Owlet, Inc. (NYSE:OWLT) This autumn 2021 Earnings Conference Call March 7, 2022 5:00 PM ET
Mike Cavanaugh – IR
Kurt Workman – Co-Founder and CEO
Kate Scolnick – CFO
Conference Call Participants
Jim Suva – Citigroup
John Babcock – Bank of America
Good night. Thank you for attending at the moment’s Owlet This autumn 2021 Earnings Call. My title is Tania and I might be your moderator for at the moment’s name. [Operator Instructions]
I’d now wish to cross the convention over to your host, Mike Cavanaugh. Please go forward.
Good afternoon and thanks for becoming a member of us at the moment. Earlier at the moment, Owlet Incorporated launched monetary outcomes for the quarter ended December 31, 2021 and the complete 12 months 2021. The launch is at the moment obtainable on the Company’s web site at www.traders.owletcare.com.
Kurt Workman, Owlet’s Co-Founder and Chief Executive Officer and Kate Scolnick, Chief Financial Officer will host this afternoon’s name.
Before we get began, I want to remind everybody that sure issues mentioned in at the moment’s convention name and/or solutions which may be given to questions requested are forward-looking statements which might be topic to dangers and uncertainties regarding future occasions and/or the longer term monetary efficiency of the Company. Actual outcomes might differ materially from these anticipated in these ahead looking-statements.
The danger elements that will have an effect on outcomes are detailed within the Company’s most up-to-date public filings within the U.S. Securities and Exchange Commission, together with its quarterly report for the quarter ended September 30, 2021, and different studies filed with the SEC, which might be discovered on its web site at traders.owletcare.com or on the SEC’s web site at www.sec.gov.
The data supplied on this convention name speaks solely as of at the moment’s reside name. Owlet disclaims any intention or obligation besides as required by regulation to replace or revise any data, monetary projections or different forward-looking statements, whether or not due to new data, future occasions, or in any other case.
Please additionally word that Owlet will confer with sure non-GAAP monetary data on at the moment’s name. You can discover reconciliations of the non-GAAP monetary measures to most comparable GAAP measures within the Company’s earnings press launch, which can be obtainable on the Company’s investor web page of its web site.
I’ll now flip the decision over to Kurt.
Thanks Mike. And thanks all for becoming a member of us at the moment for our first earnings name of the 12 months. We’re excited to share an replace on the progress we have made as a enterprise. Our Dream Sock and Dream Duo product choices are actually out there within the US and we’re making nice progress on our product roadmap. Additionally, we’re seeing continued acceleration and adoption of our merchandise in our worldwide markets, and we’re assured in the long run alternative forward of us.
First a glance again at 2021, our workforce met our income objectives via the third quarter of 2021, exceeding our full 12 months 2020 income in simply the primary three quarters of 2021. We did expertise an surprising growth when originally of the fourth quarter of 2021 Owlet acquired a warning letter from the FDA alleging that the guts fee and oxygen notifications on the Smart Sock and sure associated advertising and marketing claims rendered the Smart Sock and medical system requiring pre-market clearance or approval from the FDA. Cooperating with FDA’s requests, we halted gross sales of all Smart Sock merchandise within the US in October of 2021.
From there in nearly 90 days, we developed and launched a brand new product whereas specializing in deepening our retail buyer relationships to successfully handle the product transition through the vacation season. The efforts of our workforce right here at Owlet converse to the dedication to our mission of supporting dad and mom within the residence, our potential to pivot shortly and the breadth of our expertise platform. Over the course of the fourth quarter, we have already completed an ideal deal to get Owlet again on monitor and ship our true linked ecosystem for at the moment’s dad and mom.
We kicked off 2022 by launching the model new Dream product line within the US on January 5, a serious milestone for our workforce as we proceed ahead following the FDA letter. This contains the Dream Sock and Dream Duo, which consists of the Dream Sock and Owlet Cam as a bundle. The Dream Duo and Dream Sock monitor infants whereas they sleep. They assist dad and mom perceive their toddler’s sleep and know when to help their child for higher sleep, empowering dad and mom with data and insights to assist higher sleep. The Dream Duo is our most clever monitoring system but.
