Good morning, everyone, and welcome to Sleep Cycle's Q1 2026 earnings call. I'm Erik Jivmark. I'm the CEO, and I'm joined by Elisabeth Hedman, our CFO. 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. 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. 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. Our mission is unchanged. It is to improve global health by empowering people to take control of their sleep.
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. What is changing now is not our mission. It's how we scale it. We're moving beyond the app stores. 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 four billion nights of sleep data. We have 2.5 million active users and 82 million installs. That combination with data distribution and also reach is extremely difficult to replicate in a single product. What is important to understand is that this has been built over the years almost entirely organically.
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. Before we jump into the shift, what we have built is a highly profitable cash-generating business. Net sales has grown from SEK 182 million to SEK 248 million between 2021 and 2025, about 36% compounded growth. At the same time, EBIT margins has expanded to around 26%-30%. What we have is a structurally profitable and very efficient model. 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. 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. From 2027, we expect that to translate into re-accelerated growth, but on a much larger market. The reason why we believe we can capture this market is because sleep is becoming a core pillar of global health. This is not a trend, it's a structural shift. 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 one billion people, and most of them are still undiagnosed. Third, healthcare is shifting to continuous, passive, and embedded solutions, and that's exactly how our technology is built. Demand is not the issue.
Demand is very strong, and it's actually growing. The constraint is distribution. Importantly, this growth is not reflected in the App Store dynamics, where currently our category is down-prioritized. While the market is expanding rapidly, much of that expansion is happening outside the channels where we have historically operated. Up until now, we have operated in a market of roughly SEK 1.7 billion , and we've had roughly 15% of that market, and that is where we've built a very strong and profitable position. What is changing now, it's not our, it's not our technology, it's where that technology can be applied. By expanding into sleep apnea and also tech licensing, we increase our addressable market to roughly SEK 45 billion . Effectively what we have is the same core technology but significantly larger markets.
That is what this evolution is about. These estimates that I show here, it's based on the analysis made by Arkwright, also combined with some public sources and an internal assessment that we have made. The strategy going forward is built on three pillars, and they are all powered by the same platform. First, we have the Sleep Cycle app. I mean, it's our cash-generating consumer engine. Secondly, it's sleep apnea. 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.
The key point in this is all three are built on the same core technology and the same data. 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. Let's go through each of these pillar a bit more in detail so you know where we are. If we start with the consumer app, it remains very s trong, and it's important part of the business, and we're doing a lot of things to optimize it. 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. 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. Finally, we're ready for a new distribution channel.
We shared in the report this morning that OpenAI, we launched, and we are one of the first in our category to be on ChatGPT. The direction is clear. We're moving from a tracking product, you could say, to a more personalized sleep and health platform. We have the second pillar. It's sleep apnea. I believe it's by far our largest upside opportunity. Around one 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. 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.
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, SEK 100-SEK 500 versus thousands for traditional sleep apnea detection tools. The demand signal is already strong. We have more than 150,000 individuals that have registered their interest for their B2C offering. Again, I believe the greatest potential is in the B2B segment, and we are right now in dialogues with multiple potential B2B partners across this value chain. In terms of regulatory path towards this commercial launch, we are progressing well. Our target is to launch in the first half of 2027.
We've taken a very derisked approach. 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 put in place right now. 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. 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, this is our way of basically scaling the platform beyond our own app. 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. 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. The model is quite simple. We start with the tech licensing and SDK. We're building the re-relationship, and then over time, we will move in with the medical expansion. 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 UKHSA, which is a prerequisite ahead of commercial discussions. The UKHSA study, it's about understanding if the coughing data could work as an early warning signal. Tech licensing is both a scalable B2B revenue stream, but it's also a strategic gateway into this sleep apnea B2B opportunity. With that, I'm gonna hand over to Elisabeth.
