Sleep Cycle AB (publ)

based AI already trust by millions nightly to enable non-invasive smartphone based apnea screening. No wearables, no cables, no clinic visits, AI powered screening using only the iPhone microphone. Affordable and accessible for underserved populations. So medical grade precision, but consumer grade simplicity. It's a natural extension of our platform and it's aligned with our mission to improve global health. And importantly, it reflects the shift toward proactive personalized health care, enabling earlier detection at that scale. So sleep apnea obviously represents a strategic leap for sleep cycle. It significantly expands our total addressable market, and it creates a new high margin revenue stream, both through in-app B2C purchases and emerging B2B opportunities. We're basically stepping into preventive health, aligning with a global shift towards proactive at-home care. The home testing market alone is already around one billion US dollar and growing. So there is a massive unmet medical need, and we are making screening more accessible and tech-driven. This move position us not just as a sleep app in the future, but also a health platform for the future. So to validate our solution ahead of our FDA application, we are right now running a clinical study led by two of our foremost experts. This study is conducted in Australia with 700 participants. In parallel, we're getting ready for everything that needs to be in order before submitting to FDA. And after that, of course, also to CE for being able to sell this in the European markets. But now let's look at our cue to performance. So I hand over to Elizabeth.

Thank you, Erik. Now let's look at our financial development for the second quarter. The number of paying subscribers decreased by 2.2% year over year, landing at 878,000. This was mainly driven by softer market conditions and a lower intake of new customers. On the positive side, retention rates remained stable and are gradually improving, which confirms the strength of our core subscriber base. Our partnerships are also growing, but not all of them generate reported subscriptions. The total net sales decreased by 2.9% or 0.6% FX adjusted, given the tougher D2C market conditions. Sales from partnerships has, however, increased with 68% year over year and now stands for 9% of our total net sales. We do see currency effects on ARPU which declined by 3.9% to 271 SEK. ARPU is 11 SEK lower compared to last year, where 6 SEK of the decrease comes from FX effects and 5 SEK from price dynamics. We have converted freemium users into paying subscribers through discounted offers, which temporarily puts pressure on ARPU. But during the summer, we carried out extensive price tests in several of our largest markets. And based on these learnings, we have implemented price increases during August. And we do expect slightly higher underlying RP levels going forward. Despite the sales headwinds, EBIT came in at 11 million SEK, corresponding to a margin of 28.4%. And this underlines our profitability, and importantly, it provides us with the flexibility to continue investing in partnerships, product innovation, and new revenue streams to support the long-term growth of Sleep Cycle. Looking at the historical development of paying subscribers and net sales, we do see a period of solid growth followed by the current quarter's softer performance reaching 878,000 paying subscribers by the end of the second quarter. And the decline in net sales is reflecting the same trend. Fewer new customers during the first half of the year, combined with continued pressure on Arby. I want, however, to note that the FX adjusted net sales decreased by only 0.6% and our partnerships are growing at a fast pace. To repeat, revenue generated from partnerships increased by 68% and now stands for 9% of the total revenue. So while the historical figures show a period of solid growth, this quarter highlights the challenges in new customer intake combined with FX pressure. At the same time, our base remains resilient and our partnership developed really well. Turning to profitability, despite softer revenues this quarter, profitability remains at a solid level at 28.4%, and we have no NRIs affecting comparability. In fact, our adjusted EBIT margin has been above 25% for six consecutive quarters, which underlines the profitability in our business model. Even in a more challenging market environment, our financial performance remains robust and that gives us flexibility to continue investing in areas that will fuel the next phase of growth. Looking at the profit and loss statement for the second quarter, Distribution costs are a bit lower as a result of lower sales to new customers, which come in at a higher commission. And we are investing more OPEX in line with our strategy, aiming to add new revenue streams and more partnerships. In addition to this, we invested a further 3 million SEK in CAPEX during the quarter, primarily related to the continued development of our AI-based sleep apnea screening, which is now in a clinical study phase. Staff costs are on the same level as last quarter, as last year's figure included costs related to the incentive program as well. We continue to have a strong cash position and a good cash flow. And note that we paid out a dividend of 61 million SEK during the second quarter. So for the first half of 2025, the pattern is consistent. Net sales were slightly lower compared to last year, while profitability remained solid. EBIT margin for the six-month period stayed strong, supported by growing partnerships and efficient operations. At the same time, we invested 6.8 million SEK in CapEx during the first half of the year, mainly in the development of our sleep apnea screening solutions. The key takeaway here is resilience. Our core business delivers solid profitability, which does give us financial strength to keep investing in long-term growth. Now over to you, Erik.

Thanks, Elisabeth. So to me, this quarter marks real traction in new key areas that support both growth and diversification. And we do this while still delivering on our EBIT margin targets. First, we saw more than 60% increase in partnership revenue year over year, now being close to 10% of our total revenue. It's a clear signal that our strategy is working and it's a critical timing given the softening demand in App Store and Play Store for the sleep category that I have signaled already in the previous quarter and also during the end of year report. Secondly, the clinical study for sleep apnea is progressing well. It's a major step towards launching a medically certified offering and a future revenue stream that leverages our existing platform and expands us further into digital health. When we succeed, we will be breaking new ground. And the journey has already started with pre-submission meetings with FDA, as well as I already said, the clinical study is underway. And third, The launch of Powered by Sleep Cycle, which has opened up new conversations with potential partners across wellness, healthcare, and connected products. It's early, but it's clear. This model creates commercial upside well beyond the app. More partners are engaging around the SDK integration and exploring how our sleep technology can add value to their platforms and customers. I'm super proud of what the team have achieved in this quarter, and with that, I'm happy to take any questions you might have. So let's go into the questions.