Owlet, Inc. (OWLT) Earnings Call Transcript

Good afternoon to all of you, and thanks for being with us. Owlet put out its financial results earlier today for the third quarter, which closed on September 30, 2025. Joining me now, I'm happy to say, are Jonathan Harris, who serves as Owlet's President and CEO, along with Amanda Twede Crawford, our CFO. Prior to getting started, please be aware that the press release covering our financial results, as well as the presentation slides we'll reference during this call, can be found in the events and presentations area of our Investor Relations site, investors.owletcare.com. A live webcast of this call is also accessible through a link on that same site. A replay of the webcast, together with the slides, will remain available for 12 months after today's call. Today's call content belongs to Owlet. Reproduction or transcription of it requires our prior consent. Before we proceed, I want to point you to the safe harbor disclaimer located on slide three of the presentation. During today's discussion, we will make forward-looking statements that reflect the company's current views and expectations as of today's date. Such statements constitute predictions only, and they carry certain risks and uncertainties that might lead actual results to differ materially from what those statements express or imply. Among these risks and uncertainties are, though not limited to, the ones outlined in our most recent SEC filings and in the risk factor section of our annual report on Form 10-K, as updated by the company's quarterly reports on Form 10-Q and other SEC filings. Please be advised that, except where the law requires it, the company undertakes no obligation to update any forward-looking statements, whether because of new information, future events, or otherwise; with that, I'm delighted to hand the call over to Jonathan Harris, Owlet's President and CEO.

Thank you, Jay, and hello everyone this afternoon. We're glad you could all be here with us to discuss Owlet's financial results for the third quarter of 2025. Our numbers demonstrate that Q3 was another remarkable quarter — on the important measures, it was the best one Owlet has ever had. We're operating at full capacity across every part of the company. Let's move right into the financial highlights and the update. I'll start with the third quarter results, beginning at the top of slide five. During Q3, we achieved widespread growth, breaking company records across the entire business. Owlet's Q3 revenue hit a record $32 million, which represents a 45% increase over Q3 2024. That revenue beat was driven by the release of our new DreamSight camera, together with ongoing strength in the core business. During the third quarter, gross profit reached an all-time high of $16.2 million, which resulted in gross margins of 50.6% for that period, as strong revenue performance helped counterbalance the effects of tariffs. Adjusted EBITDA for Q3 came in at $1.6 million, another record for Owlet, and represented our sixth straight quarter of profitability on that adjusted basis; we're pleased to share that operating income for Q3 was $1.2 million, marking the first time in the company's history we've achieved a quarterly operating profit. Before I go into several important updates across our strategic growth areas, I want to address the FDA's safety communication issued on September 16 concerning unauthorized infant monitors — a pivotal instance of market clarification, and how that could serve as meaningful confirmation of Owlet's approach. In this warning, the FDA is telling consumers and their caregivers to avoid over-the-counter infant monitors that were never reviewed for safety and effectiveness and that make claims they can't back up. That move draws a hard line in the market. One side has unreviewed, unauthorized devices that the FDA is actively warning people about. The other side has Owlet's DreamSock, and we take pride in being the only company standing there, since we're the first over-the-counter infant monitoring device to get FDA clearance and the only one available today. With this clearance, DreamSock is confirmed to have satisfied the FDA's strict standards for safety and accuracy when it comes to delivering live readings of pulse rate and oxygen saturation. With clear regulations now in place, we can offer parents and our retail healthcare partners a stronger reason to choose our regulated products. That strengthens our position as market leader and gives us a real edge over competitors. As we head into the important holiday stretch and the fourth quarter, we're set up well to turn rising consumer awareness into share growth and deeper brand trust. Across every priority area, the third quarter brought excellent progress, and we keep adding wins throughout the business, on both the financial and operational sides. I couldn't be prouder of this team, which is drawing on our category leadership and continued momentum to produce these key results. Moving on to the areas we're targeting for growth: first, we keep