Thank you so much, Erik . On to the Q1 financials. We had net sales at SEK 52.6 million, 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 SEK 8.2 million, giving us a margin of 15.6%, and EBIT at SEK 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. The bright spot is B2B, which generated SEK 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 SEK 255 on a reported basis, FX adjusted, it's broadly stable at SEK 277, actually SEK 7 higher year-on-year. The pricing holds, the headwind is currency, we see that new sales come in at around SEK 300 in ARPU. Liquidity stands at SEK 115 million at the period end, we had an average headcount of 40 employees during Q1. The strategic shift, it's already visible in the revenue mix. B2B share of revenue has grown from 4.9% in Q1 2024 to 14.5% this quarter. B2B subscribers has grown from 12,000 in late 2023 to 37,000 today.
This is an engine that we're building, and we're delivering on it. On the consumer side, FX-adjusted ARPU has held around SEK 277 . Paying users continue to find value in the 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. We have net sales at SEK 52.6 million versus SEK 64.9 million a year ago, - 19%, but - 12.2% adjusted for FX. Capitalized work for own accounts was SEK 1.4 million, which is up sharply from last year. 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 Store, while other external costs come in roughly flat, with growth-related investments embedded in that line. Staff cost was up with 23%, 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. That brings us to a margin of EBIT of 12.8% for Q1, there were no non-recurring items affecting this quarter. The cash flow picture tells the right story for this as our transition quarter. Operating cash flow was SEK 7.2 million. It's still positive, which is important. The 57% reduction versus last year aligns directly with the lower EBITDA.
Cash flow from investing activities was -SEK 12 million, and this is entirely deliberate that we're increasing this. The majority of the money went into capitalized work on the sleep apnea program, but some is also building our platform and our SDK. These are the investments that build the future revenue streams. The total cash flow was SEK 5.6 million for the period, and this is explained by the increased investments. Liquidity stands at approximately SEK 150 million by the end of the period. We're funding this transformation internally with no external capital required to execute the plan.
On capital return, we had a dividend of SEK 0.53 per share for the financial year of 2025, which was approved on the AGM in April and paid out on the April 20th, totaling at SEK 10.7 million. Our medium-term targets remain unchanged. On capital return, we commit to, over time, distributing 40%-60% of profit after tax to shareholders. 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. Let me be clear, 2026 is, as we have previously communicated, a transition year with elevated growth investments, and we have guided for 5% EBIT margin for the full year. 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. Let me summarize this. I want to close with five takeaways. First, 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, four billion nights of data, and one shared technology powering all three business units. Third, our market is expanding from roughly SEK 1.7 billion to around SEK 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%. Before we open up for Q&A, I just wanna take a short you know, step back, a short while and basically look at what we're doing. 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 sleep apnea, is strengthening the entire product and improve our core algorithms. With that, I'm happy to take any questions that you might have.
All right. We have a first question regarding our sleep apnea consumer business. We have over 150,000 individuals who have registered interest. Sorry, the question jumped. Where did it go?
It's at the top.
We have 150,000 individuals who has registered interest in our sleep apnea solution. With the clinical study expected to conclude in September, how do you plan to engage this database leading up to 2027 launch to ensure a high conversion rate once the product officially hit the market?
Yeah, it's a good question. We have captured the email address of these people, and it's a quite a big thing to sign up also with, you know, giving away an email and your data. We will for sure keep them engaged throughout this journey. It's also important to notice that some of these people, the majority were from our own user base. We only reached out in the regions where we are looking for approval. The 150,000 is quite a big number. We also did some tests on paid to see what the CAC could be to look into do we have a healthy case here going forward.
The CAC numbers to capture these leads looks very, very good compared to what we've seen in the traditional Sleep Cycle business.
We had another question regarding that we see a stabilization on Google Play while the Apple App Store continues to decline. What accounts for this difference, and do you believe that the Google platform has officially reached a bottom?
