Q4 2021 Owlet Inc Earnings Call
Excuse me the call will begin momentarily again, the call will begin momentarily.
[music].
Good evening. Thank you for attending today's I'll, let Q4 2021 earnings call. My name is <unk> and I will be your moderator for today's call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if you would like to ask.
A question. Please press star one on your telephone keypad now.
Like to pass the conference over to our host Mike Cavanagh. Please go ahead.
Good afternoon, and thank you for joining us today earlier today I'll, let incorporated released financial results for the quarter ended December 31, 2021, and the full year 2021.
The release is currently available on the company's website at investors Dot I'll, let care Dot com.
Curt Wortman outlets cofounder, and Chief Executive Officer, and Kate <unk>, Chief Financial Officer will host this afternoon's call.
Before we get started I would like to remind everyone that certain matters discussed in today's conference call and or answers that may be given to questions asked are forward looking statements that are subject to risks and uncertainties related to future events and or the future financial performance of the company actual results could differ materially from those anticipated.
And these forward looking statements.
The risk factors that may affect results are detailed in the Companys. Most recent public filings with the U S Securities and Exchange Commission, including its quarterly report for the quarter ended September 32021, and to other reports filed with the SEC, which can be found on its website at investors got I'll, let care dot com.
Or on the SEC's website at Www Dot FCC Dot Gov. The information provided in this conference call speaks only as of today's live call.
I will let disclaims any intention or obligation except as required by law to update or revise any information financial projections or other forward looking statements, whether because of new information future events or otherwise.
Please note that I'll, let will refer to certain non-GAAP financial information on today's call you can find reconciliations to the non-GAAP financial measures to most comparable GAAP measures in the company's earnings press release, which is also available on the company's investor page of its website.
I will now turn the call over to Kurt.
Thanks, Mike and thank you all for joining us today for our first earnings call of the year. We're excited to share an update on the progress we've made as the business our dream and dream to our product offerings are now in the market in the U S and we're making great progress on our product roadmap.
We're seeing continued acceleration and adoption of our products and our international markets and we're confident in the long term opportunity ahead of us.
First I look back at 2021, our team met our revenue goals through the third quarter of 2021 exceeding our full year 2020 revenue in just the first three quarters of 2021, we.
We did experienced an unexpected development when at the beginning of the fourth quarter of 2021 outlet received a warning letter from the SBA alleging that the heart rate and oxygen notifications on the smart sock and certain related marketing claims rendered the smart soccer medical device, requiring premarket clearance or approval from the FDA.
Cooperating with Fda's request you'd hoped itself are all smart sock products in the U S. In October of 2021.
From there and just about 90 days, we developed and launched the new products, while focusing on deepening our retail customer relationships to effectively manage the product transition during the holiday season. The efforts of our teams here at outlet speak to the dedication to our mission of supporting parents.
Our ability to pivot quickly and the breadth of our technology platform over.
Over the course of the fourth quarter, we've already accomplished a great deal to get all that back on track and deliver a true connected ecosystem for today's parents.
We kicked off 2022 by launching the brand New Dream product line in the U S. On January 5th a major milestone for our team as we continue forward. Following the FDA letter. This concludes the dreams dock and Dream duo which consists of the dream stock and I'll, let cam as a bundle.
The dream duo and drink sock monitor babies, while they sleep.
To help parents understand theyre little one's sleep and no one to assist their maybe for better sleep empowering parents with information and insight to support better sleep to dream duos, our most intelligent monitoring system yet.
Yes.
Let me characterize the first few weeks of the Dream Zachmann Dream duo launch an outlet online January 5th in January six.
Our best non promotional sales days ever.
Additionally, all retailers that previously carried the smart stock are now selling the dream Doc line, our retail rollout is still in progress and we are pleased with the initial results both in terms of demand and customer feedback.
We'll report back in our next call on the results as we need some additional time to be thoughtful on the look ahead. So we can share the outlook for 2022.
Outside of the U S. We continue our international product expansion International revenue grew by over 100% from 'twenty to 'twenty to 2021 outlook.
<unk> products are now available in 16 countries with additional launches coming in 2022.
In Germany, we just received the news that 91 out of 100 midwives with haven't been testing would recommend the smart stock.
We are excited about recommendations like these as well as continued product adoption around the world.
In regards to an update on U S regulatory matters are ongoing conversations with the FDA sent around three areas.
