Q4 2023 Owlet Inc Earnings Call
Operator: Ladies and gentlemen, please remain holding. Your conference call will begin shortly. Again, please remain holding.
Ladies and gentlemen, please remain holding.
This call will begin shortly.
Again, please remain holding your conference call will begin shortly.
Sierra: Your conference call will begin shortly. That's the CA SUBSCRIPTION THING! Hello, everyone. Thank you for attending today's Owlet fourth quarter 2023 earnings call. My name is Sierra, and I will be your moderator for today.
[music].
Operator: All lines will be needed during the preparation to mark smart management, with an opportunity for questions and answers at the end. If you'd like to ask a question, press star 1 on your telephone keypad. I would now like to pass the conference over to our hosts, Mike Cavanaugh and Bester Relations. Thank you, operator. And good afternoon, everyone.
Operator: And thank you for joining us today for Owlet Baby Care's fourth quarter 2020 earnings call. We appreciate your time and interest in our company. Earlier today, Owlet released financial results for the quarter and full year ended December 31, 2023. The release is currently available on the company's website at www.investors.owletcare.com. Our speakers for today's call are Kurt Workman, Owlet's co-founder and chief executive officer, and Kate Scolnick, our chief financial officer. Kurt will begin with an overview of our performance and key developments, followed by Kate, who will provide a detailed review of our financial results. Following their remarks, we will open the call for your questions. Before we get started, we'd like to remind participants that today's discussion will contain forward-looking statements based on current expectations. 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.
Hello, everyone.
Thank you for attending today's I'll, let sportswear 2023 earnings call.
My name is here and I'll be your moderator for today.
All lines will be muted during the prepared remarks of our management team with an opportunity for question and answers at the end.
If you'd like to ask a question press star.
One on your telephone keypad.
I would now like to pass the conference over to our host Mike Cavanaugh Investor Relations.
Yeah.
Thank you operator, and good afternoon, everyone and thank you for joining us today for Alec Baby carriers fourth quarter 2023 earnings call.
We appreciate your time and interest in our company.
Earlier today <unk> released financial results for the quarter and full year ended December 31 2023.
Operator: These risks and uncertainties include, but are not limited to, those described in our most recent filings with the SEC and in the risk factors section of our annual report on Form 10-K for the fiscal year ended December 31, 2023. Please note that the company assumes no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law. With that said, I would now like to turn the call over to our CEO, Kurt Workman. Good afternoon, everyone.
The release is currently available on the company's website at Www dot investors dot outlook care Dot com.
Our speakers for today's call are Curt Workman outlets co founder and Chief Executive Officer, and Kate Skolnick, Our Chief Financial Officer.
Kurt will begin with an overview of our performance and key developments followed by <unk>, who will provide a detailed review of our financial results.
Following their remarks, we will open the call for your questions.
Kurt Workman: And thank you for joining Owlet's earnings call. 2023 was a transformative year for Owlet. We set out with three key goals, secure FDA clearances for Cheeve, Adjusted Evita, Near Break Even, exiting 2023, and revitalize our channel health. I'm incredibly pleased to announce that we achieved all three.
Before we get started we'd like to remind participants that today's discussion will contain forward looking statements based on current expectations.
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 described in our most recent filings with the SEC and.
Kurt Workman: These accomplishments are a testament to our team's dedication, the strength of our product portfolio, and the large community of parents, health professionals, and partners that believe deeply in the importance and mission of Owlet. Most importantly, though, these achievements position Owlet for substantial growth in 2024. Now, let me talk about E. Our recent FDA clearance was a pivotal moment for the business, and by launching BabySat and DreamSock with medical-grade features, we redefined consumer health monitoring and redesigned the market for Owlet.
And in the risk factors section of our annual report and Form 10-K.
For the fiscal year ended December 31, 2023.
Please note that the company assumes no obligation to update any forward looking statements whether as a result of new information feed.
Or events or otherwise, except as required by law.
With that I would now like to turn the call over to our CEO Kurt Workman.
Good afternoon, everyone and thank you for joining outlets earnings call 2023 was a transformative year for outlet.
We set out with three key goals.
Kurt Workman: First, it removes purchasing obstacles. FCA Clearance addressed the key customer concerns around regulatory status and the efficacy of our products firmly. Specifically, for DreamSock, we added features such as live vital sign displays and health alarms, giving medical-grade comfort to parents wishing to monitor and protect their children.
Secure FDA clearances.
To achieve adjusted EBITDA near breakeven exiting 2023, and revitalize our channel health.
I'm incredibly pleased to announce that we achieved all three.
These accomplishments are a testament to our team's dedication the strength of our product portfolio and the large community of Paris.
<unk> professionals and partners that believe deeply in the importance and mission of outlet.
Kurt Workman: I'm excited to report that parents responded in kind in Q4, as evidenced by the doubling of our sell-through during the recent holiday period, and our DreamSock sell-through has continued to maintain double-digit growth over prior periods. Second, it solidifies our market leadership. Owlet is now the first and only FDA-cleared baby monitor in its category, setting us apart from competitors in our basic consumer products and further distinguishing our category from traditional sound and video monitors, also allowing us to draw direct comparisons to trusted hospital grade technology.
Importantly, though these achievements position outlet for substantial growth in 2024.
Now, let me talk about each.
Our recent FDA clearance was a pivotal moment for the business and by launching Babysat Andrea talk with medical grade features we redefined consumer health monitoring and redesign the market for outlet. Let me explain why this is so significant.
First it removes purchasing obstacles.
FDA clearance to address the key customer concerns around regulatory status and the efficacy of our products and firmly.
Kurt Workman: Third, it opened the market for medical expansion. These clearances paved the way for our BabySap product to enter healthcare distribution, allowing us to improve the standard of care for higher-risk babies. It also allows pediatricians to prescribe Owlet instead of the traditional, intrusive, and clunky hospital monitoring solutions that increase risk with wires going into the crib.
Specifically for drain stock. We added features such as live vital sign displays and helpful are giving medical great comfort to parents wishing to monitor and protect their children and.
I'm excited to report that parents responded in kind in Q4 as evidenced by the doubling of our sell through during the recent holiday period.
And our green stock sell through has continued to maintain double digit growth over prior periods.
