Owlet, Inc. (OWLT) Earnings Call Transcript

Good afternoon, everyone, and thanks for being with us. Owlet put out its financial results earlier today for the first quarter, which closed on March 31st, 2026. It's a pleasure to have with me Kurt Workman, who serves as Owlet's President, CEO, and Co-founder, along with Amanda Twede Crawford, our CFO. Ahead of getting started, we want to point out that the press release covering our financial results and the presentation slides we'll reference during this call can be found in the Events and Presentation section on our investor relations site, investors.owletcare.com. A live webcast of this call is also running, accessible through a link on that same site. You'll be able to replay the webcast and its accompanying slides for 12 months after this call. Everything discussed on today's call belongs to Owlet; reproducing or transcribing it requires our prior consent. Before we dive in today, we'd like to direct your attention to our safe harbor disclaimer, which appears on slide three of the presentation. What we discuss today will include forward-looking statements reflecting the company's current views and expectations as of today's date. Such statements amount to 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, but are not limited to, the ones laid out in our most recent filings with the SEC and in the Risk Factors section of our annual report on Form 10-K, as updated in the company's quarterly reports on Form 10-Q and other filings with the SEC. Be aware that, except as required by law, the company takes on no obligation to update any forward-looking statements, whether from new information, future events, or otherwise. With that said, I'm happy to hand the call over to Kurt.

Thanks for that, Jay. Good afternoon, everyone, and welcome — I'm glad you could join us. Before we dive into the results for our business, I want to talk about a leadership shift that happened recently and a new direction we're taking at Owlet. The board and everyone here at Owlet want to say how sincerely thankful we are to Jonathan Harris. After the FDA clearances came through, Jonathan was instrumental in guiding Owlet through a stretch of remarkable growth. What he gave us has made Owlet a stronger company, and we're wishing him all the best. Now, as Owlet enters this next phase of growth and change, I'm stepping back into the CEO role, something we shared publicly in April. I'm returning to pick up the work that started in a garage 12 years ago, and I have a clear long-term mandate: to steer Owlet through the next stage of scaling and growth in pediatric health. Our central mission hasn't changed, but we're now tightening our emphasis on execution and channeling resources toward the opportunities we value most. There are three strategic priorities I want to highlight, where we see the greatest chance to boost performance. First, we're placing more deliberate emphasis than ever on the Owlet360 subscription and telehealth opportunity. Because well over 500,000 parents purchase a new Owlet device annually, we already have an established user base capable of supporting subscription conversion. In our view, there's a real opportunity in how today's parenting experience is set up. Most parents end up with a little more than two kids, and those siblings tend to come along within a handful of years of one another. That gives Owlet a distinctive chance to lock in a subscription period lasting four years. Our plan is to stretch the premium subscription capabilities across a child's first 24 months, which should lift both how often people use them and how many stick around, turning a customer from someone who uses it once into someone who subscribes across four years. Moving from selling hardware one time to a subscription model that runs multiple years changes the shape of our growth in a fundamental way, building our recurring subscriber base up into the millions. At Owlet, we're moving more and more toward a model where subscriptions come first throughout the company. What that means is our product roadmap, our marketing efforts, and our channel partnerships are all pointed at driving higher subscription adoption among every customer we have. For this year, we've got three key Owlet360 subscription priorities to carry out. First, we'll roll out new features and AI integrations for Dream Sock, which will strengthen what the subscription offers and help our attach rate keep climbing. Second, we'll introduce exciting new subscription features for our cameras that bring value to the hundreds of thousands of Cam users who are active every night. Since so many families keep using their cameras through the toddler years, the Dream Sight subscription feature set matters a great deal for extending LTV. Third, we want to broaden how people can sign up for subscriptions among our sizable and expanding non-U.S. customer group. What we're aiming for is to make the Owlet360 subscription a core, built-in benefit during a family's first two years of raising a child. When a household has just one kid, that approach can stretch LTV quite a bit; if a second child comes along, the subscription can keep running across several years, which supports a lasting, high-margin recurring relationship. Moving away from treating hardware sales as the headline event toward a multiyear subscription could fundamentally change the nature of our business and position Owlet as a more lasting partner for parents over time. Owlet is pursuing a once-in-a-generation opening built on AI, grounded in what we consider the largest pediatric health data set anywhere in the world. By bringing together our data advantage, hardware cleared by the FDA, and the trust we've built with parents, we think we can provide personalized, proactive infant care of a kind that was previously unattainable at home, and cement Owlet's standing as the pediatric health platform that defines this AI era. Moving to strategic priority number two, we're concentrating more sharply on the valuable opportunities inside the core markets we already serve, where meaningful growth potential remains visible to us. Looking at the regions we currently serve, there are still large markets that remain under-penetrated, amounting to just under 20 million kids under 24 months old. Since penetration is just over 11% in the U.S. and in the low single digits throughout Europe, we believe there's a lot of opportunity to grow within the areas we already cover. We continue to see significant growth potential in the U.S., where penetration rates are approaching or surpassing 20% in key states such as Utah, Nebraska, Wyoming, and Kentucky. We view those markets as potential benchmarks for what we might achieve nationwide and in Europe; we think the business could ultimately scale to more than one million new customers annually. When you combine that with what we're doing to boost LTV, we believe it can support a family subscription that lasts four years, and a recurring subscriber base that has room to grow a lot over time. There's what we see as a big opportunity in our core markets, so to go after it we're pulling our attention and resources together, which lets us take advantage of the sizable white space in the high-value geographies we're in today, places where we already lead the category. Given this more focused strategy, we've pushed back the launches we had planned for India, Hong Kong, and Singapore this year, and moved that spending into core markets where returns look better in the near term. Now we come to the last of our strategic priorities: placing greater weight on how efficiently we run the business and how carefully we manage our finances, so that growth comes with profit. We continue to put money into operating expenses compared with a year ago, but we have sharpened where that money goes so we can work more efficiently. What we're after is substantial operating leverage, achieved by leading with a disciplined approach — one that aligns what things cost us with scaling done efficiently. To be specific, we are no longer pursuing new global clearances, and we are delaying launches in various countries that carry upfront expenses for regulatory work, app development, quality, and marketing. We have cut the additional headcount we had earlier intended to bring on by making use of efficiencies in internal technology and AI, and that allows us to expand efficiently while facing fewer limits on resources. We're putting off initiatives with weaker returns that fall beyond our main zero to 24-month segment; this tight financial approach, which puts a priority on expanding profitability, is meant to give us room to reinvest wisely, and we think that will fuel our long-term growth and make our market position stronger. So in order to truly hit those three priorities and focus more sharply on profitable growth, we're taking the initiative to update our full-year 2026 outlook. Across the entire year, our revenue guidance now shifts to a range of $118 million to $122 million, which comes out to 12% to 15% growth year over year, compared with the $126 million to $130 million we had guided previously. This updated range reflects a deliberate choice on our part to walk away from lower-margin, high-burden revenue streams in geographies outside our core and in new channels. On top of that, this outlook bakes in a more conservative assumption around sell-through for the rest of the year. I'll share more specific color on those category trends and our consumer data shortly. By directing our resources solely toward high-impact priorities and removing the overhead tied to non-core channels, we've built a far more efficient engine. Because of that, we're raising our full-year 2026 adjusted EBITDA guidance to between $7 million and $9 million. That works out to year-over-year growth of 250% to 350%, compared with the $3 million to $5 million range we had guided before. Staying disciplined this way could hold revenue back in the near term, but we're making that trade-off on purpose, since it should boost operating leverage and profitability. Our thinking is that this leaves us better positioned to put money into our most valuable opportunities and to generate growth that's stronger and holds up longer over time. With that, I'll turn to the business update for our first quarter.

