All right, thank you very much for joining us for our next session here at Cowen's 44th annual, sorry, TD Cowen's 44th annual healthcare conference. I'm pleased to present Owlet, and for the company is Kurt Workman, Co-founder and Chief Executive Officer, and Kate Scolnick, Chief Financial Officer. Thanks, guys.
Yeah, thanks for having us.
Maybe just to help people understand the business, maybe, Kurt, you can kind of give us a little overview of what Owlet is doing and what its mission is.
Yeah. So I'm a dad. I've got three kids. My oldest is 10, my youngest is 5. I still remember that first day out of the hospital, walking out of the hospital with my oldest and kind of for the first time realizing that everything was up to me. I was the doctor. I was the nurse. I was the dietitian. My wife and I were carrying this big load. I remember that feeling of responsibility settling in. Every parent that brings a baby home feels that. I went through more training to get a driver's license than I did to become a dad and felt it the first few weeks and few months. Owlet's really about bridging that communication gap.
We make a wearable health monitor that tracks babies' vital signs, their heart rate, their oxygen levels, their activity, their sleep, their temperature, gathers all that data, and then tries to make sense of it for parents so that they know when baby needs them, they know what help baby needs, and can be there for their child. There's 92 million adults that have some sort of biometric sensor on their wrist or their finger in their bed that helps them better understand their own health. We really believe that especially for children that have really high rates of healthcare utilization, a lot of lost nights of sleep. The average parent loses 100 nights of sleep in the first year. Your sleep goes from 8 hours to under 5 hours. Just huge life change. There's significant safety risks and risks to health.
The role that technology can play in bridging the gap for parents to understand how to better care for their child and keep them healthy and safe and sleeping well is huge. That's what we're focused on. We really want to save lives. We want to improve health. We want to help parents be there for their little ones when they need it most.
That's a great overview. Maybe to also help understand sort of the competitive landscape, maybe talk about sort of what does the market generally look like and how does Owlet differentiate from other products in the market?
Yeah. So when I was leaving the hospital, we had a little audio monitor, which was great to know when baby was crying. But you kind of have to monitor the monitor to know how baby's doing and if they need you. So today, there exist a lot of sound and video monitors that are pretty. They're passive. They're there for kind of logistical care to know when baby's nap has ended. And then there's health monitors. Owlet created this category to track biometric information. We're by far the kind of leader in the category. And then you have hospital monitoring technology that's been in hospitals for decades that monitor patients in the hospital and track their heart rate and their oxygen levels, pulse oximeters, sleep apnea monitors. Owlet's 100th the size. It's a tenth the cost. It's wearable. It's wireless. It connects directly to your smartphone.
All the data is sent to the cloud. Today, even with a lot of these hospital monitors, they'll send people around to people's houses to pull out SD cards and then go upload the data and check and see how the data's trending. Owlet's connected system really has the ability to move the center of triage and the center of health to the home and directly connect the parents and the child and the pediatrician together around baby's health.
Great. And I think that's a nice segue here, right, because I think for Owlet, you kind of hit some significant milestones in 2023. Obviously, some challenges in the year prior. But in 2023, you got finally FDA clearance for two products, BabySat and Dream Sock. Maybe just give us the difference between the two. What are the clearances for? Sort of the use case range.
Yeah. So BabySat, the first clearance we got last year in June, is for a prescription monitor. It's based on the same wearable technology that we have for babies who are high risk or sick. So these are babies that are coming home from the NICU, may have a serious respiratory infection, a congenital heart defect. About 20% of babies born fit into one of those kind of three categories in that first year of life and need additional monitoring at home. And so Owlet went through the 510(k) process to prove that our Sock is equivalent to the hospital monitoring technology in terms of accuracy and safety. And we are. So being 100th the size, less expensive, wireless, we have the same degree of accuracy. And I would argue and even increased safety because there's no cords going into the crib with the baby. It's all wireless.
So we got the 510(k) clearance for that, which means now that doctors can prescribe that monitor. They can prescribe BabySat. And they are now. And it's eligible for insurance reimbursement. So the existing kind of pulse oximetry codes that they used to send these big, bulky hospital monitors home can now be used to send an Owlet home with families that need additional monitoring. So that's the BabySat and kind of the BabySat use case. We also got a De Novo clearance. It's the first time the FDA has ever cleared an over-the-counter health monitor for babies on our Dream Sock, which is the product that we sell directly to consumers through Target, through Walmart, Best Buy, Amazon. And it's a tool that parents can use at home without needing a physician to monitor their child, to track their heart rate and oxygen.
They'll get alarms if baby stops breathing, if their heart rate's too high or too low. They can use that as a monitor at home for peace of mind, for improved safety, and for improved health. That clearance happened in November. It was kind of a monumental clearance for our category. Owlet's now the first and only FDA-cleared monitor on shelves. It's provided a ton of momentum into the business, especially given kind of the story of the business. Anything you want to add to that, Kate?