Kurt Workman: These new channels increase our distribution, strengthen our consumer and medical brand, and improve margins. Alongside our FDA success, we've dramatically improved financial efficiency. Through a combination of strategic actions since the launch of DreamSock in 2022, we have reduced operating expenses by nearly 60%, including consolidating vendors and eliminating unnecessary costs. Over the same time frame, we significantly reduced marketing expenses by over 70%, and we've been able to effectively maintain those marketing spend levels while still driving a 20% increase in sell-through in 2023. This was done by focusing on targeted channels on social media and specific partnerships.
Second it solidifies our market leadership.
Although it is now the first and only FDA cleared baby monitor in its category.
Setting us apart from competitors, who are basic consumer products and further distinguishing our category from traditional sound and video monitors.
Also allowing us to draw a direct comparison to trusted hospital grade technology.
Third it open the market for medical expansion.
These Clarence has paved the way for our babysat product to enter health care distribution, allowing us to improve the standard of care of monitoring for higher risk.
It also allows pediatricians to prescribe outlet instead of the traditional intrusive and clunky hospital monitoring solutions that increased risk with wires flowing into the crib. These.
These new channels increase our distribution strength in our consumer and medical brand and improved margin.
Kurt Workman: Product Satisfaction Initiative and leveraging our credibility behind our FDA clearance. Our marketing chief team drove over 100 million unique video views and increased our social media following to 1.3 million per month. The sell-through growth in 2023 and significant year-over-year improvement post-FDA clearance demonstrates that we can grow without significantly increasing marketing. We also improved gross margins to 47% in Q4, a 1,900 basis point improvement year over year, and would have delivered over 50% and adjusted even more positively if not for the one-time impact of our former Amazon partner going out of business. The improvement in margins during the year was due to warehouse changes, improving our channel mix, PPV reduction, and the onboarding of Amazon 1P. These were significant operational achievements for our small operations.
Alongside our FDA success, we've dramatically improved financial efficiency through.
Through a combination of strategic actions since the launch of Dream stock in 2022, we reduced operating expenses by nearly 60%, including consolidating vendors and eliminating unnecessary costs.
Over the same timeframe, we significantly reduced marketing expenses by over 70% and we've been able to effectively maintain those marketing spend levels, while still driving a 20% increase in sell through in 2023.
This was done by focusing on targeted channels on social media specific partnerships.
Product satisfaction initiatives and leveraging our credibility is behind our FDA clearances, our marketing team drove over 100 million unique video views and increased our social media following to $1 3 million per.
Kurt Workman: These combined efforts of expense reduction, marketing efficiency, and margin improvement brought Owlet to Adjusted Evodog near break-even and the most efficient operating position in our history. At the start of 2023, we focused intensely on channel health. Key channels like Amazon, Target, and Walmart saw significant reductions in weeks on hand, while sell-through improved, getting to a healthier channel position, and an additional 800 Walmart doors fueled over 100% growth in sell-through year-over-year. We added distribution of our Duo2 product to DreamSock in all Best Buy stores and on board Amazon 1P. The combined sales effort helped fuel the sell-through needed to improve our channel health at retail. We also addressed imbalanced international inventory with strong sell-through in the second half, reducing weeks on hand to manageable levels. Overall, our weeks on hand are now healthy.
The sell through growth in 2023, and significant year over year improvement post FDA clearance demonstrates that we can grow without significantly increasing marketing spend.
We also improved gross margins to 47% in Q4, 19, 100 basis point improvement year over year and would have delivered over 50% and adjusted EBITDA positive if not for the onetime impact of our former Amazon partner going out of business.
The improvement in margins during the year were due to warehouse changes.
Proving our channel mix PPV reduction and the Onboarding of Amazon <unk>. These were significant operational achievements for our small operations team. These combined efforts of expense reduction marketing efficiency and margin improvement brought outlet to adjusted EBITDA near breakeven in the most efficient operating position in our history.
At the start of 2023, we focused intensely on channel health key channels like Amazon target and Walmart saw significant reductions in weeks on hand, while sell through improved getting to a healthier channel position and.
Kurt Workman: Owlet navigated this even while overcoming the Bye Bye Baby bankruptcy where liquidation temporarily impacted other channels. Overall, across 2023, we improved weeks on hand with our retailers by over 45% from the beginning of 2023, setting us up for strong revenue growth in 2024. As we enter 2024, Owlet has the best product portfolio in the industry, strong sales momentum, a healthy level of channel inventory, scalable operations, and FDA clearance. We're now focused on rapidly expanding medical distribution, and elevating our retail presence, all while maintaining our operational and financial efficiency and discipline. In addition, we're eyeing two important milestones ahead of us to further unlock growth and market access. First, European expansion.
An additional 800, Wal Mart doors fueled over 100% growth in sell through year over year.
We added distribution of our <unk> product to dream socks, and all best buy stores.
Onboard and Amazon one P. The combined sales effort helped fuel the sell through needed to improve our channel health at retail.
We also addressed imbalanced international inventory with strong sell through in the second half producing weeks on hand to manageable levels overall, our weeks on hand are now healthy.
Ill, let navigated this even while overcoming the buy buy baby bankruptcy, where liquidation temporarily impacted other channels.
Overall across 2023, we improved weeks on hand, with our retailers by over 45% from the beginning of 2023 setting us up for strong revenue growth in 2024.
As we enter 2024 outlet has the best product portfolio in the industry strong sales momentum healthy level of channel inventory scalable operations and FDA clearance. We're now focused on rapidly expanding medical distribution elevating our retail presence, all while maintaining our operational and financial efficiency and discipline.
Kurt Workman: CE Medical Clearance, a focus for early 2024, will propel continued European momentum and open new markets. Second, software and services. Providers are now able to use our data to better enable care at home.
In addition, we're eyeing two important milestones ahead of us to further unlock growth and market access.
First European expansion CE medical clearance of focus for early 2024 will propel continued European momentum and open new markets second software and services providers are now able to use our data to better enable care at home and.
Kurt Workman: And Owlet will be developing software and services behind this new theme that will empower parents with new insights and better close the loop between health care and the home. These new services will be introduced in 2024 and begin to shape our revenue and margin story in 2025. I'm incredibly proud of our team's perseverance and the amazing work done in 2023.
