Owlet, Inc. Price & Performance (OWLT)

Earlier today, Owlet released financial results for the fourth quarter and full year ended 12/31/2024. [indiscernible] I'm pleased to be joined today by Curt Workman, Alett's Co Founder and CEO Johnson Harris President and Chief Revenue Officer and Amanda Tweed Crawford, our CFO. Before we begin, please note that our financial results press release and presentation slides referred to on this call are available under the Events and Presentations section of our Investor Relations website. At investors.alaccare.com. This call is also being webcast live with a link at the same website. The webcast and accompanying slides will be available for replay for twelve months following this call.

The content on today's call is the property Owlet. It cannot be reproduced or transcribed without our prior consent.

Before we begin, I'd like to refer you to our Safe Harbor disclaimer on Slide three of the presentation [indiscernible] Today's discussion will contain forward looking statements based on the company's current views and expectations as of today's date. These statements are only predictions and are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, but are not limited to, those disclosed section of our Annual Report on Form 10 ks. Please note that the company assumes no obligation to update any forward looking statements whether as a result of new information, future events or otherwise, except as required by law. With that, it's my pleasure to turn the call over to our CEO, Curt Workman. Curt? Thanks, Jay, and good afternoon, everyone. Thank you for joining Allied's fourth quarter and full year twenty twenty four financial results call today. As always, we sincerely appreciate your continued support. I will begin on Slide five. 2024 was a pivotal year for Owlet. Building off momentum from creating the first and only FDA cleared baby monitor, we kicked off 2024 by launching both of our FDA cleared devices.

DreamSock and BabySat.

Defining a new category of medical grade infant health monitors.

We leverage these powerful endorsements of our technologies to expand our global footprint throughout 2024 with CE Medical approval in Europe. Taking us to 26 total countries by year end contributing to 98% of international revenue growth in 2024 versus 2023. Capitalizing on BabySats FDA clearance, we began to lay the groundwork in 2024 to open up the large long term opportunity for insurance reimbursement in the medical market. Owlet expanded our medical distribution channels throughout the year, ending 2024 with six DMEs and began rolling out to 12 Medicaid states. Finally, we crossed a significant milestone with the Owlet development and deployment of our new Owlette360 subscription service last year with the full marketing launch at the January. ALLOW360 is the beginning of our vision of moving the center of care to the home. Enabling parents to better navigate health and sleep challenges without needing travel to the doctor. Alongside our 2024 product sales and partnership successes, we significantly improved our financial performance. Capping off the year with exceptional fourth quarter results. 2024 was truly a breakout financial year for Owlet. The best in company history. We established financial guidance for the first time in three years on the second quarter twenty twenty four earnings call.

Including strong Q4 results released today, we exceeded the high end of all guidance ranges for revenue, gross profit, gross margin and adjusted EBITDA.

This coincided with company records for revenue, gross profit, gross margin, and adjusted EBITDA for full year 2024. 2024 revenue was 78,100,000.0 representing 45% growth compared to 2023. We continue to improve our cost profile throughout the year. And in combination with strong top line growth significantly expanded gross margins to over 50% for the full year 2024. The best annual gross margin in Owlet history.

Finally, we turned the quarter on profitability with the final three quarters of twenty twenty four at positive adjusted EBITDA. This included significantly improving adjusted EBITDA by over $14,000,000 in 2024 versus 2023.

It's clear 2024 was a turning point for Owlet. And I could not be prouder of the incredible amount this team has accomplished and a huge step forward as a company. Now zooming into our fourth quarter twenty twenty four performance on Slide six.

Owlet delivered an exceptional quarter exceeding expectations across all key metrics. We achieved revenue of $20,500,000 dollars in the fourth quarter twenty twenty four.

Adjusting for revenue associated with the new Amazon distribution partner agreement, we signed last year that shifted $6,000,000 in revenue from Q3 to Q4 in 2023 and year over year revenue growth was 37%. Fourth quarter twenty twenty four gross margins were 53.5%, increasing six fifty basis points versus prior year. Q4 twenty twenty four represents our seventh consecutive quarter of year over year gross margin expansion.

