Good afternoon. And thank you for attending the Owlet Second Quarter 2023 Earnings Call. My name is Alisa, and I will be your moderator. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. [Operator Instructions] I would now like to pass the conference over to our host, Mike Cavanaugh, Investor Relations. Please proceed.

Good afternoon and thank you for joining us today. Earlier today, Owlet Incorporated released financial results for the quarter ended June 30, 2023. 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. As a reminder, some of the statements that management will make on this call are considered forward-looking statements, including statements about the company’s future operating and financial results and plans. Such statements are subject to risks and uncertainties that could cause actual performance or achievements to be materially different from those projected. Any such statements represent management’s expectations as of today’s date. We should not place undue reliance on these forward-looking statements and the company does not undertake any obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to the company’s SEC filings for further guidance on this matter. With that, I will now turn the call over to Kurt Workman, Owlet’s Co-Founder and Chief Executive Officer. Kurt?

Thanks, Mike. Good afternoon. And thank you for joining us for Owlet’s Q2 2023 earnings call. Before we dive into the details, let’s revisit our objectives from our last update in March. Our main objectives for 2023 have been clear from the start, obtaining FDA clearances and driving towards profitability. I am thrilled to share that Q2 marks a significant step forward on both fronts. We have achieved FDA clearance for our BabySat monitoring device, a crucial milestone in our journey towards defining ourselves as a consumer medical device company. Additionally, our relentless focus on financial discipline has resulted in yet another significant reduction in our adjusted EBITDA loss, bringing us closer to our goal of profitability. In Q2, we reduced our operating expenses year-over-year by approximately 56% on a run rate basis, and within this, decreased our marketing cost per acquisition by 82% year-over-year. In Q2, this resulted in a 75% improvement in adjusted EBITDA loss year-over-year. Complementing these efficiency results, channel sell-through was up 19% year-over-year as we continue to see strong consumer demand for our products. Gross billings for Q2 were $16.9 million, up sequentially 36% from $12.4 million in Q1. Revenue for Q2 was $13.1 million, up sequentially from $10.9 million in Q1. We saw seasonal benefits in demand for Mother’s Day and supported promotions with some key retail partners. Registry adds in Q2 were over 80,000 and we had a 24% increase in registry CVR [ph] from Q1. We are continuing to focus on raising awareness and driving consideration through our organic activities. In Q2, we saw great success with over 60 million organic impressions globally and 37 million video views, up 48% from Q1. Our brand health, customer satisfaction and ratings continue to improve every quarter with several products with all-times Net Promoter Score…

Thank you, and good afternoon, everyone. Kurt covered a number of our financial highlights in his overview. So I will repeat a few items with some color and provide some additional financial commentary. Gross billings in the second quarter of 2023 were $16.9 million, up from $12.4 million sequentially. Product promotions and discounts were $2.1 million, primarily associated with Q2 promotional activity in July, Amazon Prime Day. Returns and allowance reserves for Q2 2023 were $1.8 million, 10.3% of gross billings. This compares to reserve sequentially in Q1 of $1.1 million, 8.9% of gross billings. Total revenues in the second quarter of 2023 were $13.1 million, a sequential increase from $10.9 million in the first quarter of 2023. Total revenues were driven primarily by sales of Dream Sock and Dream Duo. Cost of revenues were $7.9 million in Q2, resulting in a gross margin of 40%. This compares to 38.7% gross margin sequentially, margins of 36.1% in Q2 2022. The year-over-year improvement in gross margins was primarily due to improvements in purchase price variance costs, prior period inventory adjustments and improvements in product mix. Sequentially, margins were stable with focus on operational efficiency, product mix and lower purchase price variance costs. Moving forward, we remain committed to driving margin improvement with the goal of returning gross margins to the 40% to 50% range over time through optimizations in our warehouse and shipping, production in our PPV as we reduce inventory levels and managing our return rates and lowering discounts. Operating expenses in the quarter were $11.9 million, including stock-based compensation of $2.6 million, which was a sequential decline of 21% from $15.1 million in the first quarter. Excluding stock-based compensation and transaction costs, Q2 operating expenses were $9.3 million. The year-over-year decrease in operating expenses was primarily due to employee-related…

Absolutely. [Operator Instructions] Our first question comes from the line of Charles Rhyee with TD Cowen. Your line is now open.

Hi. This is Lucas on for Charles. I wanted to ask about what you guys are seeing in your specific earning for your various channels, obviously, buybuy BABY bankruptcy impacted 1Q, we saw the full impact in 2Q, but I would be curious to see what channels saw -- what you saw from channel performance, whether it’s strong online performance or retail performance? Can you just give us some detail there, that would be really great?