And I'll, let we'll be developing software and services behind this new team that will empower parents with new insights and better close the loop between health care and the home. These new services will be introduced in 2024 and begin to shape, our revenue and margin story in 2025.
I'm incredibly proud of our team's perseverance and the amazing work done in 2023, our mission to empower parents fuels our dedication during challenging time. This was evident in our donations to our foundation partners of over $1 $4 million worth of dream stocks to families in need in addition, fundraising for Sids research, which raised over 150.
Kurt Workman: Our mission to empower parents fuels our dedication during challenging times. This was evident in our donation to our foundation partners of over $1.4 million worth of DreamStalks to families in need. In addition, fundraising for SIDS research, which raised over $150,000, and support for grieving parents, where Owlet and our partners donated and planted trees, over 500 trees in memory of these parents' precious little ones. We're dedicated to serving the families and communities who need Owlet the most. And I'm grateful and proud of the team that took time to give back while also pulling Owlet through very difficult times.
Dollars.
And support for grieving parents, where outlet and our partners donated types of trees over 500 trees in memory of these parents precious little ones.
We are dedicated to serving the families and communities who need it the most and I am grateful and proud of the team that took time to give back while also pulling outlet through very difficult times.
Kurt Workman: I'm incredibly excited about the growth and opportunity we've unlocked for 2024 and beyond. I've been on this journey with Owlet and our community of over 2 million parents for over 10 years now, and I can tell you Owlet has never been in a better market position. Our time is now.
I'm incredibly excited about the growth and opportunity we've unlocked for 2024 and beyond.
I've been on this journey with <unk> and our community of over 2 million parents for over 10 years now and I can tell you I'll, let has never been in a better market position. Our time is now thank you.
Kathryn R. Scolnick: Thank you. Kate, over to you for the financial highlights. Thank you, Kurt.
Kate over to you for the financial highlights.
Thank you Kurt Thanks for everyone joining us today.
Kathryn R. Scolnick: Thanks to everyone joining us today. In Q4 2023, Owlet demonstrated strong financial performance. I'll spend the next few minutes walking through key financial metrics and providing some additional details. Gross billings for the fourth quarter were $32.9 million.
In Q4, 2023, I'll, let demonstrated.
<unk> financial performance.
Spend the next few minutes walking through the key financial metrics and providing some additional detail.
Gross billings for the fourth quarter were $32 9 million.
Kathryn R. Scolnick: Product Promotions and Discounts for $5.9 million, and Returns and Allowances Reserved for $5.7 million. Within this, $3.1 million was related to the transition of our business to the Amazon platform. Excluding the Amazon platform, returns and allowances were approximately 8% of gross billing within our average range. Q4 revenue, which excludes returns and sales discounts, was $21 million. Gross billings for the full year 2023 were $73.2 million. Revenue, which excludes returns and sales discounts, was $54 million.
Product promotions and discounts for $5 9 million and returns and allowances reserved for $5 7 million.
Within this $3 1 million was related to the transition of our business on the Amazon platform.
Excluding the Amazon platform returns on allowances for approximately 8% of cross selling within our average range.
Q4 revenue, which excludes returns in sales discounts was $21 million.
Gross billings for the full year 2023 were $73 2 million.
Revenue, which excludes returns in sales discounts.
$64 million.
Kathryn R. Scolnick: Entering into 2023, our sell-in to distributors had outpaced sell-through to consumers, and during the course of the year, our partners were able to work through their excess inventory, bringing sell-in and sell-through into a healthy balance by year-end, before sell-through units were up 32% sequentially, demonstrating a fourth consecutive quarter of sell-through growth in 2023. We ended 2023 with overall sell-through increasing 2 Our growth margin for the fourth quarter was over 47%, a significant increase from 27.8% in the same period last year. Gross margin for the full year 2023 was 41.8%, a significant improvement over margins of 33.7% in 2022.
Entering into 2023.
Selling to distributors.
Sell through to consumers and during the course of the year, our partners were able to work through their excess inventory, bringing sell in and sell through into healthy balance by year end.
Q4 sell through units were up 32% sequentially, demonstrating our fourth consecutive quarter of sell through growth in 2023.
We ended 2023 with overall sell through increasing 27% year over year at the top four retailers.
Our gross margins for the fourth quarter was over 47% a significant increase from 27, 8% in the same period last year.
Gross margin for the full year 2023 was 41, 8%.
A significant improvement over margins of 33, 7% from 2022.
Kathryn R. Scolnick: Our strategies to expand gross margins have been multifaceted. We've been focused on improving our sales product mix and optimizing our promotional strategy. We've also been working diligently to reduce our cost of goods sold where possible, including negotiating better terms with our suppliers and improving our shipping and warehouse processes. Operating expenses in the fourth quarter were $13 million, including stock-based compensation of $2.3 million, representing a 46% decrease of $11.1 million year-over-year. Excluding stock-based compensation, Kupfer's operating expenses were $10.7 million.
Our strategy is to expand gross margins have been multifaceted.
We've been focused on improving our sales product mix and optimizing our promotional strategy.
Also been working diligently to reduce our cost of goods sold where possible, including negotiating better terms with our suppliers and improving our shipping and warehouse processes.
Operating expenses in the fourth quarter were $13 million, including stock based compensation of $2 3 million, representing a 46% decrease of $11 1 million year over year.
Excluding stock based compensation Q4, operating expenses were $10 7 million.
Kathryn R. Scolnick: Within these expenses, we accounted for a net $1.3 million bad debt expense regarding our former Amazon distribution partner. For the full year, operating expenses were $51.2 million, including stock-based compensation of $9.9 million, representing a 53% decrease of $56.7 million year-over-year. Excluding stock-based compensation, 2023 operating expenses were $41.3 million. The year-over-year decrease in operating expenses was primarily due to employee-related costs and marketing spend.
These expenses, we accounted for a net $1 3 million bad debt expense regarding our former Amazon distribution partners.
For the full year operating expenses were $51 2 million.
Stock based compensation of $9 9 million, representing a 53% decrease.
$6 7 million year over year.
Excluding stock based compensation 2023, operating expenses were $41 3 million.
The year over year decrease in operating expenses was primarily due to employee related costs and marketing spend.
