Owlet, Inc.

Good afternoon. Thank you for attending the outlet Q3 earnings call. 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 pass the conference over to your host, Mike Cavanaugh with Investor Relations. Thank you, Mike. You may proceed.

Good afternoon and thank you for joining us today. Earlier today, Owlet Incorporated released financial results for the quarter-ended September 30, 2022. The release is currently available on the company's website at investors.owletcare.com. Kurt Workman, Owlet's co-founder, president, and chief executive officer, and Kate Skolnik, 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 U.S. Securities and Exchange Commission, including its quarterly report filed today, November 14, 2022, and other reports filed with the SEC, which can be found on its website at investors.outletcare.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 the non-GAAP financial measures to the most comparable GAAP measures in the company's earnings release, which is also available on the company's quarterly results page of its website. With that, I'll now turn the call over to Kurt Workman. Kurt?

Thank you, Mike, and good afternoon to everyone joining us. Today, I will share our results for the third quarter of 2022 and provide additional updates on our business. specifically around our three key areas of focus, our dream product portfolio performance in the marketplace, progress towards regulatory authorization, and operational strides towards profitability. As noted in today's earnings release, we delivered revenue of $17.4 million for the third quarter of 2022. Highlights in the quarter included our strongest Prime Day event ever, significant distribution expansion development with U.S. retailers for 2023 and beyond, and the measured benefit of our marketing investments as we reposition back into leadership and growth in the connected nursery ecosystem. That said, as we discussed in our second quarter call, we are recognizing the headwinds from an uncertain macroeconomic environment as retailers focused on managing their working capital by reducing weeks of supply, which impacted our Q3 sell and demand compared to prior periods. Moving forward, one of our highest operating priorities is working towards getting back to 45 to 50% gross margin in future periods through tighter management of promotional spend and supply chain costs. Outside of these factors, we believe consumer satisfaction of our products and trust and belief in the Allett brand is strong as we've continued to see baseline demand for our dream product portfolio improve over the course of this year. Notably, the fourth quarter, we significantly reduced media acquisition spend in the U.S. while growing the units sold to the end consumer quarter-over-quarter by more than 50%, in part due to July's Prime Day performance. In July, we launched our next-generation camera and introduced the new predictive salute technology into our SOC and CAM. The new Dream Duo 2 has already been named Best Baby Monitor by bestproducts.com. With this launch, we brought the Duo in as a new offering into 600 existing target doors and added over 1,200 new Walmart doors to our retail footprint. Our brand health remains strong. According to an independent third-party survey, we had the number one unaided brand awareness and number one in ad recall in our category in the third quarter. Additionally, 53% of our customers find out about Owlet from a friend, according to our survey from OwletCare.com in September. We were the number one baby monitor brand on Amazon in the US for Q3 based on revenue. Most importantly, we believe we were able to meaningfully improve a parent's experience and confidence in caring for their baby. Turning to our regulatory clearance work, we believe in making the highest quality care available to every baby by democratizing access to technology and information that has previously been limited to clinical settings. We've completed significant clinical work to be in the position to file FDA submissions for our monitoring platforms, which, if cleared, will unlock further long-term opportunity and growth for Owlet. Over the past year, we've greatly increased our communication with the FDA, maintaining frequent conversations and meetings, obtaining what we believe is a clear line of sight for two device submissions, one of which, as we announced in October, we've already submitted. We filed a 510K pre-market notification to the FDA for a new prescription monitoring device for infants. The device, which we internally call BabySat, uses pulse oximetry technology and is intended to be prescribed by physicians to assist in the in-home monitoring of babies under a physician's care. The device provides alerts to parents when their baby's heart rate or oxygen saturation level, or SpO2, does not fall within prescribed ranges. Babysat represents significant advantage to the large, wired hospital monitoring technologies on the market today with its wireless wearable form factor and cloud-connected data integration designed for home use. Additionally, in the coming weeks, we plan to file a second submission to the FDA for a software-as-a-medical device as an over-the-counter product that offers opportunistic heart rate and oxygen notifications in conjunction with the existing DreamSoc sleep monitoring capabilities. After multiple meetings with FDA over the past 12 months regarding our SOC technology, we have recently aligned with FDA to submit a de novo application that will include both the display of heart rate and oxygen currently in the DreamSoc and additional opportunistic notification features as a software as a software as a medical device. FDA has signaled they do not intend additional enforcement while we work towards the submission. We view this as a positive step towards creating best-in-class digital health products. We've provided more information about our correspondence with the FDA in our 10Q filed for this quarter. We've completed a broad range of clinical studies to support these submissions and to further validate the accuracy and safety of our products. These studies addressed various aspects of our device's monitoring capabilities, including accuracy across many important metrics tested by reputable third-party labs and clinicians, including confirming that our SOX monitoring pulse oximetry technology meets regulatory requirements across different skin pigmentations. We also tested this accuracy under motion conditions, meaning the SOX reading maintains accuracy with movement. demonstrating the safety and efficacy of the product. Clinical studies and third-party testing has confirmed study results of certain product aspects, such as skin sensitivity, design controls, and cybersecurity. In summary, these studies and product testing represent years of work and investment by Owlet, demonstrating hospital-grade quality devices, yet the simplicity for home care. We believe the FDA authorizations would position Owlet to better help parents navigate the chasm between the hospital and the home and increase our ability to use our large and growing data set as a critical tool for pediatric care. I look forward to sharing more updates on these submissions as we have news to share. Finally, we remain steadfast and focused on operational strides towards profitability. In the first half of 2022, our focus was getting our dream product portfolio into the market, and we spent heavily in marketing and promotions to build back and reposition effectively in the marketplace. As we shared in our last call, due to the changing macroeconomic conditions in the market, we adjusted our operating plan to drive the business to break even adjusted EBITDA in 2023. We implemented significant cost reduction activities in late July to streamline our organizational structure, reducing operating expenses, and managing and conserving our cash resources. While the baseline restructuring was mostly complete in Q3, during the quarter, we worked through some of the spend and other costs already committed for the back half of the year. We will continue to reduce costs through Q4 and in early 2023 to meet our operating plan goals. In addition to further reducing our operating expenses, we are proactively working to further improve our cash balances, and we are actively negotiating an amendment to our facility with SVB that would expand our access to working capital. Alice has also been pursuing access to additional capital to add to our balance sheet. Over the past 12 months, Alla has shown operational resilience with the vision and commitment to be the long-term leader impacting pediatric health. As we bring 2022 to a close, we believe the volatility in our business caused by the FDA warning letter will be behind us, and we can focus in 2023 with renewed opportunity for category leadership, future growth, and more consistent operational performance. We are determined to execute as best we can through this near-term macroeconomic uncertainty and remain focused on the milestones that will best position us for the strongest long-term potential for a healthy, profitable business. In a few weeks, Owlet will celebrate the 10-year anniversary mark from when my co-founders and I built our first prototype stock. It's an understatement to say we've come so far since then, surpassing 1.5 million babies monitored, delivering immense peace of mind to parents, and helping families sleep better. It's extremely gratifying to me that our mission continues to expand and resonate with a growing community of parents and caregivers around the world. I'm grateful for our passionate team that's been dedicated to improving lives and helping parents navigate this incredibly important part of their journey. Allard is empowering parents with the information they need to better deliver care at home, and our vision is that every family has access to the tools and technology they need to keep babies safe, healthy, and happy. I'm still in awe of the continuing outpouring of support and strong word of mouth from parents, and we're thankful we can be there to walk this journey alongside these parents. Thank you for your continued support of Owlet. Kate, over to you.