Owlet, Inc. Q3 FY2024 earnings call

• FDA clearance of BabySat and Dream Sock led to triple-digit year-over-year revenue growth and sixth consecutive quarter of gross margin expansion.
• Strong momentum with Amazon, including record Prime Day and Prime Big Deal Days for revenue and sell through.
• BabySat gaining traction in the medical community with 5 new durable medical equipment (DME) manufacturers added.
• Subscription service beta launched with 85% retention rate after first month and ~60% daily active users.
• Strategic focus areas: 1) Global adoption of Dream Sock with strong domestic and international growth; 2) Expansion of medical and health care channels for BabySat with 5 new DME partners; 3) Subscription service to increase customer lifetime value (LTV) by leveraging infant health and sleep data.

In the third quarter of 2024, Owlet achieved net revenue of $22.1 million, representing a strong year-over-year growth of 141%. Gross margins increased to 52%, up 1,590 basis points versus Q3 2023, marking the sixth consecutive quarter of year-over-year gross margin expansion. Adjusted EBITDA was $0.6 million, a significant improvement from Q3 2023. The primary driver of revenue growth was global Dream Sock sales. Dream Sock saw domestic sell through growth of 55% compared to Q3 2023, and international revenue grew 96% year-over-year. Revenue contribution: Dream Sock was the key driver of the 141% y/y revenue growth, with BabySat and subscription also contributing to long-term growth potential.

• For full-year 2024, now estimates net revenue of $74 million to $77.5 million, up from initial guidance. Gross margins expected to be 48% to 49%, and adjusted EBITDA loss to be $5 million to $3 million.
• Expect ongoing momentum in 2025 across core business, medical channels, and subscription, with focus on profitability and sustainable growth.

• Tariff proposals: Camera manufacturing in China, stock and duo in Thailand; considering moving camera manufacturing to Vietnam to mitigate tariff exposure. Products like Duo and Sock are considered medical devices, which may exclude them from tariffs.
• Dependence on DME partners and insurance integration: BabySat's success relies on integrating with multiple payers and regional payers, as well as building relationships with children's hospitals and NICUs.

Q: Insights on the state of the consumer environment and channel growth?

A: Continued strong consumer environment with FDA clearance in US and CE Med mark in Europe/UK resonating with customers, driving growth in channels.

Q: Manufacturing exposure and potential tariffs?

A: Camera manufacturing in China, stock and duo in Thailand; considering moving camera to Vietnam; products like Duo and Sock are medical devices, potentially excluded from tariffs.

Q: Path forward for BabySat and exposure to points of care?

A: Added 5 new DMEs, leveraging relationships with reinsurers/insurers; building relationships with NICUs and hospitals directly to reach at-risk infants.

Q: International opportunity for BabySat?

A: Primarily focused on consumer side now, but expanding internationally, with ~140 million babies born worldwide and less than 3% having access to Dream Sock.

Q: 2024 guidance and 2025 expectations?

A: Upgraded 2024 guidance to higher end; 2025 expects ongoing momentum in core business, medical channels, and subscription, with focus on profitability.

Q: Revenue seasonality?

A: Q1 is lightest quarter; Q2 picks up due to Prime Day load-in; Q3 is seasonally largest with baby safety month and holiday load-in; Q4 down from Q3 with replenishments after Black Friday/Cyber Monday.