I'd like to provide greater clarity about the places where momentum is building, and to call out particular areas where our execution needs to get sharper. In line with the strategic priorities I just described, from here on our quarterly updates will center on these core growth drivers. First, increasing adoption of Dream Sock and Duo in our main global markets. Second, growing the subscription platform through Owlet360 and Owlet OnCall; here in the U.S., our Q1 domestic sell-through units for Sock and Duo rose 10.5% year-over-year, driven by a 45% gain in Duo and a 3% gain in Dream Sock. One thing worth noting: Owlet was the sole brand in the category to grow while the category generally declined. If you set Owlet aside, the baby monitoring category fell 19% in dollars against prior year Q1, even as Owlet's dollars rose 11%. Q1 naturally sees light promotional activity after the holidays; our belief is that customers are holding off on purchases while waiting for major promotional events such as Mother's Day and Prime Day, which generate substantial volumes at a lower selling price; we've begun Q2 by optimizing marketing and retail placements so we can accelerate momentum and capture share from competitors; those efforts are already producing results. Quarter-to-date in Q2, sell-through for both Duo and Dream Sock has climbed to more than 30% versus prior year. This performance confirms our strategy and serves as a favorable signal for the remainder of the year. That said, we have not yet built this Q2 performance into our full-year outlook, since we'd rather review additional sell-through data before revising our projections. Brand health is still outstanding, as shown by a Dream Sock NPS of 77% and a blended product NPS of 71% at the close of Q1. Also, and this matters for our Dream Sight camera, customer service contact volumes are down 74% compared with our second-generation camera, because Dream Sight is plainly eliminating friction points for our customers, including resolving core setup and connectivity issues. Owlet products continue to hold their place as a registry priority; during Q1, year-over-year registry additions climbed 31% for Dream Sock and 44% for Duo. Lastly, momentum across our existing global markets is still strong. In Q1, international revenue was up 22% year-over-year. Sell-through internationally keeps demonstrating strength, finishing Q1 at 37% year-over-year growth. We're thrilled by the progress we're witnessing in our current international markets. To illustrate, the Czech Republic already has close to 9% of all babies born using an Owlet. Other markets such as the U.K., Germany, France, and Australia are each tracking a path for market penetration similar to the U.S. on a year-by-year basis. Since Europe has more babies born than the U.S., our present growth opportunity in Europe is enormous provided we stay focused and keep executing at a high level. Turning to our second focus area, expansion of Owlet360 and Owlet OnCall, our subscription engine is flourishing. Now that we've passed the one-year mark since launch, we've confirmed the value proposition of our subscription model, scaling to more than 115,000 paying subscribers since Q1. Just a quick note — starting at quarter end, we'll report subscriber count, so it lines up with the subscription revenue metric we'll start disclosing in our quarterly filings. The momentum we're seeing beneath the subscriber numbers is converting into lasting top-line growth: monthly recurring revenue, or MRR, reached $1 million at the close of Q1, which underscores how our subscriber base keeps compounding in value. On top of that, subscription hit a 34% penetration rate among Dream Sock users in the U.S. during the first quarter. That strong conversion rate confirms the value of our bundle and shows that parents increasingly see Owlet360's pediatric health insights as a key extension of Dream Sock. As we discussed, we're putting priority on rolling out camera-specific Owlet360 features to strengthen the subscription value proposition and stretch LTV across multiple children. In April, camera extended clips became available. For Dream Sight, the extended clips feature improves the user experience by delivering AI-assisted event detection, while Owlet360 subscribers pick up expanded benefits such as a 14-day cloud archive and longer 60-second recordings. Also, within the next few weeks, we're introducing built-in white noise — a Dream Sight subscription feature that turns the camera into a daily sleep essential and removes the need for extra hardware. By making the product part of nightly sleep routines, we can drive consistent platform engagement and help Owlet360 subscription retention hold up over the long term. Subscription sits at the foundation of our shift into a data-driven pediatric health platform. How quickly adoption has grown over the past year confirms that we were right to prioritize growing and expanding our recurring platform features. Last, I'll close with the Owlet OnCall telehealth opportunity. We're glad to share that this week Owlet OnCall telehealth officially goes live in our app for select participants. That means, for the first time, Owlet parents can talk directly with a pediatrician inside our app. Over the coming weeks and months, we'll scale access to more and more users so we can test and learn. As we bring our wellness data together with professional pediatric access and oversight, we see a chance to deliver deeper value to parents, potentially lower healthcare costs, and extend the customer relationship. Our telehealth launch this year marks a pivotal step in this evolution, and we expect what we learn from this initiative to shape our long-term platform expansion and future revenue opportunities. We believe that pairing insights from our platform with access to pediatric consultation will give parents greater value, make care easier to access, and lengthen the customer relationship. We believe the learnings from this year's telehealth launch will fuel a significant new revenue stream for the business as we move into next year. I'll now turn the call over to Amanda to go over Q1 financial highlights. Amanda, take it away.