Adjusted EBITDA was $500,000 in Q4, an improvement of $1,200,000 versus fourth quarter twenty twenty three. We completed the year with three consecutive quarters of positive adjusted EBITDA as we look toward expanding profitability going forward.

Our strong Q4 results underscore the significant momentum we have in the business. Alex has never been better positioned as a company.

We kicked off 2025 by announcing a major milestone [indiscernible] The official launch of our new subscription service [indiscernible] Owlette360 puts the value from ALEC's massive dataset of pediatric health and sleep information directly into the hands of parents and caregivers. A reminder that the cost of healthcare in the first five years of life is quite staggering. In The United States alone, there are 12,000,000 annual pediatric ER visits. 80,000,000 pediatric office visits, and hundreds of thousands of babies who stay in the NICU. This adds up to over $30,000,000,000 in pediatric healthcare costs. Every single year just in The U. S. Owlet is aimed to empower parents at home with information that can help them better manage care for their children.

We believe that unlocking care at home is the key to improving overall infant health outcomes and reducing costs.

The launch of ALLAT360 also positions us closer to delivering on the potential of telehealth than we've ever been. Leveraging the information from Owlet parents will be able to chat with their pediatricians, nurses, sleep coaches and maternal health professionals while sharing their infant's data from the app. In order to provide more personalized, actionable remote care.

We'll begin testing our first in app telehealth visits in the second quarter of this year.

Before releasing more broadly throughout 2025 as we refine the opportunity. Initial subscription metrics are trending very positive. Exceeding our expectations with the attach rates for the January cohort at approximately 12% in just the first month. We expect this cohort's attach rate will continue to increase. And note that attach rate is before official launch on January 28, without any real marketing spend supporting our confidence in the adoption potential. Jonathan will dive into more details of this innovative service we're so proud of.

From a strategic standpoint, ALLETT360's launch marks a significant step in ALLETT's evolution into a comprehensive pediatric health platform that I'd like to unpack. First, this is an additional growth lever. Driving more predictable recurring revenue for Owlet. We already have an established loyal customer base to initially roll Outlet360 out to. [indiscernible] with over 500,000 Outlet Care monthly app users. And growing. We believe we've aggregated the largest pediatric health population on the planet. Second, ALLETT three sixty supports our goal of growing long term profitability. [indiscernible] Subscription margins are accretive to current margins. The service does not require substantial ongoing costs or capital expenditures. Third, Owlet represents a major shift in LTV potential for Owlet. Owlette has been very focused on infants and will continue to be but the pains of parenthood don't stop at 18 as healthcare utilization remains very high in the early childhood years. Owlet wants to be an important part of the parent child journey and a compelling subscription service extends the longevity of Owlet's potential relationship with families. Finally, Allot three sixty enhances our competitive differentiation as the category leader in pediatric health and safety. Our massive and growing dataset is unique in the market today.

Unlocking these tools for parents and caregivers through subscription makes it harder for competitors to match our value.

Which increases the value proposition for our full product suite. Which in turn increases our scale to drive more data to deliver better solutions. In addition, as we begin to add features to the Owlet three sixty platform such as integrating professional service partners, telehealth capabilities and other enhancements in the works the value proposition will continue to strengthen. We could not be more excited about this next phase for Owlet. I'd now like to turn the call over to Jonathan to walk through recent progress against our strategic focus areas. Thanks, Kurt. We're thrilled to embark on this next chapter for Owlet.

The launch of Owlet three sixty marks an exciting inflection point positioning us to deliver long term value as a leading pediatric health platform.

Our success hinges on purposeful execution across our three strategic focus areas for growth.

First, driving continued global adoption of DreamSock, Second, expanding medical and healthcare channels to offer an and third, transitioning Owlet into a service through the Owlette three sixty supporting parents from infancy into their toddler years and increasing customer lifetime value.

