Good evening. Thank you for attending today's Owlet Q4 2021 earnings call. My name is Tania, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Mike Cavanaugh. Please go ahead.
Good afternoon, and thank you for joining us today. Earlier today, Owlet Incorporated released financial results for the quarter ended December 31, 2021, and the full year 2021. The release is currently available on the company's website at 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 related 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 for the quarter ended September 30, 2021, and other reports filed with the SEC, 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 note that Owlet will refer to certain non-GAAP financial information on today's call. You can find reconciliations to the non-GAAP financial measures to 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 all for joining us today for our first earnings call of the year. We're excited to share an update on the progress we've made as a business. Our Dream Sock and Dream Duo product offerings are now on the market in the U.S., and we're making great progress on our product roadmap. Additionally, we're seeing continued acceleration and adoption of our products in our international markets, and we're confident in the long-term opportunity ahead of us. First, a look back at 2021. Our team met our revenue goals through the third quarter of 2021, exceeding our full year 2020 revenue in just the first three quarters of 2021.
We did experience an unexpected development when, at the beginning of the fourth quarter of 2021, Owlet received a warning letter from the FDA alleging that the heart rate and oxygen notifications on the Smart Sock and certain related marketing claims rendered the Smart Sock a medical device requiring pre-market clearance or approval from the FDA. Cooperating with FDA's request, we halted sales of all Smart Sock products in the U.S. in October of 2021. From there, in just about 90 days, we developed and launched a new product while focusing on deepening our retail customer relationships to effectively manage the product transition during the holiday season. The efforts of our team here at Owlet speak to the dedication to our mission of supporting parents in the home, our ability to pivot quickly, and the breadth of our technology platform.
Over the course of the fourth quarter, we've already accomplished a great deal to get Owlet back on track and deliver a true connected ecosystem for today's parents. We kicked off 2022 by launching the brand-new Dream product line in the U.S. on January 5th, a major milestone for our team as we continue forward following the FDA letter. This includes 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 babies while they sleep. They help parents understand their little one's sleep and know when to assist their baby for better sleep, empowering parents with information and insights to support better sleep. The Dream Duo is our most intelligent monitoring system yet. Let me characterize the first few weeks of the Dream Sock and Dream Duo launch.
On Owlet online, January 5th and January 6th were our best non-promotional sales days ever. Additionally, all retailers that previously carried the Smart Sock are now selling the Dream Sock line. Our retail rollout is still in progress, and we are pleased with the initial results, both in terms of demand and customer feedback. We'll report back in our next call on the results as we need some additional time to be thoughtful on the look ahead, so we can share the outlook for 2022. Outside of the U.S., we continue our international product expansion. International revenue grew by over 100% from 2020 to 2021. Owlet products are now available in 16 countries, with additional launches coming in 2022.
In Germany, we just received the news that 91 out of 100 midwives. Medical devices are an important strategic focus and area of investment for Owlet, both domestically and internationally. In regards to an international update, we recently received our ISO 13485 and MDSAP certificates as we work towards submitting medical device applications for the Smart Sock in the U.K., the European Union and Canada. We have a robust product roadmap as well. We plan to launch a new version of the Owlet Cam later this year and are also working to grow our sleepwear product line. In Q4 of 2021, we launched the Owlet Sleeper, a wearable blanket, and in 2022, we plan to expand that sleepwear line. We also continue to work on expanding our sleep ecosystem, including a smart crib.
We will share more on our roadmap and continued research and development in future updates. From continuing to grow the Dream product line to building out new parts of the ecosystem and continue the international expansion, we are optimistic about the opportunities ahead for Owlet. I'll now turn the time over to Kate for a review of the financials from Q4 and the full year of 2021.