achieving excellent results in spreading DreamSock's use worldwide; second, we're shifting Owlet toward a service model via the Owlet 360 subscription, which assists parents from the infant stage through the toddler years while boosting customer lifetime value; and finally, we're broadening healthcare channels so we can provide an insurance-reimbursed monitor. Beginning with what's at the core of our business, DreamSock continues to drive adoption, demonstrating what we consider the nursery category's most unique product. Throughout the U.S., interest in DreamSock remains robust. In Q3, domestic sell-through rose 42% year over year. That robust result came from continued DreamSock uptake plus a record-breaking Amazon Prime Day in July, when sell-through units overall rose 72% compared with the prior year. Registry information offers yet another useful forward-looking signal regarding our core business's trajectory. Among the registries we monitor, which include Amazon, Babylist, and Target, total DreamSock additions stayed solid, posting 30% growth year-over-year in Q3. We're also continuing to reinforce our standing as the leading pediatric health brand in the market. Based on Circana Customer Research plus our internal figures, Owlet lifted its portion of all dollars spent on baby monitors to 40% during 2025's third quarter — a record high for share since we began following Circana data. Our brand's health is also quite strong. By the end of Q3, DreamSock's most recent NPS hit 77, and our overall blended product NPS came in at 71. Because of the differentiation that our FDA clearance provides, and with the FDA's recent warning statement in mind, we have confidence in where we stand in the market and in our ability to win more share. In September, we launched DreamSight, our third-generation video baby monitor. For Owlet, DreamSight represents a major next step in this category — the new camera delivers our newest and most advanced technologies, plus improved reliability, enhanced security, and a price point that makes sense. What matters most here is that DreamSight was designed with the future in mind. It comes with AI features right on the device, which help us roll out subscription offerings tied to the camera as well as upcoming expansions. Combined with DreamSock, it creates a connected way to monitor things, giving moms and dads a complete view of how their kids are doing health-wise and in terms of wellness. The feedback we've gotten since it launched has made us very happy, and we're excited about what DreamSight can achieve in this space and how essential it is to our platform. Turning to our business abroad, DreamSock is picking up speed across the globe as we drive expansion in markets where we already operate and open up fresh sales avenues internationally. During the third quarter of 2025, revenue from outside the U.S. rose 171% compared with the same period a year earlier. Part of what drove our overseas results this quarter was the September 9th debut of the DreamSight video monitor, plus how the timing of our distributor load-in lined up, and ongoing global momentum. We recently shared that DreamSock received clearance from the Central Drugs Standard Control Organization for distribution in India, which opens a brand-new international sales channel starting in early 2026. That marks an important milestone, since Owlet is now among only a small number of infant health technology companies that have met India's strict medical device standards. On top of the two clearances we have from the FDA, DreamSock has now earned six approvals from regulators internationally. Those cover Europe, the U.K., Australia, New Zealand, South Africa, and India as well. Our goal is to drive adoption across the globe and keep chasing that sizable opportunity outside the U.S. Now, regarding the Owlet 360 subscription: our count of paying subscribers continues to climb, and it recently crossed 85,000. Things have been building steadily, and overall the reception has been terrific. That gives us another quarter of gains versus the earlier period in monthly recurring revenue, attach rate, and improved retention. What's genuinely exciting is how much is still ahead of us. Owlet 360 didn't launch until the very end of January, and so far it's only been available in the U.S. With more than 650,000 Owlet devices in active use worldwide, we see a huge opportunity to expand our subscriber base. In Q4, we're beginning to roll out subscriptions in our first international markets — the U.K., Ireland, Australia, New Zealand, and South Africa — and our plan is to extend the subscription offering to all current and future markets in 2026. By the end of the third quarter, DreamSock's subscription attach rate had climbed past 25%, as parents continue to see more value in what the subscription delivers. We also expect considerable growth potential from the new Dream Sight camera. So far, most of our subscription uptake has come from DreamSock owners, yet the new Dream Sight and Dream Duo unlock a completely fresh opportunity segment.