These three priorities will remain consistent with 2024 and we believe they are the right areas to continue to stay hyper focused on this year. In The U. S, DreamSOC demand remains robust. With another strong quarter of domestic sell through growth of 34% versus Q4 twenty twenty three. We also continue to gain market share. According to consumer research firms, SIRCONA and ALICE OWN data, Owlette now has the largest share of total dollars spent in the baby monitor category. Brand health remained strong. DreamSock net promoter score closed the year at 73. Reflecting high customer satisfaction. We're also seeing positive sentiment in our registry trends with Q4 showing a 72% year over year increase in DreamSock additions to all registries we track.

With new parents increasingly prioritizing DreamSOC on their nursery list.

This customer enthusiasm has continued to maintain return rates down consistently lower than our historical averages. Looking at domestic growth potential, we see a clear path forward.

Products that enhance baby health and safety like car seats or breast pumps often achieve category level adoption. We believe every baby will eventually have access to health monitoring and Owlet is the category leader. And the only FDA cleared monitor on the market. Currently, DreamSOC only has a 10% adopt rate broadly across The U. S. But states like Iowa, Nebraska and Utah show significantly higher penetration. These markets with smaller birth populations and generally more price sensitive demonstrate the power of word-of-mouth amongst parents. As awareness continues to grow in larger states like California, Florida, New Jersey and Texas, we expect adoption to align with our top performing regions. In Internationally, adoption remains a bright spot. Despite a breakout 2024, we're just scratching the surface globally. Europe's birth rate slightly exceeds those in The U. S. And with continued could unlock significant growth. In Q4, international revenue grew 45% year over year. Black Friday was a standout.

With Amazon sell through up 72% in The UK and up 147% in Germany compared to Q4 twenty twenty three. We intend to continue to expand the opportunities for DreamSOC globally. Capitalizing on the momentum from 2024 as more parents worldwide choose Alec. In U. S. Healthcare, we're making solid progress and In 2024, we ramped up commercialization to tap into the large accretive health care market in order to elevate the standard of care for higher risk infants. As a reminder, Babysat, our FDA cleared prescription eligible device targets babies at higher risk such as those discharged from the NICU or with serious conditions. This market includes over 570,000 U. S. Babies annually and over sixteen percent of all U. S. Births. All of whom could benefit from medical grade at home monitoring. We see no reason why every one of these infants shouldn't leave the hospital with a prescribed reimbursable baby sat. [indiscernible] partners added in 2024. We're working on expanding commercial insurance coverage and began rolling out Medicaid reimbursement with 12 states signed up. Who will be fully operational by mid-twenty twenty five.

This channel will take time to scale and that work will continue through 2025. But the feedback we're receiving from parents and clinicians alike reinforces Baby Sat's value the potential long term opportunity. Finally, I'd like to on to Curt's introduction of Owlet. The launch of Owlet360 is a pivotal milestone in our evolution from a hardware company to a comprehensive pediatric health platform. Supporting parents from day one through the toddler ears. Building on our data set that has monitored millions of babies and trillions of heartbeats, Owlet360 delivers personalized actionable insights into key health metrics. Pulse Rate, oxygen levels, movement and comfort temperature. Parents can compare their baby's trends against our vast pediatric database gaining daily and weekly insights into health and sleep patterns to understand what's normal and when attention may be needed. No other platform offers this level of at home infant insights. We've already onboarded over 25,000 paying subscribers with fantastic early feedback Parents report greater reassurance and confidence. With some noting reduced unnecessary healthcare visits. Retention rates remained strong at approximately eighty five consistent with Q3. And sixty percent of subscribers are active daily users. Attach rates from the January cohort hit 12% prelaunch exceeding expectations and we anticipate even stronger results with marketing efforts already underway.

