Hello and welcome to Owlet Second Quarter 2021 Earnings Call. My name is Lauren and I will be coordinating your call today. [Operator Instructions] I will now hand you over to your host Mike Cavanaugh, Investor Relations. Mike, please go ahead.

Good afternoon and thank you for joining us today. Earlier today, Owlet Inc. release financial results for the quarter ended June 30, 2021. The release is currently available on the company's website at www.investors.owletcare.com. Kurt Workman, Owlet's co-founder and Chief Executive Officer and Kate Scolnick, Chief Financial Officer will host this afternoon's call. Before we get started, I would like to remind everyone that certain matters discussed in today's conference call and/or answers that may be given to questions asked our forward-looking statements that are subject to risks and uncertainties relating to future events and/or the future financial performance of the company. Actual results could differ materially from those anticipated in these forward looking-statements. The risk factors that may affect results are detailed in the company's most recent public filings in the U.S. Securities and Exchange Commission, including its registration statement on form S-1 filed with the SEC on August 5, 2021, which can be found on its website at investors.owletcare.com or on the SE C's website at www.sec.gov. The information provided in this conference call speaks only as of today's live call. Owlet disclaims any intention or obligation except as required by law to update or revise any information, financial projections, or other forward looking statements, whether because of new information, future events, or otherwise. Please also note that Owlet will refer to certain non-GAAP financial information on today's call. You can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures in the company's earnings press release, which is also available on the company investor page of its website. I will now turn the call over to Kurt.

Thanks Mike. And thank you to everyone for joining the call today. As always, we appreciate your continued support of Owlet and I'm excited to be hosting Owlet's first earnings call as a public company. The theme of our listing announcement at the New York Stock Exchange last month was this one is for the babies. We couldn't be more excited about the future parenting and the opportunity for the Owlet ecosystem. On today's call, I'll provide an overview of our second quarter performance and the momentum that we've built in 2021. We'll also discuss our plans for the remainder of the year and beyond. Kate will then review our financial results. And we'll conclude with the question and answer session. The second quarter of this year was a record one for Owlet. We generated $24.9 million in revenue, a 14% sequential increase over the first quarter of this. Gross margins were 54% representing an increase of over 600 basis points from the second quarter of 2020. We're happy to announce that over 1 million babies have now used Owlet which continues to be the number one brand in our category. In the few weeks since becoming a public company we've already seen great coverage and received strong interest from top banks and investors. This is a pivotal moment for Owlet and we're leaning into all of this incredible momentum to deliver key results. Some of you may be new to the Owlet story, and our mission to solve fundamental problems through innovative technology tools and resources for parents. There are over $24 million caregivers in the U.S. alone between conception and kindergarten. The average U.S. parent is spending $12,000 per child each year. And beyond that the startling reality in health care is that primary urgent care and ER…

Thank you Kurt and good afternoon everyone. Total revenues in the second quarter of 2021 were $24.9 million a year-over-year increase of 36% and a sequential increase of 14% from the first quarter of 2021. We're pleased with our continued sales momentum and the demand for our products in the first half of 2021. Q2 revenue growth was driven primarily by our flagship Smart Sock and Monitor Duo, our Smart Sock and camera combination products. For year-over-year growth comparison purposes, it's important to note that approximately $2.2 million of Q2, 2020 revenues related to initial selling of new inventory for Smart Sock version three, and Monitor Duo version three ahead of launching the products in Q3, 2020. Excluding this Q2 year-over-year revenue growth would have been 54%. Cost of goods sold were $11.4 million in Q2 resulting in a gross margin of 54.2%, an increase of 600 basis points compared to gross margin of 48.2% in the second quarter of 2020. The year-over-year improvement in gross margin reflects continued strengthened sales of our Smart Sock and Monitor Dual products and business efficiencies. Sequentially gross margins were down as Q2 was a more seasonally promotional quarter than Q1 with Mother's Day and Father's Day. In addition, we participated in Amazon Prime Day in June. Operating expenses in the second quarter were $19.4 million compared with $9.5 million in the same prior year quarter. The increase in Q2 operating expenses was primarily due to planned increases in spending associated with the scaling of our business. These investments include strategic talent hiring across the organization, increased investments in sales and marketing, product development costs as we expand our product portfolio, and expenses related to our public company business combination. Operating loss in the quarter was $5.9 million compared with $0.6 million in the…

Thanks, Kate. Before we open up the call for questions, I'd like to thank Owlet customers, employees, Board of Directors, and shareholders for supporting our mission and vision. I also want to share a recent experience I had a few weeks ago. I was invited to speak at an event in rural Iowa hosted by a nonprofit organization that is focused on getting smart socks to more families and daycares throughout the state of Iowa. It was a great event. Hundreds of people were in attendance from this incredible small community, including top local celebrities. It's so clear to me that Iowa, the U.S. and the rest of the world are ready to bring the center of care to the home. And Owlet is here to help you that we believe that every parent deserves access to the very best care available. Thank you. Operator, let's open up for questions.

Thank you. [Operator Instructions] Our first question comes from Charles Rhyee from Cowen. Charles, Your line is now open.

Yes, thanks. Thanks for taking the questions and Kurt and Kate congrats on your first quarter here. I wanted to jump in a little bit sort of big picture, given that a lot of your historic growth has been done largely through word of mouth and I think people can see it in how low your customer acquisition cost has been. You've laid out some pretty ambitious growth targets, particularly as we get out into the other years and as you branch more internationally. You raised 135 million here through the fundraising. Can you kind of talk about how you are looking to deploy this capital, both here in the short term, now that we just launched the Smart Sock Plus and as we think about sort of the next couple products, at least as you think about your pipeline here.