Let me characterize the primary few weeks of the Dream Sock and Dream Duo launch. On Outlet on-line January 5 and January 6, had been our greatest non-promotional gross sales days ever. Additionally, all retailers that beforehand carried the Dream Sock are actually promoting the Dream Sock line. Our retail rollout remains to be in progress, and we’re happy with the preliminary outcomes, each when it comes to demand and buyer suggestions. We’ll report again to our subsequent name on the outcomes as we’d like some further time to be considerate on the look forward so we are able to share the outlook for 2022.
Outside of the US, we proceed our worldwide product enlargement. International income grew by over a 100% from 2020 to 2021. Owlet merchandise are actually obtainable in 16 nations with further launches coming in 2022. In Germany, we simply acquired the information that 91 out of a 100 midwives with [indiscernible] and would suggest the Smart Sock. We are enthusiastic about suggestions like these in addition to continued product adoption world wide.
In regards to an replace on US regulatory issues, our ongoing conversations with the FDA focus on three areas. First making certain that the Dream merchandise are usually not meant to be used as medical units, which might make them topic to FDA pre-market clearance or approval. Second, working towards gaining FDA pre-market authorization on the guts fee and oxygen notification options beforehand within the Smart Sock product line. And lastly, just like the second level, persevering with to pursue the event of a prescription solely inventory for infants who want medical monitoring at residence.
Medical units are an vital strategic focus and space of funding for Owlet, each domestically and internationally. In regards to a world replace, we lately obtain our ISO 1345 and MDSAP certificates as we work in direction of submitting medical system purposes for the Smart Sock within the UK, the European Union and Canada.
We have a sturdy product roadmap as effectively. We plan to launch a brand new model of the Owlet Cam later this 12 months and are additionally working to develop our sleepwear product line. In This autumn of 2021, we launched the Outlet Sleeper, a wearable blanket, and in 2022, we plan to increase that sleepwear line.
We additionally proceed to work on increasing our sleep ecosystem, together with a wise crib. We will share extra on a roadmap and continued analysis and growth in future updates. From persevering with to develop the Dream product line to constructing out new components of the ecosystem and continued worldwide enlargement, we’re optimistic in regards to the alternatives forward for outlet.
I’ll now flip the time over to Kate for a evaluation of the financials from This autumn and the complete 12 months 2021.
Thank you and good afternoon, everybody. As Kurt outlined, for the primary three quarters of 2021, Owlet demonstrated nice momentum in direction of our operational and monetary objectives. In the fourth quarter from the receipt of the Warning Letter from FDA, the corporate selected to halt gross sales of all Smart Sock merchandise within the US and settle for returns from US retailers.
As a outcome, for the fourth quarter and 12 months ended 2021, the corporate recorded a contra income adjustment of $23.2 million for acquired and anticipated returns on the Owlet Smart Sock and Owlet monitor duo merchandise. Return estimates had been developed in partnership with our retailers, and we don’t anticipate materials return changes for Smart Sock within the US in future intervals.
This autumn product gross billings earlier than promotions and reserves had been roughly $11 million, a portion of which included preliminary shipments of Dream merchandise. We outline gross billings as quantities invoiced to clients. It doesn’t embrace the impression of changes similar to promotion, reductions and different allowances. The cessation of US Smart Sock and Duo gross sales and product returns nevertheless, resulted in complete web damaging revenues of $2.5 million for the fourth quarter 2021.
This autumn value of products bought was $3.5 million together with a good thing about $8.2 million associated to product returns and gross revenue was damaging $6 million. Operating bills for the fourth quarter 2021 had been $27.3 million in comparison with $13.5 million for a similar interval in 2020.