Priced at an introductory $5.99 per month Owlet three sixty will see additional features enhancements and international expansion later this year. This service bridges the gap between hospital and home care driving predictable recurring revenue boosting LTV, and growing our connected ecosystem. Owlet is firing on all cylinders across our strategic initiatives. And as we enter 2025 at this critical inflection point, our priorities are clear. Sustain Dream SOX core growth, Gale Babysat and Outlet360 and X execute with operational efficiency to deliver meaningful value for all of our stakeholders. We're excited about the road ahead and remain committed to empowering parents while advancing infant health and well-being worldwide. I'll now pass the call to Amanda to discuss our results in more detail as well as our 2025 outlook. Amanda, over to you. Thank you, Jonathan, and good afternoon, everyone. I'll begin on Slide 15.

Unless noted otherwise, I will be comparing our fourth quarter twenty twenty four results to the fourth quarter of twenty twenty three. Financial results are preliminary until our 10 ks filing. Q4 was another strong quarter as we exceeded the high end of the raised guidance we provided on the third quarter twenty twenty four earnings call. Across all key metrics. Revenue, gross profit, gross margin, and adjusted EBITDA. Revenue in the fourth quarter was $20,500,000 Excluding the revenue impact from the prior year Amazon distribution partner transition, which shifted $6,000,000 of revenue from Q3 to Q4 twenty twenty three revenue was up 37% compared to Q4 twenty twenty three. Revenue growth was driven primarily by sales of DreamSock and Duo.

Full year 2024 revenue was a record at $78,100,000 growth of 45% versus prior year. Exceeding the high end of our guidance. Gross margin in the fourth quarter was 53.5%, an increase of six fifty basis points over prior year. This was our seventh consecutive quarter of year over year gross margin The significant gross margin improvement reflects strong volume growth, favorable product mix toward DreamSock, a reduction in return rates and improved fixed cost absorption. Full year 2024 gross margin was a record for Owlet at 50.4%. Expanding eight fifty basis points versus 2023. And exceeding the high end of our guidance expectations. Total operating expenses in the fourth quarter were $18,400,000 including stock based compensation of $1,600,000 representing an increase of $5,400,000 versus the same period last year. Operating costs increased in Q4 primarily due to $6,200,000 of charges related to certain legal matters. These charges were primarily related to the settlement and legal costs associated with two outstanding cases related to our 2021 SPAC offering which plaintiffs alleged we made false or misleading statements and failed to disclose certain information regarding the FDA's potential classification of our Smart Sock as a medical device. Requiring marketing authorization. We have been vigorously defending these cases ever since they were filed, while we do not admit any wrongdoing, and continue to strongly disagree with the allegations, the cost and resource strain of continuing to fight these cases has outweighed the benefits of settlement.

We expect insurance will cover a portion of the settlement costs However, any potential insurance recovery has not been included our 2024 results. Operating loss in the fourth quarter was $7,400,000 compared to $3,100,000 the same period last year. Net loss in the fourth quarter was $9,100,000 versus $6,900,000 in the same period last year.

Fourth quarter adjusted EBITDA was positive $500,000 an improvement of $1,200,000 compared to the same period last year. Top line growth in combination with our focus on operational efficiency drove the increase. As we concluded the year with three consecutive quarters of positive adjusted EBITDA. Full year 2024 adjusted EBITDA was negative $2,000,000 improving $14,300,000 compared to 2023. 2024 adjusted EBITDA exceeded the high end of our guidance expectations. Turning to our balance sheet. Cash and cash equivalents equivalents as of quarter end December thirty one, twenty twenty four were $20,200,000 down slightly from $21,500,000 in the third Shifting to our 2025 financial outlook on Slide 19. As Jonathan mentioned, 2025 will be about capitalizing on the momentum exiting 2024 and purposeful execution to deliver on our strategic areas for growth.

For the full year 2025, we expect to generate revenue in the range of $88,000,000 to $92,000,000 dollars Our first half revenue seasonality is In the second half, we're observing a change in retailer purchasing patterns. Specifically, key partners are holding fewer weeks of inventory and pushing Black Friday related orders into Q4. We expect that there will be a shift in revenue from Q3 to Q4 compared to the prior year making Q4 our highest revenue contribution quarter.