For 2026, our roadmap includes subscription offerings powered by the camera, which leverage both the enhanced features of the new camera and its integrated AI chip, merging the strengths of biometric information gathered from the SOC with computer vision from the camera to produce an integrated experience unlike anything else available on the market. When it comes to sleep habits and schedules, those remain the top difficulties parents face; on average they sacrifice 3 hours of sleep nightly, and 61% say they feel worn out. We've built our forthcoming DreamSight subscription features specifically to assist parents in gaining a clearer understanding of their baby's sleep and enhancing it, using practical insights, smart recommendations, and a connected nursery system that observes, detects, and reacts, removing uncertainty from raising a child. Moving forward, we're putting resources into next-generation AI experiences that draw on Owlet's exclusive pediatric dataset. We intend to test a new generative AI insights capability in early 2026, giving parents customized sleep guidance and advice matched to their baby's particular habits; that's only the start; we'll keep testing and incorporating AI abilities to offer still greater meaningful assistance to parents and caregivers across their entire journey. Additionally, we started a pilot for our telehealth platform, named Owlet On Call. It's still early days for us, and we want to perfect the experience prior to our 2026 launch. We're thrilled about the chance to start trialing more tailored, practical remote care and to begin commercializing and expanding this opportunity in the next year. The energy we're witnessing around the Owlet 360 subscription remains thrilling, since it acts as a foundation of our shift toward a pediatric health platform where data and digital services are powered by our hardware. Last, shifting to our third strategic growth area, we've kept up consistent advancement in broadening the medical and healthcare channels to deliver insurance-covered monitoring for the infants who require it most. On November 7th, we formally kicked off our new consignment arrangement with the Children's Hospital of the King's Daughters, or CHKD, allowing specific babies to go home with Babysat to track their oxygen levels and/or heart rate. For our healthcare opportunity, this marks a significant milestone, since it's a first for Owlet. Providers prescribing Owlet devices within the hospital, patients securing insurance prior authorization before leaving the hospital, and bringing our medical-grade infant monitoring devices home. We're also completing our RPM integration with Owlet Connect as we wrap up infrastructure integration with Rapid City Health, our partner for the digital health platform. Owlet Connect will additionally launch this week with our initial customer and will be capable of linking very rapidly to upcoming hospitals running RPM programs. We keep having an increasing number of discussions with possible extra hospital partners comparable to CHKD. The formal launch and effective rollout of Owlet Connect represent key milestones, and we anticipate sharing updates on that progress in upcoming quarters, as this has grown into a vital strategy for unlocking the substantial healthcare opportunity for Babysat. Being involved with Owlet right now is thrilling, since we're making strides in each of our strategic growth areas, and that momentum is showing up as solid performance. At this point I want to hand things over to Amanda so she can walk through the Q3 results and give everyone a refreshed view of what we expect for 2025.

Thanks, Jonathan, and good afternoon to all of you. I'll start with slide nine. Unless I say otherwise, the comparison I'm making is between results for the third quarter of 2025 and those for the third quarter of 2024. Q3 proved to be yet another exceptionally strong quarter, with records set throughout the business. As Jonathan mentioned, it was the finest quarter in Owlet's history. Revenue for the third quarter of 2025 came in at $32 million, which is 44.6% higher than the prior year. The strength in revenue came from the launch of DreamSight, our next-generation camera, including load-in from retail partners both domestic and international, along with continued momentum in DreamSock and the Owlet 360 subscription. Our third-quarter gross profit reached $16.2 million, which stands as a record for the company, and that translated into a 50.6% gross margin for Q3, since strong top-line performance helped counterbalance the effects of tariffs. As a reminder, the tariff cost effects during Q3 combined the 10% tariffs on Thailand and Vietnam that we previously announced with the newer, higher rates of 19% on Thailand and 20% on Vietnam. Tariffs weighed on our gross margin by 280 basis points in Q3. Operating expenses came to $15 million in the third quarter, compared with $16.4 million during the equivalent period a year earlier. Two particular items deserve attention because they affect how comparable the figures are from one year to the next. To start, there's a $1.2 million insurance payout in this quarter tied to the shareholder lawsuit we brought up during Q4 2024. Also, the same quarter a year ago had a $1.9 million non-cash impairment charge tied to software we developed in-house. Operating expenses came in at 47% of revenue for Q3, versus 74% for Q3 2024, as we keep generating solid operating leverage while growing the business. Owlet hit a record $1.2 million in Q3 operating income — our first ever quarter with positive operating profit since the company began. Third quarter net income was positive too, landing at $4.1 million, compared with a $5.6 million net loss during the same period a year earlier. During Q3, net income benefited from a $4.3 million favorable adjustment tied to common stock warrant