Q3 2023 Owlet Inc Earnings Call
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Good afternoon, ladies and gentlemen, thank you for joining today's I'll, let Q3 earnings calls my name is Tia and I'll be your moderator for today's call.
All lines will be muted during the presentation of pushing up 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.
I would now like to pass the conference over to your host Microbiome Investor Relations. Please proceed.
Good afternoon, and thank you all for joining us today.
Earlier today I would incorporate it released financial results for the quarter ended September 32023.
The release is currently available on the company's website at Www Dot investors Dot I'll, let care dot com.
Curt Workman outlets co founder and Chief Executive Officer, and Kate Skolnik, Chief Financial Officer will host this afternoon's call.
As a reminder, some of the statements that management will make on this call are considered forward looking statements, including statements about the company's future operating and financial results and plans.
Such statements are subject to risks and uncertainties that could cause actual performance or achievements to be materially different from those projected.
Any such statements represent management's expectations as of today's date.
You should not place undue reliance on these forward looking statements and the company does not undertake any obligation to update or revise forward looking statements, whether as a result of new information future events or otherwise.
Please refer to the company's SEC filings for further guidance on this matter.
With that I will now turn the call over to Curt Workman outlets co founder and Chief Executive Officer Kurt.
Thanks, Mike and good afternoon, everyone. Thank you for joining us today for our Q3 2023 earnings call.
I'd like to start the call with a reminder of our main 2023 strategic objectives.
First obtaining FDA clearances for both babysat and our consumer Dream dreams stock monitors and driving toward EBITDA breakeven.
I'll, let his spearheading new standards for consumer and medical solution, allowing caregivers to provide better care for their babies through access to advanced digital health technology.
In Q2, we were thrilled to announce that we received FDA clearance for our babysat monitoring device as a reminder, babysat as a whole monitor for use with babies under a doctor's care and will be available by prescription.
Early feedback from Pediatricians, who has been overwhelmingly positive and we are targeting market introduction by the end of this year.
Following on that positive momentum last week, we announced the clearance for the dream stock as the first and only over the counter pulse oximetry solution for it.
Dreams, Aqua monitor and display baby's life health readings, including pulse rate and oxygen saturation level and will provide health notification, which will alert caregivers with life and alarms town, if theyre infants readings fall outside of preset ranges.
These new medical grade features will be available to all existing and new dream stock users and will be launching soon.
Achieving de Novo marketing authorization from FTE means the allo dream stocked with clinically tested in both home and hospital environment and proven to be as accurate as medical grade baby monitoring technology and compliant with all relevant performance performance and safety standards by independent laboratories.
New technology will equip caregivers with the right information at the right time and will provide them with the confidence and clarity on their babies wellbeing.
Carrying over the counter clearance for the outlet drain stock is poised to catalyze substantial growth for us in three key dimensions.
First with the evolution of our value proposition.
The clearance marks a pivotal shift in the and the value proposition of our dream sock.
Transformed from being solely associated with fleet tracking to assume a more critical role as a health monitoring device. This transformation empowers us to communicate directly about our capability to accurately and safely and monitor vital signs.
Biding caregivers with the heightened level of assurance through timely alarms we.
We believe this will increase the consideration and conversion of customers, who are researching outlet as a solution for their family.
Second is category leadership, the attainment of FDA clearance for outlet establishes a clear distinction in the market. This regulatory validation not only addresses numerous queries and apprehension.
Customers may have.
But also positioned outlet as the world's foremost FDA cleared health monitor for gains at home. This regulatory status underscores our commitment to product safety and efficacy. We believe this will help catalyze word of mouth among parents and open up significant retail opportunities.
Third is enhanced connectivity with health care providers with the regulatory hurdle cleared data emanating from our devices can now be seamlessly shared with pediatrician. This new kind of capability. It quicker parents with a valuable tool for assessing and triaging their child's health at home recognizing that there are 92 million health care visits in the U S for babies and toddlers, providing parents with <unk>.
