OWLT - NYSE

Good afternoon. Thank you for attending the Owlet Q4 and Full Year 2025 Earnings Conference Call. My name is Matt, and I'll be the moderator for today's call. [Operator Instructions] I'd now like to pass the conference over to our host, Jay Gentzkow, Investor Relations. Jay, please go ahead.

Good afternoon, everyone, and thank you for joining us. Earlier today, Owlet released financial results for the fourth quarter and full year ended December 31, 2025. I'm pleased to be joined today by Jonathan Harris, Owlet's President and CEO; and Amanda Twede Crawford, our CFO. Before we begin, please note that our financial results, press release and presentation slides referred to on this call are available under the Events and Presentations section of our Investor Relations website at investors.owletcare.com. This call is also being webcast live with a link at the same website. The webcast and accompanying slides will be available for replay for 12 months following this call. The content of today's call is the property of Owlet. It cannot be reproduced or transcribed without our prior consent. Before we begin, I'd like to refer you to our safe harbor disclaimer on Slide 3 of the presentation. Today's discussion will contain forward-looking statements based on the company's current views and expectations as of today's date. These statements are only predictions and are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, but are not limited to, those described in our most recent filings with the SEC and in the Risk Factors section of our annual report on Form 10-K as updated in the company's quarterly reports on Form 10-Q and other filings with the SEC. Please note that the company assumes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. With that, it's my pleasure to turn the call over to Jonathan.

Thanks, Jay. Good afternoon, everyone, and thank you for joining. I'm excited to recap the significant progress we've been making as 2025 was the strongest year in Owlet's history, and we are positioned for continued outperformance in 2026. I'll begin on Slide #5. 2025 was truly a monumental and transformative year for Owlet, marked by significant growth and expanding our leadership and scale in pediatric health monitoring. The team achieved many milestones and accomplishments, and I'd like to highlight 3 of the most critical. First, the launch of our Owlet360 subscription service in January of last year proved to be a resounding success, fundamentally reshaping our relationship with our customers and our long-term business strategy. We're proud to announce that we have crossed 110,000 paying subscribers to begin March, a testament to the value and peace of mind our connected services provide to families. And we've recently launched our international subscription offering, opening new high-margin revenue streams and extending our ecosystem benefits across borders. The introduction of Owlet360 marked a major milestone in our evolution into a comprehensive pediatric data platform. By leveraging Owlet's massive data set of pediatric health, we're better able to deliver more advanced and personalized health and wellness information for our families. We're excited about the foundation we laid in 2025 for subscription and to capitalize on that momentum in 2026. Second, we launched our new Dream Sight camera in September last year, our next-generation video monitor. Dream Sight levels up our camera platform with greater reliability and security and future forward technologies, including onboard AI capabilities, all at a price point that makes sense. When paired with Dream Sock, it delivers a holistic view of a child's wellness that no other offering can match. We view the introduction of Dream Sight as an important strategic catalyst to expand our LTV as cameras remain in use past 3 years of age. We've seen outstanding momentum since Dream Sight launch, and we're thrilled to begin rolling out our new camera-specific subscription features in the coming quarters, yet another opportunity to increase subscriber growth. Third, in 2025, we achieved record annual revenue, gross margin and adjusted EBITDA, showcasing new heights of financial performance and operational efficiency despite the new tariffs. Last October, we simplified our capital structure via warrant exchange, followed by a successful offering to strengthen our balance sheet, support a path to cash flow independence and provide flexibility for opportunistic growth investment. Owlet's financial and operational health is stronger than ever, positioning us to well execute on our pediatric health growth opportunity and deliver long-term stakeholder value. Owlet's journey to date has been extraordinary, marked by innovation, strategic expansion and a relentless focus on our mission, reaching every baby. Our strategy is anchored in partnering with families during some of the most challenging but rewarding times in the parents journey. We are looking at a demographic of new parents, Gen