We also expect gross margins in the range of 50% to 52%. Demonstrating expansion over 2024. And finally, we are striving to achieve adjusted EBITDA profitability for the full year 2025. Would represent strong improvement over 2024. And with that, we will now take your questions.

The first question is from the line of Charles Ryrie with TD Hi. This is Lucas on for Charles. Thanks for taking the questions and congrats on the quarter. In your guidance, you're guiding to revenue growth of excuse me, about 13% to, I believe 18%, if I had that right. I guess, can you help us understand how much of this is expected to come from the DreamSock and Duo as well as other products like BabySat and then obviously, I understand it's early days for Owlet, but can you help us understand what's baked into the guide in relation from contribution from that subscription offering?

Yes. So as far as the guidance goes, related to Owlet three sixty, which we just launched, we're being pretty careful in what we model internally. While early indicators are looking really positive, it's still early. So for both Owlet three sixty and Babysat, we're not assuming any material revenue in '25.

Okay.

Appreciate that. And then maybe if I can just ask the same question in terms of what kind of international you guys saw pretty strong growth in 2024 and ending 2024 with 45% growth in 4Q. Can you help us understand maybe what's assumed in the guidance from international and U. S. Yes. So currently, there is a little bit of a difference between how we look at The U. S. Versus international just because the international markets are still emerging So it does represent a little bit of a bigger opportunity in terms of growth. So the growth is expected to come equally from both The U. S. And international, but as a relative proportion for international's baseline, international is going to grow more So if you split the growth, if that makes sense, in that range, half of that dollar value growth would come from The U. S. And half would come from international.

Okay, that's helpful.

And then I guess focusing on The U. S, obviously, you guys are doing really well in the three states, Iowa, Utah, Nebraska that you had named out specifically. And you know that word-of-mouth is an integral part of seeing higher adoption rate in these states. I guess how do we get states more populated states like California, Texas, and Florida to see higher adopt Yes, for sure. I think the biggest thing to note is that the awareness is the highest correlation with adoption in these states.

So the three states you mentioned have the highest levels of awareness for Owlet. And it's just really about driving credible awareness in each of those states. And we're doing that not only through partnerships expanding our reach with partners and influencers, social media and digital marketing. We're also really driving more engagement in the product. I think one of the biggest opportunities this next year is with Owlet three sixty there's going to be a lot more value driving into the product every single month this year. And that's going to continue to turn that word-of-mouth, which we think will help us in those states. We're already seeing the tipping point happen in some of the high awareness states. As we get the rest of the states on board, we think that the opportunity [indiscernible] to create a standard of care in a new category with health monitoring is is absolutely massive.

Understood. And then maybe another question on the guidance I want to ask about gross margin. In 4Q, we saw gross margin nearly get up to 54%, but in 2025, we're guiding to 5052%. Obviously, 4Q saw strong mix heavier mix of Dreamstock as well as improved fixed cost absorption. So I guess can you kind of detail why we're assuming gross margin steps down? Is that largely conservatism or should we think about something else driving that Owlet?

Yes. When it comes to gross margin, when we're looking at it for the full year, our guidance is actually stepping up. We had a blended margin of around percent for full year 2024. So for 2025, [indiscernible] see a little bit of like seasonality within our quarters as far as our gross margin percentage goes. And that's really driven by promotional activity. So we are expecting margins to grow next year.

Got you. Understood. And then I guess my last question here and then I'll hop back into the queue. You guys noted making progress with payers now having 12 Medicaid states. Last quarter you announced Cigna was covering baby sat. Can you maybe give us a little color on what kind of progress you're seeing with other types of payers Look to hear just kind of how those conversations are progressing.

Yes, great question. We're really making great strides working with AdaptHealth, our partner DME partner. Working directly with their sales team that are calling on HAAS So we're really focused on states where they're extremely strong. And really driving that Medicaid reimbursement. So it's a slow process, but we're making strides in driving success on there. And we're continuing to push and work closely with our partner in this. [indiscernible] Great. Thank you. Congrats again on the quarter.

Thank you.