Kathryn R. Scolnick: The measurable progress towards operating profitability in 2023 is an important foundational shift for Owlet's business. The fourth quarter net loss was $6.9 million for the quarter, a 65% decrease from $19.5 million in QPOR 2022. For the full year, net loss was $32.9 million, a decrease of $46.4 million year-over-year; adjusted EBITDA loss for the fourth quarter was approximately 0.7 million, down 95% from 15.2 million year-over-year. For the full year, adjusted EBITDA loss was 16.3 million compared to 68.3 million in 2022. In terms of our balance sheet and cash flow, we ended the year with $16.6 million in cash and cash equivalents. Coupled with our recent $9 million financing announced in February, we are beginning the year with good financial flexibility to invest in our 2024 growth initiatives and the necessary working capital resources to meet growing customer demand for FDA-cleared products. We remain focused on executing our strategic initiative to further strengthen our commercial and financial performance in 2024. With revenue growth, sustained gross margins, and controlled expense management, we believe we can continue to drive shareholder value. 2024 is off to a strong start. Looking ahead, we will again refrain from providing specific quarterly guidance.
The measurable progress towards operating profitability in 2023 is an important foundational chef for outlet business.
Fourth quarter net loss was $6 9 million for the quarter of 65% decrease from $19 5 million in Q4 2022.
For the full year net loss of $32 9 million, a decrease of $46 4 million year over year.
Adjusted EBITDA loss for the fourth quarter was approximately $7 million down 95% from $15 $2 million year over year.
For the full year adjusted EBITDA loss of $16 3 million.
Compared to $68 3 million in 2022.
In terms of our balance sheet and cash flow. We ended the year with $16 6 million in cash and cash equivalents.
Coupled with our recent 9 million financing announced in time in February.
Beginning the year with good financial flexibility to invest in our 2020 port growth initiatives.
And the necessary working capital resources to meet growing customer demand for FDA cleared products.
We remain focused on executing our strategic initiatives to further strengthen our commercial and financial performance in 2024.
With revenue growth sustained gross margins and controlled expense management. We believe we can continue to drive shareholder value.
2024 is off to a strong start.
Looking ahead, we will again refrain from providing specific quarterly guidance.
Kathryn R. Scolnick: We are focused on executing on the core business activities in 2024 that will maximize support dream product commercialization and drive a continual balance of sell-in and sell-through retail inventory. From a linearity perspective, we anticipate a seasonal sell-in step down in Q1 from Q4, and particularly with the strong Amazon one-piece sales this past Q4, followed by a sequentially strong sell-in in Q2 for Mother's Day holiday promotions and Prime Day. Second half sell-in for the November-December holiday promotions usually take place in Q3, making strides and ramping baby step commercialization with new DME partnerships. Babyset revenue will begin ramping as we develop our important long-term DME partnerships in 2024 and align for revenue model impact in 2025, driving gross margins within our target range of 45 to 50% through unit volume, product mix, and ongoing operational efficiency, and driving our operational planning towards breakeven and sustainable profitability. We are targeting operating expenses, excluding stock-based compensation, between $10 million and $20 million per quarter.
We are focused on executing on the core business activities in 2024.
That will maximize supporting dream product commercialization and driving continuous balance of sell in and sell through retail inventory.
From a linearity perspective, we anticipate a seasonal sell in stepped down in Q1 from Q4, and particularly with the strong Amazon <unk> sales. This past Q4.
Followed by sequentially strong sell in Q2 for mother's day holiday promotions in Prime day.
Second half selling for the November December holiday promotions, you usually take place in Q3.
Making strides in ramping babysat commercialization with new <unk> partnerships babies.
<unk> revenue will begin ramping as we develop our important long term dnb partnerships in 2024 and the line for revenue model impacts in 2025.
Driving gross margins within our target range of 45% to 50% through unit volume product mix and ongoing operational efficiencies.
And driving our operational planning towards breakeven and sustainable profitability.
We are targeting operating expenses, excluding stock based compensation.
Between $10 million to $20 million per quarter.
Operator: With that, I will turn the call over to the Q&A portion. Operator, please open up the call to questions. Absolutely.
With that I will turn the call over to the Q&A portion operator, please open up the call to questions.
Absolutely.
Operator: We will now begin the Q&A session. If you'd like to ask a question, please press star followed by one on your telephone keypad. To remove your question, press star followed by one.
We will now begin the Q&A session.
If you'd like to ask a question. Please press star followed by one on your telephone keypad.
To remove your question <unk>.
Followed by two.
Charles Rhyee: Again, to ask a question, press star one, and if you are using a speaker, please pick up your handset before asking your question. Our first question today comes from Charles Rhye with P.D. Cowan. Please proceed. Thanks, and congratulations guys on ending the year strong here. Kate or Kurt, maybe just touch on Amazon a little bit here.
Again to ask a question press star one.
And if you are using a speakerphone. Please pick up your handset before asking your question.
Our first question today comes from Charles <unk> with PD Cowen. Please proceed.
Thanks, and congratulations guys on spend.
<unk> ended the year strong here.
Kate are Kurt maybe just.
Just touch on Amazon, a little bit here, obviously, the direct selling to Amazon, what's what's the importance of that in <unk>.
Kurt Workman: Obviously, the direct selling to Amazon, what's the importance of that? And why should we view this as a really significant step forward for the company? Yeah, thanks, Charles, for the question. I think one of the big things to note is that Amazon is our largest channel. Something close to 30% of our revenue is driven through Amazon, so this is a really important channel for us. And traditionally, we've been working with third-party sellers on Amazon that help manage the logistics and compliance with Amazon's fulfillment process. And then they also help with some of the marketing on Amazon for us.
Why do you why should we view this as a real significant step forward for the company.
Yeah. Thanks, Charles for the question.
I think one of the big things to notice the Amazon is our largest channel.
Something close to 30% of our revenue is.
Is driven through Amazon. So this is a really important channel for us and traditionally we've been working with third party sellers on Amazon helped manage the logistics in compliance with Amazons fulfillment process.
And then they also help with some of the marketing on Amazon for Us.
Kurt Workman: As we progressed through 2023, we realized that, you know, Owlet's sell-through was growing, we were getting into a healthier position, and we were worried about some of the partners' financial strength. And at the same time, Amazon approached us. They usually work with kind of the top 70 brands in every category, kind of the top brands in every category.
