Owlet, Inc. (OWLT) Earnings Call Transcript

Good afternoon, everyone, and thanks for being with us today. Owlet published its financial results earlier today for the second quarter, which closed on June 30, 2026. Joining me now, I'm happy to say, are Kurt Workman — Owlet's President, CEO and Co-Founder — along with Amanda Twede Crawford, our CFO. Before we get started, I want to point out that the press release covering our financial results, plus the presentation slides we'll reference on this call, can be found in the Events and Presentations section of our Investor Relations site, investors.owletcare.com. A live webcast of this call is also available via a link on that same site. For 12 months after today's call, both the webcast and the slides that go with it may be replayed. Today's call content belongs to Owlet. Reproduction or transcription of it requires our consent in advance. To kick things off, let me direct you to the safe harbor disclaimer on Slide 3 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 amount to predictions only, and they carry certain risks and uncertainties that might cause actual results to differ materially from what those statements express or imply. Among these risks and uncertainties are, though 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 where the law requires it, the company takes on no obligation to update any forward-looking statements, whether because of new information, future events or otherwise; with that said, I'm glad to turn things over to Kurt.

Thanks, Jay, and hello everyone on the line this afternoon. It means a lot to have all of you joining us. Ahead of getting into the record-breaking numbers we posted for Q2, let me step back briefly and share some perspective on the direction this company is taking, the platform we're building to support families as they move through the parenting journey, and what we see ahead of us in the coming years. Day after day, Owlet continues its evolution into a data-and-services platform that spans a child's earliest years. Our products capture distinctive, valuable information about how a baby sleeps and how healthy they are, and then turn that information into insights, guidance, and reassurance for moms and dads. We aim to bring together the greatest parts of what moms and dads rely on right now into a single Owlet offering — tracking sleep, watching health, video monitoring, and remote medical visits — while costing far less than paying for individual apps plus gadgets separately. Down the road, our goal is for each person who buys from us to get the full benefit of what Owlet's platform delivers, since being involved with Owlet increasingly means being involved with the service, and not just the hardware. That leads into our perspective on the chances ahead, and I'd like to keep our aims simple. Number one, establish Owlet solidly as a platform for data and services built on subscriptions. Number two, bring in about 1 million additional customers annually; and number three, retain those households with us for a minimum of 2 years. Put those together, and what you get is a sustainable baseline that eventually exceeds one million subscribers. What's happening here is a shift away from a single hardware purchase toward a lasting, multiyear subscription tie — and that's the thing the whole company has been restructured to pursue. Let me add detail on each point. Number one: cement Owlet's identity as a data-and-services platform delivered by subscription. That's the way we're framing Owlet — moving from a gadget that households purchase to a platform they depend on. Since we rolled it out early last year, we've proven beyond doubt that the subscription opportunity is real. As of now, more than 30% of new U.S. In year one, customers signed up for Owlet 360. Parenting stays intense across many years rather than only a few months, which makes this a perfect fit for a long-term relationship. Making subscription the clear, obvious pick is what we're aiming for. So we're broadening the places parents can join — no longer limited to signing up inside the app, but reaching the point of sale as well — while trying out offers and bundles that turn enrolling in subscription at the moment of purchase into a no-brainer. Within Owlet 360 itself sits yet another lever for the subscription value proposition. With each new feature we introduce across sleep insights, camera intelligence and telehealth, we're able to partner with families for a longer stretch, and that's built to extend our lifetime value. Next, our goal is to bring in about a million new customers annually. In fact, during this current year, Owlet expects to reach somewhere between 600,000 and 700,000 first-time buyers. Thanks to the competitive advantages we hold, our standing in this category is both leading and defensible. No other company has an FDA-cleared baby