Owlet, Inc. (OWLT) Earnings Call Transcript

Hello everyone, and thanks for joining us. Earlier today, Owlet released its financial results for the third quarter, which closed on September 30, 2026. I'm pleased to be joined by Kurt Workman, Owlet's President, CEO, and Co-Founder, as well as Amanda Twede Crawford, our CFO. Before we begin, please note that our earnings press release and the presentation slides we'll refer to during this call are available in the events and presentations section of our Investor Relations site at investors.owletcare.com. You can also access a live webcast of this call, and the link is posted on that same website. A replay of the webcast and the accompanying slides will remain accessible for 12 months after this call. Today's call content belongs to Owlet; reproducing or transcribing it requires our prior consent. Today's discussion will cover a Cable Guard safety update that we recently initiated, which is also described in our earnings release and Form 10-Q, which we expect to file after market close today. Before we begin, I'd like to point you to our safe harbor disclaimer on slide three of the presentation and to the forward-looking statements section of the press release we issued this morning. Today's discussion will contain forward-looking statements based on the company's current views and expectations as of today's date. These cover, for example, what we've said about the Cable Guard safety update—when it will happen, what it will cost, how well we expect it to work, and any further measures—along with retailer returns and restocking, plus how demand and our results will be affected, including in the fourth quarter and the holiday season, insurance coverage and liquidity, and Owlet's longer-term opportunities and what we anticipate in future periods, including growth in Owlet360 subscribers and the schedule and rollout of new products and features such as the Owlet Smart Thermometer, Owlet OnCall, Owlet One, and our AI-enabled features. These kinds of statements are merely forecasts, and they carry certain risks and unknowns that might make actual outcomes vary significantly from what those statements express or imply — for instance, costs could come in different from what we estimate, and further measures might become necessary. Among these risks and unknowns are those covered in the earnings release and in our latest filings with the SEC, along with the risk factor portion of our annual report on Form 10-K, as revised in the company's quarterly reports on Form 10-Q and other SEC filings — though this list is not exhaustive. Keep in mind that the company takes on no duty to revise any forward-looking statements—whether because of fresh information, later events, or anything else—unless the law demands it. On this call we'll cover financial measures under both GAAP and non-GAAP, adjusted EBITDA among them. You can find a reconciliation between GAAP and non-GAAP figures in today's earnings release, which is posted on our investor relations website; and with that, I'm glad to pass things along to Kurt.

