Thank you for standing by and good afternoon. Thank you for attending today's Owlet's Q3 '24 Financial Results Conference Call. My name is Regan and I'll be your moderator today. [Operator Instructions] I would now like to pass the conference over to our host, Jay Gentzkow, Vice President of Investor Relations. Jay, you may now proceed.

Good afternoon, everyone, and thank you for joining us. Earlier today, Owlet released financial results for the third quarter ended September 30, 2024. I'm pleased to be joined today by Kurt Workman, Owlet's Co-Founder and CEO; Jonathan Harris, President and Chief Revenue Officer; 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 for the fiscal year ended December 31, 2023. Please note that the company assumes no obligation to update any forward-looking statements whether as the 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 our CEO, Kurt Workman. Kurt?

Thanks, Jay. Good afternoon, everyone, and thank you for joining us. I'm very proud of the team's effort and execution to deliver another outstanding quarter following the FDA clearance of both BabySat and Dream Sock, including triple digit year-over-year revenue growth, our sixth consecutive quarter of year-over-year gross margin expansion and second consecutive quarter of adjusted EBITDA profitability. Our performance throughout 2024 is a testament to the team's commitment and the passionate community of parents, health professionals, and partners that believe deeply in Owlet's mission. More and more parents are sharing in our vision of bridging technology, safety, and connected data to modern parenting, and that is enhancing our ability to execute on our growth strategies. I will begin on Slide 5. During the third quarter of 2024, we achieved net revenue of $22.1 million, representing strong year-over-year growth of 141%, driven primarily by global Dream Sock sales. We also saw continued gross margin expansion as third quarter gross margins increased to 52%, up 1,590 basis points versus third quarter 2023. This is our highest gross margin since going public and our sixth consecutive quarter of year-over-year gross margin expansion, a reflection of our ability to combine top line growth with the operational improvements we've been driving the past couple of years. Third quarter adjusted EBITDA was $0.6 million, an improvement of $6.1 million versus third quarter 2023. Adjusted EBITDA for Q3 was both a record for Owlet and our second consecutive positive quarter delivering on our commitment to maintain at or near adjusted EBITDA breakeven. Moving to a few recent business highlights. I'm excited to share that we continue to see strong momentum with Amazon following our FDA clearance and shift to Amazon 1P as our distribution partner. As we shared last quarter, we had our most successful Amazon…

Thanks, Kurt. I'm excited to start with our first strategic focus area, global adoption of Dream Sock, as we've made really incredible progress both in the U.S. and internationally. Domestically, the momentum since we received FDA clearance of Dream Sock continues to be outstanding. Dream Sock achieved another strong quarter of domestic sell through growth at 55% versus prior Q3 of 2023. Customer satisfaction supports this growth as Owlet's blended NPS score across all products was slightly less than 70 and Dream Sock's NPS score leading the way at 74 in the third quarter. Like we saw last quarter, returns continued to turn down to just above 4% compared to historical averages of 7% to 9%, resulting from continued product improvement and customer satisfaction. Also in the third quarter, we increased press unique monthly visitors of 110% quarter-over-quarter in addition to 50 million organic social impressions with over 1 million engagements. We're also starting to translate Owlet's leading infant health brand and market enthusiasm into tangible market share gains. According to consumer research firm Circana and Owlet's own data, Owlet's share of total dollars spent on baby monitors has increased to approximately 31% in the six months trending September 2024 versus 23% for the same period in 2023. Finally, as Kurt highlighted in his remarks, in July, we had our most successful Amazon Prime Day ever, setting records for revenue and sell through units. We followed that impressive Prime Day event with a record setting Prime Day deal days with Dream Sock revenue up 75% and total sell through revenue up 70% year-over-year. Our international adoption continues to be very strong, most notably in Europe and the United Kingdom, following the launch of Dream Sock with CE Med mark clearance in June. In the third quarter 2024, we saw international…