monitor — we're the only one. In terms of dollars spent within this space, we remain the consistent front-runner, and in a pediatric health and wellness sector that is still in its early stages, we've established a brand parents place a great deal of confidence in. Considering the sheer size of our top-of-funnel, the level of consideration Owlet already receives is massive. Roughly 4 million unique visitors come to owletcare.com each year, and baby registries gain over 1 million entries involving us. What we can do here is not about generating interest — it's about converting a bigger portion of the interest that already exists into first-time buyers. There are millions of moms and dads who are already checking out Owlet, and what we need to do is get a greater number of them to move from thinking about us to actually making a purchase. The mechanism that makes this possible is our subscription offering, because the lifetime value of a subscriber is designed to extend well beyond that initial transaction; the offers we're putting together increase overall value, deliver savings for families right at the beginning, and simultaneously keep making the unit economics better for each customer over time. That gives us a funnel that succeeds by boosting conversion and LTV at the same time. Finally, we want families to stay with us for at least two years, whereas today the average subscriber remains for roughly twelve months. Our goal is for Owlet to grow more useful as time goes on, carrying families beyond the infant period—when safety matters most—and into the first and second years, where sleep, health and wellness take center stage. The Owlet 360 subscription serves as that vehicle: a digital translator that turns live data from our products into guidance for parents. A large number of them are already using the camera well beyond 24 months, so delivering Owlet's full value to every family naturally lengthens lifetime value. Beneath all of it sits what we think is the biggest pediatric health data set anywhere in the world. That base lets us create increasingly personalized experiences in sleep, health and wellness, using AI to transform data into insights and guidance that matter throughout the parenting journey. That's something very hard to walk away from. Over the long term, our aim is to build toward a recurring base of over 1 million subscribers by growing our customer base, raising subscription adoption and lengthening subscriber relationships. Turning to the Slide 7 update for quarter two, we set records across numerous metrics — total revenue for Q2 reached an all-time high of $33.9 million, up 29.9% compared to the same period last year. In Q2, Owlet received about $4 million in refunds tied to tariffs following the February ruling by the U.S. Supreme Court that struck down tariffs enacted under IEEPA. Of that $4 million, a onetime benefit of $3.5 million was recorded to COGS and a onetime benefit of $3.75 million to adjusted EBITDA, while the remainder was allocated to inventory. Absent the tariff refund, Q2 gross margin was 54%, a 270 basis point expansion over Q2 2025. With the tariff refund included, gross margins for Q2 stood at 64.4%. On an adjusted EBITDA basis, leaving out the one-time tariff refund, Owlet hit a record as well — $2.9 million, which is $2.4 million more than the prior year. When tariff refunds are counted in, adjusted EBITDA came to $6.7 million. Our Owlet 360 subscription continues to do very well. Q2 ended with 130,000 paying subscribers, bringing in $3.2 million in revenue — a $2.4 million gain year-over-year. Subscription MRR grew quarter over quarter, moving past $1.1 million by the close of Q2, while Dream Sock's penetration rate in the U.S. reached 36%. I take a lot of pride in what our team accomplished in Q2, and I'm excited about the leadership position we hold in our category, which only keeps getting stronger. I'd like to speak to that in light of a recent event in our space that really underscores how we stand apart from competitors. As you'll recall, back in September of last year, the FDA put out a safety communication cautioning consumers about over-the-counter infant monitors, saying they made unproven claims without ever being reviewed for safety and effectiveness; then in early June, a letter arrived from Amazon, and we believe other baby monitor companies got one too. That letter told sellers of baby monitoring products that track and measure vital signs that any product of that kind without FDA clearance would be shut down on Amazon's platform as of August 10, 2026, which was yesterday; when it came to Owlet, nothing further needed to be done. Dream Sock has been FDA cleared and remains so, and our clearance documentation was already on file with Amazon. As far as we know, no other baby monitor available on the market today has obtained that same clearance.

