Good morning, everybody. This is Fadi Pharaon, CEO of Tobii, and I am joined today by Martin Johansson, our Acting CFO, and Henrik Vikström, our Interim Head of Communications. Thank you all for joining our Q3 2026 earnings call. Let us start with the quarter. Net sales were SEK 140 million, compared with SEK 158 million last year. This, of course, represents a reported decline of 11% and an organic decline of 12%. However, when adjusted for extraordinary one-off sales in last year's quarter, the sales actually increased by 16%, which is encouraging, but it does not change our assessment that we need higher and more consistent sales. Our operating cost base continued to decline, and EBITDA, the operating result before depreciation and write-downs, improved. These developments together show underlying progress. However, the current sales level remains low in relation to our cost and investment base.
At this level, free cash flow was negative and cash liquidity is strained. We are acting on both the operating business as well as the balance sheet. The gross margin was 79%, compared with 82% last year. Reported EBIT was SEK -217 million, compared with SEK -33 million. This result included a non-cash impairment or a write-down of SEK 180 million in Autosense. It reduces the reported EBIT, but it does not consume cash. I will explain the reasons for this write-down in more detail later on when I discuss Autosense. As mentioned, the EBITDA actually improved to SEK 18 million from SEK 11 million, and that corresponds to a margin of 13%. Together, the Products & Solutions and Integrations units delivered positive EBIT.
These figures show that the actions we have taken on costs and priorities are having an effect, but we still need to improve our commercial performance. The cash flow from operating activities was positive SEK 22 million. After the investments of SEK 88 million, almost entirely actually related to product development, the free cash flow was SEK -6 million. This means that the cash at the end of the quarter ended at SEK 20 million. Again, this is a strained cash position, and we are therefore continuing to manage our cash tightly, we prioritize our investments carefully, and we work intensively on the financing needed to meet our commitments. Let us move on and review the performance of our three business units. Starting with the largest business unit, Products & Solutions. It actually showed an organic growth of 3%.
We saw a gradual recovery in China during the quarter because the earlier procurement delays began to ease up. The overall developments supported this positive organic growth, and they gave us a base to build upon. Our focus now is to convert that progress into sustained growth. During the quarter, I would like to mention that we also launched a locally installed version of the webcam eye tracking for research, which complements the solution for remote studies that we released back in Q2. Our second-largest business unit, Integrations, showed an organic decline of 40%. But keeping in mind that the comparison period included the SEK 30 million Dynavox pre-purchase and SEK 7 million of non-recurring royalty revenue. So if we adjust for these items, Integrations grew by 31%.
Now, although Products & Solutions did not reach positive EBIT, the combined EBIT of these two units, Products & Solutions and Integrations, which together represented 90% of the quarter sales, was positive at SEK 4 million . Let me move on to Autosense, where we see that the sales increased, which is of course, mainly driven by higher license revenue. But the revenue, of course, remains at an early stage, and this development is encouraging, and it reflects the commercial resonance of our technology. I will take a minute here to put this part of the business in a broader context. The long-term need for driver monitoring system and occupant monitoring system remains clear, and it is supported by regulation and increasingly demanding vehicle safety requirements. In the near term, however, the automotive industry continues to face challenging and uneven conditions.
The investment priorities are under pressure, the development cycles are long, and the timing of OEM decisions can shift. Now, Autosense has established a strong technology position. Amongst others, we have a major design win with a premium European automotive OEM. And late last year, we signed a technology licensing agreement with a major automotive supplier. These achievements with others validate our technology, and they also demonstrate different routes we can take to market. At the same time, our commercial progress has not yet translated into a revenue base of sufficient scale and visibility to support the historical level of cost and investment. This is why we are adapting the business while pursuing the opportunities where we believe Autosense can create value. Now, against this background, we reassessed our development assets and we concluded that their carrying value is no longer supported by expected future cash flows.
Therefore, we recognized a non-cash write-down of 180 million krona, mainly related to older driver monitoring system technology, which was developed by Tobii before the Autosense acquisition. So the reported EBIT for Autosense was therefore a negative 222 million krona. Autosense remains under strategic review because of market uncertainty, insufficient revenue scale, and the need for a more sustainable commercial and financial model. With that, I would like to invite Martin, please, to walk us through the financials.
