Sleep Cycle AB (publ)

Good morning, everyone, and welcome to Sleep Cycles Q1, 2026 earnings call. I'm Erik Gilmark. I'm the CEO, and I'm joined by Elisabeth Hedman, our CFO. So Q1 was a transition quarter. It was softer on the top line as expected, but importantly, the strategic shift that we've been communicating is becoming visible. It's becoming visible in our revenue mix and also in the platform we're building. So today I will cover three things. The strategic moment we're in, then how our market is expanding and how our three growth pillars are progressing. Then I will hand it over to Elisabeth. She will talk through the financials and targets before we will open up for a Q&A in the end. So our mission is unchanged. It is to improve global health by empowering people to take control of their sleep. And the fact is that sleep is no longer a niche. It's becoming a core pillar of global health. And this goes across mental health, metabolic and cardiovascular outcomes. So what is changing now is not our mission. It's how we scale it. We're moving beyond the app stores. So before we discuss Q1, it's very important to understand the foundation we're building from. Sleep cycle is an authority in sleep. We have over 4 billion nights of sleep data. We have two and a half million active users and 82 million installs. And that combination with data distribution and also reach is extremely difficult to replicate in a single product. And what is important to understand is that this has been built over the years almost entirely organically. So now we're taking a shift from a passive growth to a more structured proactive model. And I like to say that we're taking control of our own destiny. But before we jump into the shift, what we have built is a highly profitable cash generating business. Net sales has grown from 182 to 248 million SEK between 2021 and 2025, about 36% compounded growth. At the same time, EBIT margins has expanded to around 26 to 30%. So what we have is a structurally profitable and very efficient model. And we're also starting to see the shift. B2B has grown from 2% of our revenue in 2023, and in Q1 this quarter, it's almost 15%. And all of this with around 35 employees. So the key point here is we're evolving from a position of strength. 2026 is a deliberate transition year. We are reinvesting into the platform, so tech licensing, sleep apnea and the new growth engines. And from 2027, we expect that to translate into re-accelerated growth, but on a much larger market. And the reason why we believe we can capture this market is because sleep is becoming a core pillar of global health. And this is not a trend, it's a structural shift. And we see Three clear drivers behind this. First of all, sleep has moved from being a nice-to-have to a core driver of both health and performance. Secondly, the scale, I mean, it's significant. Sleep apnea alone affects around 1 billion people, and most of them are still undiagnosed. And third, healthcare is shifting to continuous passive and embedded solutions. And that's exactly how our technology is built. So demand is not the issue. Demand is very strong and it's actually growing. The constraint is distribution. And importantly, this growth is not reflected in the app store dynamics where currently our category is down prioritized. So while the market is expanding rapidly, much of that expansion is happening outside the channels where we have historically operated. So up until now, we have operated in a market of roughly 1.7 billion SEK. And we've had roughly 15% of that market. And that is where we built a very strong and profitable position. And what is changing now, it's not our technology, it's where that technology can be applied. So by expanding into sleep apnea and also tech licensing, we increase our addressable market to roughly 45 billion SEK. So effectively, what we have is the same core technology, but significantly larger markets. That is what this evolution is about. And these estimates that I show here, it's based on the analysis made by ArcRight, also combined with some public sources and an internal assessment that we have made. So the strategy going forward is built on three pillars and they are all powered by the same platform. First, we have the SleepCycle app. I mean, it's our cash generating consumer engine. Secondly, it's Sleepapnea. I would say that's our largest upside opportunity. We are right now in clinical validation. We have 150,000 people that has already registered and we see a tremendous B2B potential. Finally, we have tech licensing. Tech licensing is about turning our technology into a scalable B2B platform via SDKs across wearables, pharma, and also digital health. So the key point in this is all three