Should Amazon keep imposing this mandate, our view is that it may deliver a competitive advantage to Owlet over the longer term, since any business that wants to measure and monitor vital signs would have to clear the same bar we did to obtain FDA clearance before it could sell on Amazon's platform. After the letter arrived, we saw heavy price-cutting from a number of rivals, among them items we believe fall under the new mandate before the August 10 cutoff. That behavior carried on through Prime Day and afterward. Consequently, Owlet's units sold across Prime Day fell 8% compared with the prior year's event, coming in below what we had expected. Even though we gave up some units to competitors over Prime Day, we still held #1 in baby monitoring and in the baby safety category. We lack complete visibility so far into how competitors are pricing after the August 10 cutoff, yet we expect Amazon's enforcement to serve as a long-term tailwind for the business. Moving on with the quarterly review, as in the prior quarter, I want to give updates on our 2 core growth drivers: driving adoption of Dream Sock and Dream Duo in our core global markets and expanding the subscription platform with Owlet 360 and Owlet — on Call; in the U.S., once you adjust for the Prime Day shift, total sell-through units rose 12%, which includes a 16.5% gain in Dream Sock and a 16% gain in Duo. Leaving out Prime Day, Q2 total sell-through units climbed 20% year-over-year, with Dream Sock and Duo up 21% and 29%, respectively. That leaves us confident general sell-through is expanding at a healthy pace, though Prime Day dynamics dragged on the quarter as noted earlier. Owlet Dream Sock also stays a registry priority for expecting parents, with year-over-year registry additions up 40%. Lastly, international stood out in the quarter, with revenue up 214% year-over-year. Keep in mind that a year ago we had an anticipated timing shift in orders from Q2 into Q3, caused by the Dream Sight camera and Duo launch and the related load-in to our distributors, which makes Q2 2025 a favorable year-over-year comparable. Still, we saw substantial global momentum in the quarter as well. Setting aside the Q3 2025 quarter that gained from the sizable load-in for the new camera, Q2 2026 ranked as the biggest international revenue quarter in Owlet history at $5.7 million. Strong international sell-through backs this up further. Total sell-through unit growth came in at 38% year-over-year, and Prime Day sell-through beyond the U.S. rose over 100% year-over-year. Shifting to Owlet 360 and Owlet — on Call. We achieved genuine progress on the subscription platform this quarter. We rolled out the Owlet 360 subscription across a number of new non-English-speaking international markets, which now reaches an extra 5% to 10% of our user base that previously had no way to subscribe. We also started testing Web Pay, shifting subscription enrollment and billing onto our own web-based checkout. During Q3, we're going to introduce Web Pay, and as time goes on we anticipate strengthening our subscription margins by cutting down on the third-party payment fees incurred from in-app purchases, plus it provides greater flexibility for enrolling subscribers directly at the moment they buy. On a related note, we've started the rollout of upfront subscription, which lets someone sign up for Owlet 360 right when they make a purchase instead of afterward inside the app; it's already available on our own site and will soon go live with Babylist. Additionally, we anticipate providing subscription bundles to retail partners during the second half. Our aim is to keep enhancing LTV for each customer. Shifting to Owlet — on Call; this continues to be a year of deliberate testing and learning to discover how Owlet can most effectively leverage our distinctive standing in the category for pediatric telehealth. We started with roughly 5% of users having access to the on-call service; and as of Q3, we've started cautiously broadening that access. The direction we're taking Owlet OnCall is toward a smoother, more proactive experience that assists parents in reaching clinical resources at the right times; we're proceeding with intention, drawing on actual usage insights before we widen access and start automating what we offer. We'll keep you updated along the way since we still think the lessons from this year lay the groundwork for a significant new revenue stream as we head into next year; it's a thrilling moment to be involved with Owlet. We're carrying out our strategic growth initiatives, and that's reflected in our results, record revenue, exceptional international expansion and sustained Owlet 360 momentum. We think our greatest opportunity going forward is increasing subscribers, and that's precisely where the company is directing its attention. I'll now hand the call over to Amanda to go through our Q2 financials. Amanda, the floor is yours.

