Owlet, Inc.

Hello, everyone. Thank you for joining us and welcome to the Owlet Q2 2026 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Jay Gentzkow, Investor Relations. Jay, please go ahead.

Good afternoon, everyone, and thank you for joining us. Earlier today, Allett released financial results for the second quarter ended June 30th, 2026. I'm pleased to be joined today by Kurt Workman, Allett's president, CEO, and co-founder, and Amanda Twede Crawford, Allett's CFO. Before we begin, please note that our financial results press release and presentation slides referred to on this call are available under the events and presentation section of our investor relations website at investors.allotcare.com. This call is also being webcast live with a link at the same website. The webcast and accompanying slides will be available for replay for 12 months following this call. The content of today's call is the property of Outlet. It cannot be reproduced or transcribed without our prior consent. Before we begin, I'd like to refer you to our safe harbor disclaimer on slide three of the presentation. Today's discussion will contain forward-looking statements based on the company's current views and expectations as of today's date. 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, as updated in the company's quarterly reports on Form 10-Q and other filings with the SEC. 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, it's my pleasure to hand it off to Kurt

Thanks, Jay, and good afternoon, everyone. Thank you for joining us. Before we get to our record Q2 results, I want to step back and discuss where we are taking this business, the platform we're building to support the parenting journey and the opportunity we see over the coming years. Every day, Allett is evolving more and more into a data and services platform for the earliest years of a child's life. Our products capture meaningful and unique information about a baby's sleep and health, turning that data into insights, guidance, and peace of mind for parents. Our vision is to bring together the best of what parents use today into a single Owlet experience. Sleep, health monitoring, camera, and telehealth for a fraction of what separate apps and devices cost today. Over time, we want all of our customers to get the best of what Owlet's platform has to offer because engaging with Owlet increasingly means engaging with the service, not just the device. That leads to how we're thinking about the opportunity, and I want to keep our objectives simple. First, firmly position Owlet as a data and services platform through subscription. Second, win roughly 1 million new customers per year. And third, keep those families with us for at least two years. Put those together, and it points towards a recurring base over time of over 1 million subscribers. This is the evolution from a one-time hardware-centric sale into a durable multi-year subscription relationship. And it's what the entire company is now organized around. Let me give some more color to each. First, Firmly Position Outlet is a data and services platform through subscription. Subscription is how we're positioning Outlet from a device families buy into a platform they rely on. We've clearly validated the subscription opportunity since launch early last year. Today, over 30% of new US customers subscribe to Outlet 360 in the first year. This is an ideal category for a multi-year relationship since the intensity of parenting lasts for years, not just months. Our goal is to make subscription the obvious choice. So we're expanding where parents can enroll, moving beyond in-app sign-up and toward the point of sale, and testing offers and bundles that make enrolling in subscription at purchase a no-brainer. Another lever in subscription value proposition is inside Outlet360 itself. Every new feature we add to Sleep Insights, Camera Intelligence, and Telehealth enables us to partner with families for longer, and is designed to extend our lifetime value. Second, win roughly 1 million new customers per year. This year alone, Owlet will sell to 600,000 to 700,000 new customers. Owlet's competitive moat gives us a dominant and secure position in our category. We're the first and only FDA cleared baby monitor on the market. We're consistently the market leader in dollars spent in the category and we've built a brand that parents deeply trust. in a pediatric health and wellness market that's still early. Given the size of our funnel, the consideration for Owlet is already massive. Each year, we see roughly 4 million unique visitors to OwletCare.com and over 1 million baby registry additions. The opportunity isn't to invent demand, it's to convert more of the demand that already exists into new customers. Millions of parents are already considering Owlet, and our job is to move more of them from consideration to purchase. . Subscription is what makes this possible. Because a subscriber's lifetime value is designed to extend well beyond the initial sale, we're creating offerings that increase overall value, save families money up front, and still grows the economics of each customer over time. That is a winning funnel to drive conversion and LTV simultaneously. And finally, keeping families with us for at least two years. Today, the average subscriber length of use is about one year. Our goal is to continue to make Owlet