Owlet Inc (OWLT) 2021 Q2 法說會逐字稿

Hello and welcome to Owlet's second-quarter 2021 earnings call. My name is Lauren and I will be coordinating your call today. (Operator Instructions). I will now hand you over to your host, Mike Cavanaugh, Investor Relations, to begin. Mike, please go ahead.

Good afternoon and thank you for joining us today. Earlier today Owlet, Inc. released financial results for the quarter ended June 30, 2021. The release is currently available on the company's website at www.investors.owletcare.com. Kurt Workman, Owlet's Co-Founder and Chief Executive Officer, and Kate Scolnick, Chief Financial Officer, will host this afternoon's call.

Before we get started, I would like to remind everyone that certain matters discussed in today's conference call, and/or answers that may be given to questions asked, are forward-looking statements that are subject to risks and uncertainties relating to future events and/or the future financial performance of the company. Actual results could differ materially from those anticipated in these forward-looking statements.

The risk factors that may affect results are detailed in the company's most recent public filings with the US Securities and Exchange Commission, including its registration statement on Form S-1 filed with the SEC on August 5, 2021, which can be found on its website at investors.owletcare.com, or on the SEC's website at www.sec.gov.

The information provided in this conference call speaks only as of today's live call. Owlet disclaims any intention or obligation, except as required by law, to update or revise any information, financial projections or other forward-looking statements, whether because of new information, future events or otherwise.

Please also note that Owlet will refer to certain non-GAAP financial information on today's call. You can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures in the company's earnings press release, which is also available on the company's Investor page of its website. I will now turn the call over to Kurt.

Thanks, Mike, and thank you to everyone for joining the call today. As always, we appreciate your continued support of Owlet and I am excited to be hosting Owlet's first earnings call as a public company.

The theme of our listing announcement at the New York Stock Exchange last month was, this one is for the babies. We couldn't be more excited about the future of parenting and the opportunity for the Owlet ecosystem.

On today's call I'll provide an overview of our second-quarter performance and the momentum that we've built in 2021. We will also discuss our plans for the remainder of the year and beyond. Kate will then review our financial results and we'll conclude with a question-and-answer session.

The second quarter of this year was a record one for Owlet. We generated $24.9 million in revenue, a 14% sequential increase over the first quarter of this year. Gross margins were 54%, representing an increase of over 600 basis points from the second quarter of 2020. We're happy to announce that over 1 million babies have now used Owlet, which continues to be the number one brand in our category.

In the few weeks since becoming a public company we've already seen great coverage and received strong interest from top banks and investors. This is a pivotal moment for Owlet and we are leaning into all of this incredible momentum to deliver key results.

Some of you may be new to the Owlet story and our mission to solve fundamental problems through innovative technology tools and resources for parents. There are over 24 million caregivers in the US alone between conception and kindergarten. The average US parent is spending $12,000 per child each year and, beyond that, the startling reality in healthcare is that primary urgent care and ER visits just for ages 0 to 4 total over $30 billion annually in the US.

I'm a dad myself to three kids and, for any parent who might be listening on this call, we also know firsthand that parents literally become caregivers overnight with little training or tools and limited support. Owlet is working to solve these challenges by moving the center of care to the home, empowering parents as caregivers with the best technology and resources to help them keep their babies healthy and happy at home.

We are striving to democratize access to hospital technology and bring the nursery into the 21st Century with integrated telehealth services. We call this platform Owlet Care and it represents up to an $81 billion market opportunity. We believe we have the team of experts and technology brand in healthcare to lead this category and to drive over $1 billion of revenue by 2025.

With the recent infusion of over $135 million in net cash to fund our vision, we are primarily focused on a few key areas: first, deepening Owlet's market penetration here in the US; second, growing our global footprint through strategic market expansion; and finally, leveraging our unique market leader position to increase LTV by expanding our connected nursery ecosystem with integrated services, helping to close the care loop at home.

First, let's dive into some of the highlights around market penetration here in the United States. Four states have over 20% penetration with the Smart Sock. These states are in the Midwest, which is great to see our product adoption not just limited to early adopter tech centric areas like California or New York, signaling a large opportunity for growth as awareness increases.

As the market leader we have a significant opportunity to get more aggressive in building more awareness domestically. In 2021, we've greatly increased marketing spend to fuel this. Traffic to our website in July was up over 50% year-over-year.