As we progress through 2023 realized.
I'll, let sell through was growing we're getting into a healthier position. We are worried about some of the partners financial strength.
And at the same time Amazon approached us.
Usually work with kind of the top 70 brands in every category of the kind of the top brands in every category and I'll, let was one of the brands that they werent working with the top in our in the baby category and.
Kurt Workman: And Owlet was one of the brands that they weren't working with at the top in the baby category, and so we were really excited about the opportunity. What it provides is better financial stability, better margins, and the unit economics through Amazon are better than going through third-party distribution.
So we're really excited about the opportunity what it provides is better financial stability better margins the unit economics through Amazon or better than going through third party distribution, we get additional placements as part of our agreement for advertising and marketing they.
Kurt Workman: We get additional placements as part of our agreement for advertising and marketing to give us better visibility. And so all of that combined gives a much better margin profile for the business, specifically within that channel, as we move into 2024. And then, you know, combining that with the FDA clearances, this channel is one we expect to see a lot of growth. Yeah, and maybe just to begin with the clearances, obviously, you're the only FDA-cleared product that's available in stores. Maybe talk a little bit about the competitive landscape that, you know, I know Moss Mall has a product out there. Maybe just give us an update on what you're seeing in the rest.
It gives us better elevation.
And so all of that combined puts a much better margin profile for the business. It was specifically within that channel as we move into 2024.
And then combining that with the FDA clearances. This channel is one we expect to see a lot of growth there.
Yeah, and maybe just sticking with the.
The clearance obviously you are the only FDA cleared.
Product that's available in stores maybe.
Maybe talk a little bit about the competitive landscape I know masimo has a product out there or.
Maybe just give us an update on what youre seeing in the rest of the market.
Kurt Workman: Yeah, I would say that the number one concern our customers had heading into Q4 was around confusion with the FDA. And so, being able to announce that Owlet is the first and only FDA-cleared monitor for over-the-counter use, that's still the case today. There's no other monitor that has FDA approval to sell over-the-counter and through retail channels to empower parents directly with all of this health information, so Owlet's in that position. And what we saw as a result of that is that it opened up the bottom of the funnel. The top of the funnel has been pretty healthy.
Yeah, I would say the number one concern our customers had heading into Q4 was was around the confusion with the FDA and so being able to announce that all of it is the first and only FDA cleared monitor for over the counter use that's still the case today. There is no other monitor that has FDA approval to sell.
Over the counter and through retail channels.
To empower parents directly with all of this health information, so I'll, let solid in that position.
And what we saw as a result of that is that it opened up the bottom of the funnel at the top of the funnel has been pretty healthy the awareness around al it's been really good and there's just been this question Mark around is Allied FDA approved should I buy this from my baby and we were able to answer that very clearly for consumers in Q4, and they responded that's why our sell through doubled.
Kurt Workman: The awareness around Owlet's been really good, and there's just been this question mark around, is Owlet FDA approved? Should I buy this for my baby?
Kurt Workman: And we were able to answer that very clearly for consumers in Q4, and they responded. That's why our sales were doubled during that holiday period year over year with that specific messaging and the press around it. We're really excited about that opportunity. I think this year Owlet has been put into a new category. We are the only FDA-cleared monitor on shelves.
The holiday period year over year with that specific.
Messaging in the press around that were really excited about that opportunity I think this year.
It's been put into a new category. We are the only FDA cleared monitor on shell. Our retail partners are really excited about that theyre, giving outlet more shelf space. They are differentiating outlet from the competition, we're able to do that through our marketing and.
Kurt Workman: Our retail partners are really excited about that. They're giving Owlet more shelf space. They're differentiating Owlet from the competition. We're able to do that through our marketing and labeling, which is really, really exciting. So what we're seeing is that Owlet was the number one monitor in the category, and we expect that distance to continue to increase in 2024. That's, that's great. Um, maybe switching over to Babysat a little bit too quickly.
And labeling.
It is really really exciting so what we're seeing is outlet was the number one monitor in the category and we expect that defense to continue to increase in 2024.
That's great.
Maybe switching over to babysat, a little bit quickly.
Kurt Workman: Um, you know, this one I think you talked about, uh, partnering with a direct medical equipment distributor. Uh, maybe give us an update on where you're at with that. Um, I think you've already selected one or you've been, you partnered with one.
This one I think you had talked about.
Partnering with our direct medical equipment distributor, maybe give us an update there where you're at with that.
I think you had already selected one or you've been you've partnered with one maybe give us a little bit more details there.
Kurt Workman: Maybe give us a little bit more details there. Yeah, of course. We partner with Adapt Health, which is a nationwide distributor of medical devices. They have relationships with every national insurance, you know, payer in the United States. They're in a big portion of hospitals throughout the country.
Yes of course.
We partnered we announced a partnership with adopt health at the beginning of January adapters and nationwide.
Distributor of medical devices, they have relationships with every national.
Insurance.
Here in the United States, they're in.
A big portion of the hospitals throughout the country and so there is a perfect partner for outlet to go to market with.
Kurt Workman: And so there's a perfect partner for Owlet to go to market with as we begin to sell babysitting. They're integrating with all the insurance companies. They've integrated with our website so that the checkout experience through our website is seamless for our customers. They do all of the prescription verification, all of the insurance verification.
We begin to sell babysat, they're integrating with all the insurance companies they've integrated with our website.
Checkout experience through our website it seamless for our customers to do all of the prescription verification.
All of the insurance verification, they've got a sales group of hundreds of sales reps that are taking I'll, let now too.
Kurt Workman: They've got a sales group of hundreds of sales reps that are taking Owlet now to hospitals. But it's obviously a channel that takes a little bit of time to build. Things move a little bit more slowly, but we're really excited about that partnership. You'll hear more partnerships, you know, announced probably every quarter this year as we're building out that medical distribution. But we're really excited about this first step into medical distribution. Great, and sorry, I have two more questions for you. The first one on international business is that you kind of moved into Europe early on before some of the things that kind of got delayed here. Maybe give us an update on where you are with the CE mark. And when you get the CE mark, is that for an over-the-counter product, or is that for a prescription product? Just curious about the distinction.
To hospitals, it's obviously a channel that takes a little bit of time to build things move a little bit more slowly, but we're really excited about that partnership deal you'll hear more partnerships.