Access to safe and accurate technology becomes an indispensable asset facilitating informed decision, making and proactive health management. We believe this will add enhanced benefit both parents and physicians as they consider the value of our products.
Both babysat am Dream stock clearances are significant foundational breakthroughs in our journey to bring care to the home and empower parents, the signifying that only our commitment to innovation and the infant health category, but more importantly, our dedication to helping ensure the health and wellbeing of everyday.
I am extremely proud that allied is setting new standards and at home infant care arming parents with reliable real time information and providing enhanced peace of mind and.
In the medical market FDA clearance of Babysat was a pivotal step as we penetrate this critical market babysat as our prescription monitor for home use that extends our wireless pulse oximetry technologies to babies, who need it most through a prescription from their doctor.
We've already seen demand from parents providers <unk> channels, which is both gratifying and unsurprisingly remote patient monitoring becomes more important and the delivery of health care. This innovative addition, fosters growth in federal crucial dimension.
<unk> broadened distribution channels into health care.
Babysat facilitates an expansion of our distribution network to include durable medical equipment or <unk> providers and hospitals.
Each of these key health care institutions, we enhance accessibility accessibility to our technology for critical care needs at home ensuring that our solution is readily available where it is needed most.
Second it will be made accessible to families in need babysat aims to democratize access to our technology, particularly for families facing medical challenges with their children through insurance reimbursement babysat becomes an attainable solution for families to require amongst ensuring the financial barriers do not impede access to vital monitoring technology and.
Ending al its customer base.
Third it allows us to address a new customer segment directly babysat allows <unk> to provide a targeted solution for instance deemed high risk are facing health challenges. This presents an opportunity to communicate directly about medical accuracy of our solution to both parents and physicians by honing in on the unique needs of this demographic, we can emphasize the precision and reliability.
We have our technology offering peace of mind, the caregivers and medical professionals alike.
More information about babysat is now accessible through our website and we are working to announce a partnership soon that will enable quick and efficient access to hospitals and online similar to breast pumps.
The App is available on Apple devices, where physicians can request a demo and additional information on our website.
Internationally, our CE Mark submission is progressing and remains on track and we believe our successful successful relationship with the FDA will translate over to our work with non U S regulators.
Revenues for the quarter came in at approximately $9 2 million.
Like to offer some color on our go to market strategy and the revenue dynamic we experienced in Q3, starting with an announcement that Allen has signed a significant distribution agreement with Amazon. They will drive increased gross margin enabled better access to the customer and we will get our significant marketing credits to drive future growth globally, and our largest channel.
Our agreement was signed at the end of September shipments under this Amazon Dot Com arrangement began the first week of October the timing of this transition impacted our total revenue in Q3 is no. Stan revenue was recognized related to the former distributors of Amazon Dot Com in Q3, all Amazon selling revenue for Q3, and Q4 will be.
Recognize in Q4 for comparison gross billings in October this year, we're three five times higher than.
And then the gross billings in October of 2022, and so far in Q4. This year, we've already shipped into the Amazon channel, 90% of the volume we did in Q3 and Q4 combined last year.
In addition, we believe we are finishing the year with strong momentum across the rest of our retail channels as we head into the holiday season as a result of the shift in Amazon sales from Q3 to Q4 adjusted EBITDA loss is expected to improve in Q4 with higher gross sales and relatively flat operating expenses, we remain focused and optimistic on our adjusted EBITDA loss of profit.
The ability objective exiting the year.
From an overall brand health perspective, our customer satisfaction ratings continue to maintain high net promoter scores across multiple products Green Socked with Cam usage continues to grow quarterly along with the mobile use of our stock and Cam product, we've grown our sell through sequentially every quarter this year, while reducing our marketing spend by 75% reflecting our.
<unk> focus on channel health and inventory levels, combining with the new FDA clearances with continued growth in demand and a more efficient operating base well set I'll, let up for healthy profitable and growing business in the future.
