Owlet - Q2 2024

Transcript

Moderator (participant)

Good afternoon. Thank you for attending today's Owlet Q2 2024 earnings call. My name is Jayla, and I'll be your moderator for today. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. I would now like to turn the conference over to our host, Mike Cavanaugh, Investor Relations. Mike, you may proceed.

Mike Cavanaugh (Head of Investor Relations)

Thank you, operator. Good afternoon, everyone, and thank you for joining us today for the Owlet Baby Care's second quarter 2024 earnings call. We appreciate your time and interest in our company. Earlier today, Owlet released financial results for the quarter ended June 30, 2024. 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, Jonathan Harris, President, and Amanda Twede Crawford, our Chief Financial Officer. Kurt will begin with an overview of our performance and key developments, followed by Jonathan, who will provide color on our go-to-market results, and then Amanda will provide a detailed review of our financial results. Following their remarks, we will open the call for questions. Before we get started, we would 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 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 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?

Kurt Workman (Co-founder and CEO)

Thanks, Mike. Good afternoon, everyone, and thank you for joining Owlet's earnings call today. As always, we appreciate your ongoing support of Owlet. Throughout the first half of 2024, we have consistently delivered on every key operational milestone. These milestones include the launch of our FDA-cleared devices in both consumer and medical channels, and our CE medical approval and its launch in the U.K. and Europe. We've met all of our key financial goals in the first half, including double-digit sell-through and revenue growth, gross margin expansion, and significant operating cost savings, resulting in a positive Adjusted EBITDA in Q2. As promised, we plan on maintaining at or near break-even Adjusted EBITDA on a go-forward basis.

In addition to our significant Q2 operational achievements, our July Amazon Prime event was the strongest in company history and exceeded our expectations with Dream Sock sell-through up 61% year-over-year in units, and revenue up 68% year-over-year. We've also crossed a major milestone with the launch of Owlet Care, our new subscription service, which was released to a limited number of users. That service will begin to scale to our user base throughout this year and represents a major shift in the LTV potential for Owlet in 2025. Finally, we have now fully integrated our telehealth partnership with Wheel on owletcare.com to accelerate access to insurance reimbursement. When I look back over the past few years, it's clear that Owlet's commercial position today is the strongest it's ever been.

There is a robust, continued, and discernible momentum for Owlet in the market that continues to grow on the back of the second of our two FDA approvals in the U.S. last November. We believe this year is the turning point, propelling us to our vision of a safe and healthy journey for every baby and a sustainable growth company. I'd like to take some time on today's call to share what success looks like over the next few years as we continue to make progress towards our vision. There are over 140 million babies born every year, and every single parent is worried about their baby's safety, health, and getting more sleep. And yet, unexpected mortality, respiratory infections, and sleep deprivation are still a major issue for parents.

These are universal problems that we firmly believe can be solved with access to personalized information in the home. I say this a lot, but I went through more training to get a driver's license than I did to become a dad, the caregiver of a little baby. Parents are exhausted, worried, and have very few tools in the home to assess their baby's health, and that leads to one of the highest rates of primary and urgent care utilization. It's time to empower parents in the home with tools and technologies they need to give the best care possible to their baby. Owlet has collected a very large data set of infant health and sleep in the home. We've monitored over 15 trillion heartbeats and millions of hours of infant sleep on over 2 million babies the past 8 years.

We've taken all of that data to build beautiful subscription insights. The launch of subscription we're calling Owlet Care signals the beginning of Owlet's transformation from a product and hardware company to the platform for pediatric health that helps bridge the gap between the hospital and the home. The rollout of this platform will have three distinct phases. The first phase is focused on unlocking insights and information that helps parents better understand what's normal for their baby and what's not. Parents will be able to get daily updates on how their child's health and sleep are trending relative to their own baseline and how it compares to the broader population... Owlet will also help parents store their baby's health data and important moments captured by the Camera and Sock, and will make it easy for them to share that information with their pediatrician.

I remember, probably like every parent, being surprised the first few weeks of how often my son was waking up and how frequently he was getting sick. There are so many questions that new parents have, but one common thread among these is the simple question: "Is this normal? Is my baby okay?" The second phase will integrate professional service partners into our app that will provide integrated care 24 hours a day, 7 days a week. Parents will be able to chat with pediatricians, nurses, sleep coaches, and maternal health professionals, who have access to Owlet's data to provide personalized care at home. We'll be able to use this data and new AM- and new AI models to deliver unparalleled insights and proactive detection that will help move pediatrics into preventative care in our third phase.