First ensuring that the dream products are not intended for use as medical devices, which could make them subject to FDA pre market clearance or approval.
Second working toward gaining FDA pre market authorization on the heart rate and oxygen notification features previously in the smart stock product line.
And finally similar to the second point continuing to pursue the development of a prescription only stock for babies, who need medical monitoring at home.
Medical devices are an important strategic focus and area of investment for outlet, both domestically and internationally.
In regards to an international update we recently received our ISO 13, 45 and M. D. SaaS certificates as we work towards submitting medical device applications for the smart stacked in the U K, the European Union and Canada.
We have a robust product roadmap as well we plan to launch a new version of the outlet Cam later this year.
We're working to grow our sleepwear product line in Q4 of 2021, we launched the outlet sleeper a wearable blanket and in 2022, we plan to expand that sleepwear line.
We also continue to work on expanding our sleep ecosystem, including a smart grid.
We will share more on our roadmap and continued research and development and future update.
Continuing to grow the dream product lines at building out new parts of the ecosystem and continued international expansion. We are optimistic about the opportunities ahead for outlet.
I'll now turn the time over to Kate for a review of the financials from Q4 and the full year 2021.
Thank you and good afternoon, everyone.
Curt outlined for the first three quarters of 2021.
We're demonstrating great momentum towards our operational and financial goals.
In the fourth quarter on the receipt of the warning letter from FDA. The company chose to hold sales of all smart products in the U S and accept returns from U S retailers.
As a result for the fourth quarter and year ended 2021. The company recorded a contra revenue adjustment of $23 2 million were received and anticipated returns on balance heart attack and the outlet monitor duo products.
Return estimates were developed in partnership with our retailers and we do not anticipate material return adjustments for smart tuck in the U S in future periods.
Q4 product gross billings before promotions and reserves were approximately 11 million a portion of which included initial shipments of <unk> products.
We define gross billing as amounts invoiced to customers. It does not include the impact of adjustments such as promotions.
Discounts and other allowances.
The cessation of U S smart Sac enduro sales and product returns however.
Walter the in total net negative revenues of $2 5 million.
Fourth quarter 2021.
Q4 cost of goods sold was $3 5 million, including a benefit of $8 2 million related to product returns and gross profit was negative $6 million.
Operating expenses for the fourth quarter, 2021, or $27 3 million compared to $13 5 million for the same period in 2020.
The increase in year over year operating expenses was primarily for planned increases in spending associated with the scaling of the business and higher marketing spend.
Operating loss and net loss for the fourth quarter of 2021 were $33 3 million and $24 1 million, respectively, as compared with $3 4 million operating loss and $5 8 million net loss for the same period in 2020.
EBITDA loss for the fourth quarter 2021 was $23 3 million.
Compared to EBITDA loss of $5 2 million for the same period in 2020.
Adjusted EBITDA loss for the fourth quarter 2021, it was $31 3 million compared to adjusted EBITDA loss of $2 4 million for the same period in 2020.
And for our balance sheet cash and cash equivalents as of.
December 31, 2021 were approximately $95 million.
Related to the product returns in Q4 as of December 31, 2021. The company has recorded a $6 7 million asset within prepaid expenses and other current assets.
Inventory expected to be received but not yet returned $1 4 million within inventory a return inventory received as of December 31, 2021, and $20 1 million for accrued returns for liabilities.
The company began planning for product returns with U S retailers late in the fourth quarter, we were seeing little inventory as of year end and did not begin receiving any product returns in earnest until mid January early February with unique transportation arrangements and timing for each retailer.
We are actively in the process of reworking product inventory as it is received to date, we have received a little over half the expected product returns.
To reiterate we're trying estimates were developed in partnership with our retailers and we do not anticipate material return adjustment.
Future periods for the smart socket in the U S.
We do expect additional period costs, such as rework to be expenses incurred.
Some selected full year 2021 financial highlights include.
$75 8 million in revenue an increase of <unk> 4 million from $75 4 million credit full year 2020.
The $23 9 million year over year increase during the first nine months of 2021.
Substantially offset by net contra revenue in the fourth quarter 2021.
Cost of goods sold was $40 8 million, including a benefit of $8 2 million related to product returns in Q4.
$35 1 million in gross profit.
And gross margin of 46, 2%.
On a year over year basis margin declined 140 basis points.
