Good morning everyone, and thank you for joining us for Sleep Cycle's year-end report. Today we will take you through the quarter, but also we will take a step back and explain where we are in our transformation. This is an important moment for the company, and we want to be clear about both what we're seeing in the market and the deliberate choices we're making to capture the opportunities ahead. I'm Erik Jivmark, I'm the CEO of Sleep Cycle, and I'm joined today by our CFO and Head of Investor Relations, Elisabeth Hedman. Sleep Cycle's mission is to improve global health by empowering people to take control of their sleep. We do this by turning high-quality sleep into an accessible daily habit at scale. Today, Sleep Cycle is used and loved by millions of people across more than 180 markets. Importantly, we are more than an app.
We reach users through our own consumer product, through integrations with partners, and increasingly through technology licensing. That breadth is central to where we're heading and also something that I will come back to later. But first, I will hand over to Elisabeth to walk you through the financials for the quarter and also for the full year. Elisabeth.
Thank you, Erik. So, starting with the fourth quarter, Q4 was characterized by continued pressure in the consumer sleep app market, which impacted both new customer acquisition and hotline growth. The number of paying subscribers was 768,000, and ARPU was SEK 269. Adjusted for FX effects, ARPU was SEK 279 on par with last year. Reported ARPU is still impacted by revenue recognition timing, but underlying pricing actions and testing support long-term value per customer. Net sales declined by 13% year-over-year, or 9.8% adjusted for these FX effects, while EBIT amounted to SEK 14 million, corresponding to a margin of 24.3%. Importantly, profitability remained strong despite lower revenues, and we continue to generate solid cash flow. At the same time, B2B percent year-over-year now representing over 12% of the total net revenue.
This highlights the two dynamics that we're managing in parallel: short-term market pressure, long-term diversification. Looking at the full year, the same pattern is visible. Full-year net sales declined by 5%, or 3.4% FX adjusted, reflecting a challenging consumer market. Despite this, underlying profitability remained strong with an EBIT margin of 26.6%. At the same time, partnership revenue grew by 59%, confirming continued progress in our diversification strategy. So while topline growth was under pressure, the business remained profitable and resilient. The decline in paying subscribers is primarily driven by lower new customer acquisition, reflecting the weaker market over the past year. Importantly, renewal rates remained stable at 45%, which shows that engagement and retention among existing users remain solid. Net sales followed the same pattern, declining year-on-year while partnership revenues continued to grow and now account for a larger share of the total net sales.
Altogether, this clearly illustrates both headwinds in consumer acquisition and the need to accelerate revenue diversification. That is why partnerships and new revenue streams are becoming increasingly important for Sleep Cycle. This brings us to our partnership business, which we call Powered by Sleep Cycle. Partnership revenue increased 46% in Q4, 59% for the full year. Today, the revenue is primarily driven by established partners, and during the quarter we signed one pilot and one multi-year contract for Sleep SDK, multi-year contracts with revenue that is still to come. Revenue recognition follows implementations and rollouts, and these contracts ramp over time, which means that revenue growth is gradual but scalable. This is a clear example of how strategic initiatives are turning into scalable business. Despite lower revenues, profitability remained strong throughout the year.
In Q4 we had a margin of 24.3%, and there were no items affecting comparability during the quarter, meaning that adjusted EBIT corresponds to reported EBIT. This reflects the resilience of the cost structure and the strength of the central business. Now, let's look more closely at the cost and cash flow dynamics behind these results. Looking at the income statement for the quarter, the distribution costs decreased year-over-year, mainly due to lower App Store commissions due to lower sales. The other external costs increased, reflecting higher growth-related investments in partnerships, technology development, and initiatives to broaden our revenue base. Liquidity remained strong at SEK 121 million at the end of the quarter, and operating cash flow was positive. This gives us a solid financial position heading into a deliberate investment phase. For the full year we see the same underlying trends.
Distribution costs declined, while other external costs increased due to investments in new revenue streams. Staff costs were broadly stable year over year despite an increased average number of employees. For the full year we maintained a strong cash generation, a solid balance sheet. Based on this, the Board of Directors proposed a dividend of SEK 0.53 per share, corresponding to a total distribution of approximately SEK 10.7 million. At the same time, the board has chosen to retain and reinvest the majority of earnings, reflecting the significant opportunities we see, building long-term growth across technology licensing and MedTech. This strong financial position allows us to both reward shareholders and invest deliberately for the future.
With that, I will hand over to Erik, who will walk you through how Sleep Cycle is on a transformational journey and how we are building for long-term growth for Sleep Cycle.
