Yahoo Finance Owlet, Inc. (NYSE:OWLT) Q4 2023 Earnings Call Transcript
Owlet, Inc. (NYSE:OWLT) Q4 2023 Earnings Call Transcript March 7, 2024
Owlet, Inc. misses on earnings expectations. Reported EPS is $ EPS, expectations were $-0.04. OWLT isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: 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. All lines will be muted during the prepared remarks from our management team 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.
Mike Cavanaugh: Thank you, operator, and good afternoon, everyone, and thank you for joining us today for Owlet Baby Care's fourth quarter 2023 earnings call. We appreciate your time and interest in our company. Earlier today, Owlet released financial results for the quarter 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. 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 in 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, future events or otherwise, except as required by law.
With that, I would now like to turn the call over to our CEO, Kurt Workman.
Kurt Workman: Good afternoon, everyone, 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, 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 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 each. Our recent FDA clearance was a pivotal moment for the business and by launching BabySat and Dream Sock with medical grade features, we redefined consumer health monitoring and redesigned the market for Owlet.
Let me explain why this is so significant. First, it removes purchasing obstacles. FDA clearance addressed the key customer concerns around regulatory status and the efficacy of our products and firmly. Specifically for Dream Sock, 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. 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 Dream Sock sell through has continued to maintain double-digit growth over prior periods. Second, it solidifies our market leadership. Owlet is now the 1st 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 direct comparisons to trusted hospital grade technology.
Third, it opened the market for medical expansion. These clearances paved the way for our BabySat product to enter healthcare distribution, allowing us to improve the standard of care of monitoring 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. 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 Dream Sock 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 initiative and leveraging our credibility behind our FDA clearances. Our marketing team drove over 100 million unique video views and increased our social media following to 1.3 million parents. 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, a 1,900 basis point improvement year-over-year and would have delivered over 50% and adjusted EBITDA positive if not for the one time impact of our former Amazon partner going out of business.
The improvement in margins during the year were 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 team. These combined efforts of expense reduction, marketing efficiency and margin improvement brought Owlet to adjusted EBITDA near breakeven 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. An additional 800 Walmart doors fueled over 100% growth in sell through year-over-year. We added distribution of our Duo 2 product to Dream Sock in all Best Buy stores and on boarded 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. Owlet 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, Owlet 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.
In addition, we're eyeing two important milestones ahead of us to further unlock growth and market access. First, European expansion. 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. 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 healthcare 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 times.
This was evident in our donation to our foundation partners of over $1.4 million worth of Dream Sock to families in need. In addition, fundraising for switch research, which raised over $150,000 and support for grieving parents were Owlet and our partners donated and planted trees over 500 trees in memory of these parents' precious little ones. We are 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. 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. Thank you. Kate, over to you for the financial highlights.
Kate Scolnick: Thank you, Kurt, and thanks for everyone joining us today. In fourth quarter 2023, Owlet demonstrated strong financial performance. I'll spend the next few minutes walking through key financial metrics and providing some additional detail. Gross billings for the fourth quarter were $32.9 million. Product promotions and discounts were $5.9 million and returns and allowances reserved were $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 and allowances were approximately 8% of gross billings 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 return to sales discounts was $54 ,m million 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. Q4 sell through units were up 32% sequentially, demonstrating a four 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 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% from 2022.
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 Q4 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. Within 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 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. The measurable progress towards operating profitability in 2023 is an important foundational shift for Owlet's business. Fourth quarter net loss was $6.9 million for the quarter, a 65% decrease from $19.5 million in Q4 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're beginning the year with good financial flexibility to invest in our 2024 growth initiative 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. We are focused on executing on the core business activities in 2024 that will maximize supporting Dream product commercialization and driving 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 1 piece sales with past Q4 followed by sequentially strong sell 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 December holiday promotions. Using strides in ramping BabySat commercialization with new DME partnerships. BabySat 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 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. With that, I will turn the call over to the Q&A portion. Operator, please open up the call to questions.
Operator: Absolutely. We will now begin the Q&A session. [Operator Instructions] Our first question comes from Charles Rhyee with TD Cowen.
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