Primary year over year drivers include approximately 190 basis points due to inflationary headwinds, including increased transportation and material costs over 2020.
Approximately 150 basis points of impact was attributable to higher product returns in Q4 of 2021.
Partially offset by a benefit of 170 basis points.
Lower warranty expense.
Operating expenses were $90 9 million compared to $42 9 million for the same period in 2020.
The increase in year over year operating expenses, which were planned increases in spending associated with the scaling of the business increased marketing spend and expenses related to the merger.
Operating loss and net loss for the full year 2021 were $55 8 million and $71 7 million, respectively, as compared with 7 million operating loss in $10 5 million net loss for the same period in 2020.
EBITDA loss for the full year 2021 was $42 7 million compared to EBITDA loss of $8 2 million for the same period in 2020.
Adjusted EBITDA loss for the full year 2021.
$45 2 million compared to adjusted EBITDA loss of $4 6 million for the same period in 2020.
Overall 2021 was a significant year for all that.
Q4, 2021 presented unexpected business with financial challenges.
In a short period of time, we've worked hard to ensure we are able to position I'll, let for long term success to support parents around the world with connected nursery technology solutions.
Oh, that's long term objectives remain intact and our business goals for 2020 to include.
Increasing our connected nursery market penetration.
Targeting investments in product innovation to expand the lifetime value of our customers.
Focusing on obtaining marketing authorizations in the U S in key global markets where required.
As we start off 2020 to Q1 is an important transitional product quarter and you asked for all that.
We started shipments of our dream product line in late December for initial sell in to our U S retailers and our product launch in early January on outlet online.
Quarter to date feedback from retailers and customers has been positive and we are meeting our initial internal expectations in the marketplace.
All of our major U S retailers have the dream product line available online and many have the dream product line in their stores.
We anticipate all major U S retailers will have the dream product line fully available online and in stores by the end of Q1.
Year to date gross billions before promotions and reserves for January and February 2022.
Slightly higher than the same time period in 2021.
After a very strong international expansion here in 2021, our international business has had a strong start to Q1. We are excited to continue our international growth plans in EMEA with new regions planned to be launched in 2022.
In terms of operating expenses, we are continuing to manage variable spend and where possible finding opportunities to mitigate inflationary pressures.
And we have sufficient liquidity to support our business.
In summary, Q1 will be our steps towards building a stronger global business in 2022 and beyond.
Because of the Dream product line is new I'm rapidly ramping up across our go to market channels online and in stores over the course of Q1 and all of that is actively in the process of receiving and reworking product inventory, we are not providing guidance for 2022 financial expectations at this time.
We anticipate providing an updated outlook when reporting first quarter 2022 results.
Operator, let's open up the call for questions.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad.
Is there any reason you would like to remove that question. Please press star followed by two again to ask a question press Star one.
Zooming in today's call. Please dial them in interest on one as a reminder, if you're using a speaker phone. Please remember to pick up your handset before asking your question. We will pause briefly as questions are registered.
The first question is from the line of Charles <unk> with Cowen Your line is open.
Yeah.
Hey, guys. This is Glenn on for Charles Thanks for taking my question. So your directional commentary is just once you billing to be slightly higher than the 21 rate, but kind of adjusting for the contra revenue account. It seems like you already did around $20 million in revenue and for Q, even with the smart Socs vignette only out for a month or so so how much.
The seasonality a factor in the one Q directional commentary and when you say slightly higher can you kind of give a rough range or magnitude of what that means is it you know low single digits mid single digits anything around that would be really helpful.
Yeah.
Yeah. Thanks for your question right I mean, I think we were just trying to get some some really high level directional commentary, we're not providing full guidance.
But just wanted to give some some overall ideas of how we're seeing things with the new product in the market just being in there over the next over the last few weeks as we mentioned most of our channels are open in terms of being online and the number of our retail problem partners are in the process of of getting our product in stores too. So.
It's not really an apples to apples comparison, and so we're going to wait and update when we're ready to with a full Q1.
Got it okay. Thank you.
Thank you.
The next question is from the line of Jim Suva with Citigroup. Your line is open.
Thank you and I have a few questions, but I'll just ask them first one at a time. The first one is probably for Curt Curt in your prepared comments you had mentioned about some accessories are easily items coming out just so we can get a sense on it.
Are these also going to be in the wellness, where they'll give feedback to the user or are they just kind of more exhilarate that kind of add on but it's the smart stock and the camera that give big primary feedback of wellness to the user.