Appreciate that, Kurt. Now moving on to how we did financially in the second quarter of 2026, which you'll find on Slide 11. If I don't say otherwise, everything I mention about Q2 2026 is being compared against what we posted in Q2 2025. We brought in total revenue of $33.9 million for Q2, a record figure, which represents a 29.9% increase versus the same period last year. The growth showed up across many areas, with particular strength from Dream Sock and Duo, solid results internationally, and ongoing traction in subscription. Our subscription revenue climbed to a record $3.2 million, which is $2.4 million higher than a year ago, as the Owlet360 subscriber base kept growing. For Q2, gross margin overall came in at 54%, which factors in the tariff refund, and that's roughly 270 basis points better than last year. When you include the $3.5 million onetime tariff refund that was allocated to COGS, our overall gross margin for Q2 reaches 64.4%. Subscription gross margin improved once again on a sequential basis, reaching 68.4%. Operating expenses totaled $20.1 million in the second quarter, versus $15.1 million during the same period a year earlier, which works out to about 59% of revenue. The main reason for the increase compared to last year was that we spent more on marketing because the timing of Prime Day promotions moved from Q3 into Q2, plus we had severance costs that included stock-based compensation. Through the rest of 2026, we're staying focused on improving how efficiently we operate and maintaining strong financial discipline. If we set aside the tariff refund, our operating loss came to $1.8 million. Once the tariff refund is factored in, we recorded operating income of $1.7 million. Adjusted EBITDA, when you exclude the onetime tariff refund, hit a record $2.9 million, compared to $0.5 million a year earlier. With the tariff refund included, adjusted EBITDA amounted to $6.7 million. I should mention that our financial statements are going to reflect routine, immaterial revisions to prior year figures on some line items, and that covers revenue and operating expenses. I'd like to stress that these immaterial adjustments don't affect our cash balance or our cash flows at all. You'll be able to find full details in the Form 10-Q we'll be filing shortly. In the course of the quarter, we signed a new $25 million asset-based revolving credit facility with Wells Fargo, which refinances and takes the place of both our earlier asset-based facility and our term loan. This new facility brings our cost of capital down substantially, cutting our interest rate margin to SOFR plus 2% to 2.25%, compared to SOFR plus 7.5% to 8.5% under the previous asset-based facility, which is a decrease of at least 525 basis points. We anticipate this will lower our annual interest expense considerably moving forward, and there's no minimum interest requirement either. These better terms bring down our cost of capital and give us more flexibility to keep investing in our strategic priorities, all while staying disciplined about how we allocate capital. Now let's look at our balance sheet. Cash and cash equivalents, not counting restricted cash, stood at $30.9 million as of June 30, 2026, compared to $35.5 million at the end of the previous quarter on March 31, 2026. That change in cash mostly came from $2.7 million used to pay down debt, CapEx investments, and the timing of working capital. When you add in $7.5 million of availability from our new credit facility, our total available liquidity came to roughly $38.5 million. Now for our guidance; we're happy with how we performed in the first half, and that includes a solid second quarter. Simultaneously, we are adopting an intentionally cautious stance regarding the back half, in light of how fiercely competitors have been discounting ahead of the August 10 Amazon cutoff, and because we lack complete visibility into how those rivals will behave once that date passes. Beyond that, there are wider macro indicators we feel warrant prudence. Within Prime Day, the baby monitor segment fell relative to a year ago, as shoppers seemed to open their wallets more hesitantly and put basic necessities first; that matches what we have seen lately, with this category coming in roughly level or lower compared with the prior year across the past several major Amazon promotional moments. Given all of that, instead of projecting our second quarter beat across the entire year, we consider it wise to fold that near-term strain into the range we already have; for full year 2026, our revenue outlook stays at $118 million to $122 million. Turning to Q3, we anticipate a drop both quarter over quarter and against Q3 2025, which mirrors the steep competitor discounting just mentioned, plus a tough comparison to last year's Dream Sight camera and Duo launch. As for Q4, we have 2 big events, and because we remain wary about how promotional events will play out, our Q4 forecast is unchanged. On gross margin, our full year outlook moves up to a range of 53% to 55%, versus 50% to 52% previously, which captures solely the onetime $3.5 million COGS reduction during the second quarter stemming from the tariff refund. The tariff rate baked into our second half guidance sits at 12.5%. We are not projecting any further tariff refunds for 2026, nor any repayment risk tied to the Q2 tariff refunds right now. Lastly, our full year adjusted EBITDA outlook rises to a range of $10.75 million to $12.75 million, up from $7 million to $9 million. That bump captures solely the onetime $3.75 million tariff refund booked in the second quarter. Setting the tariff refund aside, our underlying expectations for the year are basically the same, since we stay concentrated on generating operational efficiency and profitable growth; with that, we are ready to take your questions.

Julia Shelanski here, filling in for Jonna Kim; this afternoon we've got 2 questions to ask. To start, we're eager to learn how sell-through trends have been shaping up quarter-to-date? Also, where does the gap between sell-in and sell-through stand right now? Then for the second one, could you give an update on subscription attachment rates? And as you keep watching new cohorts, what is retention looking like?

Thanks, Julia. Let me get one thing straight about that question. When you ask about Q3 quarter-to-date, do you mean sell-in in particular, or sell?

