Q2 2023 Owlet Inc Earnings Call
<unk> has worked closely with our key retailers in the past, including target and Walmart. She is also structured deals with many of the dnb supply campaigns with which I'll, let intends to partner her experience across consumer and health care will be invaluable to our company well. This is also on the board of March of Dimes and is passionate about our mission to improve the health and safety.
Vincent.
Additionally, I'm excited to announce that Jonathan Harris will also be joining <unk> as our president and Chief revenue Officer.
Jonathan has decades of experience building top brands trusted by consumers.
Jonathan led global sales at Gopro from the very early days to over $1 billion in revenue and most recently was the CEO of molecule a smart home filtration system that was both consumer sold and FDA cleared jonathan's passion for building global brands through strategic partnerships will help us navigate the large global market opportunities ahead in both consumer and medical.
In conclusion, we made significant progress in the quarter towards our goal of profitability and FDA clearance on multiple fronts. These achievements include our brand health remains at all time highs with net promoter score for our products at all time highs.
We've reduced in stabilized marketing spend and cost per acquisition by 80% of early 2022 levels are channel sell through has grown over Q2 last year and inventory in the channel is beginning to normalize.
Our corporate spending has decreased across the business, putting us on track to spend no more than $40 million in adjusted operating expenses, excluding stock based compensation for the full year. We've achieved our first FDA regulatory approval for babysat with a clear path forward towards our FDA OTC submission clearance and CE medical device clearance.
Stabilized our operating operating expenses and remain on path towards operating profitability by the end of 2023, and we've added key team members, who will help us achieve our future growth goals. We're excited about the progress we've made towards creating an efficient and profitable organization or confidence we're building on a strong foundation for sustainable growth as we move.
We believe that the FDA clearances, we are pursuing will accelerate the adoption of our products and position us to be the platform that bridges the gap between the hospital in the home.
Because we hold parent answered. This journey, we are confident that our products and services will make a meaningful impact on their lives. We remain focused on executing our operational strategy and achieving our long term goals, while continuing to deliver value to our customers and shareholders. Thank you for your time and continued support we look forward to updating you on our progress in the coming quarters.
Over to you.
Thank you and good afternoon, everyone current covered a number of our financial highlights and an overview I'll repeat a few items just some color and provide some additional financial commentary.
<unk> gone through the second quarter of 2023 were $16 9 million up from $12 4 million sequentially.
Product promotions and discounts for $2 1 million, primarily associated with Q2 promotional activity in July Amazon Prime day.
Returns and allowance reserves for Q2, 2020 training for $1 8 million 10, 3% and cross selling.
This compares to reserves sequentially in Q1 of $1 1 million eight 9% in the cross selling.
Total revenues in the second quarter of 2023 were $13 1 million.
A sequential increase from $10 9 million in the first quarter of 2023.
Revenues were driven primarily by sales of dream Sock and dream dealer.
Cost of revenues were $7 9 million in Q2, resulting in a gross margin of 40%.
This compares to 38, 7% gross margin sequentially margins of 36, 1% in Q2 2022.
The year over year improvement in gross margins was primarily due to improvements in purchase price variance costs.
This inventory adjustments and improvements in product mix.
Sequentially margins for stay at all let's focus on operational efficiency product mix and lower purchase price variance cost.
Moving forward.
Main committed to driving margin improvement with the goal of returning gross margins to the 40% to 50% range over time through optimizations in our warehouse and shipping production in our PPV as we reduced inventory levels.
Managing our return rates and lower discounts.
Operating expenses in the quarter were $11 9 million, including stock based compensation $2 6 million, which was a sequential decline of 21% from $15 1 million in the first quarter.
Excluding stock based compensation and transaction costs Q2 operating expenses.
<unk> 3 million.
The year over year decrease in operating expenses was primarily due to employee related costs and marketing spend.
But then operating expenses in the first half was $1 7 million of net expenses related to transaction costs from the capital raise in Q1.
$2 1 million in Q1, and the credit of 400000 in Q2.
Operating loss in the quarter was $6 7 million and a net loss in the quarter was $8 5 million compared with 11 million and $11 $9 million sequentially.
Adjusted EBITDA loss for Q2 was $4 3 million compared to adjusted EBITDA loss sequentially in Q1 five.
$5 8 million and $16 7 million for Q2 2020 tail.
Our focus on operational efficiency has delivered multi quarter improvements in our expense management.
We'll continue to identify areas to leverage as we work towards adjusted EBITDA breakeven later this year.
Turning to our balance sheet cash and cash equivalents as of June 32023 were approximately $29 million.
We remain focused on our stated goals and manage our costs and use of capital as we move into the second half of 2023.
And the company had its continued listing compliance bandwidth and New York stock exchange of Cleveland in this June quarter, and completed a 1% to 14 reverse stock split in July .
Looking ahead, we will again refrain from providing specific guidance for the year.
So the areas that are within our control we are focused on the core business activities in 2023 that will maximize.
Supporting achieving sell through of our core products, and therefore, driving balanced and retail inventory for <unk> selling opportunities.
Making strides in ramping our babysat product commercialization and our medical device clearances.