Thanks, Jonathan, and thank you to everyone for joining. I also want to thank our employees for another successful quarter and for the terrific execution that delivered our record 2025 performance. I'll begin on Slide 12. Unless noted otherwise, I will be comparing fourth quarter 2025 to the fourth quarter of 2024. Financial results are preliminary prior to our 10-K filing. The fourth quarter was another strong quarter as the momentum continued for Owlet. Q4 revenue was $26.6 million, up 29.6% year-over-year. Revenue strength was driven by broad-based growth across the Dream product suite and Owlet360 subscription. Full year 2025 revenue was a record at $105.7 million, up 35.4% versus 2024, at the high end of our guidance range. Q4 gross margin was 47.6%, including a 510 basis point impact from the cost of tariffs. Full year 2025 gross margin was a record at 50.6%, exceeding the high end of our guidance. Tariff costs impacted our gross margin by 270 basis points for the full year 2025. Moving to the next slide. We have continued to maintain discipline with our operating expenses as we grow the business. Total operating expenses in the fourth quarter were $17.5 million versus $18.4 million in 2024, improving by $0.9 million. As a percentage of revenue, Q4 operating expenses were 66% compared to 90% in Q4 2024 as we continue to drive strong operating leverage. This has led to consistently strong operating efficiency as we manage investing operating expenses behind revenue growth. Our LTV to customer acquisition cost ratio of 4.4% remains low and is poised to improve as we layer on recurring revenues from subscription. From a revenue per full-time employee perspective, we're running a lean and efficient team at $1 million per average FTE. Q4 operating loss was $4.9 million compared to $7.4 million in the same period last year, improving $2.5 million. Net loss in the quarter was $9.2 million versus $9.1 million in the same period last year. Q4 adjusted EBITDA was $0.1 million compared to $0.5 million in Q4 2024. Tariff costs were the primary impact versus prior year. Full year 2025 adjusted EBITDA was a record for Owlet at $2 million and at the high end of our guidance expectations. 2025 adjusted EBITDA improved $3.8 million compared to 2024. Turning to our balance sheet. Cash and cash equivalents, excluding restricted cash as of quarter end December 31, 2025, were $35.5 million, up from $23.8 million in the third quarter 2025. With a portion of the proceeds from the equity offering in October, we paid down $12 million on our line of credit, decreasing to $7 million at the end of Q4. We had $10 million of undrawn availability on the line of credit at the end of Q4, increasing our total liquidity to $45.5 million as of December 31, 2025. The principal balance on our term loan was $7 million at the end of Q4 versus $7.5 million at the end of Q3. We began repayment on the term loan in November 2025, and we expect it to be paid off by January 2028. Shifting to our financial outlook on Slide 16. Following the most successful year in Owlet's history, our 2026 outlook is built on the scale and strength we established in 2025 and centered on continued execution on our strategic areas for growth. For the first quarter of 2026, we expect revenue in the range of $20 million to $21 million, gross margins of 50% to 52% and adjusted EBITDA of negative $2.5 million to negative $1.5 million. Reminder that the seasonality of the business positions the first quarter as consistently our lowest revenue contribution quarter. And also of note, when comparing Q1 '26 revenue to prior year Q1 '25, revenue was especially strong due to a heavy RSV and flu season. We also began investing post offering in Q4 and now in Q1 in additional R&D resources to drive software and services for our Owlet360 subscription and OnCall Telehealth. And for our full year 2026 outlook, we are expecting another record year of growth. For 2026, we expect revenue in the range of $126 million to $130 million, representing growth of 19% to 23% over 2025. Similar to prior years, we're expecting revenue contribution to be roughly 40% in the first half of 2026 and 60% in the back half as we observe our typical seasonality and as subscription revenue sequentially becomes a larger portion of revenue throughout 2026. For full year 2026, we expect gross margins in the range of 49% to 52% and adjusted EBITDA in the range of $3 million to $5 million, representing growth of 50% to 150% over 2025. There remains uncertainty surrounding the volatile tariff situation and the war in the Middle East. As a result, our 2026 guidance includes tariff cost impacts consistent with Q4 2025 at 510 basis points to our margin per quarter. With that, operator, can you please open up the call for questions?

[Operator Instructions] First question is from the line of Andrew Brackmann with William Blair.