The improve in 12 months over 12 months working bills was primarily for deliberate will increase in spending related to the scaling of the enterprise and better advertising and marketing spend. Operating loss and web loss for the fourth quarter of 2021 had been $33.3 million and $24.1 million respectively as in contrast with $3.4 million working loss and $5.8 million web loss for a similar interval in 2020. EBITDA loss for the fourth quarter 2021 was $23.3 million in comparison with EBITDA loss a $5.2 million for a similar interval in 2020. Adjusted EBITDA loss for the fourth quarter 2021 was $31.3 million in comparison with adjusted EBITDA lack of $2.4 million for a similar interval in 2220. And for our stability sheet, money and money equivalence as of December 31, 2021 had been roughly $95 million.
Related to the product returns in This autumn as of December 31, 2021, the corporate has recorded at $6.7 million asset inside pay as you go bills and different present belongings for stock anticipated to be acquired, however not but returned $1.4 million with a list for return stock acquired as of December 31, 2021 and $20.1 million for accrued returns for liabilities.
Given the corporate started planning for product return with US retailers late within the fourth quarter, we acquired little stock as of yearend and didn’t start receiving any product returns in earnest till mid-January early February with distinctive transportation preparations and timing for every retailer. We are actively within the course of of transforming product stock, as it’s acquired. To date, we now have acquired a little bit over half of the anticipated product returns.
To reiterate return estimates had been developed in partnership with our retailers, and we don’t anticipate materials return changes in future intervals for the Smart Sock within the US. We do anticipate further interval value similar to rework to be expense as incurred.
Some chosen full 12 months of 2021 monetary highlights embrace $75.8 million in income a rise of $0.4 million from $75.4 million for the complete 12 months 2020. The $23.9 million 12 months over 12 months improve through the first 9 months of 2021 was considerably offset by web contra income within the fourth quarter 2021.
Cost of products bought was $40.8 million, together with a good thing about $8.2 million associated to product returns in This autumn, $35.1 million in gross revenue and gross margin of 46.2%. On a 12 months over 12 months foundation, margin declined 140 foundation factors. Primary 12 months over 12 months drivers embrace roughly 190 foundation factors resulting from inflationary headwinds, together with elevated transportation and materials prices over 2020. Approximately 150 foundation factors of impression was attributable to larger product returns in This autumn 2021, partially offset by a good thing about 170 foundation factors for decrease guarantee expense.
Operating bills had been $90.9 million in comparison with $42.9 million for a similar interval in 2020. The improve in 12 months over 12 months working bills was for deliberate will increase and spending related to the scaling of the enterprise, elevated advertising and marketing spend and bills associated to the merger. Operating loss and web loss for the complete 12 months 2021 had been $55.8 million and $71.7 million respectively as in contrast with $7 million working loss and $10.5 million web loss for a similar interval in 2020.
EBITDA loss for the complete 12 months 2021 was $42.7 million in comparison with EBITDA lack of the $8.2 million for a similar interval in 2020. Adjusted EBITDA loss for the complete 12 months 2021 was $45.2 million in comparison with adjusted EBITDA lack of $4.6 million for a similar interval in 2020. Overall, 2021 was a major 12 months for Owlet. This autumn 2021 introduced surprising enterprise and monetary challenges. In a brief time period, we have labored laborious to make sure we’re capable of place Owlet for long-term success to assist dad and mom world wide with linked nursery expertise options.
Owlet’s long-term goals stay intact and our enterprise objectives for 2022 embrace rising our linked nursery market penetration, concentrating on funding and product innovation to increase the lifetime worth of our clients and specializing in acquiring advertising and marketing authorizations within the US and key international markets had been required.
As we begin off 2022, Q1 is a crucial transitional product quarter within the US for Owlet. We began shipments of our dream decline in late December for preliminary promoting to our US retailers and our product launch in early January on Owlet on-line. Quarter up to now suggestions from retailers and clients has been optimistic and we’re assembly our preliminary inside expectations within the market.
All of our main US retailers have the Dream product line obtainable on-line and lots of the Dream product line of their shops. We anticipate all main us retailers may have the Dream product line totally obtainable on-line and in shops by the tip of Q1.