more valuable the longer a family uses it, carrying them past the newborn window when safety is top of mind into years one and two when sleep, health and wellness take focus. Owlet 360 subscription is the vehicle, a digital translator that turns real-time data from our products into insights for parents. Many already use the camera well beyond 24 months, so delivering the best of Owlet to every family naturally extends lifetime value. underneath it all is what we believe is the largest pediatric health data set in the world. That foundation enables us to build increasingly personalized experiences across sleep, health and wellness, using AI to turn data into meaningful insights and guidance throughout the parenting journey. That's a very hard thing to walk away from. Our long term objective is to build toward a recurring base of more than one million subscribers by expanding our customer base, increasing subscription adoption and extending subscriber relationships. Now turning to the second quarter update on slide seven, where we set records on many metrics. A record-breaking total revenue for the second quarter of $33.9 million, which represents 29.9% increase year over year. In the second quarter, Owlet received approximately $4 million in tariff refunds following the U.S. Supreme Court's February decision invalidating tariffs imposed under the IEPA. Of that $4 million, we recognized a one-time $3.5 million benefit to COGS and a one-time $3.75 million benefit to adjusted EBITDA with the remaining balance going to inventory. Q2 gross margin excluding the tariff refund was 54%, expanding 270 basis points versus Q2 2025. Including the tariff refund, gross margins were 64.4% in Q2. Adjusting EBITDA excluding the one-time tariff refund was also a record for ALA, $2.9 million, a $2.4 million increase compared to prior year. including tariff refunds, adjusted EBITDA was $6.7 million. Outlet360 subscription continues to thrive. We ended Q2 with 130,000 paying subscribers, generating $3.2 million in revenue, up $2.4 million year-over-year. Subscription MRR increased sequentially, surpassing $1.1 million to end Q2. And penetration rate for DreamSoc in the U.S. increased to 36%. I'm really proud of the team's execution in Q2 and excited about our category leadership, which continues to deepen. I want to address that with a recent development in our category that highlights our competitive differentiation. As you remember, in September of last year, the FDA issued a safety communication warning consumers against using over-the-counter infant monitors, making unsubstantiated claims without having been reviewed for safety and effectiveness. In early June, we received a letter from Amazon and were confident other companies in the baby monitor category did as well. The letter notified sellers of baby monitoring products that measure and monitor vital signs that any such product lacking FDA clearance would be deactivated on Amazon's platform, effective August 10, 2026, which was yesterday. For Owlet, no additional action was required. DreamSoc has been and continues to be FDA cleared, and Amazon already had our clearance documentation on file. To our knowledge, no other baby monitor on the market today has secured this same clearance. If Amazon continues to enforce this requirement, we believe it could provide a longer term competitive benefit for Owlet, as any company wishing to measure and monitor vital signs would need to go through the same rigor we underwent to secure FDA clearance in order to sell on Amazon's platform. following the letter, we observed aggressive discounting by several competitors, including products that we understand are subject to the new requirement ahead of the August 10 deadline. This pattern continued through Prime Day and after. As a result, all its units sold during Prime Day were down 8% versus last year's event, underperforming our expectations. Despite losing some units to the competition during Prime Day, we were still number one in baby monitoring and in the baby safety category. We don't yet have full visibility into competitor pricing behavior post-August 10th deadline, but we anticipate Amazon's enforcement to be a long-term tailwind for the business. Continuing with the quarterly review, consistent with last quarter, I'd like to provide updates on our two core growth drivers, driving adoption of DreamSoc and DreamDuo in our core global markets and expanding the subscription platform with Allot360 and Allot OnCall. In the US, when adjusting for the shift in Prime Day, Total sell-through units grew by 12%, including a 16.5% increase in DreamSoc and a 16% increase in Duo. Excluding Prime Day, Q2 total sell-through units grew by 20% year-over-year, with DreamSoc and Duo growth of 21% and 29% respectively. This gives us confidence that general sell-through is growing at a healthy rate, but Prime Day dynamics weighed on the quarter as mentioned above. Al at DreamStock also remains a registry priority for expecting parents with year-over-year registry additions growing 40%. Finally, International was a standout in the quarter with revenue growing 214% year-over-year. Recall that last year we had an expected timing shift in orders from Q2 to Q3 driven by the DreamSight camera and duo launch and the associated load-in to our distributors positioning Q2 2025 as a favorable year-over-year comparable.