Maybe we could start here on guidance. As I sort of look at the full year, it looks like you bracketed the Street sort of on key metrics. But for Q1, in particular, I think revenue was a bit below where the Street was. But also just as I look at sort of the percentage of the full year revenue expectation versus what we've seen in prior years, I think it's a little bit lower. So can you maybe just talk about why that is this year? And I guess, more importantly, can you just talk about your line of sight to that second half ramp that's sort of implied here?

Yes. Yes, that's a fair question, Andrew. And I wanted to provide some context for the Q1 guide. First, inherently, we've got seasonality in the business with Q1, which is historically the lightest revenue contributor. When we're looking at the year-over-year comparison, we're lapping an exceptionally strong Q1, which was driven by a heavy RSV and flu season. The other thing to look at is the current macro environment. We did observe some softness in consumer spending through the Q4 holiday period, whether it was influenced by the government shutdown or broader macroeconomic pressures, we have seen retailers respond by tightening their weeks of supply, which is reflected in the Q1 guide. Just to be clear, though, we are the leader in the category. The timing of when the revenue is going to hit within the quarters is coming up lighter in Q1. But fundamentally, we are in a strong competitive position, and this confidence is baked into the full year guide, which reflects the strong long-term demand that we're expecting.

Okay. I appreciate all that color. And then, Jonathan, you talked about launching some generative AI insights here in the coming months. Can you maybe just talk a little bit more about that, give a little bit of color on what those offerings might look like? And then as you sort of think about increasing the stickiness to 360, how do those sort of play into that?

Yes. Yes. We see a massive opportunity to leverage AI to support and drive our evolution from a hardware company into a leading pediatric data platform. We see it a couple of different ways. We see product intelligence. We're evolving from a simple hardware monitoring to real-time personalized AI sleep coaching. AI Sleep Insight will convert static data into actionable daily plans for parents. We believe that this is also going to drive high-value subscription features in our audio and our vision, really driving the whole ecosystem across both the Sock and Dream Sight, our camera. Additionally, we're really driving and focused on AI-assisted engineering workflows to reduce turnaround times and across all functions of the business to streamline regulatory submissions to automate financial data entry to drive measurable productivity gains. And then we're in the early phases of our web AI partnership where we're really going to work on real-time actionable on the edge AI functionality that, again, is going to help parents with real-time data to help on their parenting journey.

Next question is from the line of Jonah Kim with TD Cowen.

As it relates to the international expansion, when should we start to see some of the sell-in revenue for new markets there? And would love to hear any early learnings from the international subscription that you rolled out, how that progress has been and any early learnings there? And then just lastly, in terms of your guidance for the year, what is baked in, in terms of your expectation on the low end and high end? Just would like to get additional color on the expectations that you have embedded in your guide.

Great. I'll take the first half of that. So we expect further international expansion revenue to begin the first half of this year with rollout in the first half of these new markets. So we're very excited about that. We continue to see very strong sell-through success across our European markets and continue to grow. And we're still very, very early on our international subscription, but we are excited to drive that. Right now, it's only English-speaking countries, and we look to expand further European languages in the first half of this year as well. So very excited to see more subscription drive on a global basis.

All right. And then just regarding your question on what is baked into the low end and the high end. As far as revenue goes in our guidance, we have not baked in any like material contribution from our new countries or the telehealth opportunity. So we see that as upside in the guide. The high end versus the low end will depend on our hardware growth as well as the contribution from subscription. So within that range, the higher end would imply stronger growth in both of those areas. And then just from a cost of goods perspective, we said that in the remarks, but we are including tariffs that are consistent with what we saw in Q4. As everyone knows, the tariff situation remains volatile and is changing day-to-day. So depending on where those ultimately land, there can be a little bit of upside in the cost of goods as well.

Next question is from the line of Owen Rickert with Northland Capital Markets.

It looks like that OnCall Telehealth offering is launching in the back half of the year. I guess can you just walk us through the go-to-market strategy there? And more specifically, is this being positioned as a stand-alone paid tier? Is it a premium add-on to Owlet360? I it bundled into existing subscription plans? I guess, can you just give us more color on that offering?