Yeah.
Yeah. Good question. Thanks, Jim when we talk about accessories, we're primarily talking about.
Non smart accessories for example, our sleepwear line the new outlet sleeper.
We launched in Q4, we have some other exciting updates to that line coming this year I mean, it's actually a pretty big category for parents and outlet has some significant innovation, that's going to improve on that and it will work with the smart sock Theres. Some integrations. There. We also talked about the smart crib that we're working on so the camera socs and the smart.
Craig will all work together with our dream out in one ecosystem.
That's in development as well.
Okay. So it sounds like the smart crib, Indeed is smart and will give feedback and the other ones are more accessories and kind of non feedback items is that the way to think about it.
That's right yeah.
Okay, Great and then a question.
For Kt probably.
More of a CFO financial question I know, what the reversal that you had with revenues cause that and make it so Q4 sell in.
New products was basically you take the minus negative revenues of 2.5, and then you add in addition to that the $23. Two so you get like $25 seven on adjusted sell in of new products or because it's such an abnormal quarter, there's more moving parts and more variables.
<unk> like other countries still selling some of the products that we shouldn't even rely or even use that as a guidepost.
Yeah. So it's definitely the latter so the the gross billings numbers that we mentioned you know what I would say if I had to characterize it as the first few weeks of the quarter.
Before we were we stopped selling in the U S. The smart sock products.
It would also be international as well as Cam and then we also said that we had a bit of a dream product that sold them at the very end of Q4 right. So that's the activity that you're seeing in in Q4.
And then there is a number of adjustments that take place like as you as you would naturally have a natural quarter. So I would kind of keep that activity very separate.
From the adjustments that we made for the Contra revenue, which really more so it reflects a lot of the the product that the U S retailers had.
Already prior to the warning letter. So if you know the better place to I would say to watch for the contrary ever nail returns on the balance sheet. So we said on the product returns, where we have some of that material in the prepaid expenses. Some of it you know we got a teeny bit back in inventory and then most of it is.
In the crude returns for liabilities that will be reworking.
We're waiting to receive back that inventory are we setting you know to date in Q1, we received back a little bit over half of that.
And so we'll be reworking that and as that product is sold.
We will be incurring a little bit of cost.
Okay, and then Kate.
Janice we break through that product.
Okay K to my last question is the billings number the gross billings numbers that you kind of mentioned in your prepared comments is that kind of a number that we should kind of rely upon in that that's all new product, but I guess I assume that includes sell into the channel and not necessarily so.
All through the channel and you probably have to rebuild some channel inventory and product on the shelves is that the way to think about a case or is that the billings number as you know I should just kind of view that as really sell in sell through.
I would I would consider it you know we define that as what we'd been invoiced to customers. So that's just a very early indication.
And it doesn't include any adjustments promotions discounts allowances are any of the sell through data.
Okay, but would it be related to higher than what the endpoint.
Is it a little bit higher since you kind of have to replenish all the new product on the shelves.
I wouldn't characterize it as either way I, just we just wanted to give it as a data point.
Okay. Thanks, Katy Kirk further details would be appreciated.
Thanks, Jeff.
Yeah.
Thank you Mr. Sousa.
The next question is from John Babcock with Bank of America. Your line is open.
Hey, Good evening guys. Just wanted to quickly follow up on that last question first of all is there any way you might be able to provide more directly a kind of revenue figure for the quarter, excluding the contra.
Number and then also if you could talk about gross margin where that came out on the products that were sold and just overall wanted to get some sense as to you know Directionally you know where the gross margin is headed.
Yeah, I think John so the way that the accounting works is that we have to.
Provide a net revenue number which came out.
After the gross billings in the adjustments as a negative numbers I can't provide you as a separate.
A separate exercise to the brookstone.
And then in terms of the margin and I also I also don't have any there because we haven't met all of the activity. So given that the revenue was negative I don't I don't have that gross margin number for you.
Gotcha.
And then just actually one more kind of clarification question here just on the international sales you mentioned over 100% growth there.
Could you be a little bit more specific on that.
Christina could you mean, just wanted to ask a percent growth mean, yeah go for it okay, yeah, yeah, a little over 100%.
110, 120 under 50.
We didn't we didn't break out.