Thank you, Elisabeth. We are on a transformational journey. What you're seeing today is not a reaction to a challenging quarter. It's the result of a strategy that we deliberately set in motion already in 2024. That strategy was about taking control of our own destiny. We recognized early that the traditional sleep app category was maturing and that relying solely on app store dynamics would eventually limit our growth potential. In 2025, our focus was therefore on maintaining strong profitability, protecting cash generation, and proving that we could operate very efficiently even in a softer market. At the same time, we laid the foundations for what comes next. In 2026, we're deliberately stepping into a more investment-heavy phase because we see clear opportunities to build a larger, more diversified, and more resilient business over time. We do these investments from a position of strength.
So our transformation is about moving from one product to three. First, the Sleep Cycle app remains the number one sleep app and a profitable consumer business. Secondly, Sleep SDK and Powered by Sleep Cycle allow us to license our proprietary technology as a horizontal layer across other products and services. And thirdly, sleep apnea screening represents a long-term MedTech opportunity built on the same core technology. Together, these form a scalable platform. So to summarize how this fits together: all of this is part of the long-term strategy we already laid out back in 2024. At that point, we were very clear about the three focus areas: user acquisition, user engagement, and platform and data. On the left, you see the strategic building blocks. First, acquisition and engagement through the number one sleep app.
That has been our priority over the past two years, and it's allowed us to defend and even take market shares in the softening category. But we also said from the beginning that the app alone would not be enough in the long run. That's where platform and data come in. The same technology that powers the consumer app is now being reused across multiple products. In the middle, you see how this translates into concrete products. The Sleep Cycle app remains central, operating as both B2C and B2B. Sleep SDK is a pure B2B SaaS-based offering, where partners integrate our technology into their own ecosystem. And sleep apnea screening is a potential product under development, addressing a large medical market using the same underlying platform. So on the right, you can see how this naturally leads to different business models without having us to reinvent the technology each time.
So this is not a pivot. This is about execution. We're doing exactly what we said we would do: strengthen the app, leverage the platform, and create new scalable revenue streams on top of it. So let's unpack each of these products. The Sleep Cycle app continues to be central to us. It is profitable, it generates strong cash flows, and it gives us access to millions of engaged users across the globe. ARPU and renewal rates remain stable, which is critical in a subscription business, and we're actively working with price to mitigate the strong FX headwinds that we've had. But just as importantly, the app generates high-quality sleep data at scale. It provides a good marketing vehicle for our tech licensing and also future sleep apnea products. During the quarter, we launched Luma, our AI-based sleep coach, and continued development of the new Sleep Quality Score.
These are not just feature updates. They are steps towards making the app more intelligent, also more personalized, and better prepared for deeper and platform-agnostic AI integrations going forward. This is what we mean when we say platform readiness. The consumer app is not standing still. It's evolving to support the broader strategy. Secondly, Sleep SDK. It's a very important example of how the business model is evolving. Powered by Sleep Cycle represents a structural shift from pure consumer subscriptions to recurring B2B revenue paid by partners rather than end users. These models come with lower customer acquisition costs and also a distribution beyond the app stores, while reusing the same core technology across multiple use cases. This is not a vision any longer. It's reality. We launched the SDK in September.
In Q4, we had already signed one pilot contract with Ultrahuman, as well as a contract for a smart home manufacturer that we will disclose later this year. I'm very happy that the team managed to close these deals already in Q4 since we know that there are longer lead times in B2B. Importantly, revenue recognition follows implementation and rollout, not contract signing. That means that the commercial activity and also the cost comes first, while reported revenue ramps over time. Let's talk about sleep apnea screening. It represents a significant long-term MedTech opportunity for us, both for B2B and B2C. Sleep apnea is a large and underdiagnosed global health problem, and the current pathways to finding out that you have it are often both costly, inconvenient, and slow.
So our ambition is to offer a scalable and accessible screening solution using only an iPhone, without the need for dedicated hardware. This would position us as a first step in the clinical journey. We're nearing completion of the development phase right now, and based on the results so far, I have strong confidence in the technology. Now we're entering the validation phase with a U.S.-based clinical partner, and this is expected to be completed in September this year. The U.S. is our largest market. It accounts for approximately 35% of the revenue. Conducting the validation phase in the U.S. strengthens both the clinical evidence, and it's also expected to be important in future partner and B2B discussions, as well as the regulatory dialogues. This is a key milestone toward FDA submission and future commercialization.