Our strategy is to use our biggest assets, our network of parents, hospitals, and data, to drive continued value into our platform. As a result, we expect that the price point of our subscription will evolve over time, as well as the value and services we are providing. I can't imagine a world where every parent and pediatrician doesn't have access to some sort of information like Owlet about their baby, that we will be providing and passionately advancing. As a corollary, 70 million adults in the U.S. alone have a wearable health sensor, and they've come to expect it for their children. We believe that just like every baby leaves the hospital with a thermometer, a breast pump, and a car seat, every baby will have access to Owlet Care that could one day be reimbursed by insurance.

BabySat and Dream Sock are complementary in this vision, giving access to Owlet's technology to both parents who have a critically ill baby leaving the NICU, and to the new parent who's trying to navigate bringing their newborn home for the first time. The opportunity to become the standard of home care in pediatrics is absolutely massive. It's been overlooked, and Owlet is in the best position to build it. We will continue to execute on this vision by focusing on three areas in 2024 and into 2025. First, is driving continued adoption of Dream Sock. Second, is expanding the medical and healthcare channels to offer an insurance reimbursed monitor for babies who are sick or high risk. Third, is to transition Owlet into a service that helps parents from infancy into the toddler years and increases LTV.

The opportunity these three areas present significantly increases our revenue and margin without increasing the complexity of the business, and will help to drive continued growth in top and bottom line. We believe our business in the next few years can be several hundred million in revenue and very profitable. Before turning the call over to Jonathan Harris, our President, to talk about these three pillars of our go-to-market strategy and results for Q2, I'd like to welcome Amanda Twede Crawford to our earnings call today. She will be covering our Q2 financial results. As we announced a few weeks ago, Kate Scolnick is leaving Owlet to pursue other opportunities and will remain at the company in an advisory role for a transition period through September.

On behalf of the board of directors of Owlet, I want to thank Kate for her executive leadership and significant contributions since joining our management team prior to our initial public listing. Over the last three and a half years, she has been instrumental in supporting our top line growth, margin expansion, and profitability objectives. With her help, we are on track to achieve our 2024 operational and financial goals. We wish Kate continued success in her future endeavors. Amanda is a key financial leader and contributor at Owlet, and we're excited for her to be moving into the Chief Financial Officer role. She joined us in 2022 with over 15 years of finance and accounting experience from Swire Coca-Cola and PricewaterhouseCoopers, with a master's in accounting.

Amanda knows our business, our leadership, our community, and our vision incredibly well, and as such, we anticipate this will be a smooth transition. Welcome, Amanda, and now I'll turn the call over to Jonathan.

Jonathan Harris (President)

Thanks, Kurt. And as Kurt just mentioned, we have some really strong momentum building in our business, not only in the U.S., but across the globe. First, demand and adoption. The response to our new FDA-cleared Dream Sock here in the U.S. has been outstanding. We've witnessed strong parental engagement with over 66 million organic views of our content across TikTok and Facebook in Q2. And we continue to see great press with almost 1,500 pieces of coverage in publications such as BuzzFeed, Fierce Biotech, PureWow, USA TODAY, CBS, and Today's Parent. The response to the FDA clearance of Dream Sock continues to be strong, with sell-through achieving over 44% growth with our Dream Sock and Duo products year-over-year. Customer satisfaction supports this growth, with NPS scores exceeding 70, and Dream Sock hitting an all-time high in this category.

We achieved this market enthusiasm while maintaining strong growth trajectory, including net revenue growth of 58% over Q2 of last year. Here in the US, our partnerships with major retailers, Target and Walmart, are growing, with expanded merchandising and placements to bring Owlet experience to life. Specifically, we are seeing sell-through of Sock at Target increase by almost 50% year-over-year, and Duo almost 40%. While our Babylist registries grew at almost 60% versus previous year, proving our messaging and FDA clearance continues to resonate with expecting parents. Owlet is still in the beginning stages of growth for Dream Sock, with about 10% of the 3.6 million U.S. births every year coming home with an Owlet Sock. We believe that just like car seats and strollers, every baby will have access to health sensing technology at home.