are built on the same core technology and the same data. And that gives us a lot of things. It gives us high scalability. It gives us low incremental cost and also a structurally stronger revenue model over time. But let's go through each of these pillars a bit more in detail so you know where we are. If we start with the consumer app, it remains very strong and it's an important part of the business and we're doing a lot of things to optimize it. So in Q1, we have increased prices by 15% on iOS and you see that on the ARPU already. We have improved onboarding. We have been lifting first night activation to 45%, meaning that we have more users that can experience our product and hence increase the pool that we can try to convert. And in the long run, of course, more users do not only generate data, but they also can be a pool of customers that we can reach with our sleep apnea offering. And also having a lot of users, making us even more relevant for B2B partners. We have launched Luma. It's our AI-based sleep coach, which we see improve day eight retention, meaning it builds engagement. So it improves retention on all the days, but day eight is an important day for us due to the trial time that we have. And finally, we're ready for a new distribution channel. And we shared in the report this morning that OpenAI, we launched, and we were one of the first in our category to be on ChatGPT. So the direction is clear. We're moving from a tracking product, you could say, to a more personalized sleep and health platform. Then we have the second pillar. It's sleep apnea. I believe it's by far our largest upside opportunity. Around 1 billion people are affected globally, and the majority of them are undiagnosed. There are existing solutions out there. They are often expensive. They are not scalable because they involve hardware. And what we're doing is that our contactless AI-based detection tool that we are developing, we have, of course, a benchmark in terms of what is out there and what is approved already. And what we see is that we reach a 84.5% sensitivity in the test that we're doing internally, meaning that we are comparable to the incumbents. The difference though, is that we can be delivered at a price point of, you know, 100 to 500 SEAC versus thousands for traditional sleep apnea detection tools. And the demand signal is already strong. We have more than 150,000 individuals that have registered their interest for their B2C offering. But again, I believe that the greatest potential is in the B2B segment. And we are right now in dialogues with multiple potential B2B partners across this value chain. So in terms of regulatory path towards this commercial launch, we are progressing well. Our target is to launch in the first half of 2027, and we've taken a very de-risked approach. So what that means is that we're working with specialists to ensure that we have the right alignment with FDA and also the CE requirements. We are setting up the required quality systems for the software as a medical device, and that is being put in place right now. And we're doing external pre-audits, and they have confirmed that we are on the right track. On the study side, development was completed in Q1 for the algorithm, and we have now started validation in Q2, and we are on schedule. So the next steps is that we will do the design freeze in Q2. We will complete the study in September, and then our target is to submit this to FDA in October. The third pillar is tech licensing. And this is our way of basically scaling the platform beyond our own app. Because through the SDK, what we do is we make our core technology and also the data available to partners across industries. And that gives us access to use cases and also customers that we would not be able to reach ourselves. But it's also important to understand one thing. The SDK business or the tech licensing business, it's an entry point. Many of these partners are also highly relevant for sleep apnea. So the model is quite simple. We start with the tech licensing and SDK. We're building the relationship. And then over time, we will move in with the medical expansion. So in Q1, we see some early signs of this. We have some first revenue coming from SDK. We are growing the pipeline across both licensing and the medical application. And we are also finalizing the cough data validation study together with UK HSA, which is a prerequisite ahead of commercial discussions. And the UK HSS study, it's about understanding if the coughing data could work as an early warning signal. So tech licensing is both a scalable B2B revenue stream, but it's also a strategic gateway into the sleep apnea B2B opportunity. And with that, I'm gonna hand over to Elisabeth.