And efficiently managing our operation plan towards breakeven and profitability.
Thank you for your time today.
Greater please open the call for questions.
Yeah.
Absolutely we will now begin the question and answer session.
I would like to queue for a question. Please press star followed by one on your telephone keypad to.
To withdraw your question press Star two.
If you are using a speakerphone please pick up your handset before asking your question.
We will pause here briefly ask questions registered.
Our first question comes from the line of Charles <unk> with TD Cowen. Your line is now open.
Hi, This is Luke on for Charles I wanted to ask about what you guys are seeing in your specific.
Or in your various channels, obviously buy buy baby bankruptcy impacted <unk>.
We saw the full impact in <unk>, but would be curious to see.
What channels saw what you saw from channel performance, whether its strong online performance or retail performance could you just give us some detail there that'd be really great.
Yes, I appreciate the question.
Bye Bye baby going bankrupt has certainly had an impact on us. This year I think that the Q1 revenue was impacted through the buy buy baby bankruptcy.
Obviously, adjusted our expectations when we.
When we got the.
The news.
Part of the thing to understand is that by maybe we're still selling through inventory and liquidating inventory into Q2.
It's pretty much all gone away now so we will start to see the impact of.
Those customers finding new channels I think in Q3 and into Q4 early signs show that Amazon is picking up some of the demand we're seeing companies like baby list that are.
Really getting aggressive with baby registry in filling the gap that bye bye baby.
Inside of the channels. So that's.
I think thats positive and then target as the other retailer that we expect to see.
Lift as the year goes on so all three retailers are very focused and aware were having conversations at the highest level.
How do we how do we make sure that we get this demand through new channels and we're starting to see that come through with with the various channels now that buy buy baby is through all of their inventory so great question.
Okay, Great and then in terms of Babysat understand you guys are looking to take that.
Actually launch that later in the year.
Here's to hear if there would be any changes too.
Your go to market strategy given that it can now be sold through health care channels.
As opposed to just retail.
Is there anything we should think about in terms of associated marketing expenses with the product.
Detailed there.
Yeah, well, let me just start with not only is getting babysat clearance a huge milestone for the company but.
The announcement has had a rippling effect into.
Our channels and our other products I think the consumer confidence has increased significantly with that announcement, we're seeing our awareness and consideration metrics.
<unk> as a result of that announcement, so that's really positive.
Even just on the consumer side and we're excited about the opportunity with babysat immediate demand and the inbound requests we've seen from parents providers, Jamie channels has been pretty astounding physicians across the country have requested that partner with outlet to extend monitoring to the home.
And so we're going to start by leveraging our brand and our reach.
Theres 3 million parents, who visit our website every year. There's a good portion of those parents have a child that has.
Medical condition, and Alex is going to be there and available too.
To offer the babysat for those families.
And we are developing our approach to really take advantage of these new channel opportunities with insurance reimbursement the inbound from providers the expansion into <unk>, It's an <unk>.
Exciting new area that we will have more to more to talk about as we move on throughout the year, but plan on launching the babysat before the end of the year. The other thing I'll note is that Melissa is a great addition to our board she's got experience both in consumer but also in health care. She has worked with a lot of it means that we're working with and there's a really big opportunity here to grow margins.
And grow revenue.
And I think just based on the initial response, we have how do we think that the health care opportunity, maybe even more interesting than we had anticipated from the beginning.
Okay, Great and then in terms of I understand you guys aren't giving guidance at this point in time, but as we think about the path to adjusted EBITDA profitability in the back half.
You guys reduced opex by $3 3 million in <unk> should we think about you guys, reaching profitability through further opex reductions or should we think about revenue growth on top of this current opex space being how you.
It gets profitability.
Yeah.
With that I would think about it is that we're continuing to plan and manage expenses tightly.
<unk> remain on track here.
This run rate of expenses is where we'd like to be in terms of the in play costs and marketing spend there's probably some additional optimization.
Debt that we'd like to have but I'd say from a run rate basis is probably right around the range.
And stock based compensation.
Okay, Great. Those are all the questions I had thank you.
Thank you.
Our next question comes from the line of Allen Lutz with Bank of America. Your line is now open.
Yeah.
Hi, This is Hannah on for Alan.
Thank you for taking the question.
And just given the macro environment do you guys anticipate a higher general promotional environment for the second half of the year.
Yes, thanks for the question.
We will take advantage of kind of some of the key promotional events to a fault Prime day.
On Black Friday cyber Monday.
And then towards the end of the year.
Ahrendts, who are using their HSA and FSA dollars, that's another kind of nice sell through increase for our channels.
So.
That is part of our second half strategy, we're not anticipating going deeper and discounts than we have in the past.
Due to the macro environment in fact, I would say at Prime day, we actually.
Pardon me, we actually discounted loss, we have a more a bigger focus on profitability and I think that's paying off for the company. As we are seeing gross margin improvements were seeing sell through growth, we're getting our costs down and those are all positive and we'll continue to do that I think I'll, let the really a leader in this market and.
The solution that we've created is something that most of our currency is a must have.