From a leadership perspective in Q3, we announced the appointment of Mark sold to our board of Directors and Jonathan Harris, <unk>, President and Chief revenue Officer, Mark and Jonathan already made an impact with insights and corporate strategy and operational excellence and are working closely with the team to drive growth and expansion with our new medical device clearances.
I am thrilled about the continued progress we've made towards creating an efficient and profitable organization. We remain committed to building a strong foundation for sustainable growth as we move forward and we believe that the FDA clearances of our babysat dream stock products will accelerate the adoption of our products and position us to be the platform that bridges the gap between the hospital and the home.
Yeah.
Thank you for your continued support of outlets and I look forward to updating you in the coming quarters on that Keith over to you.
Thank you and good afternoon, everyone current address a number of our financial highlights in his overview I'll repeat a few items or some color and provide some additional financial commentary.
Gross billings for the third quarter of 2023 were $11 million and did not include any selling revenue for Amazon distribution as those purchase orders and shipments are recognized in October.
Product promotions and discounts were $1 3 million in returns and allowance reserves for Q3, 2023 or $700000, 6% of gross billings.
Q3 revenues were $9 2 million total revenues were driven primarily by sales of dreams sought and dream duo.
Q3 sell through was up seven 4% sequentially, demonstrating a third consecutive quarter of sell through growth in 2023.
This year, we offered last promotional discounting with Prime day in July to maintain overall channel sell through health versus last year. When we had recently launched dream.
Onstream sock and had loaded insignificant inventory to support channel restocking.
As Kurt discussed the main difference in Q3, both sequentially than last year on the cross sell in some revenue basis. It was a shift in timing of Amazon selling revenue from Q3 to Q4 this year.
As we have discussed previously in managing selling revenue with retailers over the course of the year as they target lower inventory levels across their balance sheets, primarily reflecting macroeconomic condition.
For elastic category, leading retailer with the buy buy baby bankruptcy and as discussed today had a timing shift in our Amazon selling revenue from September in Q3 <unk> Q4.
Total revenue has been impacted by some macro business transition headwinds year to date, South Korea has improved 7% year to date over last year across retail channels at the same time, our cost per acquisition is down 75% isn't.
This is an important aspect of our channel help focus efforts as we've become more efficient reaching parents.
Driving demand for our products, we anticipate sell through for Q4 to grow sequentially again, demonstrating poor quarters of sell through improvement in 2023.
Cost of revenues were $5 9 million in Q3, resulting in gross margin of 36, 3%.
This compares to 40% gross margin sequentially in margins of 26, 6% in Q3 2022.
The year over year improvement in gross margin was primarily due to improvements in purchase price variance costs.
<unk> inventory adjustments and improvements in product mix.
Sequentially outside of total lower revenue margins were stable with focus on operational efficiency product mix and lower purchase price variance com.
Moving forward, we remain committed to driving margin improvement with the goal of stabilizing gross margins than <unk>.
Range of 40% to 50% through optimizations and product mix.
Reducing cost in our warehouse and shipping production in our PPV as we reduce inventory levels and managing our return rates and discounts.
Operating expenses in the quarter were $11 2 million, including stock based compensation of $2 2 million, representing a $15 2 million decrease year over year exclude.
Excluding stock based compensation Q3, operating expenses were $9 million.
Year over year decrease in operating expenses was primarily due to employee related costs and marketing spend.
Operating loss in the quarter was $7 9 million and net loss in the quarter was $5 6 million compared with $21 8 million and $19 4 million year over year.
Adjusted EBITDA loss for Q3 was $5 5 million compared to adjusted EBITDA loss year over year of $18 4 million for Q3 2022.
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 September 30th 2023 for approximately $15 2 million.
We remain focused on our stated goal of managing our costs that means of capital as we move into the final weeks of 2023.
Looking ahead, we will again refrain from providing specific guidance for the year.