Thanks, Jay. Morning, everyone, and thanks for being with us. I'll focus today on our solid third-quarter performance and the strides we're making with our strategies. I'll also take you through a significant Cable Guard safety update that we launched this morning. Starting with Q3 results on slide five: we achieved substantial progress during the quarter, fulfilling our priority of generating profitable growth. Revenue for the third quarter of 2026 came in at $30.4 million, matching what we expected. Gross margin reached 53.8%, an improvement of 315 basis points compared with the prior year. Operating income was a positive $1.2 million. Adjusted EBITDA came in at $3.5 million — a record for the company — if you set aside Q2 2026, which had a tariff refund in it. We also generated positive cash flow, with operating cash flow of $2.2 million. Those are significant profitability milestones, and they provide us with extra financial flexibility as we do the Cable Guard safety work I'll get to shortly. On top of that, Owlet360 subscription momentum keeps building. Q3 closed with 142,000 paying subscribers, producing record revenue of $3.6 million, which is up $2.1 million from a year ago. Subscription MRR rose sequentially, reaching $1.3 million at the end of Q3. And among U.S. users of Owlet360 Dream Sock, the penetration rate stands at 36%. Now I'll turn to the Cable Guard safety update we put out this morning. We learned that a toddler in our community died after getting entangled in an unsecured camera cable. As a dad of three, I can't find adequate words — our hearts are broken for that family. For corded baby products, Cable Guards are an essential safety feature. That's why Owlet cameras rank among the few baby monitors in the industry that come with Cable Guards, which keep cords beyond a child's reach. We have notified the relevant regulatory agencies, as is our standard practice, and further steps may be necessary. Let me clarify exactly what this covers — it's limited to the Cable Guard accessory included with our cameras. Neither the camera unit itself nor our Dream Sock, which carries FDA clearance, is part of this. Owlet's founding mission was to help keep babies safe, and that mission still shapes everything we do. We're now supplying a replacement Cable Guard system with a fully enclosed design, and we believe it fulfills our promise to raise safety standards across the market; in this replacement, the cord arrives already encased within interlocking segments, which tackles the danger posed by camera cables that come loose or stay exposed. As far as we know, no competing baby monitor comes with a pre-locked, enclosed cable system. Every qualified Owlet camera owner can receive it at no cost. Each new camera will include it, plus straightforward instructions on safety and disposal. We've sent a formal stop-ship notice to all our retail channels. Retailers are going to halt sales of the impacted units — Dream Sight and Dream Duo — and they'll start offering the new units once restocked inventory arrives with the replacement Cable Guard inside. Dream Sock remains unaffected, whether at retail or via any other channel. As of today, every Dream Sight and Dream Duo bought on owletcare.com includes the enclosed Cable Guard system. Because the Cable Guard now comes in the box with each camera and Dream Duo, we're facing logistical and financial challenges in the fourth quarter. There could additionally be some effect on demand that we are unable to forecast at this point. Because of these unknowns, the range of possible fourth-quarter results is too broad for us to guide responsibly, and so we are withdrawing our 2026 outlook. Were it not for the impact of these actions, we would have been able to reaffirm our 2026 guidance. Core sell-through was running ahead of plan, subscription was developing as expected, and the fourth quarter was proceeding on schedule. I realize this makes for a hard period. We think this is the correct choice for the families we serve, and it demonstrates our dedication to best-in-class safety products, which form the foundation our digital platform rests on. Amanda will cover additional financial specifics. In my view, the efforts currently taking place at Owlet carry tremendous importance. Across the years, many moms and dads have told us that our technology allowed them to spot serious health incidents and obtain the help they needed. We believe deeply in what we set out to do, and we're advancing that work with real energy, since it matters to households around the world. What we make helps protect infants, and that fills us with pride. Now I'll turn to the two primary priorities we're pursuing: driving greater uptake of Dream Sock and Dream Duo across our main worldwide markets, and delivering health information to parents via the subscription platform. In the U.S., once you account for Prime Day shifting from July 2025 into June 2025, total sell-through units climbed 14% versus a year earlier, including a 23% improvement for Dream Sock and an 11% improvement for Duo. Owlet Dream Sock also remains a registry favorite. Babylist registry additions jumped 59% year-over-year. That gain was boosted by a surge in registry activity during August, as expectant parents shared their registries through the viral Babylist registry gifting movement. Part of that increase came from a one-time boost in August, yet it shows how often Dream Sock shows up on the list when families get ready for a new baby. We also started the fourth quarter well with Amazon's Prime Big Deal Days in October. During that event, U.S. sell-through units rose 15% versus last year's October event, and Dream Sock sell-through increased 48%; we view that as a promising sign after the first big Amazon event since FDA clearance became required for vital signs baby monitors. Turning now to international. Q3 revenue was $8 million — Owlet's second-best quarter ever. Reported results show an 18% year-over-year drop, but that comparison is skewed by last year's Q3 launch of Dream Sight and Dream Duo, along with the distributor load-in tied to it. Once you account for the Prime Day shift, international sell-through units were up 23% versus a year ago. Before moving to our next focus area, I want to share something we're really excited about: the Owlet Smart Thermometer, which launched this week. It's an FDA-registered forehead thermometer that works without touch and delivers a clinically accurate reading in one second while a sleeping child stays asleep. It works on its own when parents want a fast reading, and it can also connect to the Owlet Dream App so that each child's temperature history gets recorded; if a family already uses Dream Sock, then pulse rate, oxygen, sleep, and temperature all show up together in a single place. This thermometer additionally opens a fresh channel for Owlet to connect with parents. It's a daily-use item sold at a reasonable price point within a category found in almost every household with kids, and it places Owlet inside one of the most ordinary routines of caring for children. You can buy it right now in the U.S. through owletcare.com, and additional retail partners plus international markets will come later. Our thinking is that this lets us connect with additional families more frequently and create a connected health platform that expands alongside the family. With temperature added, parents gain another data point to monitor together with Dream Sock readings, and we believe that makes our connected platform more valuable.