It's a good question. I think it ties into this what we tried to explain today is that we don't have a demand challenge. We have a distribution challenge. The distribution challenge is mainly on the App Store platform right now, whereby the Google Play platform, we don't see that distribution channel. Also, the web channel has been growing substantially in Q1, although it doesn't mitigate the drop on iOS. It's again confirmed that there is a big demand also for the Sleep Cycle product. It's just that the distribution on App Store currently, it's unfavorable, and that's why we're doing these changes.
We had a question on the B2B revenue that grew with 42% year-over-year and now represents nearly 15% of total turnover. Given that your SDK generated 120,000 sessions during this quarter, what does the commercial pipeline for new licensing agreement look like for the remainder of this year?
I mean, without giving any specifics in terms of forecasting what we believe will come in, I mean, we have some really good and larger customers at the end stage of the negotiation funnel. I think this has been a quarter and probably Q2 will also be a quarter where we will learn and sharpen the message and also the pricing of the technology we're selling. I think the pilots that we've had has been very helpful for us in terms of understanding what the customer needs. We have both improved the way we sell the product with the developer portals, making it easier for the customers that we are engaging to get a quick understanding of how this could be integrated.
We have also managed to add features that we understand from these discussions are important to customers. This is not a theoretical thing that we, you know, we build in isolation. Instead, we do this very collaborative in the discussions that we have with the customers. Again, we're not doing something that is not something we can use in the other areas. We're basically just investing in our own technology that the app is benefiting from.
We have a question regarding ARPU, if we can explain the 10% drop. Yes, I mean, if you look at the FX-adjusted ARPU where we take last year's FX rates, for this year's figures, we're at SEK 277, which is higher than last year. We do have an FX headwind that explains why the reported ARPU is lower. You should compare SEK 277 with SEK 270 from last year. We have a question regarding ARPU for B2B subscribers compared to B2C subscribers. From this quarter, we started splitting up, so you can see how many subscribers we have from B2C and from B2B, and how the revenue for those vary. What we can say is that we have some partnerships that are where the revenue is not fully linked to a actual usage or a subscriber, which means that it can fluctuate a bit.
That explains also why we feel that it's more clarifying to and transparent to actually show what the B2B versus B2C subscribers in numbers are. We have a question regarding how we view other sleep apnea apps in the market, and there is an example here that's Apnea.ai. Do you wanna elaborate on that, Erik?
I think there is a big difference. I mean, if I'm not mistaken, Apnea.ai is basically you need to bolt on your phone on your chest, and I think that speaks loudly to the challenges. I mean, I can just imagine sleeping with a phone on my chest. I mean, people are not comfortable with having their phone under the mattress, and now you will have it next to your lung and your heart. I don't see that as a comparable product. What we will do is, we will just by using sound, you don't need to bolt something onto your body. You don't need any other hardware. We will just use your iPhone.
It will lay on your bedside table, and we will, after one night, according to our internal test, be able to detect if you're in risk for sleep apnea or not. The other approved products that are out there, the hardware products, the Samsung Watch and, sorry, the Apple Watch, they need multiple nights. And in our test, it looks like we will be able to do it in one night, which would be a huge game changer. For the B2C market, absolutely, because it's a lower entry point. More importantly for the B2B market, because it means that they don't need to force any of their customers to buy additional hardware.
They don't need to ask them to tape it on their body, or another weird way. I think it's a big difference.
Okay. another question. Can we elaborate a bit on the value proposition for customers in the B2B segment? Is it or will it typically be deployed as an add-on to existing products or integrated into customers' products, driving customer-developed features?
It's a good question. What it usually is that it's a very lightweight SDK to integrate. One of the customers that we have, I mean, they did it in two weeks, basically. They managed to integrate it into their product. They said that was the easiest SDK integration they have done in the history of SDKs, which is quite a strong statement. Usually what happens is that they either want to build a new feature, that's typically what they want to do. It could also be that they already have something around sleep tracking, but they want it to be a bit more serious.
A lot of the discussions that we have, it's very much centered around sleep, of course, but I would say it's equally centered around the breathing signal and what you can do with the breathing signal.