Yeah, that's right. Yes, quarter-to-date for Q3.

All right. To start, I'll address the remaining question while I get the Q3 sell-through figures ready. So looking at attach, what we've observed so far with the subscription product is that roughly 30% of parents end up signing up during that initial year. On the retention side, we've said that subscribers stay with us for an average of about 12 months. Just to note, we rolled this out around 18 months ago, so the cohorts are only now beginning to mature.

One more thing I'd mention there is that close to 30% of the people trying us out during the trial period are now choosing the annual plan, and from an LTV standpoint that's genuinely thrilling for us; the renewal rates we're seeing on that plan are solid, which is great. At this point, 36% of our entire Sock customer base holds a subscription, and we're only at the beginning. If you consider the Cam feature rollout in the second half, that's truly exciting. That accounts for over half of our user base, and we're just getting going with those features and AI capabilities. The amount of time they spend with the camera is double what they spend with the Sock. So it's half of the customer base using it twice as long. That really adds up to a huge opportunity. Telehealth keeps growing. It's an exciting new position for us. Plus the integration with AI and the new AI features going into sleep and health and overall parenting guidance is making the product stickier and stickier. And in the second half, I think you'll see more and more value delivered to the consumer. So we're very excited about where we stand, and there's a great deal of potential ahead.

Yeah, and when it comes to sell-through versus a year ago, there's some nuance there, particularly if you look further back. As you know, Jonah puts out that Nielsen data. Just to remind everyone, Prime Day moved this year from Q3 into Q2. So at this stage, doing those year-over-year comparisons is a bit murky within the quarter, simply because last year Prime Day represented such a big share of the quarter up to that point.

Great results this quarter. Kurt, I wanted to ask — as telehealth keeps expanding and you're growing that business in a predictable, recurring way, how might it ultimately get integrated into 360 and turn into yet another factor powering the subscription model? I'm simply attempting to work out — I know these are distinct offerings at the moment, but what's your view looking further out?

Yes, that's a fair question. Regarding telehealth, we think about it in layers. There's an element of telehealth within 360 currently, clearly not linked to a physician, yet it provides parents with extra health trends and health information; it allows them to share information with their doctor. We're expanding the AI functions and automated tools inside 360. A separate tier will be introduced that lets physicians get in. At present, this is handled through on-call arrangements. Over the course of this year, as we run tests and gain insights, that setup is going to shift and develop. Our goal for this year is to make it easier to reach, cheaper, and in the end, something we'd like most of our users to be able to get. If you think about what makes looking after a newborn so difficult, a large part of it comes down to poor communication. Right now, if you talk to a pediatrician with no information or background and mention that your infant has a stuffy nose and you're concerned about how they're breathing, then every single one of those appointments—100% of them—ends up as an emergency room trip when it happens outside normal hours, or as one more visit to the pediatrician. But these days, we've got data cleared by the FDA that's collected right in the home, which doctors are able to look at and use as the basis for their decisions. Our view is that this fundamentally reshapes how care is delivered in the home and establishes a higher standard of care — ongoing observation, regular gathering of data, and a conversation with the physician, all without leaving home, so the infant isn't exposed to additional illness. So telehealth will come in several tiers. You'll have Owlet 360, and probably Owlet 360 alongside the telehealth option.

That's useful. Now, to build on the question about how strong things are internationally: where is the most momentum showing up at present? And looking ahead over the coming years, which international opportunities seem the ripest?

Europe has me genuinely enthusiastic. It keeps expanding. If you examine growth and penetration annually, it's actually quite near the rate we established in the U.S. Germany is growing quite strongly. When we entered France, everyone said a few years would be needed, and then you'd sort of witness a spike. That is precisely what we're seeing. Growth in France is unbelievable. Eastern Europe is in fact performing very well. In terms of the percentage of parents using monitoring, the Czech Republic and nearby nations actually have the top penetration; at this point it's a lot like the U.S. So that has really taken off. Those are likely the places we're most enthusiastic about; and a few of the more — longer-term markets such as the U.K., Australia, and the Nordics keep growing very nicely for us. So Europe has more babies born than the United States. And as we always say regarding the United States, I simply cannot picture a world where every baby leaves the hospital with access to some form of health sensing technology. For Europe, that will be equally true as it is for the U.S.