Thank you and good afternoon, everyone. As Kurt outlined, for the first three quarters of 2021, Owlet demonstrated great momentum towards our operational and financial goals. In the fourth quarter, following the receipt of the warning letter from FDA, the company chose to halt sales of all Smart Sock products in the U.S. and accept returns from U.S. retailers. As a result, for the fourth quarter and year ended 2021, the company recorded a contra revenue adjustment of $23.2 million for received and anticipated returns on the Owlet Smart Sock and Owlet Monitor Duo products. Return estimates were developed in partnership with our retailers, and we do not anticipate material return adjustments for Smart Sock in the U.S. in future periods. Q4 product gross billings before promotions and reserves were approximately $11 million, a portion of which included initial shipments of Dream products.
We define gross billings as amounts invoiced to customers. It does not include the impact of adjustments such as promotions, discounts, and other allowances. The cessation of U.S. Smart Sock and Duo sales and product returns, however, resulted in total net negative revenues of $2.5 million for the fourth quarter 2021. Q4 cost of goods sold was $3.5 million, including a benefit of $8.2 million related to product returns, and gross profit was -$6 million. Operating expenses for the fourth quarter 2021 were $27.3 million, compared to $13.5 million for the same period in 2020. The increase in year-over-year operating expenses was primarily for planned increases in spending associated with the scaling of the business and higher marketing spend.
Operating loss and net loss for the fourth quarter of 2021 were $33.3 million and $24.1 million, respectively, as compared to $3.4 million operating loss and $5.8 million net loss for the same period in 2020. EBITDA loss for the fourth quarter of 2021 was $23.3 million, compared to EBITDA loss of $5.2 million for the same period in 2020. Adjusted EBITDA loss for the fourth quarter 2021 was $31.3 million, compared to Adjusted EBITDA loss of $2.4 million for the same period in 2020. For our balance sheet, cash and cash equivalents as of December 31, 2021 were approximately $95 million.
Related to the product returns in Q4, as of December 31, 2021, the company has recorded a $6.7 million asset within prepaid expenses and other current assets for inventory expected to be received but not yet returned. $1.4 million within the inventory for returned inventory received as of December 31, 2021, and $20.1 million for accrued returns for liabilities. Given the company began planning for product returns with U.S. retailers late in the fourth quarter, we received little inventory as of year-end and did not begin receiving any product returns in earnest until mid-January, early February, with unique transportation arrangements and timing for each retailer. We are actively in the process of reworking product inventory as it is received. To date, we have received a little over half of expected product returns.
To reiterate, return estimates were developed in partnership with our retailers, and we do not anticipate material return adjustments in future periods for the Smart Sock in the U.S. We do expect additional period costs, such as rework, to be expensed as incurred. Some selected full year 2021 financial highlights include $75.8 million in revenue, an increase of $0.4 million from $75.4 million for the full year of 2020. The $23.9 million year-over-year increase during the first nine months of 2021 was substantially offset by net contra revenue in the fourth quarter 2021. Cost of goods sold was $40.8 million, including a benefit of $8.2 million related to product returns in Q4. $35.1 million in gross profit and gross margin of 46.2%. On a year-over-year basis, margin declined 140 basis points.
Primary year-over-year drivers include approximately 190 basis points due to inflationary headwinds, including increased transportation and material costs over 2020. Approximately 150 basis points of impact was attributable to higher product returns in Q4 2021, partially offset by a benefit of 170 basis points for lower warranty expense. Operating expenses were $90.9 million compared to $42.9 million for the same period in 2020. The increase in year-over-year operating expenses was for planned increases in spending associated with the scaling of the business, increased marketing spend and expenses related to the merger. Operating loss and net loss for the full year 2021 were $55.8 million and $71.7 million, respectively, as compared with $7 million operating loss and $10.5 million net loss for the same period in 2020.
EBITDA loss for the full year 2021 was $42.7 million, compared to EBITDA loss of $8.2 million for the same period in 2020. Adjusted EBITDA loss for the full year 2021 was $45.2 million, compared to Adjusted EBITDA loss of $4.6 million for the same period in 2020. Overall, 2021 was a significant year for Owlet. Q4 2021 presented unexpected business and financial challenges. In a short period of time, we've worked hard to ensure we are able to position Owlet for long-term success to support parents around the world with connected nursery technology solutions.