The next question is from the line of Ben Haynor with Lake Street Capital Markets. [indiscernible] First off for me, just on the Owlet three sixty, it sounds like the early returns are quite exciting. But I was wondering, do you have a sense on where retention can kind of asset both Jonathan, I mean, is there something in your historical experience and other firms or what you've seen on subscriptions already with the daily active users on where that could kind of bottom out at [indiscernible] yes, I see us continuing to to drive quite a bit of success with the the features that we've rolled out so far. We're seeing quite a bit of engagement. On subscription. So with greater engagement drives greater retention. Also, we believe that can really drive momentum and extend that word-of-mouth as parents share their stories with other parents and really start building on itself And as we get later into the year, we're going to really be investing in telehealth and helping to address that $30,000,000,000 that are spent every year in pediatric care for children zero to five.

So we believe that we're in the super early days of providing true value on our subscription, which will continue to drive that momentum and execute against a great year.

Got it. And then on the at least of January 28 and January 26, launch, I guess, would that when kind of the marketing kicked off for Owlet three sixty or what's the right way to think about that in any anything anecdotal you can share on how that's progressed since the twenty eighth and twenty sixth.

Yes. I mean, really at the January, we're in a beta.

Before that. So that was really our first launch like true public launch. We had a subset [indiscernible] of users prior to that. So now we're fully active and engaged and we're pushing with in app communication and we're really starting you're in the first phases of really seeing an overall outlet marketing campaign driving not only the benefits of the DreamSock itself, but the value of this data platform that we're really starting to build out with the Owlet three sixty.

So again, super early, but initial feedback is extremely positive from our user base. And we believe that they're going to be telling their friends and family and peer group about this to extend the value.

Okay.

That's great.

And then on kind of the adoption dynamics that you see in Europe or outside The U. S, do you have any sort of experiences that you can point to like you've seen in some of the states where you kind of get to a critical mass and all of a sudden adoption accelerates or is it just too early in most of these countries?

I'd say it's still pretty early, but I'll give you Germany is a great example. Like getting this CE clearance in Germany, Germany was always a strong market, but market, but as you know, like Germany is probably the strongest GDP throughout Europe. And then getting that CE Medmark, we saw a big surge just because it's sort of the prove it to me.

So we're really beginning to see strong strength throughout Germany, which is a great sign for us because that's a newer market within Europe for us. Like The UK has always been a strong market, but we're really starting to see good momentum in Germany, which is a strong GDP, which will continue to grow across Northern Europe for us.

Okay, great. And then lastly for me, I think you mentioned the last quarter the '6 and kind of developing with NICUs and hospitals and such, Any updates there on how those sorts of conversations have progressed Yeah. AdaptHealth has been really helpful getting us into these NICUs in these hospitals. In fact, for the first time, we're hearing from people across country that their physicians are actually recommending Owlet So NICU neonatologists are in [indiscernible] as the babies are leaving the hospital. So again, we've had essentially a full year of that FDA clearance and that is rolling out through the pediatric [indiscernible] And continuing to gain momentum. So it's not just us or other families, but now the pediatricians and the neonatologists are starting to recommend. So very good sign for us.

Excellent. Well, that's all I had folks and thanks for taking the questions. Congrats on the progress. Thank you.

There are currently no questions registered. Are no additional questions waiting at this time. I would now like to pass the conference back over for closing remarks. [indiscernible] really glad that we can be here today and I want to thank the Owlet team for continuing to outperform and execute. Really proud of our team. We are witnessing a fundamental shift with medical professionals increasingly recommending Owlet products reinforcing our vision of making health monitoring standard of care for every baby [indiscernible] As we look ahead, we're committed to leveraging our technology and our data to revolutionize And we really want to address the critical need for earlier detection and improved health at home. We believe this will not only improve outcomes for babies, but also transform the way parents are able to navigate care. So thank you for joining us today, and we are very grateful for your continued support.

That concludes the Owlet fourth quarter twenty twenty four earnings conference call. Thank you for your participation. Enjoy the rest of your day.