Thank you, Fadi, and good morning, everyone. My name is Martin Johansson, and I am the Acting Chief Financial Officer at Tobii. Today I will be presenting Tobii's financial results for the third quarter of 2026. To begin, I would like to highlight three key areas. The net sales totaled SEK 140 million , a decrease of 11% compared to prior year. Last year did, however, include a total of 37 million relating to the pre-purchase agreement with Dynavox and one-off royalties. Adjusting for these items, net sales grew by 16%. Currency had a positive impact of 1%. Operating profit was SEK - 217 million compared to SEK - 33 million in the same period last year. The decrease is primarily attributable to the non-cash related write-down of SEK 180 million within Autosense. EBIT, excluding Autosense, was positive in the quarter.
Free cash flow for the quarter was SEK -6 million, an improvement compared to SEK -29 million last year. I will return to the financial position in more detail later in this presentation. As previously mentioned, the net sales declined, but adjusted for extraordinary one-off items, the underlying growth was 16%. Gross margin decreased to 79% compared to 82%, reflecting overall lower net sales. During the quarter, we continued to see positive impacts from our cost savings programs. Operating expenses, excluding depreciation and including R&D investments, amounted to SEK 121 million, a total reduction of SEK 29 million compared to the same period last year. With the already announced actions in Q2, we will continue to see the company's cost structure improve going forward. Depreciation, which does not affect cash flow, amounted to SEK 48 million, an increase of SEK 7 million.
I want to once again point out that EBIT for the third quarter was negatively impacted by the aforementioned write-down of SEK 180 million related to the Autosense business. Looking at the Products & Solutions business unit, net sales increased to SEK 86 million, an organic growth of 3% compared to SEK 84 million last year. Most of our geographical regions had a stable development, and as Fadi pointed out, we did see a gradual recovery in China, which had seen procurement delays in recent months. The gross margins stands at 70%, an improvement from last year's 68%. Operating profit improved to SEK -7 million compared to SEK -90 million previous year. For Integrations, net sales decreased to SEK 42 million. This decrease ties back to the Dynavox pre-purchase SEK 30 million and one-off royalty payments of SEK 7 million.
Adjusted for these items, net sales increased from SEK 32 million to SEK 42 million and a growth of 31%. The gross margin remains at the high 93%, which is reflecting the software services and license-based product mix. Operating profit was SEK 11 million compared to SEK 27 million previous year. Again, it should be noted that the last year's pre-purchase agreement had a significant positive impact on margins and profits in Q3 of 2025. The Autosense business unit reported revenues of SEK 12 million compared to SEK 6 million last year. The increase was driven by increased license revenues. EBIT for this business area was negatively impacted by the non-cash related write-down of SEK 180 million. As Fadi already explained, the write-down already relates to the legacy DMS technology that was developed by Tobii prior to the acquisition of Autosense.
The cost measures announced last quarter will reduce the annual cost base in Autosense by more than SEK 50 million. Operating profit was SEK -222 million compared to SEK -42 million previous year. Excluding the write-down, EBIT was SEK -42 million, which was in line with last year. I would like to conclude this section with comments on our cash flow and overall financial position. Free cash flow in the third quarter was negative at SEK -6 million. Cash flow from operating activities before changes in working capital improved to SEK 16 million compared to SEK 6 million last year. Free cash flow improved from SEK -29 million to SEK -6 million. Our cash balance at the end of the quarter was SEK 29 million, and we had utilized SEK 20 million out of the SEK 25 million credit facility.
As mentioned in the report and earlier during this call, our overall liquidity and cash position is, and we are faced with several upcoming obligations, which Fadi will give more details to in a bit. There remains a risk that Tobii may not have sufficient financing for the next 12 months, and we are of course, fully focused and committed to resolve this situation, and will provide further information whenever material events occur. Back to you, Fadi.
Thanks a lot, Martin. Let us address the financing necessity up front. Let me be clear, securing our financial platform is the highest immediate priority for the board and the management. Our liquidity is strained, and we face several upcoming financial commitments. We have SEK 87 million of COVID-related tax deferrals that are due in the first quarter of 2027. Then we have the first payment under the Autosense promissory note to Xperi in the second quarter of 2027. Thirdly, a further SEK 40 million of tax deferrals, which is due in the third quarter of next year. That is why the board, the management, and our major shareholders are working with external advisor to strengthen the balance sheet. We are actively evaluating different forms of equity and debt financing.