Thank you, Jonathan, and good afternoon everyone. I'll begin on Slide 12. Unless noted otherwise, I'll be comparing our third quarter 2024 results to the third quarter of 2023. We wrapped up Q3 with another quarter of strong financial results. Owlet continues to execute on the financial goals we set out for in 2024. Net revenue in the third quarter was $22.1 million, a year-over-year increase of 141%. Revenue growth was driven primarily by sales of Dream Sock and Duo. As a reminder, in the third quarter of 2023, we signed a new distribution agreement with Amazon that offered more favorable terms and better execution. As a result, all sell in revenue was pushed to the fourth quarter of 2023, which impacted the third quarter revenue growth when comparing year-over-year results and will impact year-over-year revenue growth in the fourth quarter 2024 as well. Gross margin in the third quarter was 52.2%, an increase of 1,590 basis points year-over-year. This was our highest gross margin since going public and our sixth consecutive quarter of year-over-year gross margin expansion. The significant gross margin improvement reflects strong volume growth, favorable product mix towards Dream Sock, a reduction in return rates, lower direct product and fulfillment costs and improved fixed cost absorption. Total operating expenses in the third quarter were $16.4 million including stock-based compensation of $2.7 million representing an increase of $5.2 million versus the same period last year. Operating costs increased primarily due to a $1.9 million non-cash impairment charge related to internally developed software. In addition, we had higher compensation expense including accrued bonuses and severance related expenses and higher marketing spend. This was partially offset by cost capitalized related to subscription app development. Operating loss in the third quarter was $4.8 million compared to $7.9 million in the same…

Of course. We will now be moving into our Q&A session. [Operator Instructions]. We have a question from Charles Rhyee of TD Cowen. Charles, your line is now open.

Great. Thanks. Hi, guys. This is Adam on for Charles. Thanks for taking our questions. Wondering to start if you can provide some insights on how you're seeing the state of the consumer environment and what if any changes you've seen over the course of the year in the health of the consumer environment? And in addition, how this has translated if at all to maybe you're seeing differentiated growth in certain channels over others this year?

Hi. Thank you for that. We are seeing actually continued strong state of consumer environment. We believe that our FDA clearance in the United States and our CE Med mark across Europe and the U.K. are really resonating with our customers, and they're continuing to purchase our products in record numbers. So we see continued growth, and are cautiously optimistic for the future.

Got it. That's helpful. Thank you. Wondering if you can also discuss your manufacturing exposure geographically and how you're thinking about the potential impacts now with the new administration in potential tariffs. The potential impact that might have on margins or whether if there are, again, potential tariffs to come in place, would that drive you to consider potentially manufacturing elsewhere?

Yes. So we do currently, we have our camera manufacturing in China, and then our stock and duo come through Thailand. We're well aware of the proposals that are coming through the new administration for tariffs and are looking strategically at our business. At least we can minimize that exposure. We're looking at possibly moving our manufacturing of the camera to Vietnam, and just other options to minimize exposure.

I would just add to that that the vast majority of our revenue comes from Sock and Duo. Those are hero products and are not in China. And there's several in addition to what Amanda said, there's several ways that we're able to mitigate that ahead of those tariffs coming in.

And lastly, I'd like to emphasize that our products are considered medical devices, the Duo and Sock. And if it's up to this point, they have been excluded from any sort of tariffs that that they are in medical device.

Very helpful. Thank you. And regarding BabySat, great to hear about Cigna reimbursing for BabySat. Can you remind us about the path forward and timeline, what it looks like for integrating with other major payers and regional payers? And then, additionally, how exposed or -- sorry, how exposed now you are with multiple DMEs to the points of care that are key for BabySat, such as children hospitals?

Yes. That's a great question. We continue to see additional DMEs come on board. We've had five additional that we've signed. Each of those have different relationships with reinsurers or insurers, and we're leveraging those relationships to drive that reimbursement to the patients. So each of them represents a slightly different channel of opportunity all within the new mother space and/or the caregiver space. We're beginning to build relationships directly with NICUs and hospitals directly, and we're spending time and money integrating into those hospital networks. So we believe that we can really reach a larger majority of those children coming out of at risk environment.

Got it. And last one for us is on the international side, the opportunity that you guys see for BabySat there, if existing partners can help with commercialization there or if that would be kind of seeking new relationships versus what you guys have now on the retail side for commercializing Europe?