Turning to our subscription platform: Q3 ended with more than 142,000 paying subscribers — up 83% from a year earlier and 10% higher than Q2. A growing number of families are picking Owlet360 for the long term. Quarterly annual signups nearly tripled compared with the prior quarter, and annual plans account for 13% of subscribers now, versus 8% in June. As we shared last quarter, our plan was to bring subscription to the point of purchase in more channels. On our website, parents have had the option to subscribe at checkout, and during this quarter we extended that capability to retail via our first subscription bundle on Amazon, pairing three months of Owlet360 with the device. Many families discover Owlet through Amazon initially, so bundling a subscription into that purchase allows more parents to start with the complete experience right away. We continue to trial web pay ahead of a wider launch, and we're working with Babylist so their customers can get a subscription upfront. Additionally, we keep enhancing Owlet360 daily. Our AI-driven Morning Report—one of the features subscribers use most—is now available to every subscriber in 13 countries, localized into seven languages. Each morning it examines the baby's previous night along with recent sleep history and provides what a sleep coach would: observations from overnight, trends to keep an eye on, and suggestions for the coming night. Our data gets turned into straightforward, tailored material that motivates parents to open the app every morning. Past the Morning Report, our aim is for Owlet to be present throughout the whole day, rather than only at night. Because parents are seeking greater predictability with naps, we're creating fresh capabilities that let subscribers view the full day's nap plan and adjust automatically if baby misses a nap or sleeps too long. Given that parents frequently neglect to log naps, we're adding nap reminder alerts and lock-screen nap timers on the phone for everyone, and subscribers additionally receive one-tap logging for predicted sessions within their daily schedule. We want parents to have a reason to open Owlet daily, not only during the night, and we think that makes the sleep guidance in Owlet360 more useful while boosting retention by means of engagement. The camera is still a major subscription opportunity for us, built around what parents say they need: a camera they can rely on nightly and that offers them guidance daily. Among the AI features we plan are cry translation, which assists parents in figuring out what their baby needs, and camera-based sleep tracking that needs no wearable. It isn't available yet, but that's how we envision Owlet remaining valuable to families far past the first 18 months. Now regarding Owlet OnCall, our next phase of development involves broadening it beyond just on-demand pediatrician access, adding capabilities that help with day-to-day baby care directly within the Owlet Dream App. To make that happen, we're building three new features, with rollout expected to start late this year and continue into next. First is a weekly update on what's going around, using CDC data on RSV, flu, and COVID for the family's zip code. Second is a daily log that consolidates feeds, diapers, medicine, and notes into one timeline, along with age-based guidance from the AAP and CDC. After that, there's a visit note-taker: with consent from everyone involved, it captures a doctor's appointment and provides parents with a summary plus next steps. Overnight care is something else we're working to make available with just one tap. Night Watch is the name of a new feature we're developing. Demand for healthcare visits is about double from 8:00 P.M. to 8:00 A.M., and filling that gap is our goal. Intake forms for the visit will be something parents can finish ahead of time, and they'll also have the option to share a seven-day summary of their baby's Dream Sock readings with the pediatrician, or keep it for their own records. We believe this is how OnCall will fit into a family's daily life and bring added value to our subscription offering as time goes on. Finally, a few words about Owlet One. As I noted earlier, our emphasis remains on shifting subscriptions to the moment of purchase, and Owlet One pushes that idea further. The aim is to deliver the best of what Owlet provides, with a smaller upfront cost combined with a monthly subscription. This lowers the barrier for families who might not yet have been willing to pay more at the start. The results from our testing have been very encouraging. Owlet One is converting at roughly four times the non-promotional rate we see for Dream Sock, and that indicates we're bringing in households that previously weren't purchasing. We remain in the test-and-learn stage, yet we view Owlet One as a significant long-term contributor to our subscription base. Let me wrap up with this. Safety sits at the heart of Owlet's mission; we've made an extraordinary difference when it comes to safety for families across the globe, and that is precisely why this matters so deeply to us. We expect some disruption in the near term as the safety update process unfolds, but doing it is right—for families to keep trusting us and for the business over the long haul. The foundation that drew so many of you to Owlet remains unchanged. What sets us apart is our baby monitor—the first and only one cleared by the FDA—along with a subscriber base that now exceeds 142,000 families and keeps expanding, one of the biggest pediatric health and sleep datasets anywhere in the world, several avenues for growth, and a team that never stops innovating. That's why we stay confident about our long-term opportunity to build the world's leading pediatric health platform. At this point, I'll hand the call over to Amanda.