Are those areas that are within our control. We are focused on the core business activities in 2023 that will maximize supporting and achieving improvement in sell through of our core products and therefore driving down from retail inventory for future selling opportunities.
Making strides in ramping our babysat and nutrient packed product commercialization and efficiently managing our operational plans towards breakeven and profitability. Thank.
Thank you for your time today, operator, let's open the call for questions.
Yeah.
We will now begin the Q&A session.
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We will pause briefly to allow questions to January.
The first question comes from the line of Charles right with TD Cowen. Please proceed.
Yes, thanks for taking the question guys and congrats on all.
All the progress so far.
Maybe first just wanted to quickly ask on the Amazon.
Agreement is that the.
The partnership is that the new dream Stockton with the package with the FDA approval on it or was it the original dream sock.
Yes, great question Charles So.
<unk>.
The underlying product is the same between the cleared product and the product that's available today the same hardware.
Has the same app. The FDA cleared features will begin rolling out towards the end of this year. So what we shipped them with the current <unk>.
<unk> that's compatible with the FDA cleared features the main reason for the shift to Amazon One P. As we felt like that was a better business arrangement for outlet provided better gross margins.
Ability to grow the business to connect more directly with our customers through Amazon. So it was really a kind of a business shifts that led to us transitioning from third party sellers on Amazon to selling to Amazon directly.
Yes, I appreciate that I was just curious like when but when customers go to Amazon to look their dreams.
What the purchasing.
What will they see when they go to Amazon when they see that this has been FDA approved and so thats the differentiator when they were like looking or or.
What kind of messaging what they received.
We will get additional functionality.
When they buy the stock.
Yes, it's a great question. So we've already started to message around the FDA clearance and make it clear to all of our current existing customers that they will have access to all of those features and that their dream Sockwell will be an FDA cleared dream sock and future customers. So we're working on rolling out into all of our retail channel.
That same messaging so that somebody knows as we're approaching the holiday season that the dream stock. They are buying is compatible with and will get access to all of these FDA cleared features before the end of the year does that answer the question.
Yes, yes. It does that's helpful and then I think Kurt you.
You mentioned that in the case, maybe you can answer this as well you said you shipped 90%.
All in all of the volume that you did in gross billings from last back half of the year and if I look back.
Gross billings for Q3, and Q4 last year was around 39 million. So am I right in thinking that you sold and 35 million as of October is that the right way to think of it.
Hi, Thank you sorry dilution. That's just regard yes, just for clarification. That's just regarding the Amazon to give an understanding of where we are in terms of the pace of the Amazon business.
So really.
Total gross billings with the Amazon portion right exactly so just to indicate where we are in the Amazon piece of business yet.
Okay.
So that was it.
Maybe outside of them. So if we look at the.
$9 nine.
Sort of less the Amazon piece.
Is it right to think that.
Had we had the Amazon portion, we would've seen more normal kind of revenues.
Can you kind of discussed before and instead will get the rest of that in the fourth quarter. So we should expect a.
A much steeper step up given.
Given that we're going to we're capturing the Q3 sell in for Amazon in Q4.
I think thats accurate.
Okay.
I guess the.
Follow up to that so when you said there was a 7% increase year over year and sell and that's sort of over the course of the full year.
Inclusive of the shift in the timing is that the right way to think of it.
That fell through the 7% or so we've seen sell through yes.
Yes, yes, yes, but to talk about because that's really been the main focus right as we've seen some of the undulations in the sell in demand there's been on a year over year basis, it's really not indicative of what we're seeing.
For the demand from parents of the product and Thats and as you know, we've really been focused on sell through and partnering with our retailers. We also think heading into the back half of the year heading into the beginning of 2024 with the clearances of bulk products. It really sets us up for.
Next year very nicely in terms of this this rate of sell through that we've focused on.
Well also.
We have decreased the amount of cost per acquisition for customers.
Maybe you know than other.