We have a question on the partnership revenue stream increasing as anticipated, and is it reasonable to expect similar growth figures in the B2B segment in the coming quarters? For me, it's as a CFO, I always want more revenue. It is growing, but obviously we want, we would love it to grow even faster. We're not giving any forecasts on the coming quarters however.
I think it's worth mentioning, I agree of course, but I think it's worth mentioning that, you know, we announced last week I think it was, that we have locked in some of these larger partners for a multi-year contract. That also gives some safety in terms of the continued growth in this area.
Yeah, we do have partners signed that are not reflected in the revenues yet.
Exactly. On top.
Yep. Beyond limited App Store visibility and reporting adjustments, any other factors contributing to the decline in paying subscribers?
No. Again, I don't see this as a demand problem. I see this as a distribution challenge. I think we have the proof points on other platforms, both in terms of our own web channel that we are very much in control of. We've seen tremendous numbers again, from small levels, but just the fact that we've been able to grow that at a very high price point I think is very impressive what the team has done. We also see that on Android that is much more stable.
I would say it's simply because we have been very reliant on one storefront, and that has been the insight, I have to say, since I joined the company and some other people that have joined the company, that we need to take control of our own destiny. We cannot rely on being given traffic from Apple in this case, and that's what we are now executing upon.
We have a question regarding in what year we would expect the medium term financial goals to be materialized. What we have guided for this year is a 5% margin, EBIT margin that is, but also that the revenue will come in slightly lower annually, compared to last year. We do expect growth from next year, and we do expect profitability to come back next year as well.
Yeah.
Okay, we have another question. You state it's a distribution problem. Why pivot to sleep apnea instead of solving the distribution problem?
I think we're doing both. We're working actively. I mean, we've shared some of the things we've done on the iOS platform, in terms of a new sleep quality score, Luma, and also we're always working on the paywall. We are really focusing on that, and I think we have proven it in the other channels that we are working on solving the distribution problem. However, we have to remember the app category, like it or not, it's a SEK 1.7 billion market and we have roughly 15% of that market. The point here is that we're utilizing the same underlying technology to go after much larger markets.
We're increasing the TAM or the addressable market from SEK 1.7 billion to SEK 45 billion plus, and that's what makes me really excited.
We have a question regarding the margin on the SDK platform, and when do we expect a shift in subscribers?
It's hard to say. I mean, since it's been very much dictated by the platform in itself, and you have to remember it's one thing about how much you're being visible in the App Store, but it's also other traffic sources that comes from that platform which is of very, very what you say? Variant quality. It's hard to speculate. My gut feeling is that, you know, we are reaching somewhat of a, I'm not gonna say a bottom, but, I mean, there is some limit sort of, I believe. When I look at the numbers so far in the quarter, I cannot say that it's turned around on the Apple platform, but on the other platforms it looks good.
Okay, a question. What happens if you don't get FDA approval?
Yeah, I mean, it's a very binary question in a way. I mean, either you get the approval or you don't. What we have done is we've done everything we can to make sure that we risk mitigate. We have these external audits, you know, looking into the documentation that we've done, the methodology that we have. We have signed a well-renowned clinical research organization in the U.S. that is helping us carrying out the study.
I think that maybe the largest risk mitigator we have is something that I mentioned before, is that the approved device on the market that we need to prove that we are at least, you know, on the same range as they are in specificity and sensitivity, they require, this is the Samsung Watch, they require within a 10-day period that you sleep two nights, and you will get your result. We just in our test we achieve the same result after one night. I mean, of course, if worse comes to worst, you could add another night because then you will have more data and that would probably mitigate the risk. With that said, I don't see that being necessary.
We feel very comfortable and I hear from the team that they're very confident in the test that we have made, but we're now in the validation phase, and we will know in the end of September. Okay. That's it?
Okay, that's it. Thank you so much.
Thank you for all the questions, and thank you for listening in today. Bye.