And finally, I'm pleased to share Owlet had our most successful Amazon Prime event in the company's history, with record sales of both our Duo and Dream Sock. In fact, Owlet was ranked number one baby monitor, as well as number one in baby safety. Secondly, our U.K./CE launch. Owlet is extremely well-positioned to take advantage of our U.K. and CE Mark clearance with key retail partnerships across the European market, such as Mamas & Papas in the U.K., BabyOne in Germany, and into Australia with Baby Bunting, where we're already seeing sell-through up significantly. With our EU and U.K. medical clearance releases, we are able to generate over 650 million unique media views with coverage in Cosmo U.K., The Independent, Mother&Baby, and many, many more.

Overall, Owlet saw international revenue grow at over 275% over the previous year, proving that the demand for Owlet products is truly global. Third, opening medical channels. In a similar vein, the response of pediatricians to Owlet's BabySat has also been extremely positive. In Q2, we've seen hundreds of pediatricians prescribing BabySat. The feedback we are receiving from parents and doctors tell us that BabySat is a powerful novel new tool in the care of at-risk infants. We launched our partnership with AdaptHealth in Q2 to expand our distribution in medical channels. AdaptHealth serves as a cornerstone for Owlet successfully entering this vital market. We are integrating with all major insurance plans, including Aetna, Cigna, United, and the Blue Cross networks, removing barriers and ensuring families can access BabySat when they need it most.

We're also streamlining BabySat purchase flow through partnerships with providers like Wheel, who offer telehealth services directly through owletcare.com for prescription access. Parents can now seamlessly obtain a prescription and submit for reimbursement through the Owlet website. We expect this channel to take some time to grow. In 2024, it will continue—we will continue adding new distribution partners to expand our reach. We see this as a long-term opportunity to provide our innovative technology to infants with medical necessity, with insurance reimbursement for the families. And finally, subscription service. In addition to our channel expansion, we're also focused on driving additional value to our customers through a new subscription service. Our unparalleled data set, informed by capturing over 15 trillion baby heartbeats, provides deep insights into infant health and sleep that only Owlet can provide, and we're unlocking its potential.

Health and sleep are at the fundamental concerns of every parent. When navigating these challenges, parents want to know what's normal and when they need to get professional support. Owlet's impressively large set of infant health data can help parents better navigate what is normal for their baby, when to visit the doctor, and when to stay home. Additionally, parents lose over 44 nights of sleep in the first year alone. Our subscription service will analyze baby sleep data and provide parents with personalized recommendations and support to get the whole family sleeping better. Owlet has just released early access to this service to a few highly engaged users, and we expect to make this service available to all Owlet users by Q4.

Apart from offering information and insights to parents during the initial year of their child's life, we firmly believe that our products and services can extend their value well into the toddler years and beyond. By focusing on core parenting pain points in the health and sleep, and leveraging our data to drive continued releases of software features, we believe that this can expand our TAM and significantly extend our LTV per customer. Owlet is in a stronger commercial position than ever. We're a growth-oriented company, operating efficiently and bringing innovative solutions that address the fundamental needs of parents around the world. With our landmark FDA clearances, we're established as a pioneer in infant health technologies. This unique set of circumstances has the company poised for success as we continue to deliver value for our families and stakeholders alike. We're excited to share this incredible journey with you.

Thank you. Now I'm going to turn it over to Amanda for our financials.

Amanda Twede Crawford (CFO)

Thank you, Jonathan, and thanks to everyone for joining us today. In Q2 2024, Owlet demonstrated strong financial performance and momentum. We achieved $20.7 million in net revenue, up 58% year-over-year, gross margins of 50%, and positive adjusted EBITDA, bringing us closer to our goals of exceeding 50% margins and profitability. I'll spend the next few minutes walking through Owlet's key financial metrics and providing some additional detail. Gross billings for the second quarter were $26.9 million, up 59% year-over-year. Product promotions and discounts were $5 million, primarily higher than average as a percentage of gross billings for Amazon Prime Day load-in. Returns and allowance reserves were $1.1 million, approximately 4.1% of gross billings and below our average range.

Q2 net revenue, which includes promotions, discounts, returns, and allowances, was $20.7 million versus $13.1 million in the prior year. Revenue growth was primarily driven by higher sales of Dream Sock products, reflecting an increase in consumer demand as compared to the same period in the prior year. Our gross margin for the second quarter was approximately 50%, up over 1,000 basis points from margins in Q2 of the prior year. Gross margin increased primarily due to higher revenue, favorable product mix, and lower direct product and fulfillment costs. During the quarter, we experienced some cost of goods sold expense impact from elevated transportation costs related to global disruptions in inventory routing. Along with other companies seeking shipping alternatives, we are working to mitigate these factors.