Yes. I got that, Owen. Good to see you or hear you. So we began internally piloting a friends and family just recently, and we're continuing to grow that. So we're really flushing that out based on that real-world experience. And this will be an additional upsell, cross-sell, if you will, to Owlet360. It will be a separate platform. So we're really working on getting the experience right before launching in the second half of '26 and well ahead of the cold and flu season. So we're really excited and continue to build, and we're going to have this rolling out ahead of the second half of '26.

Got it. And then second one for me. You surpassed 110,000 paying Owlet360 subscribers. How is the stickiness looking there monthly churn, how has that trended over the past few quarters?

Could you repeat the question? You were breaking up a little bit. Sorry.

Yes, no problem. I was just asking about how it rates looking on Owlet360 monthly subscribers and maybe how that's trended over the past few quarters.

Yes. We continue to see Owlet360 grow. We'll be sharing more data on Owlet360 on our upcoming calls because we just hit our 1-year anniversary. But what we can share is the metrics are trending in all the right directions. We've had 4 consecutive quarter of sequential growth across paying subscribers, MRR attach rate and retention rate. We've also been tracking a cohort analysis that's showing retention continues to improve at a consistent basis. And this is also helping us identify a time period where there's opportunity to target rolling out specific features to improve retention even further. Great example of that is just adding the additional features that we're looking to launch on Dream Sight and really bring in both the Sock and the camera subscription and that holistic view for the parent.

Next question is from the line of Ian Arndt with Lake Street Capital Markets.

I'm on here for Ben. And I was just wondering how do you guys view international revenue longer term? There's statistics show that there's more babies born outside of the developed world, obviously. And just wondering where you guys kind of see international sales ending up as a percentage of revenue several years down the road...

No, no, go ahead, sorry.

I was just going to add, if you had any thoughts on if there's a meaningful difference with the -- with adding subscription internationally or kind of what your thoughts are on that as well?

Yes. We continue to see this as a great opportunity. We have roughly 11% penetration in the U.S., meaning 11 out of 100 babies are actually wearing an Owlet sock. So we see that opportunity where in Europe, for example, we're closer to 3%. So if you just look at Europe, there's a tremendous amount of growth opportunity there. As we've mentioned before, there's 23 million babies born a year in India alone. So even if we look at the top strata, the top 1%, that -- just that top 1% is as large a market opportunity as both the United States and Europe. So we see that as a really strong opportunity, and they are English-speaking by and large, over there. So we're really excited to roll out more international subscription in various languages and provide the amazing success that we've seen on Owlet360 in the English-speaking countries and continue to expand and grow that. So we're going to continue to work on expanding and growing our adoption, both here in the U.S., in Europe and opening up new markets where we see strong opportunity and then layering on our subscription platform on top of that to drive a really nice high-margin reoccurring revenue stream.

Okay. That's great. And then one more if you could comment on if there have been any additional follow-through from the FDA safety communication that went out last year?

Another good question. Yes, we have not heard anything further from that communication that went out in September of 2025. But there is quite a bit of turmoil going on within the FDA, but we have a really strong relationship with them, and we're continuing to dive in. Our market share continues to grow in the U.S. where that is most applicable. And we're over 41% of all dollars fit in the entire baby monitor category and feel really strong about our position with or without the FDA, and we're going to continue to drive, and that would be a really nice additional tailwind if and when the FDA actually do something.

Currently no further questions registered. [Operator Instructions] There are no additional questions waiting at this time. So I'll pass the call back to Jonathan Harris for any closing remarks.

Thank you, operator, and thanks again to everyone for joining us and for your continued support. After a record-breaking year, our team is not taking the foot off the gas. We're entering 2026 ready to build on our performance and our massive long-term opportunity. Owlet is evolving into a comprehensive pediatric sleep, health and wellness platform. We are focused on executing this vision, which positions us as much more than just a baby monitor brand. Owlet is a sophisticated data platform designed to establish the gold standard for accurate infant biometric baselines from the very first night. Ultimately, Owlet is uniquely positioned to redefine modern parenting and become the essential wellness technology for families worldwide. Thank you again, and talk to you next quarter.