Now, the feasibility and the terms of these alternatives demand or depend, among other matters, on our ongoing negotiations with Xperi, which is the company since. Those negotiations are concerning the remaining payments linked to the acquisition of Autosense. As you can deduct from it, this is an active process, but there is no guarantee that it will result in a transaction, a decision, or any other action. As you can appreciate, we cannot comment on individual discussions or indicate which outcome is most likely before there is concrete information to disclose. Of course, we will update the market promptly when material developments take place. In parallel to all of this work, we remain focused on the actions within our control, and they are protecting cash, maintaining a disciplined cost base, and working on improving our commercial execution.
If we look at the strategic review, it has given the Products & Solutions and Integrations a more focused and efficient foundation from which to grow. In fact, since launching our cost reduction program back in Q2 2024, we have fundamentally reshaped our cost structure, and that has led to reducing the quarterly cash operating costs, including R&D investments, by more than half. This shows the scale of the change in our cost base and reinforces the importance of maintaining our financial discipline. Now, our ambition is to make Products & Solutions a sustainably cash generative business. For Integrations, the priority is to strengthen the business through more standardized platforms and selected verticals. Autosense remains under strategic review. The additional cost program, which we announced in Q2, is expected to reduce the annual cost base by more than SEK 50 million .
We're also moving towards shorter payback periods, earlier monetization, and lower commercial risk. We continue to evaluate the full range of strategic alternatives with the objective of strengthening Tobii Group financial position. Now, looking forward. As I mentioned, the work completed so far under the cost programs and the strategic review has given us a more focused foundation. We are now moving into the next phase of our strategic work, and that's converting our efforts into profitable growth while keeping the financial discipline that we established. First, we must make financial discipline permanent. That means we will protect cash and working capital and keep structural savings in place as we grow. We will not invest ahead of the market. So future investments will have to follow demonstrated customer demand and visible revenue opportunities and acceptable returns. Second, we will give each business a clearer growth path.
For Products & Solutions, it should become our cash generative unit, and it should expand beyond research into selected business solutions. So examples, it would include workforce training, quality inspections, safety-critical workforce, where we can see that eye tracking can help customers shorten the onboarding, improve consistency, and reduce errors. We see this as important for growth because it broadens our customer base beyond research solutions and links our technology to measurable operational outcomes. For Integrations, we will build more standardized offerings and focus on selected verticals once the market demand is proven. In Autosense, we will continue our work to broaden our commercial model through licensing and partnerships, and the aim is to generate revenue earlier and create a better balance of investment and commercial risk. And thirdly, we will strengthen commercial execution across Tobii.
This means that we will deepen our customer focus, we will use the market insights and evidence of demand to sharpen our product and investment decisions, and thereby strengthen our commercial performance. That's our focus forward. So let me now summarize the quarter. Reported net sales declined to SEK 140 million , and as I mentioned, that sales level is not up to our ambitions. Adjusted for the pre-purchase and non-recurring revenue in the comparison period, sales increased, though, by 16%. EBITDA improved to SEK 18 million , and Products & Solutions Integrations together reported a positive EBIT. These are early signs of underlying progress, but we need to deliver that progress consistently and ensure positive cash flow. Again, Autosense remains under review, and we're evaluating all alternatives that can strengthen both the business and Tobii's financial position. Our immediate financial position remains strained.
The cash at the end of the quarter was SEK 29 million , and the free cash flow was SEK -6 million . Securing a financial platform is therefore the board's and management's highest priority. Our target remains positive operating cash flow for the group during 2027. So while our immediate priorities are clear, the strategic relevance of Tobii's technology remains unchanged. Our vision is to shape how people and technology understand human behavior. We combine our global leadership in eye tracking with expertise in computer vision to reveal how people perceive, engage with, and respond to the world around them. And we aim to do so through customer-led innovation, disciplined capital allocation, and scalable growth opportunities. Thank you very much. And Henrik, can we please now open the question- and- answer section?
Yes. Before we open for questions, I would like to briefly set expectations for the Q&A. We will aim to be as transparent and helpful as possible in our answers. There are, however, certain areas where we will not be able to provide detailed information, such as individual customer relationships, specific project revenues, or other commercially sensitive details, and also ongoing negotiations and financing alternatives. This is to respect our confidentiality commitments and to ensure that we communicate in a consistent and fair manner to all stakeholders. Where we cannot go into that level of detail, we will do our best to provide relevant context at an aggregate level. With that, we are happy to take a selection of your questions, and we will start with verbal questions, and then we move into the written questions. Our first question comes from Daniel Thorsson at ABG. Please go ahead.