As a mission driven company, we are extremely proud to work with parent led nonprofit organizations which donate Owlet Smart Socks to families in need and advocate for increased access to technology like Owlet. We have relationships with nearly 30 of these types of organizations across 20 states.

We are also actively working on an application for FDA clearance on both Rx version of the sock called BabySat designed for sick babies, as well as an over-the-counter version called OTC sock designed for healthy babies.

If we receive FDA clearance we intend to seek insurance reimbursement, which we believe would (technical difficulty) create accessibility to more families and more babies. The next steps for Owlet are focusing on awareness creation and advocacy work and continuing to make progress towards medical device authorization clearance.

Next, I'm pleased to share our international market expansion progress. This is so important to our mission of getting every baby and every parent access to health sensing technology in the home.

In the second quarter of this year international sales accounted for 7% of our revenue, our highest ever percentage. We also officially launched in Sweden, Germany and Austria in the second quarter with a fast (technical difficulty) in July into Switzerland.

With the first few weeks of our German launch we garnered 64 million impressions in press articles with coverage across top-tier outlets equivalent to the Wall Street Journal. Owlet's next steps are to continue our EU expansion in 2021 with additional geographies expected in 2022.

The final key area of focus is increasing our LTV through expansion of Owlet's ecosystem of innovative products and services. I'm excited to announce that we officially launched Smart Sock Plus this week in North America with international launches next month. The Smart Sock Plus extends the age range and usage of the Smart Sock from 18 months to five years, a huge expansion of the length of time we would be able to maintain our relationship with our customers.

Our core products remain strong and extremely healthy with an aggregate NPS of 69. Our aggregate product rating on Amazon is over 4.5 stars. We are progressing with the beta testing and rollout of the wellness version of the Owlet Pregnancy Band, a wearable pregnancy monitor for at-home use that extends Owlet's relationship with parents into pregnancy, truly achieving our conception-to-kindergarten vision.

I'm also pleased to share that we continue to move the ball forward in our connected nursery and telehealth solutions. Together this would combine to over $3,000 in LTV per customer, extending our potential relationship up to six years per household. Owlet's next steps in this key focus area are growing the Smart Sock Plus, full commercial release of the wellness versions (inaudible) and continued progress toward the launch of our new telehealth service.

Overall we believe Owlet is poised to win the category as we are perfectly positioned to achieve a parent centered, tech enabled healthcare platform at home. The Owlet Care ecosystem creates true value as well as a high switching cost for customers. We've have built a large competitive moat capped off by our massive data set of infant health. We hold 33 patents and our full stack integration bridges across hardware, software and services.

Owlet also has a big advantage as the first mover and we're working to deepen our penetration in all geographies fueled in part by the additional funding from our public company business combination.

In Q2 we announce the exciting additions of Kate Scolnick as CFO as well as new members of our Board of Directors including former Livongo CEO, Zane Burke; former EVP and CFO of Polycom, Laura Durr; Expedia President of Platform and Marketplaces, John Kim; and following the transaction with Sandbridge, CEO of Sandbridge, Ken Suslow.

We believe we have the capital, the momentum and the team to deliver on this exciting plan, focused on deepening our (technical difficulty) penetration, expanding our global presence and building out the Owlet Care ecosystem. I'll now turn it over to Kate to review our financials.

Thank you, Kurt, and good afternoon, everyone. Total revenues in the second quarter of 2021 were $24.9 million, a year-over-year increase of 36%, and a sequential increase of 14% from the first quarter of 2021. We are pleased with our continued sales momentum and the demand for our products in the first half of 2021.

Q2 revenue growth was driven primarily by our flagship Smart Sock and Monitor Duo, our Smart Sock and camera combination product. For year-over-year growth comparison purposes, it's important to note that approximately $2.2 million of Q2 2020 revenues related to initial sell in of new inventory for Smart Sock version 3 and Monitor Duo version 3 ahead of launching the products in Q3 2020. Excluding this Q2 year-over-year revenue growth would have been 54%.

Cost of goods sold were $11.4 million resulting in a gross margin of 54.2%, an increase of 600 basis points compared to gross margin of 48.2% in the second quarter of 2020. The year-over-year improvement in gross margin reflects continued strength in sales of our Smart Sock and Monitor Duo products and (technical difficulty) business efficiencies.