liability. Adjusted EBITDA for the quarter reached $1.6 million — a new record for any quarter in this business — which is $1 million better than what we posted in last year's comparable period. The gain came from robust revenue expansion even with tariff-related expenses weighing in, marking our sixth straight quarter of positive adjusted EBITDA. At the close of the quarter on September 30th, 2025, cash and cash equivalents totaled $23.8 million, up from $21.8 million when second quarter 2025 ended. During the quarter, we tapped our line of credit, pushing it to $18.6 million by the end of Q3, compared with $14.9 million at the close of Q2. Looking at our term loan, the amount still owed came to $7.5 million as Q3 wrapped up, matching where things stood at the close of Q2. Payments on that loan kick off in November, and our projection is that it will be fully settled by January 2028. In October, we reached two major capital markets milestones that strengthened our company and will help support Owlet's long-term growth potential. The first was completing the warrant exchange that we discussed on the second quarter earnings call. At our annual meeting on October 8th, shareholders approved it, and the deal closed on October 10th, turning more than 96% of Series A warrants and 100% of Series B warrants into common stock worth $5.4 million. We're glad to have this exchange finished, since it allows us to simplify our capital structure and makes our shares more attractive to both current and future investors. On top of that, on October 23 we wrapped up a successful follow-on equity offering that brought in net proceeds of roughly $32 million. Taking into account both the warrant exchange and the equity offering, our common stock outstanding stood at about 27.6 million shares as of November 10, 2025. This strategic raise strengthens our balance sheet, extends our bridge toward cash flow independence, and gives us financial flexibility to invest opportunistically for growth. We have certain near-term R&D investments that we'll start prioritizing during this current fourth quarter and on into 2026. I want to make this very clear: despite bringing in this additional capital, our intention is to maintain the same level of financial discipline that we've established across the last several years, while also going after growth that is profitable, consistent, and long-term in nature. With that said, let's move on to an update regarding our financial outlook. Taking into account our third quarter results along with our projections for the fourth quarter, we are updating the guidance we previously gave for 2025. For the entire year of 2025, we are now raising our revenue expectations to somewhere between $103 million and $106 million, which represents year-over-year growth of 32%-36%. We're still seeing a lot of momentum in the business, even though the broader economic picture is shaky—consumers are unsure, the government shutdown is causing knock-on effects, and tariffs could hit us during the all-important holiday quarter. For 2025, we're narrowing our gross margin outlook to a range of 48% to 50%. That revised forecast takes into account that Q4 will be the first quarter where we feel the full weight of higher tariffs: 20% on goods brought in from Vietnam and 19% on goods from Thailand, which adds up to about 500 basis points of pressure on our margin for that quarter. In closing, for the full 2025 fiscal year, we're projecting adjusted EBITDA to land somewhere between $1.25 million and $2 million. Compared with 2024, that represents a gain of $3.1 million to $3.8 million, and it would mark our first complete year of adjusted EBITDA profitability. Looking toward 2026, we anticipate that momentum will continue, fueled by additional expansion in our core business, our subscription platform, and the healthcare opportunity. We're eager to share further details about our 2026 expectations on our fourth quarter earnings call. Having said that, let's go ahead and open the line for your questions.

Yeah, thanks a lot. That's a really good question. So, as everyone knows, we are extremely early in the CHKD partnership, and our integration with them on the RPM only recently went live; up to this point, that integration has gone very well. Both sides are pleased — they're happy, and so are we — and what we're doing is using the CHKD relationship and partnership as a pilot for other healthcare systems that are already talking with us and also examining the CHKD integration. There's nothing we can share today, but expect something very soon, and we're very opportunistic about this as things progress down the road. Okay, I appreciate that. And then just a follow-up, I'd like to ask about international growth, which obviously is strong, with 171% growth in 3Q, plus new regulatory clearance added in India. We would expect this momentum to keep going, but could you just help us understand which countries are seeing the most growth right now? I guess as we think out to 2026, what markets should we be thinking about that will continue to drive growth and adoption in international markets?

So yeah, on the whole, overseas did really nicely in this quarter. That's something we gave a hint about during our Q2 earnings call. As you might remember, Q2 was on the lighter side for international. The cause of that is we had just rolled out our third-generation DreamSight and Dream Duo products, with the sell-in to our distributors taking place in Q3. That explains the softness we saw in Q2. Really, it's a catch-up situation for the year so far, but on the whole, we're quite happy with how things went internationally; the momentum is still there for us. Sell-through is climbing across every one of our European countries. Things are going well. We've also been announcing new clearances, and those will open up more chances for us to expand globally.