Yes, thanks, Charles. Appreciate it. We have three big opportunities for growth ahead of us that we're focused on in terms of the investment. The first is getting much more aggressive and deepening penetration in the U.S. with existing products. To your point, today, we have really efficient marketing, high NPS, mostly driven by word of mouth. We're going to get more aggressive in demand creation through online marketing, expanding our channel distribution and omni-channel marketing programs and then as we get into expanding the Owlet ecosystem, using Owlet media to drive lifetime value, parents use our app seven days to eight times per day, social media platforms. And so, we believe we're in a really great position to be able to do that and to drive penetration. We're also expanding beyond the U.S. It's kind of a second big area of focus for capital investment. I mentioned that international is accelerating and already making up 7% of our total revenues, we feel really good about international opportunity. And then the third big focus is continuing to expand on our connected nursery ecosystem, particularly adding services in between our tele-health service and our new smart crib, the LTV potential per customer really increases in the length of that relationship goes up to six years, potentially. And so we see three really clear opportunities for growth. And those are the areas that we're going to really drive investments in both R&D and some of the digital marketing spend.

Appreciate that, and then maybe to the first point, then in deepening penetration, at least, particularly here locally you noted earlier that in four states, that the last adoption is about 20%. Maybe talk about what is it in the rest of the country that perhaps we have not seen that level adoption yet. And what's does particular as you think about putting your marketing spend towards to help drive that greater awareness to get the adoption rates up elsewhere in the country?

Yes I think, and we've done studies on this. The main driver, here is awareness. We did a study in Nebraska, Texas, and New York is representative states. And it's highly correlated with awareness. And so what that means is for us to get a lot more aggressive in our awareness, creation activities, we've already started doing that. We have a fantastic new CMO. And he's built billion dollar brands, in really marketing to this, this customer. And so it's about getting more aggressive with online marketing. We're expanding our channel, online marketing channels, we're expanding our retail channel relationships. And I think as we build that awareness and make the product more accessible what we're seeing is that the response from parents, regardless of geo, has been fantastic. I think when you understand in marketing, and you start to see the clustering effect that we're seeing happen in the Midwest. We're also getting more aggressive with some of the advocacy work that we're doing and in publishing more data around the Smart Sock, which we think will help with word of mouth as well.

Thanks. And then lastly, for me I think the healthcare opportunity is a big one particularly I understand you have a few of your products submitted to the FDA. Could you give us sort of the latest year in terms of timelines of what we might expect I think babysat is the first one up. And any kind of update there you can provide. That'd be great. Thank you.

Yes, I mean, I can't speak for FDA. But I will say that we have a fantastic team led by Jim Fidacaro, our new healthcare GM. Really a great team, joining the board from the Longo, we have a new head of regulatory that joining the last nine months. And we have a great products with babysat. It's completed all of the clinical accuracy testing, pulse oximetry, testing, safety testing, biocompatibility, human factors is all complete. And we're making great progress. So we feel really confident about that program. I can't really speak for FDA at this point. But internally, we're feeling confident about our ability to go forward.

Great, thank you and congrats.

[Operator Instructions] Our next question comes from Jim Suva from Citi Group. Jim, your line is now open.

Thank you, and congratulations on a good first quarter. Your team should feel very proud. I have two questions, and you can answer them in any order you want. The first question is regarding kind of supply chain. For some of us who cover technology, everything from shipping costs have gotten more expensive. components for cameras have gotten harder to get. Can you talk about your supply chain? And is it equilibrium? Is it challenge? Is it getting better or worse? And then the second question is, after you get FDA approval, if we get that what's the timeline and process then for the insurance payment clearance? Is that a pretty easy thing or is that a long multiyear thing I'm just not that familiar with once you get FDA approval about insurance payments. Thank you.

Awesome. Thanks, Jim. Good question. So I think I'll take the supply chain one first personal just note the gross margin improvement. I think, and I just want to congratulate our team for especially our supply chain and operations team for driving such an efficient program with a 600 basis point improvement over last year, even given the macro environment we're in right now where there are chip shortages, and there's supply chain constraints, I think our team has done a fantastic job navigating that and it's represented in the gross margins that we're seeing. So I think our team feels confident that we have good line of sight, we don't feel like we need to change any sort of forecasting to the supply chain. And there's positive news to share on the gross margin side. In terms of insurance there's I mentioned the two different Smart Sock products we're working on one is the Baby Sock , that we'll get our ex-clearance and we'll be eligible for existing insurance reimbursement codes where it's applicable for pediatrics and so that that will be able to piggyback on existing current reimbursement codes. The OTC stock is something that we would develop and work with insurance to get coverage for that.

Thank you so much. And congratulations to you and your entire team.

Thanks Jim.

That's all the time allotted for questions. So I will now hand back over to Kurt Workman, Owlet co-founder and Chief Executive Officer.

Thank you. I just wanted to end by saying, the father, there just isn't anything more important to me than my children and the opportunity to help parents better care for their children. And so this is just an incredible opportunity. Owlet gets 1000s of stories every year from parents whose lives have been changed because of those having access to the technology that we provide. So thank you everyone for taking an interest in this and thank you for joining the call today. Have a great week.

This concludes today's call. Thank you for joining and I hope you have a lovely rest of your day. You may now disconnect.