Sequentially gross margins were down as Q2 is a more seasonally promotional quarter than Q1 with Mother's Day and Father's Day. In addition, we participated in Amazon Prime Day in June.

Operating expenses in the second quarter were $19.4 million compared with $9.5 million in the same prior year quarter. The increase in Q2 operating expenses was primarily due to planned increases in spending associated with the scaling of our business. These investments include strategic parent hiring across the organization, increased investments in sales and marketing, product development costs as we expand our product portfolio, and expenses related to our public company business combination.

Operating loss in the quarter was $5.9 million compared with $0.6 million in the second quarter of 2020. Net loss in the second quarter was $5.3 million compared with $1.1 million in the second quarter of 2020. EBITDA loss for Q2 2021 was $4.6 million compared to $0.5 million in the same prior year period. EBITDA margin for Q2 2021 was negative 18.4% compared to negative 2.9% in the prior year, and adjusted EBITDA margin for Q2 2021 was negative 10.4% compared to negative 0.5% in the same prior year period.

Looking to our balance sheet, cash and cash equivalents as of June 30, 2021, were approximately $12.2 million. In July we raised $135 million in capital net of transaction expenses through a public company business combination. This funding strengthens our balance sheet for the future and will enable us to invest in scaling our business and fuel future growth.

As we head into the second half of 2021, we have momentum in our business that we believe will enable us to achieve results consistent with the top-line goals provided in May as part of our Q1 2021 earnings communications. For the full year 2021, we plan to achieve revenues of approximately $107 million and gross margin of approximately 54% to 55%. Achieving our 2021 top-line growth objectives would represent over 40% revenue growth and gross margin expansion of over 600 basis points compared to 2020.

In summary, Owlet executed well on our growth objectives in Q2 and the first half of 2021. And we're optimistic about the near-term and long-term opportunities for our connected nursery ecosystem. I'd like to now turn the call back to Kurt.

Thanks, Kate. Before we open up the call for questions I'd like to thank Owlet customers, employees, Board of Directors and shareholders for supporting our mission and vision. I also want to share a recent experience I had a few weeks ago. I was invited to speak at an event in rural Iowa hosted by a nonprofit organization that is focused on getting Smart Socks to more families and day cares throughout the state of Iowa.

It was a great event; hundreds of people were in attendance from this incredible small community, including top local celebrities. It's so clear to me that Iowa, that the US and the rest of the world are ready to bring the center of care to the home, and Owlet is here to help do that. We believe that every (technical difficulty) parent deserves access to the very best care available. Thank you. Operator, let's open up for questions.

(Operator Instructions). Charles Rhyee, Cowen.

Yes, thanks for taking the questions and, Kurt and Kate, congrats on your first quarter here. I wanted to jump in a little bit -- sort of big picture given that a lot of your historic growth has been done largely through word-of-mouth. And I think people can see it in how low your customer acquisition cost has been.

You laid out some pretty ambitious growth targets, particularly as we get out into the outer years and as you branch more internationally. You raised $135 million here through the fundraising. Can you talk about how you are looking to deploy this capital both here in the short term, now that we just launched the Smart Sock Plus, and as we think about the next couple products at least as you think about your pipeline here?

Yes, thanks, Charles, appreciate it. We have three big opportunities for growth ahead of us that we are focused on in terms of the investment. The first is getting much more aggressive and deepening penetration in the US with existing products. To your point, to date we have really efficient marketing, high NPS mostly driven by word-of-mouth.

We're going to get more aggressive in demand creation through online marketing, expanding our channel distribution and omni-channel marketing programs. And then as we get into expanding the Owlet Care ecosystem, using owned media to drive lifetime value. Parents use our app seven to eight times per day that rival social media platforms. And so, we believe we're in a really great position to be able to (technical difficulty) to drive penetration.

We are also expanding beyond the US as kind of the second big area of focus for capital investment. I mentioned that international is accelerating and already making up 7% of our revenues. We feel really good about international opportunity.

And then the third big focus is continuing to expand on our connected nursery ecosystem, particularly adding services in. And between our telehealth service and our new Smart Crib, the LTV potential per customer really increases and the length of that relationship goes up to six years potentially.