Thanks, Kurt. Turning now to slide 13, where we cover our results for the third quarter of 2026. Unless I note otherwise, all my comparisons are Q3 2026 versus Q3 2025. Q3 total revenue was $30.4 million, down 4.9% from $32 million in the prior-year period. During our August call on Q2 financial results, we described two factors we expected to shape Q3. The first was the tough year-over-year comparable created by lapping last year's Q3 launch of the Dream Sight camera and the associated distributor load-in. The second was aggressive competitor discounting in the run-up to Amazon's August 10th FDA clearance deadline. Even though non-compliant third-party products stayed on the platform beyond that deadline, which hurt our Q3 sales, Amazon had cleared all of them by the end of September. Because of that, Owlet Dream Sock is now the sole baby monitor on Amazon tracking instant vital signs, which gives us a durable long-term advantage. Subscription revenue climbed to a record $3.6 million, an increase of $2.1 million year-over-year. Overall gross margin for Q3 was 53.8%, roughly 315 basis points higher than the prior year. Subscription gross margin came in at 68.4%. Total operating expenses in Q3 were $15.2 million, versus $14.9 million in the prior period. Operating expenses represented 49.9% of revenue. Q3 operating income was positive $1.2 million. For the third quarter, adjusted EBITDA came in at $3.5 million, which is $1.9 million higher than a year earlier. If you set aside last quarter—the one containing that one-time tariff refund—adjusted EBITDA was a quarterly record. As Kurt noted, Q3 brought positive cash flow, including a record $2.2 million in operating cash flow, as we kept working to put operational efficiency first and grow in a profitable way. Turning to the balance sheet: cash and cash equivalents, not counting restricted cash, were $31.6 million on September 30th, 2026, versus $30.9 million at the close of the previous quarter, June 30th, 2026. Add the $7.9 million available to us through our Wells Fargo credit facility, and total liquidity available was roughly $39.5 million when Q3 ended. Moving on to how the camera Cable Guard safety update affects us financially. Let me clarify what this work covers. The update concerns only the Cable Guard accessory for our cameras; it does not touch our core Dream Sock product or our monitoring capabilities. We've started a voluntary safety update along with a temporary stop sale covering our Dream Sight camera and Dream Duo products. Through this update, replacement Cable Guards will go to every qualified Owlet camera owner. The bulk of the direct financial effects will be booked in the fourth quarter of 2026, spanning areas, direct program costs and retailer returns. Starting with the direct costs tied to the program: we figure the expense of making and distributing replacement Cable Guards, along with logistics, customer support, legal and consulting fees, will land somewhere around $7 million to $10 million, with the main variable being how many customers ask for a replacement. Next, on the retailer returns side: because of the stop sale, we'll take back existing inventory that doesn't have the replacement Cable Guard in it. We estimate those retailer returns at between $9 million and $12 million, and that figure will be recorded as a revenue reduction in the fourth quarter. For any returned inventory that can be sold later, we expect to recognize an asset valued at an estimated $3 million to $4 million. The cost tied to our return estimate doesn’t include possible inventory replenishment. That said, as retailers restock with the replacement Cable Guard, we estimate an initial load-in of $2 million to $5 million, which would partly offset the retail returns we just covered. Any replenishment will be recorded as revenue when it happens, depending on retailer demand and whether the replacement Cable Guard is available; we’re working closely with our retail partners, and they’ve been supportive throughout this. Dream Sock, which accounts for 70% of revenue to date, will stay in all channels during Black Friday. Also, since Dream Sock drives much of the demand for Dream Duo, some of those lost sales may move to Dream Sock. To wrap up, Dream Sight and Dream Duo — along with the replacement Cable Guard system — are going to be available on owletcare.com for the entire Black Friday promotion. And finally, we hold an insurance policy with a $10 million limit that could help offset some costs associated with the program. Whether we recover anything hinges on the policy's terms, conditions, and retention; so far we haven't recognized any insurance recovery, and both the timing and the amount of any recovery remain uncertain. Now moving to our outlook: as Kurt mentioned, aside from these actions, we were able to reaffirm the full-year outlook. Our business fundamentals are strong. But given the safety update, we're pulling our full-year 2026 guidance. That had been revenue between $118 million and $122 million, gross margin in the 53% to 55% range, and adjusted EBITDA of $10.75 million to $12.75 million. Let me explain the reasoning. Our fourth quarter is hit by the safety update in a few ways. We can make reasonable estimates on three of them as of today. The first is retailer returns of $9 million to $12 million, and that reduces fourth quarter revenue. The second is a $3 million to $4 million offset tied to returned inventory that we can rework and sell later on. And the third is $7 million to $10 million of direct program costs, which puts the total net impact at $13 million to $18 million. Three effects remain that we cannot yet measure with confidence. The first is when stores will restock once shelves carry product featuring the replacement Cable Guards. We expect somewhere between $2 million and $5 million in revenue from that initial load-in. Both the schedule and the size of it hinge on retailer acceptance, when orders are placed, and whether inventory is on hand. The second is how demand may be affected, particularly through the Black Friday and holiday selling periods. The third is any insurance recovery we might obtain, potentially as much as $10 million. Reimbursement is not assured, though we are cooperating closely with our insurance carriers to pin down the amount. Taken together, these open variables produce a spread of fourth quarter possibilities too broad for us to offer responsible guidance. Ahead of taking your questions, I'd like to echo what Kurt expressed about confidence. We do anticipate a bit of near-term turbulence as this process plays out, but for the company it's the right decision, and we believe in the underlying strength and the lasting potential for Owlet to remain whole. With that said, we'll open the floor for your questions now.