The next question comes from Daniel Thorsson from ABG Sundal Collier. Please unmute your microphone.
Yes, I have unmuted the microphone. Just testing if it works.
Yes, we hear you.
Excellent. Thank you very much. First question, it looks like you have narrowed the strategic direction now a bit, finding it more likely to divest Autosense than previous communication, which sounded broader. What is the reason for that, given that the other segments are performing better now? Do you still consider all options still to be on the table, or is it now purely Autosense focus ahead?
Thanks a lot for the question, Daniel. As long as Tobii, as a company, is not showing profitable growth and sustained cash flow, I think all options should remain on the table. Having said that, we are very encouraged that the previous work on cost efficiencies and strategic reviews have actually given us some underlying progress for Products & Solutions and Integrations, and I think you've listened to that, right? On Autosense, though, we haven't reached that specific moment, and that's why we feel we still need to continue the effort. I would probably not jump on conclusions as you did in terms of which part of the strategic reviews that we will focus on. We're actually open to different alternatives. We are studying them. We evaluate them. We want Autosense to succeed. At the same time, we need to take into account the position of the Tobii Group.
We continue working on that in order to improve that. You mentioned why. The reason is clear in terms of the market uncertainty. I think everybody is fully aware of what the automotive market is going through. Specifically for Tobii, it is incumbent on us to generate a revenue base that can sustain the level of cost and investments that we've had, and that goes for any kind of commercial business.
Okay. That's clear. Thank you very much. Secondly, here on the final slide, you show the target of positive operating cash flow during 2027. Does that mean sometime during 2027 or for the full year 2027? Also, does it include Autosense as part of the group as of today, or any assumptions of that being divested in that target?
No. When we have committed for that target, it is for the full year of 2027 for positive cash flow, and of course, it is reflecting Tobii as is today with the three business units we have today.
Okay. That is very clear. Perfect. On the cash flow here, you are clear on the Q1 and Q2 payments coming up. Do you have any kind of one-off cash payments due in Q4?
I do not believe we have. Those that I mentioned are the main ones.
Okay, perfect.
You mean like Q4 2027 or 2026, or which year?
2026. Q4 2026.
2026. We have some, but it is more on the operational level, I would say.
Yeah, I see. So the COVID-related tax deferrals and the purchase considerations, they are both in Q1, Q2 2027, right?
Yes.
Okay, clear. Final question. Combined EBIT in Products & Solutions and Integrations were positive, as you highlight. But was the combined free cash flow for these two units also positive if we compare to the group free cash flow SEK -6 million here in the quarter, so essentially excluding Autosense?
Yes, I would say so. We don't really break it down on that level in a specific way, but I think it's fair to assume that's actually the case, because Autosense clearly has a very big investment phase still and relatively limited cash flows coming into Tobii as a group.
Yeah. I assume so as well. Perfect. That's all for me.
Thank you, Daniel, for your very good and relevant questions. Appreciate it.
Okay. Then we move into the written questions, and we will start with some that we've received prior to this call. The first one is a question why Tobii isn't growing in line with the eye tracking market.
Well, I don't really know what is the baseline of the growth of the eye tracking market that is being considered in this question. Depends on what documentation one would read, but I would say that market growth estimates vary considerably. Depends on what you include, what segments. Typically, it might be consumer XR, automotive, and that's still a fragmented and competitive market. As I mentioned before, the reported figures have been affected by extraordinary items in the comparison period. But once you take out these, Dynavox pre-purchase agreement and other extraordinary effects, the net sales adjusted for those actually grew by 16% in Q3, and 5% if you look at the first nine months. So again, this is encouraging to see that Products & Solutions have returned to growth in the quarter, and the underlying growth through Integrations was positive as well.
Again, we are not satisfied with the sales development, and that's exactly why our strategic priorities are focusing on the products, customers, and segments where we see the strongest return and the sharper commercial execution, and those three principles that I mentioned in the call.
Okay. Next question. What is management doing to regain the confidence of shareholders and the market?