And so, we see three really clear opportunities for growth and those are the areas that we're going to really drive investments in both R&D and some of the digital marketing spend.

Appreciate that. And maybe to the first point there in deepening penetration, at least particularly here locally. You noted earlier that in four states in the West adoption is about 20%. Maybe talk about what is it in the rest of the country that perhaps we have not seen that level of adoption yet? And what steps, particularly as you think about putting your marketing spend towards to help drive that greater awareness to get the adoption rates up elsewhere in the country?

Yes, I think -- and we've done studies on this. The main driver here is awareness. We did a study in Nebraska, Texas and New York as representative states and it was highly correlated with awareness. And so, what that means is for us to get a lot more aggressive in our awareness creation activities. We've already started doing that.

We have a fantastic new CMO (technical difficulty) who has built billion-dollar brands in really marketing to this customer. And so, it's about getting more aggressive with online marketing. We're expanding our channel -- online marketing channels, we're expanding our retail channel relationships. And I think as we build out awareness and make the product more accessible, what we're seeing is that the response from parents, regardless of geo, has been fantastic.

I think when you underspend in marketing and you start to see the clustering effect that we're seeing happen in the Midwest, we're also getting more aggressive with some of the advocacy work that we're doing and publishing more data around the Smart Sock, which we think will help with word-of-mouth as well.

Thanks. And then lastly from me, I think the healthcare opportunity is a big one, particularly I understand you have a few of your products submitted to the FDA. Could you give us the latest here in terms of timelines of what we might expect? I think BabySat is the first one up. And any kind of update there you could provide, that would be great. Thank you.

Yes, I can't speak for FDA, but I will say that we have a fantastic team led by Jim Fidacaro, our new healthcare GM, really a great team. (technical difficulty) Zane Burke joined the Board from Livongo. We have a new Head of Regulatory that joined in the last nine months.

And we have great products with BabySat. It's completed all of the clinical accuracy testing, pulse oximetry testing, safety testing, biocompatibility, human factors is all complete and we're making great progress. So, we feel really confident about that program. I can't really speak for FDA at this point. But internally we are feeling confident about our ability to go forward.

Great, thank you and congrats.

(Operator Instructions). Jim Suva, Citigroup.

Thank you and congratulations on a good first quarter. Your team should feel very proud. I have two questions and you can answer them in any order you want. The first question is regarding supply chain. For some of us who cover technology, everything from shipping costs have gotten more expensive. Components for cameras have gotten harder to get. Can you talk about your supply chain and is it equilibrium, is it challenged, is it getting better or worse?

And then the second question is this -- after you get FDA approval, if we get that, what's the timeline and process then for the insurance payment clearance? Is that a pretty easy thing or is that a long multiyear thing? I'm just not that familiar with once you get FDA approval about insurance payments. Thank you.

Awesome, thanks Jim. Good question. So, I think I'll take the supply chain one first. First I'll just note the gross margin improvement I think, and I just want to congratulate our team for -- especially our supply chain and operations team for driving such an efficient program with 600 basis point improvement over last year, even given the macro environment we're in right now where there are chip shortages and there are supply chain constraints.

I think our team has done a fantastic job navigating that and it's represented in the gross margins that we are seeing. So, I think our team feels confident that we have good line of sight. We don't feel like we need to change any sort of forecasting due to supply chain and we have positive news to share on the gross margin side.

In terms of insurance, I mentioned the two different Smart Sock products we're working on, one is the BabySat. That will get Rx clearance and will be eligible for existing insurance reimbursement codes where it's applicable for pediatrics. And so, that will be able to piggyback on existing (technical difficulty) reimbursement codes. The OTC sock is something that we would develop and work with insurance to get coverage for that.

Thank you so much and congratulations to you and your entire team.

Thanks, Jim.

That's all the time allotted for questions. So, I'll now and back over to Kurt Workman, Owlet's Co-Founder and Chief Executive Officer.

Thanks. I just wanted to end by saying, as a father, there just isn't anything more important to me than my children and the opportunity to help parents better care for their children. And so, this is just an incredible opportunity.

Owlet gets thousands of stories every year from parents whose lives have been changed because of having access to the technology that we provide. So, thank you, everyone, for taking an interest in this and thank you for joining the call today. Have a great week.

This concludes today's call. Thank you for joining and I hope you have a lovely rest of your day. You may now disconnect.