Hi Amanda. Hi Kurt. I appreciate you taking my questions. First off, I just want to get clarity: is this safety problem tied only to the camera line, or does it affect Dream Sock or the Owlet One bundle in any way?

Hi Owen. Thanks for asking. Sure, so to be clear, the Cable Guard is an accessory included with every one of our camera and Duo products. It has nothing to do with the camera itself, how the camera functions, or particularly the Dream Sock or the Dream Sock's monitoring capabilities; this really centers on that. The impact, however, since it comes in the boxes with Dream Duo and with camera, is the retail switch we're handling right now to bring in new inventory and send the old inventory back. That's where the main impact lies. Every camera customer or Duo customer who has one of those Cable Guards will get a free replacement. I'll add that it doesn't affect Dream Sock sales, which account for about 70% of the business. And when you consider Dream Duo, which represents most of the rest of our revenue, that business is primarily driven by Sock. Although we do anticipate a transition period while we get new inventory to our retailers, we do think a good share of that demand shifts to Sock in the meantime, since that's what drives demand for Duo.

All right, understood. Thanks. And a second thing from my side: how is testing of Owlet One going right now, and will the Cable Guard safety update affect either the rollout schedule or the messaging around the bundle?

Yes, thanks for asking that. We're very enthusiastic about how far we've come with Owlet One. Beyond seeing conversion rates rise considerably, we're now bringing in a fresh customer group that Owlet couldn't reach previously, and every buyer of Owlet One enters a higher-tier subscription flow featuring the very best of what Owlet offers. The new Cable Guard system is live on our website as of today, so Owlet One timelines won't be affected; we remain in the test and learn phase; retention so far appears positive. It actually looks stronger than what we see with Sock or Cam. Across all the metrics we care about, we're simply seeing success, so over the coming months that will probably start rolling out more prominently on our website. This won't cause any slowdown.

Got it. Thanks, Kurt.

Thanks, Owen.

Morning, everyone, and thanks for joining with your questions. To start, I want to follow up on Owlet One and the way the economics work there. My guess is that you bring in more buyers to your own site and keep the retail margin yourselves, plus you may also sidestep app store fees. Could you explain how those bundles perform compared with how things sell via a conventional retailer?

Yes, and thanks for asking, Ben. With Owlet One, we've tested a lot of different price points so we could grasp what happens to volume and to list when we offer it at the lower price; the data coming back is genuinely interesting and it's shaping our future pricing choices. What I can tell you about Owlet One, though, is that its conversion rate is far above that of a standard Dream Sock or Dream Duo, so we're quite optimistic. On the recurring membership we've been trying at $19 a month, breaking even against the status quo model currently takes only a few months, so we view this as a substantial chance to bring in more users and grow that subscriber base. In the end, more recurring revenue is what we're after. We're at an early stage still, just testing and learning, yet this is something we'd eventually like to roll out on a wider basis.

Ben, I’d just add that over the last 10 years we’ve built such a strong funnel that millions of parents each year know about Owlet and think about Owlet, and this makes that funnel much wider. Then, to Amanda’s point, it also extends LTV and raises margin, and it’s something that lets more families get access, and over the long term it creates more opportunity for Owlet as well.

That's useful color. Turning to the cable matter, my assumption is that you'd automatically alert everybody through the app and would have a fairly solid sense of your exposure pretty fast. First, is that right? And then, can you put a number on how much inventory sits in the channel? Apologies if I overlooked that figure.

Yes. There's a safety update inside the app, so all of our users, 100%, will be able to go through it. It's a genuinely smart system that helps clarify how they're using the camera at present, provides the appropriate safety recommendations, and makes ordering the Cable Guards at no cost really simple. We'll know quite soon how it's trending and where it will end up, so we can monitor that closely; as for what's in the channel, I think roughly 40,000 units sit in the channel today across Cam and Duo. Amanda, is that roughly a 50/50 split

It’s more Dream Duo than Dream Sight, simply because Dream Duo makes up a bigger share of units relative to the camera. But that in-channel amount—the $9 million to $12 million we expect in retailer returns—would take in the units Kurt is talking about.