Thanks for that, Kurt. Turning now to our financial results for the first quarter of 2026, which are shown on slide 11. Unless I note otherwise, I'll be comparing against the first quarter of 2025. Q1 total revenue came in at $22.5 million, up 6.4% from a year earlier, and that topped the $20 million-$21 million guidance range we had provided for Q1. The Q1 results include a one-time inventory right sizing at a large retail partner, which reduced its weeks of supply from 8 to 10 weeks down to 4 to 6 weeks, and that weighed on sell-in revenue. That partner ended Q1 with about five weeks of inventory. Since we never run promotions during the first quarter, it's consistently our weakest period for revenue, and losing a substantial chunk of sales so quickly became a near-term obstacle. For yet another quarter, subscription revenue grew on a sequential basis, setting a record of $2.7 million in Q1. Subscription gross margin also went up, arriving at 67.4% in Q1. In Q1, gross margin overall landed at 54.5%, which is higher than the 50%-52% guidance range we had given for the quarter. Broadly speaking, gross margin improved 80 basis points year over year, and that number reflects a 480 basis point hit from tariff costs. Operating expenses for the first quarter totaled $17.7 million, up from $14 million during the same period a year earlier. Higher compensation costs—stock-based compensation included—drove most of this increase. Our personnel expenses grew because we carried the full-period effect of people added across 2025, along with strategic hires who joined during the current quarter. Beyond that, stock-based compensation climbed due to a larger workforce and where our long-term incentive plan grants landed on the calendar. In Q1, operating expenses equaled 79% of revenue, compared with 66% in Q1 2025. Kurt noted earlier that we remain dedicated to improving operational efficiency and financial discipline through the rest of this year and afterward. For Q1, our operating loss reached $5.5 million, against $2.7 million during last year's comparable period. For this quarter, the net loss came to $3.3 million. Our Q1 adjusted EBITDA landed at — $1.5 million, which is the top end of the guidance range we gave for Q1, spanning from -$ 2.5 million to — $1.5 million. The decline in adjusted EBITDA compared with the prior year was driven mainly by the impact of tariff costs. Now, looking at the balance sheet, our overall financial health is still solid. As of the quarter's end on March 31st, 2026, cash and cash equivalents — not counting restricted cash — totaled $35.5 million, matching where we stood at the close of the fourth quarter of 2025; on the line of credit, $3.9 million remained undrawn when Q1 ended, which brought our total liquidity up to $39.4 million as of March 31st, 2026. At the close of Q1, the remaining amount owed on our term loan came to $6.3 million, compared with $7 million when Q4 ended. Now for our guidance, expanding on the full-year 2026 picture Kurt laid out, we're looking at revenue somewhere between $118 million and $122 million, which works out to 12%-15% growth versus 2025. Following the seasonal tendencies we've seen historically, revenue should climb in Q2. Beyond that, Q3 looks like it will land somewhat below Q2 on a sequential basis, with Q4 then shaping up as the high point of the year. Across all of 2026, we're anticipating a gross margin in the 50% to 52% band. Tariffs remain a constantly shifting situation. As things stand right now, for the rest of the year we're using a 15% tariff rate as our baseline estimate, which is lower than the 19% and 20% we had previously assigned to Thailand and Vietnam, respectively. We'll keep watching how trade conditions evolve. Lastly, adjusted EBITDA should land somewhere between $7 million and $9 million, which works out to 250%-350% growth compared with 2025, reflecting our focus on running more efficiently and growing profitably. With that said, let's open it up for your questions.