Total operating expenses in the second quarter were $12.5 million, an increase of approximately $600,000 year-over-year. Excluding stock-based compensation, Q2 operating expenses were $10.4 million. Second quarter operating loss was $2.2 million for the quarter, compared to an operating loss of $6.7 million in Q2 2023, and $5.7 million sequentially. Second quarter net loss was $1.1 million for the quarter, compared to a net loss of $8.5 million in Q2 2023. Within net loss, there was a gain of $1 million, as compared to a loss of $1.6 million in Q2 2023, as a result of a decrease in the fair value of the common stock warrants outstanding.

Adjusted EBITDA for the second quarter was $100,000, improving significantly from adjusted EBITDA loss of $4.3 million in Q2 of last year. Turning to the balance sheet, Q2 ended with $15.6 million in cash and cash equivalents. We remain focused on executing our strategic initiatives to further strengthen our commercial and financial performance in 2024. Looking forward, we are focused on executing on the core business activities in 2024 that will maximize the following initiatives: Supporting Dream Sock product commercialization globally and driving continual balance of sell-in and sell-through of consumer retail inventory. From a sell-in linearity perspective, we anticipate a seasonal revenue increase from Q2 to Q3 for sell-in for the November and December holiday promotions. Q4 is expected to be lower than Q3 sequentially, due to less promotional activity following the holidays.

We are making effective strides in BabySat commercialization with new DME partnerships and with integration on owletcare.com. As a reminder, we anticipate BabySat product revenue will be ramping in 2024 as we develop these partnerships and will drive revenue impact in 2025. We plan to launch our subscription product in Q3. Projected revenue will also be ramping in 2024 and drive revenue impact in 2025. We remain focused operationally on driving quarterly gross margins within our target range of 46%-50% through unit volume, product mix, and operational efficiencies. We will continue to drive leverage in our business operations initially towards break even, and then towards sustainable profitability. We have reached a level of operational maturity that we are comfortable in providing forward-looking guidance.

For the second half of 2024, we are estimating net revenue to be stronger than the first half and in the range of $37 million-$42 million. Gross margins of 46%-50% and Adjusted EBITDA loss of $3 million to break even. For the full year, we are estimating net revenue to be in the range of $72.5 million-$77.5 million, gross margins of 47%-49%, and Adjusted EBITDA loss of $6 million-$3 million. With that, I will turn the call over to the Q&A portion. Operator, please open up the call to questions.

Operator (participant)

We will now begin our question session. If you would like to ask a question, please press star followed by one. If you would like to remove that question, please press star followed by two. Again, to ask a question, it's star one. As a reminder, if you are using speakerphone, please remember to pick up your handset before asking a question. Our first question, Charles Rhyee with the company TD Cowen. Charles, your line is now open.

Charles Rhyee (Managing Director and Senior Research Analyst)

Yeah, thanks, guys, for taking the question. Thanks for the ups on the quarter. You know, maybe to start, you know, Jonathan, you know, you, you talked about sort of the, the exposure that Owlet is gaining, you know, across, a bunch of media channels, social media as well. How, how are we tracking that, and how are we tracking that in terms of how that is translating into sales? And maybe just sort of how you're looking internally to, you know, make sure that you're getting an effective ROI on that spend.

Jonathan Harris (President)

Thanks, Charles. Yes, we're tracking that. So in Q4 of 2023, we hired a PR agency to actively and aggressively reach out to various press because we saw the clearance of our FDA products. And so we, we are really leveraging that PR agency to help us continue to grow and expand our reach, not only here in the US, but internationally as well. So we're, we're having the PR agency as well as ourselves are monitoring that. We're tracking site traffic as well as relevant sources. Additionally, we're looking at what we're seeing organically and inorganically on TikTok and Facebook.

... and really driving that exposure. We're really seeing strong engagement from our social media channels and continuing to drive that, and we're just finding that it's very positive and that customer feedback, parental awareness is growing and expanding. So it's great news across the globe.

Charles Rhyee (Managing Director and Senior Research Analyst)

Are we still partnering? I know in the past you've partnered with a lot of, you know, nonprofit organizations, you know, particularly groups maybe focused on SIDS and other conditions, for instance. How much is that part of the strategy, or is this more of a general push into sort of the parenting market?