<unk> industries or other customers are seeing what people are doing to utilize getting to getting the word out of their products. So just the fact that we were spending less but yet increasing sell through.
About our product means that we're seeing also the NPS on our products getting back to where we were with our prior products. We think that we're heading in with real channel health it around product health into 2024.
Great and then maybe last question for me.
With babysat.
Could you talked about.
We would expect our announcement at some point.
Distribution channel.
The way I understand it.
Getting into the into getting coverage.
Getting reimbursement codes and all that sort of stuff that takes time typically in and working with all the payers is this distribution partner channel meant.
And then to kind of accelerate that and relying on the partner too.
No.
Kind of get those approvals and stuff for you or maybe kind of explain a little bit more because.
That when you think about devices coming into the market and getting covers that tends to take time.
Just curious on what the strategy is here to kind of accelerate that.
Such that.
Physicians in.
Can start prescribing the product.
Yes.
Yes, that's a great question one of the.
There are several.
<unk>, our challenges with with introducing babysat into the market, including <unk>.
Shipping and fulfilling a medical device.
Two and through providers.
How you handle prescription verification and insurance verification.
How do you how do you help customers get the right prescription for the product those are all kind of significant challenges in outlet has interviewed lots of different partners. In this space. We feel like we have one that can help significantly reduce that complexity and will not only help us kind of manage the backend process.
All of those pieces and make it really seamless for the consumer but also will help us increase our distribution faster with providers and hospitals as it take home monitor so really excited about it the opportunity we're sitting on in the near term with babysat is that under our existing insurance codes for home.
Monitoring.
And so it is not the creation of a new car, they're already sending babies home with these big bulky wired monitors that.
Our intrusive and the parents' lives outlet.
Less expensive.
Connects right into your smartphone its wireless there are a lot of benefits and so we.
Babysat will be eligible for existing reimbursement codes and its partners, helping us manage that with.
All of the different insurance carriers and companies across the United States out of the gate. So we're excited about that there will be more to come but.
You know, it's not creating a new code, it's really taking advantage of the of the market Thats in place right now to start.
Got it and sorry, one last you kind of mentioned or are we still on track them for sort of.
EBITDA breakeven early end of this year early next year.
That's our focus absolutely on an operational basis and in terms of the operating expense profile.
At a steady state run rate, we're still looking for places where we can optimize.
Both in terms of how we're running things on the <unk>.
The operation side, whether it's on the margin or cost of goods, but also within that business. We've been status quo in terms of employee costs. We've been very measured in terms of marketing and as we talked regularly about.
Getting over the hurdles in terms of our clearances is important as we've been putting kind of.
Additional focus there based on a regulatory there's been costs related to that so that's our the next piece for us to manage to but and we want to continue going through 2024, there. So that's going to be the.
The major focus in 2024 is growing and growing profitably.
Beyond as we start talking to what our business model looks like in the next phase at our next earnings call.
Great. Thank you.
Okay.
Thank you.
We will now turn the call over to Mike.
To ask questions that came in via e-mail Mike.
Thank you operator.
Turning case first question that.
We received.
Now I'll, let has a medical and consumer product how does that play into your go to market strategy with the retailers that are expanding into healthcare such as best buy.
Amazon, which has been mentioned and baby list.
The purchase of a DMA.
Yeah. Thanks, Mike So the gap between consumer and medical technologies and channels continues to shrink and I think you know timing.
Timing could not be better for outlet with big box your ecommerce sites and specialty baby all moving into this <unk> opportunity its kind of a perfect overlap of existing channels with our new medical focus so maybe less recently acquired <unk> to expand its breath pump offering and best buy are significantly expanding its capabilities in the healthcare.
Active conversations with each one of these players to rollout babysat and Dream stock next year. In addition to exploring new channel opportunities the babysat opens up.
Great next question.
Accuse me are you expecting to see a revenue lift from your FDA clearances.
This year in 2023 or are they 2024.