And so we're going to continue to move the business forward and grow and don't anticipate getting more promotional than we have in the past in fact, you might see the opposite.
Got it thanks that was helpful.
On the <unk> call you mentioned a potential European regulatory submission can you just share any updates here and what youre thinking in terms of international expansion.
Yeah, absolutely so in the one to call. We said we would submit our.
CE medical submission to get CE, Mark in Europe , and we did that ahead of schedule.
Confident in that submission that will allow us to have one global product with our for our dream stock with the health notification.
Features that we're getting FDA approval on and we will open up new channels in Europe pharmacy is a big opportunity in Europe for us there's a lot of different provider groups that want to recommend I'll, let there and the CE Mark will open that up for them. So I think what we'll see is it will open up new channels in Europe and it will also drive.
Significant adoption of our products there.
The CE Mark is also you can use that in other countries. So we'll also when we continue to expand around the world, we will be able to use that to.
To open up new geographies as well.
Thank you.
If you would like to join the queue to ask another question you May Press Star one on your telephone keypad.
There are no further questions registered at this time, so I'd like to pass the call back to Mike Cavanaugh with Investor Relations.
Thanks, very much less I would appreciate it.
Kate and current we do have some.
We'd like to share some questions that have come in from investors.
Put them out for discussion, while we have this a little bit of time left.
So.
First question.
What do you expect.
Regarding the timing of the second FDA approval.
Okay.
Yes, I would I would first say that I think babysat clearance is a really strong indicator of the quality of our core technology.
That clearance coming into Q2, I think is a big step forward. The team is doing a great job of answering questions within the allotted timeframe with the FDA. We are on time FDA has been very responsive to our questions. So we feel like.
The communication is really good and.
We're really confident in our technology ultimately timing is dependent on the Fda's review and whether or not there's additional questions that come up.
We're looking forward to moving through that process and are being very responsive.
Yeah.
Mike did you on mute.
Yes, I think I said sorry.
And then with that just to follow up on that curve with the.
With the FDA approval in hand, and others anticipated what do you anticipate the affair.
Affect the FDA approvals will have on the business.
Yeah like we see this category similar to how we see <unk>, some thermometers and currency. We think every baby's going to have access to monitoring the future and these FDA approvals are a key catalyst to establishing digital health monitoring as the standard of practice at home. So just to kind of say bluntly. We believe it will have.
Long term category wide impact.
FDA clearance allows us to increase the features offered in our product as well as to the product's going to continue to get better parents will have access to diagnostic features.
The FDA clearance will drive additional credibility for our products and we will differentiate outlet from baby monitors and they will also allow us to kind of better integrate our data to close the loop at home. So the FDA clearance as had been the primary investment to create a long term sustainable leadership position in a market that we believe we will reach every fee.
And we're really excited about gaining.
Gaining the next FDA approvals and commercializing babysat. It remember one of the first customer interviews. We did we went to this home.
Of a mom who is using one of these big bulky hospital monitors with wires that went into the crib and we showed her a little stock design and she literally started a crisis like this will make such a huge difference for me and on top of that there's millions of families that don't have access to monitoring today, we really feel like FDA approvals will be.
Some are catalysts that will that will give greater access to a lot of families.
Great Thanks for that and.
And then we're also getting a lot of questions Kurt.
Sure.
And you did address this a little bit about the babies that go to market.
Since you just talked about is there anything else about that go to market plan you'd like to share with investors.
Okay.
Yes, I would just say.
Today's parents have.
They either get sent home with nothing which is the most common kind of practice today. Because these monitors are so intrusive their bulk either wired there are a lot of alarms that gets counted outlet literally 100 the size attempt.
The attempt to cost it's wireless it's wearable all the data is connected so we see it.
Kind of a pretty big transition happening here.
It's obvious to us, but as we've announced babysat, it's obvious to parents. They want access to this product, especially parents, who have children that have a health condition. So we're starting with giving them direct access through our website. If you have a prescription it'll be fulfilled through our website in partnership with the DIY.
We expect a lot of opportunity there provide.
Providers have also reached out today, they have to decide between sending parents' home with an intrusive monitor we're sending them home with nothing in AC outlet is a new opportunity to.
Extend access to home home monitoring and also replace monitoring that.
That's intrusive so thats another big channel and we will work with the providers and the parents and the <unk> to.
Create a really awesome go to market strategy starting with the.
The 3 million parents that are visiting our website every year.
That's great. Thanks, Kurt.
Yeah.
That's it for the supplemental investor questions.
I don't see any other questions in the queue.
If anybody has a final question.
Please do so now otherwise ill turn the call over to Curt score on all remarks.
Alright, Kurt.
Over to you for final remarks.
Okay, Yes, I think before wrapping things up I want to express our heartfelt. Thank you to each one of you who have joined the call today. Your presence on this journey means a lot to us we're genuinely excited about the road ahead and when it comes to the world of pediatric care the future looks incredibly promising.
As proudly driving that progress and were making meaningful strides that are bringing us closer to our vision for better care for a little ones. So thanks once again for your time and belief in outlet.
This concludes today's call. Thank you for your participation you may now disconnect your lines.