Year at the moment, gross billings earlier than promotions and reserves for January and February 2022, are slight than the identical time interval in 2021. After a really sturdy worldwide enlargement 12 months in 2021, our worldwide enterprise has had a robust begin to Q1. We are excited to proceed our worldwide development plans in EMEA with new areas plan to be launched in 2022.
In phrases of working bills, we’re persevering with to handle variable spend and the place attainable discovering alternatives to mitigate inflationary pressures and we now have ample liquidity to assist our enterprise. In abstract, Q1 might be our steps in direction of constructing a stronger international enterprise in 2022 and past.
Because the Dream product one is new, I’m quickly ramping up throughout our go to market channels on-line and in shops over the course of Q1 and Owlet is actively within the strategy of receiving and transforming product stock. We are usually not offering steerage for 2022 monetary expectations presently. We anticipate offering an up to date outlook when reporting first quarter 2022 outcomes.
Operator, let’s open up the decision for questions.
[Operator instructions] The first query is from the road of Charles Rhyee with Cowen. Your line is open.
Hey guys, that is Gwen on for Charles. Thanks for taking the query. So your directional commentary is simply 1Q billing to be barely larger than the ’21 fee, however sort of adjusting for the Contra income account, it looks like you already did round $20 million in income in 4Q, even with the Smart Sock being solely out for a month or so. So how a lot is the seasonality an element within the 1Q directional commentary and once you say barely larger, are you able to sort of give tough vary or magnitude of what which means? Is it low single digits, mid-single digits, something round that will be actually useful.
Yeah. Thanks your query, Gwen. I feel we had been simply making an attempt to present some actually excessive stage directional commentary. We’re not offering full steerage however simply needed to present some general concept of how we’re seeing issues with the brand new product out there simply being in there over the following — over the previous couple of weeks. As we talked about, most of our channels are open when it comes to being on-line and quite a few our retail companions are within the strategy of getting our product in shops too. So it is not likely an apples to apples comparability. And so we will wait and replace once we’re able to, with a full Q1.
Got it. Okay. Thank you.
Thank you. The subsequent query is from the road of Jim Suva with Citigroup. Your line is open.
Thank you. And I’ve a couple of query, however I’ll simply ask them first separately. The first one’s most likely for Kurt. Kurt in your ready feedback, you talked about about some equipment or auxiliary objects popping out, simply so we are able to get a way on it. Are these additionally going to be within the wellness the place they will give suggestions to the consumer or are they simply sort of extra auxiliary to sort of add on, but it surely’s the Smart Sock and the digital camera that provides the first suggestions of wellness to the consumer?
Yeah. Good query. Thanks Jim. When we speak about equipment, we’re primarily speaking about non-smart equipment, for instance, our sleepwear line, the brand new Owlet sleeper that we launched in This autumn. We have another thrilling updates to that line coming this 12 months.
It’s truly a fairly large class for folks and Owlet has some vital innovation that is going to enhance on that and it’ll work with the Smart Sock. So there’s some integrations there. We additionally talked in regards to the Smart Crib that we’re engaged on. So the digital camera, the Sock and the Smart Crib will all work along with our Dream app in a single ecosystem. And that is in growth as effectively.
Okay. So it sounds just like the Smart Crib certainly is sensible and we’ll give suggestions and the opposite ones are extra equipment and sort of non-feedback objects. Is that the best way to consider it?
That’s proper. Yeah.
Okay, nice. And then a query for Katie most likely extra of a CFO monetary query, I do know with the reversal that you just had with revenues, does that make it so This autumn promote in of recent merchandise was mainly you’re taking the minus damaging revenues of $2.5 million and you then add along with that to $23.2 million, so that you get like $25.7 million of adjusted promote in of recent merchandise, or as a result of it is such an irregular quarter, there’s extra transferring components and extra variables like different nations nonetheless promoting a few of the merchandise we should not even rely and even use that as a guidepost.