Thank you, and I have full respect for this very relevant question. Look, the most important thing that we can do as management is to deliver. We have significantly lowered our cost base. We have laid the foundation for strengthening our core business Products & Solutions and Integrations. Combined, they were profitable this quarter, and they are showing underlying sales growth in the quarter. As I mentioned before, we have clear strategic priorities on how we are going to further strengthen our business. We have also taken decisive actions within Autosense, and we have an adjusted now cost base to reflect the tougher market and a revised commercial approach to enable our earlier monetization. A lot of effort and activity in the ground. But of course, as a shareholder and the market, I would want to see those deliverables, and that is why we are here.
Next question. Why does not Tobii communicate more with shareholders?
Of course, there can never be any communication that is enough. We have to keep in mind, though, that as a listed company, we must ensure that all the shareholders receive the same information at the same time. That per se limits what we can discuss outside our regular reporting. Particularly when there are financing and structural and strategic reviews and discussions, when these things are ongoing within those boundaries, it is not always easy to communicate. We want to increase the dialogue with the market, and we will always provide further information as soon as there are material developments.
How will the cash flow problem be solved, both short and long term?
Thanks for the question. Look, the board, the management, and our principal shareholders are all actively working to strengthen the balance sheet in order to meet the financial commitments, as I mentioned previously. Again, we are evaluating various financing alternatives, including different forms of equity. The feasibility of these terms depend on, among other things, the ongoing negotiations we are having with Xperi. We cannot go into further detail than that today, but we will inform the market as soon as there are material developments. on the longer term, though, we are committed to make Tobii self-financing, which means the target of positive operating cash flow for the group in 2027.
When will the new financial targets be presented?
Well, thank you. That is true. We do not have ones anymore. The new financial targets will be presented once we have secured the financial platform. Again, we have already shared that we are targeting positive operating cash flow for the group in 2027.
Can you already now elaborate on the earnings potential you see for the core operations of Tobii?
So you mean Products & Solutions and Integrations? Look, we will come back with targets, but we see the potential for robust profitability for these core operations over time. We have a solid market position. We've significantly reduced the cost base, and we're implementing measures to further improve the business.
Next question. With the information you have today, was the acquisition of Autosense a mistake?
Well, I think at any point, any business decision is made taking into account the information and the prospects at the time. Clearly, the evolution of DMS and OMS as a demand of the market has been correct because there is regulation, and many OEMs are introducing this type of technology in their cars and vehicles. It is incumbent on us to ensure that in a very competitive and fragmented market, that we succeed with the solutions that we are putting together. We have already a few customers that I mentioned before showing us. But today, clearly, our revenue base is not enough to sustain the historical cost that we've had.
And that's why we are determined to continue to work with our Autosense talented team to ensure that we continue growing, as well as, at the same time, keeping all options open in terms of our strategic review to see how we can strengthen Tobii's financial state.
Okay, another question on Autosense. Just SEK 6 million software revenues during the quarter for Autosense, when DMS is mandatory in the E.U. How can you comment on this?
Well, it reflects, of course, on the number of customers we have. We have already seen license payments coming in at 2026, and we expect those to increase in the coming years.
Okay. What is the cash outflow for the Xperi promissory note in the second quarter 2027? And what is the total amount of future payments to Xperi, and when are they due?
Martin?
Yes, of course. The first installment in the 2027 Q2 is $10 million plus interest, corresponding roughly to SEK 120 million . Was there a second, or was there a question tied to that?
No, I think that answered the questions. Right. Next question, again, back to Autosense. Can you elaborate on why the Korean design win never entered production? Did the Korean OEM instead source its software from a competitor? Also, when was Tobii informed about this?
Thank you for the question. The design win from 2023 from a Korean OEM, that was actually a framework agreement that the company had at the time that Autosense was acquired by Tobii. This framework agreement did not turn into a frame agreement for us or affirmed. As I said in our previous earnings call, it is not included our design win. It was lost, probably to competition. Okay, any further questions?
When do you have to repay the credit facility?
Martin?
The credit facility matures in mid-December.
I think that concludes the questions we've received. With that, I hand over to you, Fadi.
Thank you for all the great questions and the interaction. Again, I would like to thank our extremely talented team in Tobii and all our shareholders and our board and all stakeholders that are supporting us to continue to provide value and relevance in this demanding period. The effort continues. Thank you, everybody.