Thank you so much, Erik. So on to the Q1 financials. We had net sales at 52.6 million SEK, which is a decline of 19% on a reported basis and 12.2% when we adjust for currency. Note that almost 40% of our revenue is in US dollars and that the dollar has weakened by 12% year on year. EBITDA came in at 8.2 million, giving us a margin of 15.6% and EBIT at 6.7 million for a 12.8% margin. The profitability pressure you see here is short term and tied directly to the plan investments that we outlined last quarter. So the bright spot is B2B, which generated $7.6 million in revenue. It's up 42% year over year, and it now accounts for almost 15% of our total revenue. And that's a meaningful shift. On the subscriber side, we ended the quarter with 715,000 paying subscribers, down 21% year on year. Note that 37,000 of those come from our partners. That number was 30,000 one year ago. ARPU was 255 SEK on a reported basis, but FX suggested it's broadly stable at 277 SEK, actually 7 SEK higher year on year. So the pricing holds, the headwind is currency, and we see that new sales come in at around 300 SEK in ARPU. Liquidity stands at 115 million SEK at the period end, and we had an average headcount of 40 employees during Q1. So the strategic shift, it's already visible in the revenue mix. B2B share of revenue has grown from 4.9% in Q1 24 to 14.5% this quarter. And B2B subscribers has grown from 12,000 in late 23 to 37,000 today. And this is an engine that we're building and we're delivering on it. On the consumer side, FX-adjusted ARPU has held around 277 SEK. And paying users continue to find value in their product. The headline ARPU pressure you see in the reported number is mainly FX-driven and it's not only a willingness to pay issue. Let me walk you through the income statement line by line. So we had net sales at 52.6 million SEK versus 64.9 million a year ago, minus 19%, but minus 12.2 adjusted for FX. Capitalized work for own accounts was 1.4 million, which is up sharply from last year. And this reflects our investments in the medical device pathway and SDK building, real product development that sits on the balance sheets. On the cost side, the distribution costs were down directly linked to the lower sales through app stores, while other external costs come in roughly flat with growth related investments embedded in that line. Staff cost was up with 23%, and this is planned investments in tech sales and regulatory capabilities that we need to support our strategic direction. The average headcount was 40 compared to 33 one year ago. And that brings us to a margin of EBIT of 12.8% for Q1. And there were no non-recurring items affecting this quarter. The cash flow picture tells the right story for this as a transition quarter. Operating cash flow was 7.2 million SEK. It's still positive, which is important. The 57% reduction versus last year aligns directly with a lower EBITDA. Cash flow from investing activities was minus 12 million, and this is entirely deliberate that we were increasing this. The majority of the money went into capitalized work on the Sleep-Up-Nia program, but some is also building our platform and our SDK. And these are the investments that build the future revenue streams. So the total cash flow was 5.6 million for the period. And this is explained by the increased investments. Liquidity stands at approximately 150 million SEK by the end of the period. So we're funding this transformation internally with no external capital required to execute the plan. On capital return, we had a dividend of 0.53 SEK per share for the financial year of 2025. which was approved on the AGM in April and paid out on the 20th of April, totaling at 10.7 million SEK. Our medium term targets remain unchanged. On capital return, we commit to over time distributing 40 to 60% of profit after tax to shareholders. And on growth, our ambition is to double revenues on a medium term horizon. The B2B and new market opportunities ahead of us gives us confidence that this is highly achievable. On profitability, we target at least 25% EBIT margin per annum on a through cycle basis. The existing business has the structural profitability to support this, and we believe that the new pillars, B2B and sleep apnea, will deliver material upside within this framework. So let me be clear, 2026 is, as we have previously communicated, a transition year with elevated growth investments. And we have guided for a 5% EBIT margin for the full year. And this short-term margin compression is the cost of building these new revenue streams. And we do believe that it is the right trade-off. Over to you, Erik, to summarize this quarter.

All right. Thank you, Elisabeth. So let me summarize this. I want to close with five takeaways. First, I mean, we are in a transition quarter. This is not a trend. The numbers reflect a deliberate investment. The underlying business remains very strong and very profitable. Secondly, the platform that is our moat. 2.5 million users, 4 billion nights of data, and one shared technology powering all three business units. Third, our market is expanding from roughly 1.7 billion SEK to around 45 billion. And we will be able to capture and be relevant in this market by basically applying the same core technology to the new use cases. Fourth, B2B is compounding. It's evident. We're up 42% year on year. It's almost 15% of our revenue in this quarter. It's a clear shift toward a more scalable model. Fifth, as you heard Elisabeth say, our targets are unchanged. We continue to target revenue growth and at least 25% EBIT margins over the cycle, although this year we've guided for 5%. So before we open up for Q&A, I just want to take a step back a short while and basically look at what we're doing. So we are executing this transition and this evolution from a position of strength. We have a profitable core business, which is funding the next phase. And because everything that we do is built on the same platform, it means that our investments, including in Sleepapnea, is strengthening the entire product and improve our core algorithms. And with that, I'm happy to take any questions that you might have.