Yes, it is undoubtedly the latter. So the gross billings numbers that we talked about, what I might say if I needed to characterize it’s the first few weeks of the quarter, earlier than we stopped promoting within the US the Smart Sock merchandise. It would even be worldwide in addition to Cam. And then we additionally mentioned that we had a little bit of Dream product that bought on the very finish of This autumn, proper? So that is the exercise that you just see in This autumn.
And then there’s quite a few changes that happen like as you’ll naturally have in a pure quarter. So I might sort of maintain that exercise very separate from the adjustment that we made for the Contra income, which actually extra so displays a number of the product that the US retailers had already previous to the warning order.
So, the higher place to, I might say to observe for the contra income return is on the stability sheet. So we set on the product returns, the place we now have a few of that materials within the pay as you go bills, a few of it, received a teeny bit again in stock after which most of it’s within the accrued returns for liabilities. That might be transforming. We’re ready to obtain again that stock. We mentioned up to now in Q1, we have acquired again a little bit bit over half of that. And so we’ll be transforming that, and as that product is bought we’ll be incurring a little bit little bit of value.
Okay. And then — okay. Kate, my final query is the billings quantity, the gross billings numbers that you just sort of talked about in your ready feedback, is that sort of a quantity that we must always sort of rely on in that is all new product, however I suppose I assume it contains promote into the channel and never essentially promote via the channel and also you most likely must rebuild some channel stock and product on the cabinets. Is that the best way to consider it, Kate, or is it the billings quantity is, I ought to simply sort of view that as actually promote and promote via.
I might take into account it, we outline that as what we have bill the purchasers. So that is only a very early indication. And it would not embrace any changes, promotions, reductions, allowances or any of the promote via information.
Okay. Would or not it’s a little bit bit larger than regular? Is it a little bit bit larger than regular because you sort of must replenish all the brand new product on the cabinets?
I would not characterize it as both manner. We simply needed to present it as an information level.
Okay. Thanks Kate and Kirk for the small print. It’s appreciated.
Thank you, Mr. Suva. The subsequent query is from John Babcock with Bank of America. Your line is open.
Hey good night guys. Just need to shortly comply with up on that final query. First of all, is there any manner you would possibly have the ability to present extra instantly a sort of income determine for the quarter excluding the Contra quantity? And then additionally, when you might speak about gross margin the place that got here out on the merchandise that was bought, you simply general need to get some sense as to, directionally, the place the gross margin is headed.
Yeah, thanks John. So the best way that the accounting versus that was have to supply a web income quantity, which got here out after the gross billings and the changes as a damaging quantity. So I am unable to present you as a separate train to the gross billings. And then when it comes to the margin, I additionally do not have that both as a result of we now have the online out all of the exercise. So on condition that the income was damaging, I haven’t got a gross margin quantity for you.
Got you. And then on simply truly yet one more sort of clarification query right here, simply on the worldwide gross sales, you talked about over a 100% development there. Could you be a little bit bit extra particular on that?
Chris, you need to touch upon that.
Do you imply worldwide % development means.
Yeah. Just a little over a 100%. Yeah. Is that like a 110%, 120%, 150%?
We did not get away general worldwide gross sales for the 12 months or for this quarter, simply given all of the exercise that we now have gone in This autumn and for the 12 months. But I might say we had actually sturdy momentum going into the tip of the 12 months. And, we expect that we now have very sturdy momentum going into ’22 in addition to we proceed to increase into different worldwide markets.
Okay. And now simply via some sort of effectively, I used to be yet one more sort of semi particular broader query, simply did you lose any retailers as a part of the FDA’s actions or are you continue to serving all of the retailers that you just had been serving earlier than that announce was made?
Yeah, that is a very good query. I might name out our workforce for the nice work they to construct these buyer relationships via a very tough time. We didn’t lose any retailers and we didn’t lose any doorways. So we’ll be with the entire similar retailers in the entire similar doorways we now have with Smart Sock, and the workforce is engaged on increasing these doorways this 12 months.