Jonathan Harris (President)

Yeah, great question. Yeah, we absolutely continue to drive with our partners. That's certainly helping us. But we're not only seeing the awareness from the SIDS partners we have, but you know, the parental community in general. Parents are looking for insights. They're looking for, "How do I get more sleep? What insights can I gain from my baby to help me have a healthier, safer, better sleep for their lives?

Charles Rhyee (Managing Director and Senior Research Analyst)

Okay. Got it. And then maybe, you know, I want to ask about, you know, I think the comment at the beginning, sort of, talking about, you know, sort of at or near... Amanda, you talked about sort of at or near Adjusted EBITDA breakeven for the rest of the year, and then moving to sustainable growth. Is it fair to think then we should expect positive adjusted EBITDA to start increasing sequentially as we move through the rest of the year? Or are we looking to sort of reinvest income and earnings, this year and really moving towards more sustainable profitability next year?

Amanda Twede Crawford (CFO)

Hey, Charles, that's a good question. So when we look at the Q3 and Q4 in terms of profitability, you know, we do expect Q3 to be stronger from a sell-in perspective, just due to the holiday load-in, like I mentioned. And then, you know, from an Adjusted EBITDA perspective, exiting the year, you know, look, there's a few things that could impact it, and we will seek to match our operating expenses with our top line. There is potential cost of goods sold headwinds from increasing sea and air transportation costs, and then we could potentially, you know, have some sales and marketing investments, along with some clinical and regulatory investments towards the second half. So we do expect, you know, sequentially, you know, depending on the impact of those items, we may see an increase.

However, you know, it's just dependent on those items. That's why we're looking to break even in the second half of this year. Moving into 2025, Q1 is usually sequentially lower than Q4. But overall, for the year, we are expecting to move towards a profitable business overall.

Charles Rhyee (Managing Director and Senior Research Analyst)

And thanks. Speaking of shipping costs, can you—I mean, I guess when I look at the gross margin guidance for the full year, that implies sort of gross margins down sequentially from the second quarter. Is that all related to shipping costs? And related to that, what is sort of your assumptions for freight? Maybe you can talk about what you're seeing in the outlook right now and what the trend is going. Is it sort of continuing to tick up here, and what are you assuming in the guide? Thanks.

Amanda Twede Crawford (CFO)

Yeah. So we are assuming a certain degree, just because we are operating at a very lean level in terms of working capital and inventory and just keeping up with the demands that we've seen in our business, it's highly likely that we will need to air freight in some of our inventory just to get it on time to support the holiday season. So we do have a small level of that in the plan, but just depending on, you know, how we continue to perform, we could see higher air freight costs to support the business. But with that, we are proactively looking at our inventory plan and seeking to get ahead of that.

We're placing POs sooner just to make sure that we can, you know, get the product in time through the most cost-effective shipping means possible.

Charles Rhyee (Managing Director and Senior Research Analyst)

Okay, I see. So it's really more of a mix of what type of shipping that you're looking to utilize that's driving sort of the higher costs. Are we seeing long delays in traditional shipping, sort of by container?

Amanda Twede Crawford (CFO)

I think the containers are taking a little bit longer than what we typically see historically. But, it's really just a matter of us having sufficient inventory to meet the demand in the second half. As you know, this first half was stronger than we expected internally, and we are seeking to build up our inventory just so we can meet the needs of the business in the second half.

Charles Rhyee (Managing Director and Senior Research Analyst)

Okay. I see. Okay, that makes sense. Maybe just real quick on the revenue side, you know, where are we in terms of returns as a percent of gross revenue? You know, have we gotten, finally gotten back to a normal level? Or, you know, I know last year and before we, you know, we've been dealing with sort of returns of the original stock. Just where are we in terms of that at this point?

Amanda Twede Crawford (CFO)

Yeah. So returns for this quarter were 4.1% of gross billings, which is well below our average rate. Typically, we were seeing around 7% in the business. This quarter, we did have a little bit of recoveries of some chargebacks from some retailers. But overall, our historical rate that we base our reserve upon has decreased. So, you know, looking ahead, we're expecting to see a reduction in returns overall, and I think it just speaks to the health of our business. And, you know, consumers are buying the product and keeping the product, and this is a positive thing.