Owlet's long-term objectives remain intact, and our business goals for 2022 include increasing our connected nursery market penetration, targeting investments and product innovation to expand the lifetime value of our customers, and focusing on obtaining marketing authorizations in the U.S. and key global markets where required. As we start off 2022, Q1 is an important transitional product quarter in the U.S. for Owlet. We started shipments of our Dream product line in late December for initial sell-in to our U.S. retailers and our product launch in early January on Owlet online. Quarter- to- date, feedback from retailers and customers has been positive, and we are meeting our initial internal expectations in the marketplace. All of our major U.S. retailers have the Dream product line available online, and many have the Dream product line in their stores.
We anticipate all major U.S. retailers will have the Dream product line fully available online and in stores by the end of Q1. Year-to-date gross billings before promotions and reserves for January and February 2022 are slightly higher than the same time period in 2021. After a very strong international expansion year in 2021, our international business has had a strong start to Q1. We are excited to continue our international growth plans in EMEA, with new regions planned to be launched in 2022. In terms of operating expenses, we are continuing to manage variable spend and where possible, finding opportunities to mitigate inflationary pressures, and we have sufficient liquidity to support our business. In summary, Q1 will be our steps towards building a stronger global business in 2022 and beyond.
Because the Dream product line is new and rapidly ramping up across our go-to-market channels online and in stores over the course of Q1, and Owlet is actively in the process of receiving and reworking product inventory, we are not providing guidance for 2022 financial expectations at this time. We anticipate providing an updated outlook when reporting first quarter 2022 results. Operator, let's open up the call for questions.
The first question is from the line of Charles Rhyee with Cowen. Your line is open.
Hey, guys. This is Gwen on for Charles. Thanks for taking my question. Your directional commentary is just Q1 billing to be slightly higher than the 2021 rate, but kind of adjusting for the contra revenue account, it seems like you already did around $20 million in revenue in Q4, even with the Smart Sock being only out for a month or so. How much is the seasonality a factor in the Q1 directional commentary? And when you say slightly higher, can you kind of give a rough range or magnitude of what that means? Is it, you know, low single digits, mid-single digits? Anything around that would be really helpful.
Yeah, thanks for your question, Gwen. I mean, I think we were just trying to give some really high-level directional commentary. We're not providing full guidance, but just wanted to give some overall idea of how we're seeing things with the new product in the market, just being in there over the last few weeks. As we mentioned, most of our channels are open in terms of being online, and a number of our retail partners are in the process of getting our product in stores too. So it's not really an apples-to-apples comparison. We're gonna wait and update when we're ready to with full Q1.
Got it. Okay. Thank you.
Thank you.
Uh-huh.
The next question is from the line of Jim Suva with Citigroup. Your line is open.
Thank you. I have a few questions, but I'll just ask them first one at a time. The first one's probably for Kurt. Kurt, in your prepared comments, you mentioned about some accessories or auxiliary items coming out. Just so we can get a sense on it, are these also gonna be in the wellness where they'll give feedback to the user? Or are they just kinda more auxiliary to kinda add on, but it's the Smart Sock and the camera that give the primary feedback of wellness to the user?
Yeah, good question. Thanks, Jim. When we talk about accessories, we're primarily talking about non-smart accessories. For example, our sleepwear line, the new Owlet Sleeper that we launched in Q4. We have some other exciting updates to that line coming this year. It's actually a pretty big category for parents, and Owlet has some significant innovation that's gonna improve on that, and it will work with the Smart Sock. There's some integrations there. We also talked about the smart crib that we're working on. The camera, the sock, and the smart crib will all work together with our Dream App in one ecosystem. That's in development as well.
Okay. It sounds like the smart crib indeed is smart and will give feedback, and the other ones are more accessories and kinda non-feedback items. Is that the way to think about it?
That's right. Yeah.