Announced probably every quarter of this year is where.
Building out that medical distribution, but we're really excited about this first step into the into medical distribution.
Sorry, maybe two more questions from me the first one on international.
You kind of moved into Europe.
Early on before some of the things.
Kind of got delayed here, maybe give us an update on where you are from the CE Mark and when you get to CE Mark is that for an over the counter product or is that for a prescription product.
Curious on the distinction there.
Kurt Workman: Good question. It's for an over-the-counter product. Europe's a little bit different in terms of their... we have prescription and over-the-counter cures for pulse oximetry there. You can get medical distribution and have an over-the-counter product, but it is specifically for over-the-counter use.
Good question.
For an over the counter product.
Europe's a little bit different in terms of their prescription over the counter cure for pulse oximetry. There you can get medical distribution and have an over the counter product, but it is specifically for over the counter use we'll be able to sell it through all of our retail channels that we've set up there and we think it's going to have a huge impact on.
Kurt Workman: We'll be able to sell it through all of our retail channels that we've set up there, and we think it's going to have a huge impact on not only the expanded distribution that we've been working on but also the same thing, opening up the bottom part of the funnel. We've worked hard for a few years to build awareness, and we believe this is going to drive additional conversion and more partnership opportunities. So we're very close to achieving it.
Not only the expanded distribution that we've been working on but also the same thing.
Opening up the bottom part of the funnel we've worked hard for a few years to build awareness and we believe this is going to drive additional conversion.
And more partnership opportunities. So we're very close to it we've been able to leverage a lot of the.
Kurt Workman: We've been able to leverage a lot of the... a lot of the work and a lot of the studies that we did for FDA clearance, and we feel like we're in the kind of final steps to getting clearance. Great, and maybe my last question, Kate, is if we kind of look at the quarter here and we kind of back on sort of the one-time modems that you kind of noted, particularly with the shift to Amazon, it would look like gross margins were north of 50%, and adjusted EBITDA would have been positive for the quarter. I know you're not really giving forward guidance per se, but maybe you could help us think through sort of how margins, how you're thinking about margin progression and so on, sort of.
A lot of the work and a lot of the studies that we did for FDA clearances, and we feel like we're in that kind of final steps to getting clearance.
Great and maybe my last question Kate.
We kind of look at the quarter here and we kind of back on sort of the onetime items that you kind of noted with.
Particularly with the shift to Amazon.
It would look like gross margins were north of 50% and adjusted EBITDA would have been positive for the quarter. I know you are not really giving.
For guidance per se, but maybe you could help us think through sort of how margins. How are you thinking about margin progression.
And.
Kurt Workman: Rhye, Kathryn Scolnick, Owlet, Mike Cavanaugh, Kurt Workman, Owlet, Mike, Yeah, um, as I said, you know, we're looking at the trajectory that we have through the year, what we're trying to get to, you know, for our long-term model is really a margin between 45 and 50%. Some of the undulation just kind of comes with the pace through the years.
It's sort of sort of.
Most of the profitability here.
Yeah.
As I said, we're looking at that.
Trajectory that we have through the year and what we're trying to get to for our long term model is really margin between 45 and 50% some of the undulation just kind of comes with the.
The pace through the year as we talked about.
Kathryn R. Scolnick: We talked about Q1 being a step down from Q4, just given volumes, and then it ramps up in Q2, Q3, with the different holidays and the promotions and prime days. So I think that what we're seeing is more gravitation that we have towards our stock product, which is obviously the hero product as it relates to margin. So next, moving towards there is a benefit. Looking further out, as I mentioned, as baby fat ramps out further into 2025, that will be a huge benefit to the model as well. In terms of adjusted EBITDA, we're not changing our profile as it relates to expense. So excluding stock-based compensation, and operating expenses being between 10 to 12 million per quarter, we're looking at leverage in the model that way.
Q1, being a step down from Q4, just given volumes.
And then as it ramps up in Q2 Q3 with the different.
Holiday events and promotions and Prime day, So I think that what we're seeing is them more gravitation that we have towards our stock product that is obviously the the hero product as it relates to margin so mix moving towards there is a benefit.
Looking further out as I mentioned has babysat ramps out further into 2025.
That will be burned gen benefit to the model as well.
Terms of adjusted EBITDA, we are not changing our profile as it relates to expense. So excluding stock based compensation operating expense being between $10 million to $12 million per quarter, we're looking at leverage in the model that way.
Kathryn R. Scolnick: You know, depending on where the revenue kind of lands each quarter, we'll see that improving too. Our goal is to be in a sustainably profitable company, and I think the benefits of 2023 that we made in taking as much expense as we did out, we don't want to lose that momentum that we have. So it's the opportunities that we have to put our working capital towards the FDA-cleared products this year, and have revenue growth that will get us to that sustainable line, if you will, in 2024 and beyond to make this really a company that is focused on being that independent growth company with a profitability lens. So still some work to do in 2024, but I think what you'll see is that that improvement continues as we go through the year. That's great. I'm sorry.
Depending on where the revenue kind of lands each quarter.
We'll see that improving two our goal is to be in a sustainably profitable company and I think the the.
The benefits of 2023 that we made in taking as much expense as we did out we don't want to lose that momentum that we have since the opportunities that we have to put our working capital.
Towards the FDA cleared products this year, having revenue growth that will get us to that over the sustainable.
Line, if you will in 2024 and beyond.
This is really a company that is focused on them being that independent growth company with a with a profitability lens. So still some work to do in 2024, but I think what Youll see is that that improvement continues as we go through the year.
That's great I'm, sorry, maybe one more here.
Kurt Workman: Maybe one more here. You talked about opening at the bottom of the funnel, and you saw that kind of double here in the fourth quarter. Can you give us a sense of what that trend looks like in the south through here in the first quarter so far? Are we still seeing the same kind of momentum? Yeah, I would say no, it hasn't been a double kind of in the first quarter of 2024.
You talked about opening at the bottom of the funnel.
So that kind of doubling in the fourth quarter.
Can you give us a sense on what that trend looks like on the sell through here in the first quarter so far.
Are we still seeing yes for sure.
Yes, I would say it hasnt been a double kind of in the first quarter of 2024, but we have seen definitely double digit growth year over year for dream stock, which is part of the sales mix, that's really starting to outperform.