And what do you need to spend differently to support the launch of those products.
I can take the question.
Yes sure.
We're planning on making both the babies that product.
The clearance.
Features available before the end of the year.
I think at this point, where we are we will see minor or modest revenue improvements this year, but really the majority of the benefits are yet to come in 2024.
Beyond and in terms of supporting.
Those opportunities those those are really be the support work on <unk>.
Primarily in 2024.
As we'll see with the support of dreams like it will really be with and it's a it's a software.
Opportunity and so that will be readily available before the end of the year.
Okay.
Great. Thanks, Kate. The next question is are you experiencing any impact from your competitor launching the consumer monitoring product at <unk>.
Select retailers.
Yes, so I'll, let us the clear leader in this category, we invested millions of dollars into establishing this category and I'll, let de Novo FDA clearance sets a new standard for our category.
Other pulse oximeter and health monitors are going to have to adhere to.
This is a clear benefit to outlet in terms of our market leadership.
And availability moving forward.
Great. The next question is given your recent FDA clearances, and and and future entry into remote patient monitoring.
What is the current long term vision for per outlet and has that changed at all.
I think we've shared this before but we really believe that just like every navy has access to a breast from reimbursed by insurance or goes home from the hospital with a car seat. We believe every baby will have access to a health monitor at home and I will have created this category. We've now established it with the recent FDA clearance.
Our vision is to drive that tipping point, both in the U S and globally, and we will see that as a significant opportunity over the coming years. We also know that every year in the U S. We spend tens of billions of dollars on primary care for children. In this age group just just in this first few years of life and I think that's a tremendous opportunity to move this.
Center of triage from that clinic into the home and Alex well positioned with our data to become the platform and with our dataset.
We believe we can we can create the services and the platform that speak both to parents in the home and to health care providers. So there is so much we can do right now with our current regulatory approvals our distribution, that's expanding our data and our community and that's our focus right now to drive growth.
Okay, Great and then the next question I think this is probably for Kurt but.
Do you think that do you envision that dream sock the over the counter.
Monitor would eventually have a telehealth component.
Or would that kind of feature b.
Limited babysat.
So I think both products will have interesting tele health opportunities there'll be a little bit distinct with babies that it would be focused on monitoring babies, who have known health conditions with dream stock. The opportunity is to focus on home triage for healthy babies, there's $92 million primary care visits in the first few years of life.
And partnerships with telehealth could help parents and physicians better understand maybe tell us at home without having to expose them to more success in the clinic.
Okay, Great and one last question.
How is the product roadmap changed over the past few years.
Compared to what was shared previously.
With the band and Craig for example.
Yes, so kind of like I, just mentioned, we believe that Theres, a significant opportunity to become the health platform in pediatrics similar to other well known patient monitoring companies in their markets. Our focus right now is to dramatically increase adoption of home monitoring.
Both for well baby and at risk babies with Dream Socgen Babysat and both in the U S and in Europe. We believe we can significantly grow market share overtime and position I'll, let for LTV expansion with our data and services and so we want to see healthy growth with improving gross margins that allows us to grow.
From our strength.
And for us that means increasing increasing adoption of our stock in our Cam launching value added features with our data.
The customers and providers are willing to pay for and then lengthening our customer relationship for extended LTV.
Great Thanks, Kurt and.
That's all the questions we received so operator.
Back to you.
That is all the time, we have for questions handing the call over to Kirk for closing remarks.
Yes, just as we wrap things up I want to express my gratitude and thanks to each and every one of you who joined US today. Your presence on this journey means a lot Alex obviously overcome a lot of the business.
And the recent news of FDA clearance is an exciting milestone probably the most exciting milestone along this journey.
When it comes to the world of pediatric care and the future looks incredibly promising.
Driving that progress and were making meaningful strides that branch closer to our vision of better care for a little ones. So thanks once again for your time and your belief in outlet.
That concludes today's conference call. Thank you you may now disconnect your line.