So to me, sleep apnea, it's a long-term opportunity with very meaningful potential, and we're approaching it with the level of both rigor and process that is required in MedTech. So 2025 was the year we initiated the transformation. We protected profitability in a weaker market. We took market shares. We saw strong growth in partnerships, and we took the decision to go for medical-grade sleep apnea screening. So when we look at 2026, it will be about unlocking the growth opportunities that we see, using our strong cash position to capture these opportunities. Lower margin is a conscious choice. It's about taking control of our future growth trajectory.
We planned the total investments of approximately SEK 90 million, with around SEK 50 million impacting the P&L and SEK 40 million being capitalized. I think it's important to notice that we invest from a position of strength. Our long-term targets are unchanged.
Revenue in 2026 is expected to come in slightly lower than in 2025, following the logic that I shared before about revenue for the new areas ramping up over time. We are expecting to return to growth in 2027 with a margin around 25%. So before we move to Q&A, let me just summarize. First, we have a strong and profitable consumer business. It continues to generate cash even in a softer sleep app market. Secondly, we have a clear and well-defined investment plan for 2026. We are deliberately prioritizing our long-term value creation over short-term optimization. And thirdly, we're building a scalable platform with multiple growth engines. This will make Sleep Cycle more diversified and more resilient over time. And with that, we're happy to take your questions.
All right, let's have a look. First off, we have a question from Jessica Grunewald at Redeye. She asks, "On the 2026 revenue guidance, with management expecting lower revenue in 2026, how much of this is due to continued pressure in the traditional app store market versus a deliberate shift in focus toward longer-term partnership deals?
From a revenue point of view, what we're seeing in the core business right now, the Sleep Cycle app, is that the decline and the softening in the segment that has been throughout 2025 is continuing. Although we take market shares, and we do that in a very good way, it means that we need to be transparent about what we're seeing, and hence we have guided the market that we expect a slightly lower revenue. It's worth to, again, mention that the revenue that comes from the partnership sales doesn't come instantly. It ramps over time. When we sign a contract, it means that we don't recognize that as revenue straight away. It will be over the coming months.
That's why there will be a situation in 2026 where we believe it will be a slightly lower revenue, but then, thanks to the contracts that we are signing, it will ramp up, and in 2027, we will come back at a higher level, both in terms of revenue and the margin being back around 25%.
Another question from Jessica regarding the margin compression. "We have guided for a 5% EBIT margin down from 26% this year. How much of this roughly SEK 50 million impact is driven by fixed cost deleverage versus specific incremental spend on the sleep apnea and Powered by initiatives?" I can answer that one. So these 50 million are related fully to developing this platform and developing the MedTech area. So the Sleep Cycle app business, the cost for that will be just like what we've seen previous years. So these investments are fully related to the new initiatives. And one last question from Jessica on the 2027 inflection point. "You've highlighted 2027 as the year for clearer revenue contribution.
What are the specific commercial milestones we should look for in late 2026 to gain confidence that these investments are scaling as planned?" I can say that what you should look out for is the development of our clinical study. We will share updates along the road when we have important milestones to report. But also, signing contracts with new SDK partners is something I would look out for as well. Then we have a question. "What was the user acquisition for the quarter, and how are you leveraging modern marketing strategies to stabilize and grow the user base?
I mean, we're using marketing as a vehicle to acquire customers, and that's why we managed to grow and even outgrow the competitors. So the situation we are in is that we are outperforming the market. However, the market is, right now, in the sleep app category, softening. So that's why we and this is something we recognized years ago. And that's why, when we put the new strategy in motion, we said we need to diversify the business. And that's what has been the focus for the company this year. So we're doing a good job in taking market shares, although, of course, I'm not happy that we're declining in overall revenue. But we're taking the market shares in the App Store, and we are also seeing very positive growth in the B2B segment. So we're doing what we have said that we will be doing.
Then we have a question regarding that. "App marketing tools indicate that installs are stable, and this indicates that there's a drop in the conversion of installs to subscription sales and not the installs. Can we confirm this?
Yeah, I mean, the installs are also down, so they are not stable. But it's also that you have to look at two things. So there are apps out there in the category that we are in that have more installs than we have, but they have a fewer number of MAU and DAU, so daily active users or monthly active users. So it's also the quality of the installs. So you cannot only say, "These are the installs, and hence you have this number of people. And if the installs decline with 5%, then the number of active users declines with 5%." It's not that linear. So the conversion rates that we see, they fluctuate throughout the year. But overall, we see, in general, in the category, a lower intent traffic on the installs, which is impacting the conversion rates as well. So yes and no.