Hi there, appreciate it, folks. Thanks for letting me ask something here. So, gross margin saw a fairly solid increase compared with last year even with those ongoing tariff challenges. Could you walk through the operational gains and the mix advantages that countered those headwinds?

Sure. The main thing that drove the quarter was a larger share coming from subscription revenue, which made up roughly 67% during the quarter. We also had a better product mix this year with Sock compared to Cam the year before.

Understood. Understood. Then my second question: operating expenses rose somewhat compared with a year earlier, mostly because of that G&A item. Since you're now concentrating harder on operating efficiency — which I believe was the third strategic focus — where do you expect the greatest chances to enhance leverage down the road?

Yes. Operating leverage has many sides to it. Our top priority: under the earlier guidance, we had planned a fairly sizable investment in headcount throughout the organization. After reviewing our plans, and given how quickly AI is evolving and reshaping things, we concluded we wouldn't hire as many people as we'd first intended. We think we can accomplish more while using fewer resources; those roles are no longer in the plan; beyond that, we're shifting where we put our attention. We've moved away from launching in new geographies, since those carry upfront expenses in regulatory quality engineering and marketing. That's a cost spanning multiple departments, and we've removed it from the plan. Lastly, during this year our priority is 0 to 24 months. Essentially the central market we compete in, while postponing any remaining projects that fall beyond that boundary.

Right. I'd simply say this: when we zero in on those efforts with better returns that deliver growth over a longer horizon and at a higher level, we're able to put more money into them, even as total operating expenses come down across the remaining months of the year.

Understood. That's really useful; so perhaps as a final point from me, what's your current thinking on how OnCall will make money at the start? Does the short-term emphasis lean more toward engagement and retention inside Owlet360, or do you anticipate it turning into a more direct source of revenue before too long?

Right. I'd say it mirrors closely the way we described subscription a year ago, when we left it out of our guidance; our attention was squarely on testing, learning, and making the customer experience better. For us, this year carries that identical priority. You know, here's a transformational chance where, for the very first time, people who buy from us will be able to talk with a doctor within our app. Using Owlet data, that physician can help parents at home care for their kids, and in certain cases that means avoiding a trip to the ER or the pediatrician. This year we're really going to take advantage of the chance to learn and to perfect that model. Down the road, we believe it will contribute in a meaningful way.

Understood. Appreciate it, everyone.