Yeah. I appreciate the question. buybuy BABY going bankrupt has certainly had an impact on us this year. I think the Q1 revenue was impacted through the buybuy BABY bankruptcy. We obviously adjusted our expectations when we got the news. Part of the thing to understand is that, buybuy BABY we are still selling through inventory and liquidating inventory in Q2. That’s pretty much all gone away now. So we will start to see the impact of that -- those customers finding new channels, I think, in Q3 and into Q4. Early signs show that Amazon is picking up some of the demand. We are seeing companies like Babylist that are really getting aggressive with the registry and filling the gap that buybuy BABY had inside of the channel. So that’s I think that’s positive and then Target is the other retailer that we expect to see more lift as the year goes on. So all three retailers are very focused and aware we are having conversations at the highest level about how do we make sure that we get this demand through new channels and we are starting to see that come through with the various channels. Now the buybuy BABY’s through all of their inventory. So great questions.

Okay. Great. And then in terms of BabySat, I understand you guys are looking to take that or commercially launch that later in the year. Curious to hear if there would be any changes to your go-to-market strategy, given that it can now be sold through healthcare channels as opposed to just retail. Is there anything we should think about in terms of associated marketing expenses with the product, any detail there?

Yeah. Well, let me just start with not only is getting BabySat clearance, a huge milestone for the company, but the announcement has had a rippling effect into our channels and our other products. I think the consumer confidence has increased significantly with that announcement. We are seeing our awareness and consideration metrics increase as a result of that announcement. So that’s really positive, even just on the consumer side and we are excited about the opportunity with BabySat. The immediate demand and the inbound request we have seen from parents, providers, DME channels has been pretty astounding, physicians across the country have requested to partner with Owlet to extend monitoring to the home and so we are going to start by leveraging our brand and our reach. There’s 3 million parents who visit our website every year. There’s a good portion of those parents have a child that have medical condition and Owlet’s going to be there and available to offer the BabySat for those families. And we are developing our approach to really take advantage of these new channel opportunities with insurance reimbursement, the inbound from providers, the expansion into DMEs. It’s an exciting new area that we will have more to talk about as we move on throughout the year. But plan on launching our -- the BabySat before the end of the year. The other thing I will note is that, Melissa is a great addition to our Board. She’s got experience both in consumer but also in healthcare. She’s worked with a lot of the DMEs that we are working with and there’s a really big opportunity here to grow margins and grow revenue. And I think just based on the initial response we have had, we think that the healthcare opportunity may be even more interesting than we had anticipated from the beginning.

Okay. Great. And then in terms of -- I understand you guys aren’t giving guidance at this point in time. But as we think about the path to adjusted EBITDA profitability in the back half, you guys reduced OpEx by $3.3 million in 2Q. Should we think about you guys reaching profitability through further OpEx reductions or should we think about revenue growth on top of this current OpEx base being how you get to profitability?

Yeah. The way that I would think about it is that we are continuing to plan and manage expenses tightly to remain on track here. This run rate of expenses is where we would like to be in terms of the employee costs and marketing spend. There’s probably some additional optimization that we would like to have, but I’d say from a run rate basis, it’s probably right around the range, excluding stock-based compensation.

Okay. Great. Those are all the questions I have. Thank you.

Thank you. Our next question comes from the line of Allen Lutz with Bank of America. Your line is now open.

Hi. This is Hanna on for Allen. Thanks for taking the question. Just given the macro environment, do you guys anticipate a higher general promotional environment for the second half of the year?

Yeah. Thanks for the question. We will take advantage of kind of some of the key promotional events. You have full Prime Day, Black Friday, Cyber Monday and then towards the end of the year, as parents are using their HSA and FSA dollars. That’s another kind of nice sell-through increase for our channels. So that is part of our second half strategy. We are not anticipating going deeper in discounts than we have in the past due to the macro environment. In fact, I would say, at Prime Day, we actually -- this Prime Day, we actually discounted less. We have a more a bigger focus on profitability. And I think that’s paying off for the company as we are seeing in gross margin improvement. We are seeing sell-through growth. We are getting our cost down. And those are all positive and we will continue to do that. I think Owlet’s really a leader in this market and the solution that we have created is something that most of our currency is a must have and so we are going to continue to move the business forward and grow and don’t anticipate getting more promotional than we have in the past. In fact, you might see the opposite.

Got it. Thanks. That was helpful. And on the 1Q call, you mentioned a potential European regulatory submission. Can you just share any updates here on what you are thinking in terms of international expansion?