Okay. And then on the worldwide enlargement, it feels like general that is persevering with to go fairly effectively. Could you simply discuss in regards to the rollout throughout the completely different nations that you just had been including through the quarter? I assumed, I remembered you talked about, the following nations you are explaining to was Italy, Spain, Belgium, and the Netherland. How is that rollout going and in addition speak about Latin America, Asia in your press launch. If you may simply sort of present a little bit bit extra element on general that, that will be useful.
Yeah. It’s actually a vivid spot for the enterprise proper now. We’re seeing that this international thesis that, dad and mom in all places want entry to this sort of data and information is true. The adoption in every of the nations that we have rolled out has been has been surprisingly good. We launched originally a part of final 12 months, we launched Nordics. We then moved into Germany, France. We’ve now been engaged on opening up Italy, Spain, Belgium, Netherlands, and the Eastern a part of Europe. And we’re seeing nice outcomes.
One of the issues I shared is that, we received the certificates from the midwife group in Germany. This is the group that opinions sort of all child merchandise there and offers their stamp of approval. And 91% of midwives that use Owlet really helpful the product we’re seeing within the UK and Germany and Nordic. The promote via information could be very optimistic. So we’re actually happy with the outcomes the workforce has been driving in that space. We simply began opening, opening up South America and we’re working in direction of enlargement to Asia this 12 months.
Okay. Thanks for that. And then I suppose simply two different fast questions. Just on the FDA approval of the OTC inventory, are you able to simply remind us of sort of the timeline for that? Has that modified in any respect?
Yeah. So getting clearance on that OTC inventory is a high precedence for Owlet. I feel the most important affect we now have on timelines is to ensure that our submission has all the knowledge the FDA desires to see. So that is the place our focus is true now at all times had quite a few conferences and cellphone calls with the company over the previous couple of months and dealing to ensure that the submission comprises all the pieces that they need. We be ok with the expertise that we now have and we’re not making any assertions on timelines proper now as a result of we will not predict the FDA, however we do really feel like we’re making good progress.
Okay. And then simply lastly, simply in your merchandise, when you can simply sort of discuss in regards to the crib, once you anticipate that to be out out there and some other sort of commentary on simply sort of new merchandise general.
Yeah, I feel the Crib and a few of the equipment merchandise we’re engaged on are actually thrilling. We lately had some prototypes within the workplace of the Crib. It was nice to see the response from dad and mom on these prototypes. We’ve actually optimistic suggestions on our shopper surveys and so the merchandise in growth proper now.
We have not introduced a date for it but, however we do really feel like it will be a very sturdy a part of the ecosystem, the integrations with the Sock and the digital camera are going to take parenting to the following stage. And they’ll give that hours and hours of sleep to oldsters. So we’re enthusiastic about it. We ought to have extra of an replace on the following name.
Okay, nice. Thank you, Kurt. Thank you, Kate.
Thank you. Thank you, Mr. Babcock. There aren’t any further questions ready presently. I’ll now flip the convention over to Kate for any closing remarks.
Kurt, I’ll flip it over to you for any closing moments.
I might simply sort of reiterate the 4 huge development areas for Owlet. I’m actually happy with the workforce for launching Dream Sock and Dream Duo. We’ve at all times had phenomenal suggestions from dad and mom. We know it is making a distinction of their lives. 82% of fogeys report getting much less 5 hours of sleep at evening. And so something we are able to do to assist dad and mom sleep higher really feel safer, really feel extra assured in that parenting journey is what our mission’s all about.
Having that product again available on the market and having the assist from the retailers we now have is nice, nice for the enterprise and it is nice for households. We’re increasing our product ecosystem actually excited in regards to the Crib. We’re excited in regards to the basis of sleep. That’s going to actually glue the ecosystem collectively after which taking that to the following stage with a few of the medical clearances and enlargement internationally. So actually admire everyone becoming a member of the decision at the moment and excited to proceed to construct the corporate.
That concludes the Owlet This autumn 2021 earnings name. Thank you on your participation. You might now disconnect your line.