targets? Do you expect to grow faster than the overall CRM market?
Well, do we aim to grow faster? Of course we do. I'm not sure that it's a firm definition of what is the overall CRM market, but of course, we want to grow faster than the market. I think it will be balanced. Like I said, we'll release them in Q4, so I think you'll have to wait for Q4. You should expect it to be a mix of growth and earnings targets. Also, saying that we'll release them in Q4 means that you'll have to wait to Q4. So big UI rewrite sounds risky. Is there a risk that customers won't recognize the product? Well, of course. That's why we're also releasing it in multiple tranches. It's not so that every old customer gets a new UI right away. You actually can run them in parallel, and we slowly migrate into the new one.
The main thing is not to change the user experience in terms of how it looks. We move around some things to make you have to use a mouse pointer as little as possible and click as little as possible, and also about four times faster load times. I think most customers will appreciate that the user interface is faster. So it's not focused primarily on changing the look, it's focused primarily on changing the experience in how you work in it. So, we have a lot of customers that are using This is UI three for us. It's the third time we rewrite the UI, and always you have to be a little bit careful because it's a lot of customers that are used to using the product in a certain way. So, of course, we try to make sure to take care of them. Let's see here.
What do you bring that was perhaps missing when it comes to a stronger focus on sales and marketing? Well, I don't know. What should I say? Like this perhaps. It's not my job to review my predecessor. He's done a fantastic job in creating this profitable machine that we have here. So, it's not my job to evaluate that. But Daniel, my predecessor, is more of a technologist than I am, and he loves building the new technology. I'm more maybe a technology pragmatist. I like the usage, and I like the effect you get through customers. I've had a lot of experience in building sales without actually even owning my own product, but adapting and accepting the products I have, and build sales and marketing around the capabilities you have and not the capabilities you aim for having in the future.
I am pretty much based in reality, and reality for me is looking at the customer acquisition cost compared to the lifetime value of a customer. If that metric looks really good, you can always question the linearity here. But if that metrics look good, say perhaps five or six times the lifetime value of a customer is five to six times higher than the customer acquisition cost, then you should invest in sales and marketing without giving it too much thought until that changes. I think I have a reasonably industrial approach to this, and we will see whether that works or not. Your last question perhaps, and it is time to wrap up unless we get some more. Today's sales are driven solely by Upsales itself. Will partners also help drive sales in the future?
This is a good question, and this is one of the growth vectors we are looking at. We have had discussions both with the technology resellers that could help us into specific verticals, and we have had discussions more with sales specialists, that could perhaps meet customers in another way, and we can make this their preferred tool. Also, working through partners is a long-term commitment. It is not something that you just turn on and then you get a lot of value out of it right away. But, there are certainly things, if you compare to, for instance, a competitive or an American system that is called HubSpot, which I personally have used both. I think it is far inferior to our product in terms of sales. But they have gained some market share in the Nordics, and it is a strong marketing product.
But they have around, only in Sweden, 30 - 40 partners that are other companies that tell the customers that, "Yeah, HubSpot is a really nice system." We have no one who is building their income statement on our IP, more than our customers and ourselves. So, of course, if we could have 30, 40, 50 other companies that were spreading the word of Upsales, that should help us in some aspects. But it is a matter of quality, both earnings quality, of course, we have total control now, and we can choose not to spend time on sales that we are not going to win. We have total control of the quality of the customer engagements and the implementation. So, it is a long-term thing to run through partners.
But, I would like to open up, if someone is interested to build a sales-driven business on top of our IP, I encourage them to contact us and we can have those discussions. We do have some discussions going on like that already, but it is not something that I can commit to firmly yet. Okay. I think that is probably all the questions we had at this time. Then, me and Kristina would like to thank you all for joining in and remind you that you can email ir@upsales.com if you have additional questions or if you want to schedule a one-on-one. I wish you all a really good day and a wonderful report season. Thank you.
Bye-bye