Yes. Right now, we're primarily focused on driving the consumer side of the business. We are expanding. We're now in 26 different countries, including throughout Europe and including the U.K. Again, there are approximately a 140 million babies born around the world, and today only 3% of those have access to Dream Sock. So we see international as a very large opportunity for us moving forward, and we're exploring various countries and various relationships throughout the world.

Very helpful. Thank you guys.

Thank you. We currently have no other questions. So I will pass it over to management for any closing remarks and any other questions that we may have.

Yes. Sorry. We've also received a few relevant questions from investors that we wanted to share during the Q&A. First one is, given the new Amazon partnership signed last year, how much of Q4 2023's Amazon revenue would have been recognized in Q3 2023?

Yes. So just as a reminder to everyone on the call and I alluded to this, but we did sign a new distribution agreement in late Q3 of last year. The impact on last year's Q3 is that we ended up shipping product to Amazon the first week of October. So when we think about comparing year-over-year results, we had about $6 million of net revenue that would have been recognized in Q3 had we been able to ship on time just due to the timing of the agreement. So that was shifted to Q4. So if we adjust for that, the year-over-year growth, this quarter would have been about 45%, which is in line with the overall growth trends we're seeing in the business and in our updated guidance for this year.

Next question. With all the momentum and opportunities Owlet seen, is it possible to get some more color around expectations for 2025?

Yes. I'll grab this. First, our core business is better than it has ever been. We're selling more Dream Socks both domestically and internationally. We're monitoring more babies, capturing more market share than we've ever done before. Secondly, our ability to operate our core business into next year's scale is clear. We're in a very strong position. Our expense profile is in a very good place. We're turning the corner on profitability, and our balance sheet is healthy and strong. We have the right to retail partnerships, we have incredible awareness and reach within our consumer base, and we're opening up new health care channels.

And I would just add to that that the opportunity we have with our dataset is absolutely immense. We're turning those insights right now into real value through our subscription service. Parents are able to better understand how their child's sleeping, how to get them to sleep longer. We're enabling parents to move kind of that level of care that you see in the office into the home, and we expect that's a trend that we'll be able to continue and capitalize on for years to come. We're also specifically with the launch of subscription, there's real LTV opportunity that we can build over time with the business and just very excited about 2025 and the years that follow, and we're confident that this is a long-term opportunity.

And last one, how should we think about Owlet's revenue seasonality in a typical year?

Yes. In a normal year, Q1 is the lightest quarter. So when we think about our business, babies are born all throughout the year, but the seasonality is truly coming from promotional activities. So for Q1, it's the lightest in terms of promotions. We see the second quarter pick up, because of the load in for Prime Day, which is typically a high volume, high discount load in. So we load in for Prime Day in Q2 for -- to support the promotion that is typically in July. So then from there, Q3 is our seasonally largest revenue for the quarter. We have a lot of activity happening. We have September baby safety month, a load in for Prime Big Deal Days, which is typically in October, and then most of our retailers load in for holiday during Q3. And lastly, Q4 comes a little bit down from Q3, just because there's fewer retailers loading in for holiday in Q4. And then what we really see is replenishments in December following the Black Friday, Cyber Monday promotions.

That's all the questions we have for today. Please don't hesitate if there's any more that come up post call. At this time, I'd like to hand the call over to Kurt for some closing remarks.

Yes. I just want to thank everybody for joining the call today. Owlet is leading this category. We've made incredible progress to become a healthier company. We're set up to perform over the long-term. We're actively expanding our LTV in the health care channels and with subscription. There are subtle changes in the business that are going to have really big impacts over the years to come, and we're just set up with a really unique opportunity to be the leader in infant health. So we're seeing that significant revenue growth right now. We're seeing meaningful margin expansion, and we're supporting all of that with a commitment to drive to profitability and sustainable growth in the future. So we really appreciate everybody's support for the business and for the families that we serve. Thank you so much.

Thank you. That will conclude today's call. Thank you for your participation. You may now disconnect your line.