Okay. Great. A question for Katie. Probably more of a CFO financial question. I know with the reversal that you had with revenues, does that make it so Q4 sell-in of new products was basically you take the minus negative revenues of $2.5, and then you add in addition to that the $23.2, so you get, like, $25.7 of adjusted sell-in of new products? Or because it's such a abnormal quarter, there's more moving parts and more variables, like other countries still selling some of the products that we shouldn't even rely or even use that as a guidepost?
Yes, it's definitely the latter. The gross billings numbers that we mentioned, you know, what I would say if I had to characterize it is the first few weeks of the quarter, before we stopped selling in the U.S., the Smart Sock products. It would also be international, as well as Cam. And then we also said that we had a bit of Dream product that sold at the very end of Q4, right? That's the activity that you see in Q4. And then there's a number of adjustments that take place, like as you would naturally have in a natural quarter.
I would kinda keep that activity very separate from the adjustment that we made for the contra revenue, which really more so reflects a lot of the product that the U.S. retailers had already prior to the warning letter. If you know, the better place, I would say, to watch for the contra revenue return is on the balance sheet. We said on the product returns where we have some of that material in the prepaid expenses, some of it you know got a teeny bit back in inventory, and then most of it is in the accrued returns for liabilities that we'll be reworking. We're waiting to receive back that inventory. We said, you know, to date in Q1, we've received back a little bit over half of that.
We'll be reworking that, and as that product is sold, we'll be incurring a little bit of cost.
Okay. Kate, my last question.
As we work through that product.
Okay. Kate, my last question is, the billings number, the gross billings numbers that you kinda mentioned in your prepared comments, is that kind of a number that we should kinda rely upon in that that's all new product? I guess I assume it includes sell into the channel and not necessarily sell through the channel, and you probably have to rebuild some channel inventory and product on the shelves. Is that the way to think about it, Kate? Or is it the billings number is, you know, I should just kinda view that as really sell and sell-through?
I would consider it. You know, we define that as what we've invoiced the customers. That's just a very early indication, and it doesn't include any adjustments, promotions, discounts, allowances, or any of the sell-through data.
Okay. Would it be a little bit higher than normal?
Really just a data point.
Is it a little bit higher than normal since you kinda have to replenish all the new product on the shelves?
I wouldn't characterize it as either way. We just wanted to give it as a data point.
Okay. Thanks, Kate and Kurt, for the detail. It's appreciated.
Thanks, Jim.
Thank you. Thank you, Mr. Suva. The next question is from John Babcock with Bank of America. Your line is open.
Hey, good evening, guys. Just want to quickly follow up on that last question. First of all, is there any way you might be able to provide more directly a kind of revenue figure for the quarter excluding the contra number? Then also, if you could talk about gross margin, where that came out on the products that was sold. You know, just overall want to get some sense as to, you know, directionally, you know, where the gross margin is headed.
Yeah. Thanks, John. The way that the accounting works is that we have to provide a net revenue number which came out, you know, after the gross billings and the adjustments as a negative number. I can't provide you with a separate exercise to the gross billings. In terms of the margin, I also don't have that either because we had to net out all of the activity. Given that the revenue was negative, I don't have a gross margin number for you.
Gotcha. On just actually one more kind of clarification question here. Just on the international sales, you mentioned over 100% growth there. You know, could you be a little bit more specific on that?
Chris, do you want to make a comment on international?
Do you mean like what the 100% growth means? Yeah, go for it, Kate.
Yeah. Yeah, a little over 100%. Yeah. Is that like 110, 120, 150?
You know, we didn't break out overall international sales, you know, for the year or for this quarter, just given all the activity that we have going on in Q4 and for the year. I would say we had really strong momentum going into the end of the year. You know, we think that we have very strong momentum going into 2022 as well as we continue to expand into other international markets.
Okay. Now just as some kind of, well, actually one more kind of semi-specific, broader question. Just, did you lose any retailers as part of the FDA's actions, or are you still serving all the retailers that you were serving, you know, before that announcement was made?