Overall international sales for the year or for this quarter just given all the activity that we have going on in Q4 and for the year, but I would say, we had really strong momentum going into the end of the year and we think that we have very strong momentum going into 'twenty, two as well as we continue to.
Expand into other international markets.
Okay.
And I'll just hit some kind of.
Well actually one more kind of a semi synthetic dyes broader question just did.
Did you lose any retailers as part of the Fda's actions or are you still sort of in all the retailers that you are serving.
Before that announcement was made.
Yes, that's a good question you know I would call out our team for the great work they did to them to build those customer relationships through a really difficult time, we did not lose any retailers and we did not lose any doors. So it will be with all of the same retailers in all of the same doors, we have the smart.
And the team is working on expanding those doors this year.
Okay.
And then on the international expansion I mean, it sounds like overall that that's continuing to go pretty well could you just talk about the rollout across the.
Different countries that you were adding during the quarter I thought I remember you mentioned the next countries youre expanding into Italy, Spain, Belgium, and the Netherlands.
How is that rollout going and also you talked about Latin America and Asia in your press release.
Just kind of provide a little bit more detail on overall that that rollout that'd be helpful.
Yeah, it's really a bright spot for the business right now we're seeing that.
This global thesis.
Ahrendts everywhere need access to this type of information and data.
It is true the adoption.
Each of the countries that we've rolled out.
As Ben has been surprisingly good.
<unk> launched at the beginning part of last year, we launched the Nordics, We then moved into Germany, France.
We've now been working on opening up, Italy, Spain, Belgium, Netherlands, and the eastern part of Europe , and we're seeing great results one of the things I shared with you know we got the certificate from the.
The midwife group in Germany. This is the group that reviews kind of all babies products, there and give their stamp of approval and 91% of midwives that you'd recommend.
Our recommended the product we're seeing in the U K.
In Germany, Nordics the sell through data.
Very positive so we're.
We're really proud of the results the team has been driving in that area.
We just started opening our opening up South America, and we're working towards expansion to Asia. This year.
Okay. Thanks for that and then I guess.
Just two other quick questions.
Just on the FDA approval of the OTC stock you know can you just remind us of kind of a timeline for that has that changed at all.
Okay.
Yes, theyre getting didn't clearance on that OTC stock is a top priority for outlet I think the biggest influence we have on timelines as to make sure that our submission has all the information the FDA wants to see so that's where our focus is right now we've had.
Numerous meetings and phone calls with the agency over the last few months and working to make sure that the submission can change everything that they want.
We're we're we feel good about the technology that we have and we're not making any assertions on timelines right now because we can't predict the FCA, but we do would.
Would you feel like we're making good progress.
Okay.
And then just lastly, just on your products. If you can just kind of talk about the crabs and when do you expect that to be out in the market.
The other kind of commentary on just kind of new products overall.
Yeah, I think the crib and some of the accessories products. We're working on are really exciting. We recently had some prototypes in the office of the crab. It was it was great to see the response from some parents on those on those prototypes, we've had really positive feedback on our <unk>.
Tumor surveys and so the products.
In development right now, we haven't announced the date for it yet, but we do.
So like it's gonna be a really strong part of the ecosystem the integrations with the stock and the camera.
Are gonna States parents seem to the next level and they're gonna give back the hours and hours of sleep the parents. So.
We're excited about it we should have more of an update on the next call.
Okay, great. Thank you. Thank you Kate.
Thanks, Joe.
Thank you Mr. Babcock there are no additional questions waiting at this time I will now turn the conference over to Kate for any closing remarks.
Kurt I'll turn it over to you for any closing remarks.
[laughter] I would just kind of reiterate the core big growth areas for all that I'm really proud of the team for launching Dream Socgen dreamed you always had phenomenal feedback from parents, we know it's making a difference in their lives 82% of parents report.
Getting less than five hours of sleep at night.
So anything we can do to help parents sleep better.
More secure feel more confident in the parenting journey is is what our mission is all about having that product back on the market and having the support from the retailers we have is.
Great great for the business and it's great for families.
We're expanding our product ecosystem really excited about the crib were excited about the foundation of sleep, that's gonna really blew the ecosystem together and ER and then taking that to the next level with some of the medical clearances and expansion internationally. So.
Really appreciate everybody joining the call today and are excited to continue to build the company.
Thank you everybody.
That concludes the hour late Q4 2021 earnings call. Thank you for your participation you may now disconnect your line.
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Yeah.