Charles Rhyee (Managing Director and Senior Research Analyst)

Got it. And maybe a question, Kurt. You know, you talked about, you know, babies leave with a-- or required to leave with a car seat, and that's reimbursed by insurance. You know, if we get to the point where every infant leaves with a Sock, you know, that would suggest that BabySat is the predominant driver of revenue. I mean, is that sort of where we could be heading? And, you know, maybe talk about what it takes to sort of increase the insurance coverage. My understanding is that you can get reimbursed under current codes. Maybe give us an update on sort of what it would take to sort of have this sort of a mandatory type of...

Not maybe the Owlet per se, but having sort of some type of monitoring device for infants, you know, leaving the hospital.

Kurt Workman (Co-founder and CEO)

Yeah, this is my favorite subject of all subjects, so thanks, thanks, Charles. I think the FDA clearance was probably the biggest milestone we can cross towards that. You can see not only just in the business, but the parental demand, the satisfaction with the product has taken a step function up, and we're taking advantage of that right now. There's so much momentum in the business. I think you can feel that in the earnings. We're opening up the medical channels. When I think about every baby, it's gonna start with, you know, every. Right today, it's every baby that, you know, parents who have that concern, they get an Owlet. Owlet is the number one choice.

We're expanding that to be every baby that leaves the NICU, has some sort of health condition, should go home with an Owlet. It's, it's literally a tenth the size. It's significantly less expensive. There's no wires that go into the crib. There's no reason why babies should leave the hospital with wired technology anymore. And, you know, there's about 20% of babies born between, you know, those leaving the NICU, those with serious respiratory conditions or heart conditions. All of those babies should have monitoring at home, and we're making that happen. There's existing insurance reimbursement codes. We're building out the infrastructure for that right now. That's a really exciting piece.

And as we continue to show the outcomes and the results from having access to this monitoring at home, we're gonna expand this to include healthy babies at home, because even healthy babies are at risk. There's the highest rates of unexpected mortality happen from SUIDs. Babies who have respiratory, you know, illnesses at home leads the number one cause for ER visits and doctor's visits. Parents are losing hundreds of hours of sleep that first year, so there's no reason why. You know, this is a practical solution for every parent. There's no reason why every parent shouldn't have access to this. We think that we'll be able to demonstrate those outcomes over time. And as we do that, the ability to reimburse this by insurance will expand as well.

When we think about that business, that's a massive business. We're at 10% market penetration today. That's a 100% market penetration, like car seats and breast pumps and thermometers and strollers. We think that's where this category goes here and in Europe, and then that will position us to take this globally. So this is a massive opportunity. We're just getting started, and Owlet's in the very best position in the market from a data perspective, from a clearances perspective. We have a community of over two million parents. That's-- yeah, it's the most exciting thing about this business, for sure.

Charles Rhyee (Managing Director and Senior Research Analyst)

Kurt, like, who is the main—like, where is the driving impetus coming from? Is that working through AdaptHealth and other of your DME partners? Like, who is it that is going into the providers to really kind of demonstrate the effectiveness of the Owlet Sock and why it should be the preferred device for infants? Or is this gonna require a build-out, more of a sales force internally to really push outwards?

Kurt Workman (Co-founder and CEO)

I think the incredible thing about Owlet is that we have a community of 2 million parents. You can ask any parent in the United States, you can show them a picture of the Sock and say, "What is this?" And 50% of them, without any brand recall, will say, "That's the Owlet Sock." That's pretty incredible brand awareness. They're demanding it from their pediatricians. We've also seen more pediatricians reach out to Owlet proactively than we've ever seen in our history. We've had children's hospitals reaching out and saying, "Why are we sending babies home with these big hospital devices?" I think the advantages are so obvious to the market right now, that we're seeing it come from both sides of the market. There's interest from the providers.

There's definite brand awareness and interest from parents, and that's what I think is creating the momentum. We're continuing to build out the infrastructure this year, just to be clear. There's gonna be work to be done there for BabySat. But as that comes together and we're able to take this message to parents and say, "Hey, look, if your baby is coming home from the NICU, or they have some sort of condition, and they need monitoring, you can get an Owlet reimbursed by insurance," that's a really powerful message that's gonna be very sticky in the market, and it's. You're gonna see. Every parent's gonna understand that message very quickly when we get to that point.

Charles Rhyee (Managing Director and Senior Research Analyst)

Great. Maybe one last one from me. In terms of the international market, you know, given that we're... You know, when we go outside the U.S., we're talking about single-payer health systems, particularly in Europe and in Canada and Australia. Yeah, what is the potential here that this could, we could see this more of a mandated covered item?