Yeah, that's a good question. You know, I would call out our team for the great work they did to build those customer relationships through a really difficult time. We did not lose any retailers, and we did not lose any doors. We'll be with all of the same retailers in all of the same doors we had with Smart Sock, and the team's working on expanding those doors this year.
Okay. On the international expansion, I mean, it sounds like overall that's continuing to go pretty well. Could you just talk about the rollout across the different countries that you were adding during the quarter? You know, I thought I remember you mentioning, you know, the next countries you're expanding to was Italy, Spain, Belgium, and the Netherlands. You know, how is that rollout going? Also you talked about Latin America, Asia in your press release. If you could just kind of, you know, provide a little bit more detail on overall that rollout, that'd be helpful.
Yeah. It's really a bright spot for the business right now. We're seeing that this global thesis that, you know, parents everywhere need access to this type of information and data is true. The adoption in each of the countries that we've rolled out has been surprisingly good. We launched at the beginning part of last year, we launched Nordics. We then moved into Germany, France. We've now been working on opening up Italy, Spain, Belgium, Netherlands, and the eastern part of Europe. We're seeing great results. One of the things I shared is that, you know, we got the certificate from the midwife group in Germany. This is the group that reviews kind of all baby products there and gives their stamp of approval.
91% of midwives that used Owlet recommended the product. We're seeing in the U.K., in Germany and Nordics, the sell-through data is very positive. We're really proud of the results the team has been driving in that area. We just started opening up South America, and we're working towards expansion to Asia this year.
Okay. Thanks for that. I guess just two other, you know, quick questions. You know, just on the FDA approval of the OTC sock, you know, can you just remind us of kind of the timeline for that? Has that changed at all?
Yeah. Getting clearance on that OTC sock is a top priority for Owlet. I think the biggest influence we have on timelines is to make sure that our submission has all the information the FDA wants to see. That's where our focus is right now. We've had numerous meetings and phone calls with the agency over the last few months and working to make sure that the submission contains everything that they want. We feel good about the technology that we have, and we're not making any assertions on timelines right now because we can't predict the FDA, but we do feel like we're making good progress.
Okay. Then just also on your products. If you could just kind of talk about, you know, the crib and when you expect that to, you know, be out in the market and, you know, any other kind of commentary on just kind of new products overall.
Yeah. I think the crib and some of the accessories products we're working on are really exciting. We recently had some prototypes in the office of the crib. It was great to see the response from parents on those prototypes. We've had really positive feedback on our consumer surveys and so the product's you know in development right now. We haven't announced a date for it yet, but we do feel like it's gonna be a really strong part of the ecosystem. The integrations with the sock and the camera are gonna take parenting to the next level, and they're gonna give back hours and hours of sleep to parents. We're excited about it. We should have more of an update on the next call.
Okay, great. Thank you, Kurt. Thank you, Kate.
Thanks, John.
Thank you. Thank you, Mr. Babcock. There are no additional questions waiting at this time. I will now turn the conference over to Kate for any closing remarks.
Kurt, I'll turn it over to you for any closing remarks.
I would just kind of reiterate the four big growth areas for Owlet. I'm really proud of the team for launching Dream Sock and Dream Duo. We've had phenomenal feedbacks from parents. We know it's making a difference in their lives. 82% of parents report getting less than 5 hours of sleep at night. You know, anything we can do to help parents sleep better, feel more secure, feel more confident in that parenting journey is what our mission's all about. Having that product back on the market and having the support from the retailers we have is. It's great. Great for the business, and it's great for families. We're expanding our products ecosystem. Really excited about the crib.
We're excited about the foundation of sleep that's gonna really glue the ecosystem together and then taking that to the next level with some of the medical clearances and expansion internationally. Really appreciate everybody joining the call today and excited to continue to build the company. Thank you, everybody.
That concludes the Owlet Q4 2021 earnings call. Thank you for your participation. You may now disconnect your line.