Yeah. Absolutely. So in the 1Q call, we said we would submit our CE Medical submission to get CE Med Mark in Europe and we did that ahead of schedule. We are very confident in that submission. It will allow us to have one global product with our -- for our Dream Sock with the health notification features that we are getting FDA approval on. And we will open up new channels in Europe, pharmacy is a big opportunity in Europe for us. There’s a lot of different provider groups that want to recommend Owlet there and the CE Med Mark will open that up for them. So I think what we will see is it will open up new channels in Europe, but it will also drive significant adoption of our products there. The CE Med Mark is also -- you can use that in other countries. So we will also -- when we continue to expand around the world, we will be able to use that to open up new geographies as well.

Thank you. [Operator Instructions] There are no further questions registered at this time. So I’d like to pass the call back to Mike Cavanaugh with Investor Relations.

Thanks very much, Alisa. I would appreciate it. Kate and Kurt, we do have some -- we would like to share some questions that have come in from investors and maybe put them out for discussion while we have this a little bit of time left. So first question, do we -- what do you expect regarding the timing of the second FDA approval?

Yeah. I would first say that I think BabySat clearance is a really strong indicator of the quality of our core technology and that clearance coming into Q2, I think, is a big step forward. The team is doing a great job of answering questions within the allotted time frame with the FDA. We are on time. FDA has been very responsive to our question. So we feel like the communication is really good and we are really confident in our technology. Ultimately, timing is dependent on the FDA’s review and whether or not there’s additional questions that come up. But we are looking forward to moving through that process and are being very responsive. Mike, did you go on mute?

Yeah. I think I did. Sorry. And then with that follow-up on that curve with the FDA approval in hand and others anticipated, what do you anticipate the affect the FDA approvals will have on that business?

If we see the category similar to how we see breast pumps and thermometers and car seats, we think every baby is going to have access to monitoring in the future and these FDA approvals are a key catalyst to establishing digital health monitoring as the standard of practice and home. So just to kind of say it bluntly, we believe it will have a long-term category-wide impact. FDA clearance allows us to increase the features offered in our product as well. So the product is going to continue to get better. Parents will have access to diagnostic features. The FDA clearance will drive additional credibility for our products and will differentiate Owlet from baby monitors and they will also allow us to kind of better integrate our data to close the loop at home. So the FDA clearances have been the primary investment to create a long-term sustainable leadership position in a market that we believe will reach every family and we are really excited about gaining the next FDA approvals and commercializing BabySat. Remember, one of the first customer interviews we did, we went to this home of a mom who is using one of these big bulky hospital monitors with wires that went into the crib and we showed her a little sock design and she literally started crying. She said like this will make such a huge difference for me. And on top of that, there’s millions of families that don’t have access to monitoring today. We really feel like FDA approvals will -- become a catalyst that will give greater access to a lot of families.

Great. Thanks for that. And then we are also getting a lot of questions, Kurt, on the and you did address this a little bit about the BabySat go-to-market since you just talked about. Is there anything else about that go-to-market plan you would like to share with investors?

Yeah. I would just say, today parents have -- they either get to home with nothing, which is the most common kind of practice today, because these monitors are so intrusive, they are bulky, they are wired, there are a lot of alarms that get sounded, Owlet’s literally a hundredth the size, it’s tenth the cost, it’s wireless, it’s wearable, all the data is connected. So we see a kind of a pretty big transition happening here and it’s obvious to us, but as we have announced BabySat obvious to parents, they want access to this product, especially parents who have children that have a health condition. So we are starting with giving them direct access to our website with -- if they have a prescription, it will be fulfilled through our website in partnership with the DMEs and we expect a lot of opportunity there. Providers have also reached out today, they have to decide between sending parent home with an intrusive monitor or sending them home with nothing and they see Owlet as a new opportunity to extend access to home monitoring and also replace monitoring that’s intrusive. So that’s another big channel and we will work with the providers and the parents and the DMEs to create a really awesome go-to-market strategy, starting with the 3 million parents that are visiting our website every year.

That’s great. Thanks, Kurt. That’s it for the supplemental investor questions. I don’t see any other questions in the queue. Anybody has a final question please do so now. Otherwise, I will turn the call over to Kurt for final remarks. All right, Kurt. Over to you for final remarks.

Okay. Yeah. Just I think before wrapping things up, I want to express a heartfelt thank you to each one of you who have joined the call today. Your presence on this journey means a lot to us. We are genuinely excited about the road ahead and when it comes to the world of pediatric care, the future looks incredibly promising. Owlet is proudly driving that progress and we are making meaningful strides that are bringing us closer to our vision for better care for our little ones. So thanks once again for your time and belief in Owlet.

This concludes today’s call. Thank you for your participation. You may now disconnect your lines.