... at a national level, and then maybe you can talk about any kind of discussions you've had now that you have the CE Mark in place?

Jonathan Harris (President)

Yeah, Charles, this is Jonathan. I'll grab that one. Yes, getting the CE Mark in EU, in U.K., we've seen the demand. Our international business is up over 275% year-over-year. So we're really seeing demand. We're starting to have conversations with Alder Hey, which is one of the leading pediatric research hospitals in the U.K.. So again, getting those clearances are opening the door, and we're actually getting inbound calls from these markets as well. So again, these are early days, and we're just starting these conversations, but having these clearances are really... It's not us dialing out, looking for help. We're actually getting inbound as well. So it's super exciting, not only here in the US, but internationally as well.

We're answering every call, and we're gonna continue to keep driving forward.

Charles Rhyee (Managing Director and Senior Research Analyst)

Great. I'll stop there. Congrats again. Thanks.

Jonathan Harris (President)

Thanks, Charles. I think we're gonna have Mike.

Kurt Workman (Co-founder and CEO)

Yes

... go through some of the written-in questions, right?

Mike Cavanaugh (Head of Investor Relations)

Yeah. We've... That's right, Kurt. We've received some questions from investors in the retail community and wanted to share them during the Q&A. First one is for Jonathan. How should we think about this year's progress with the FDA and other clearances, combined with BabySat and subscription, translating into revenue growth in 2025?

Jonathan Harris (President)

Great. Yes, so we haven't provided specific guidance for 2025, but based on our current market share, global footprint, and beginning stages of BabySat, and soon to be our subscription service, we believe that there's considerable runway for sustainable growth in 2025 and beyond. We will provide additional commentary on our November call.

Mike Cavanaugh (Head of Investor Relations)

Great. Next question is to the management team. Is the focus going forward going to be on top line or bottom line growth?

Amanda Twede Crawford (CFO)

Thanks, Mike. I'll take this one. The short answer is both. But the longer answer is, our top priority is building a sustainable and profitable business. So to achieve this, we'll focus on accelerating revenue growth. You know, we've just talked about it. The opportunity is massive for us, and we're at about 10% penetration in the United States. We have a huge opportunity internationally. So the opportunity to grow our revenue is there. As we've shown, we're expanding our margins. You know, with the addition of subscription and accelerating BabySat, and the overall volume increase, that will help us expand our margins. We intend to invest strategically, you know, utilize our operating leverage that we have currently, and then overall, just maintain the operational efficiency.

We really believe we have momentum in the business, and we'll continue to build upon it and become the sustainable, profitable business we are seeking to be.

Mike Cavanaugh (Head of Investor Relations)

Thanks, Amanda. And final question we've got today for the team. What is your plan to get people to notice the stock going forward on the back of these strong results?

Kurt Workman (Co-founder and CEO)

I'll take that one. You know, first and foremost, it's business results. We've achieved every one of our key financial milestones and our operational milestones this year. I think if you look at the company over the last three years, gaining the FDA clearances, driving significant, significant adoption, opening up the healthcare channels, launching our subscription with limited access, those are all the key milestones that are gonna continue to propel the business towards sustainable growth, profitability, like Amanda talked about, and I think that's gonna be hard to ignore. We're also spending more time and energy in building awareness among investors through our IR efforts and through online and social channels. We'll continue those efforts and continue to deliver the business execution and just keep that drumbeat going.

I think it'll be a story that a lot of people are really excited about.

Mike Cavanaugh (Head of Investor Relations)

Great. And that's, that's all the time we have for questions today, and we'll turn it back over to Kurt for final remarks.

Kurt Workman (Co-founder and CEO)

Well, thank you, everybody, for joining us today. I think it's clear there's a lot of momentum in the business. It's been an exciting journey for Owlet, and we're grateful for everybody's continued support. I'd like to take this opportunity to thank our talented team for the incredible dedication and hard work that they put in at Owlet. Your commitment to our mission and drive for innovation is absolutely inspiring. It's what makes this all work. We have achieved significant milestones this quarter. We're demonstrating strong financial performance and continued growth. As we move forward, we remain focused on executing our strategic initiatives to further strengthen our commercial and financial performance. We're confident that our innovative solutions, our data, our unwavering commitment to quality, and the passionate team that delivers all this, will continue to drive success for Owlet.

Thank you again for your trust and your partnership.