Kurt Workman: But we've seen definitely double-digit growth year over year for Dreamsock, which is, you know, part of the sales mix that's really starting to outperform and get us close to that. So we have seen sustained sell-through lift that's really promising as we go into 2024, and it's significant. Appreciate all the questions. Thank you.
And do those close to that so we have seen sustained sell through left that's really promising as we go into 2020 for it we can build on and it's significant.
Great.
And all the questions. Thank you.
Thanks Charles.
Operator: Thank you for your questions. There are no further questions in queue, so I will now pass the conference back over to Mike Cavanaugh for further questions that came in via email. Thanks very much, operator. Yeah, we did.
Thank you for your question.
There are no further questions in queue. So I will now pass the conference back over to Mike Cavanaugh for further questions that came in via email.
Yeah.
Thanks, very much operator.
Mike Cavanaugh: We have received some questions from investors, and particularly some of our retail investors, that we wanted to share during the Q&A session today. So the first one, congratulations to the team on the $13 trillion heart. Are there efforts to identify potential correlations between heartbeats in various medical conditions or sleep quality? What can you tell us about the product roadmap and some of the other products, like BAND and CRIB? Considering both FDA clearances and your extensive data set compared to competitors, that should be an advantage for you. Yeah, I'll take this one.
We have received some questions from investors.
And particularly some of our retail investors that we wanted to share during the Q&A session today.
So the first one.
Congratulations team on the.
<unk> 13 trillion heartbeat or.
Are there efforts to identify potential correlation between heartbeats and varied medical conditions or sleep quality.
What can you tell us about the product roadmap and some of the other products like band in crib.
Considering both FDA clearances in your extensive dataset compared to competitors that should be an advantage for you.
Yes, I'll take this one.
Kurt Workman: Yeah, Owlet has one of the largest datasets of infant health at home and a fantastic data science team. We've known for a long time that the potential of our data and our technology, and the value we can drive from those insights, is immense. We've really been limited for years, you know, just being a consumer device and the limitations around being in the consumer device space. So now, with FDA clearance, we can really start to unleash our data and technology for parents and providers. That's a big part of this year. I talked a little bit about software and services. So our focus in 2024 is really two things.
Yes, I'll, let house one of the largest datasets to Vincent health at home and a fantastic data science team, we've known for a long time that the potential of our data and our technology and the value we can drive from those insights.
We've really been limited for years, just being a consumer device and limitations around being in the consumer device space. So now with FDA clearance, we can really start to unleash our data and technology for parents and providers. That's a big part of this year I talked a little bit about software and services. So our focus in 2024.
There's really two things it's to drive adoption of our medical devices, and we're seeing the momentum in that area and launching software and services to leverage Allen data. So we really do believe that there is significant revenue and margin growth as we progress here by.
Kurt Workman: It's to drive adoption of our medical devices, and we're seeing the momentum in that area and launching software and services to leverage Owlet's data. So we really do believe that there is significant revenue and margin growth. And as we progress here, by focusing on those two specific areas, with about 140 million babies born globally, we're just scratching the surface of Owlet's long-term potential. So stay tuned for more. This is a really exciting area that we'll be sharing more and more about. Okay, thanks, Kurt.
By focusing on those two specific areas with about 140 million babies born globally. We are just scratching the surface of our long term potential so stay tuned for more of this as a really exciting area that we'll be sharing more and more about.
Okay. Thanks, Kurt the next question as an Investor I appreciate the strong support from eclipse as well as the active participation of the board and the recent offering.
Kathryn R. Scolnick: The next question, as an investor, I appreciate the strong support from Eclipse, as well as the active participation of the board in the recent offering, that clearly demonstrates confidence in Owlet going forward. With the public float at only about 20% of total shares, do you have any thoughts on the best way to build shareholder value? And then, in the current macro environment, how does Owlet push forward? Stand out from the others.
That clearly demonstrates confidence in outlets going forward.
With the public float at only about 20%.
Total shares do you have any thoughts on the best way to build shareholder value.
And then in the current macro environment, how does outlet push forward.
Pick out from the others.
Kathryn R. Scolnick: Um, yeah, I can take that question, as a microcab company. I think, along with others, we've been impacted by these conditions in the capital markets, especially since they've continued to be drawn out over what seems like a long period of time. We've had the financial support of our largest investors and our banking and trade partners, so we've been able to continue to also execute against our mission and vision. I think, you know, this support has been really helpful in our ability to deliver against our business and operational plans for 2023, which we've just spent time discussing today, and these accomplishments, you know, set us up for even more success in 2024. So, we believe that, you know, the execution of last year and also the execution of the plans that we talked about for 2024 is what puts us in the best position to continue to build shareholder value right now. Okay, thanks, Kate. Next question: does Owlet plan to launch in India or other Asian countries? And if so, what is the potential timeline for that?
Yeah, I can take that question.
Microcap company.
I think along with others, we have been impacted by these conditions of the capital markets, especially since they've continued to be drawn out over what seems like a long period of time.
We've had the financial support of our largest investors in our banking and trade partners. So we've been able to continue to also execute against our mission and vision I think you know this support has been really helpful. In our ability to deliver against our business and operational plans in 2023 that we've just.
On time discussing today and these accomplishments.
Set us up for even more success in 2024, so we believe that the execution of last year and also the execution of plans that we talked about for 2024 is what puts us in the best position to continue to build.
Shareholder value right now.
Okay. Thanks, Kate next question does outlet plan to launch in India, or other Asian countries and if so what is the potential timeline for that.
Kurt Workman: Yeah, I mentioned that we're very close to CE med clearance. I'm really proud of the team's work there. That's the near-term focus, but there are 140 million babies born across the world every single year, and parenting really has universal needs. There's, you know, it doesn't matter where your baby's born; parents care about their child's safety and their health and them being able to get a good night's sleep.
Yes, I mentioned that we're very close on the CE clearance I'm really proud of the team's work there. That's the near term focus but there are 140 million babies born across the world every single year and parenting really has universal medium.
It doesn't matter, where youre babies born parents care about their child safety and their health.