Then we have a question from Rasmus. He says, "Thank you for the detailed outlook on 2026 as an investment year. Can we provide more granularity on the expected growth and margin trajectory for 2027 and 2028, given our stated financial targets?
Yeah, I mean, in 2027, as we've said, we will return to around 25% on EBIT. We don't guide for 2028, but of course, our expectation is that we will continue to grow both the top line in 2028, and then also the margin will follow.
Which key KPIs will you monitor to confirm that the business is tracking in line with this trajectory?
So we will look at the regulatory milestones, so the sleep apnea things that we're doing. I mean, it's a very, very rigid process that we're following. We're taking the right steps to reach the clinical validation. So of course, that is a key thing that we're monitoring. In terms of KPIs, sales is an important metric for us. So as I said, revenue comes after sales, especially in the B2B space. So we're looking at the number of contracts that we can sign and what sales that entails. I think it's important to mention here that a lot of these discussions that we are in and the contracts that we have signed so far, it's multi-year revenue. So it also creates a bit of a protection to the business, similar to what we're used to in the subscription business today.
We have a question. "As the business evolves post-2026, do you expect any changes to Sleep Cycle's revenue model or cash flow generation characteristics?" I can comment on that. When it comes to the SDKs, for example, usually what we see is a SaaS-like payment scheme. Sometimes the customer will pay up front, and sometimes they will pay on a monthly basis. What is very nice with these types of deals is that the churn is much lower, which will give a better stability for both the cash flow and for our revenue base. We have a question regarding, "What is the sales strategy for the sleep apnea product following validation in the U.S., and what does this validation actually give you?
Yeah, so first of all, you are not allowed to sell a sleep apnea screening product if you don't have the approval. Then you will be in big trouble. So the validation is basically a way for us to say that the algorithm that we have developed can detect sleep apnea screening. So what we have done so far is that we have used quite a few nights where we have trained the model that we have. Now we say the training of the model is almost completed. So now we move to a validation phase. And what happens during the validation phase is that you take these nights, so the 400 nights that we're aiming for, and we're not allowed to look at them. So they are collected. And then, once they are all collected, we can run our model that we have developed towards these nights.
And then we will know if we can achieve the targets that we need to to be medical certified. So that's the process. In terms of commercializing this, I mean, we have a huge benefit here. We have millions of users on our app. So from a B2C point of view, we have already tested willingness to pay. We're doing fake door tests to see conversion rates, et cetera. We do that on our current user base. In terms of B2B, it's a very natural discussion when we talk to these companies about selling the technology and licensing the technology that they look at the full portfolio that we have. So some are very interested in the snoring capability, or they're very interested in the sleep staging capability, or even in the smart alarm, maybe.
But many of them are also very interested in a way to reach the people in an easier way that has sleep apnea. So imagine you're a pharmaceutical company, and you sell a product to cure sleep apnea. Or imagine that you are a sleep clinic that charges people to diagnose them or even help them with sleep apnea. We have approximately 1 billion people that have sleep apnea. There's a lot of people further down the value chain, a lot of companies that would love to have more people to, in an easy way, understand that they should seek treatment. And that's where we see the interest from these kinds of companies, if we could have a medically certified product that, in an easy way, allows the user to realize that they should get help.
Next, we have a question. "If we can specify the investments around SEK 90 million, is the cash position enough for the transformation?" I can answer that. Yes, the cash position and the equity, more importantly, is enough for this transformation. Of these SEK 90 million, we're expecting around SEK 40 million to be CapEx related to the sleep apnea screening validation study. We're expecting around SEK 20 million to hit the P&L in form of increased costs for employees. We are hiring more developers, but also hiring experts within medical regulations. We're expecting around SEK 15 million in external specialists, mainly related to selling both sleep apnea but also the SDK. We're expecting around SEK 15 million in increased marketing spend related to these new initiatives. So marketing for the Sleep Cycle app is on par with previous year.
We have a question also regarding, "What percent will be the B2B revenue by the end of the year?" This is not something we're guiding on, but it has been increasing for the past year. We need more revenue from SDK contracts for it to increase in a larger way. Then we have one last question regarding, "What is our DAU and MAU?" This is not something that we're officially reporting by now. It's something that we might start to disclose later on.
Yeah.
Yeah.
Good. That was the last question, I believe.
It was.
Very good questions. Thank you so much for listening in today. I think it's important to remind ourselves that we have a very strong consumer business in terms of profitability. We are following the strategy that we set out in 2024. We see the opportunities now in the market and the potential we have in our technology. We are now, in this year, capturing these opportunities and moving ahead with full speed. Thank you very much for listening in.
Thank you.