And then being able to get a good night's sleep and so our technology has a really big opportunity is to have an impact across the globe. We're really excited about this in 2020 for our specific focus is on expansion of our medical device in Europe. There's a lot of room for growth. There and then we will open up other geographies in coming years.
Kurt Workman: And so our technology has a really big opportunity to have an impact across the globe. We're really excited about this. In 2024, our specific focus is on expanding Owlet's medical device in Europe. There's a lot of room for growth there, and then we'll open up other geographies in the coming years. Great. Thanks, Kurt.
Great. Thanks, Kurt.
Kurt Workman: Next question, given the demographic of Owlet's target market, how important is social media and influencer marketing, and can we expect celebrity-type marketing of the Owlet sock in the future? So we work really hard to meet parents where they are with messages that resonate with them in channels that, you know, they spend their time on. And one shining example for us recently is the TikTok strategy that we've put in place. They put a large emphasis on getting Owlet stories out into the communities, and those stories include really fun and creative content about parenting, as well as very serious and emotional content around, you know, the parent or the child's story, their health journey, or Owlet, you know, detecting that the baby had low oxygen and parents being able to intervene in time.
Next question given the democrats' demographic of outlets target market, how important is social media and Influencer marketing.
And can we expect celebrity type marketing of the outlet socket in the future.
Yeah.
So we worked really hard to meet Perrin really where they're at with messages that resonate with them in channels that.
They spend their time and one Shining example for US recently is the tick tick tock strategy that we've put in place put a large emphasis on getting outlet stories hung in the communities and those stories include really fun and creative content about parenting very serious and emotional content around.
The parent or the child story their health journey or outlet.
<unk> that the baby had low oxygen and parents being able to intervene in time.
Kurt Workman: That, you know, those stories have a big impact. We've even had, you know, a lot of user-generated stories and partner stories. Somebody wrote a song about Owlet or about their child, and they included Owlet in it.
Those stories haven't had a big impact we've even had.
A lot of user generated stories and partner stories somebody wrote a song about.
Outlet and are about their child and included all of it and so we do a lot of work on social paid over 100 million video views and engagement last year, and we want to be a very authentic connection with parents and it's obvious that.
Kurt Workman: So we do a lot of work on social. We had over 100 million video views and engagements last year. And we want to be a very authentic connection with parents.
Kurt Workman: And it's obvious that, you know, parents telling real stories and real-life examples, and the word of mouth behind our product is always meaningful to Owlet. It's been a big part of growing our brand and our awareness. And being able to do that also while cutting marketing expenses. So there are a lot of opportunities with that. And there are a lot of celebrities who use Owlet organically and talk about Owlet because they absolutely love the product.
Parents, telling real stories and real life examples in the word of mouth behind our product is always meaningful to outlet, it's been a big part of growing our brand and our awareness.
And being able to do that also work cutting marketing expenses. So there's a lot of opportunities with that and there are a lot of celebrities who use outlet organically and sure about all of it because they absolutely love the product and so we feel like that.
Kurt Workman: And so we feel like that's the approach that resonates the best with parents. All right, great. And we have one final question that we received. I noticed there was a PR firm, that is, a public relations firm, hired toward the end of the year. Can you speak to that and the strategy behind it?
That's the approach that resonates the best with with parents.
Alright, great and one final question.
That we received.
I noticed there was a PR firm a pump that is public relations firm hired towards the end of the year can you speak to that and the strategy behind it.
Kurt Workman: Yeah, I would just simply say that Owlet is really, again, we're in a first and only position. We are the first and only FDA-approved monitor for over-the-counter distribution, and we're taking advantage of that in the market today by driving awareness and cleaning up any confusion in the market that's existed. We've had hundreds of articles written about Owlet in just the last few months, and millions of parents are engaging with that message, thanks to our social media and our PR team, who are doing a fantastic job. And that's a big reason why we're seeing this organic list and sell through.
Yes, I would just simply say that I'll, let really again, we're in a first and only position. We are the first and only approved FDA monitor for over the counter distribution and we're taking advantage of that in the market today.
By driving awareness and cleaning up any confusion in the market. That's existed we've had hundreds of articles written about outlet in just the last few months millions of parents engaging with that message. Thanks to our social and our PR team that's doing a fantastic job and that's a big reason why we're seeing this organic lift in sell through people now know that.
Kurt Workman: People now know that Owlet is in that position, and we're the best available option. So this is a massive year for us. All right, I think that's it for our supplementary questions, operator. Thank you. I will now pass the conference over to Kurt Workman for closing remarks. Thank you.
How it is in that position, where the best available option. So this is a massive year for us.
Yeah.
Alright, I think thats it for our supplemental questions operator.
Thank you.
I will now pass the conference over to Kirk Workman for closing remarks.
Kurt Workman: Yeah, as we look ahead, we're excited about the opportunities that are ahead of us. We're focused on expanding our product footprint, driving revenue growth, improving operating leverage, and achieving further profitability. Our strategies and initiatives are designed to capitalize on our recent product introductions and regulatory successes and to continue to deliver value to our shareholders. In conclusion, I want to express my sincere gratitude to our shareholders, to our clients, and to our dedicated employees for their unwavering support and loyalty. And your belief in our mission and commitment to our vision has been instrumental in our achievements this past year. Thank you. As we look forward to 2024, we are energized by our progress and the momentum that we've felt, and we're committed to our mission of helping children live long, happy, and healthy lives. We're excited to continue our journey with all of you. Thank you once again for your continued support and for joining us on this call today. That will conclude today's conference call. Thank you all for your participation. You may now disconnect your lines.
Thank you yeah. As we look ahead, we're excited about the opportunities that are ahead of us we're focused on expanding our product footprint driving revenue growth improving operating leverage and achieving further profitability our strategies and initiatives are designed to capitalize on our recent product introductions and regulatory successes.
To continue to deliver value to our shareholders.
In conclusion, I want to express my sincere gratitude to our shareholders to our clients and our dedicated employees for their unwavering support and loyalty and your belief in our mission and commitment to our vision has been instrumental in our achievements. This past year. Thank you as we look forward to 2024, we are energized by our progress and the momentum that we have.
And we're committed to our mission of helping children lived long happy and healthy lives. We're excited to continue our journey with all of you. Thank you once again for your continued support and for joining us on this call today.
That will conclude today's conference call.
Thank you all for your participation you may now disconnect your line.