Just that we do have a third product, which is the video monitor. It's a consumer product. It's important for our customers to also use that with our Sock and then as a standalone product as well.
Yeah. With 1 click of a button, you can see baby, hear baby, and know that they're okay. That's just kind of a complete peace of mind for parents.
Maybe if we jump on to Dream Sock and the retail side for a little bit first. You listed off some of your key kind of retail partners. Which ones generally are the biggest channels for you currently?
Yeah. We work with kind of all the big-box retailers. We work with Target, Walmart, Best Buy. Babylist is kind of the biggest specialty retailer in baby that we sell through. And then our own online channel is a big channel for us. The biggest ones, I would say half are e-commerce between owletcare.com and Amazon. That's about half of our revenue. And then the other half comes through brick and mortar like Target and Best Buy. Target's a big portion of the brick and mortar. And Amazon's the biggest portion of e-commerce. So Amazon and Target are kind of two of our biggest distribution outlets.
In October, you guys shifted from an Amazon third-party relationship to an Amazon first-party relationship. I can't say that I understand always what that means. Maybe you can help us describe what's the difference between these two types of arrangements and what's the benefit to Owlet by doing that?
Yeah. So Amazon will often you can list products on Amazon as kind of a third-party seller. So I could go list really any product on Amazon to go sell it myself or if I have a company. But Amazon will buy your product directly and become the seller of record. And they do that for the top brands in each category. So like in baby, of the top 70 brands, they were distributing 64 of those products on their own channel. So they approached us. We're one of the top baby brands. They said, "Hey, you're one of the six that we actually don't work with," and wanted to distribute the product. That was great for us because it's better margin. They give you additional placements. They give you better featuring. You get kind of white-glove service in the channel. It's over 30% of our revenue.
We decided to make the switch from our third-party partner to selling directly to Amazon. That's been a huge benefit to the business, both in margin, in velocity, in placement, and has been, yeah, kind of a really strong addition on top of the FDA clearances to drive additional demand and sales.
Maybe, Kate, you can just walk us through some of the that's had some impact on the financials last year. Can you just remind us a little bit sort of how that kind of flows through and what we should be expecting when we report?
Yeah. Yeah. Sure. So we talked about this in the third quarter, but we had the shift of the platform happened right at the end of the third quarter. So we had no sales in Q3 for, let's just say, the Amazon platform, all of it in Q4. We pre-announced our Q4 ahead of being here. We also announced that we did a financing. So we put a pre-announcement out of our overall results. So our overall Amazon platform revenues were all in Q4. What you'll see, I think, for the overall as we look out for the next year is that that should settle into a normalized pattern in how we're going to work with Amazon and margins and everything like that. So Q4 will be the transition.
Great. And obviously, you pre-announced about $21 million in revenue for the fourth quarter. Maybe within that, can you talk about sort of what the sort of sell-through has been looking like, particularly in Target? And now that Dream Sock is now approved, is it very noticeable you're seeing the difference in sort of the sell-through?
Yeah. I would.
Maybe the feedback from the retailers on the.
On that?
Yeah.
Yeah. I think the best way to describe it is that we have really good awareness at the top of the funnel. If you think about the marketing funnel, 50% of parents in the United States, if you ask them what this Sock thing is, they can say that's the Owlet Sock. So incredible brand awareness. The biggest challenge for us in our funnel was kind of the bottom part of the funnel not being FDA cleared was one of the biggest objections. So we got our over-the-counter clearance November 9th. We worked really hard to get that into all of our messaging and labeling across our retail sites, even though we hadn't actually launched those features and that product yet, because every product sold could be upgraded with that new software and become the medical device. So got it out to all of our retailers.
We announced this in our pre-earnings, but we doubled our sell-through year-over-year on the back of FDA clearance. So literally comparing 2023 to 2022, it was just about double. And that was same channels, same time of year, same marketing spend. So we really think it doubled the bottom of the funnel, widened it, and has driven a ton of demand. We're seeing continued maybe not at that exact same level, but we're seeing continued demand and an organic sell-through lift, which is really exciting for us. That's what we've been investing in for the last two years, was that exact thing to happen. And so to see that kind of come to fruition now with two FDA clearances, the sell-through's backing it, we're really excited about being able to continue that momentum while keeping our cost basis lean.
We also worked really hard in 2023 to reduce our operating expenses. Kate cut our operating expenses by 70%. We cut our marketing expenses and cost per acquisition by over 70% while growing our sell-through by 20%. So being able to do that on the kind of with the tailwind of now additional sell-through is setting the company up for what we think is kind of long-term profitability and organic growth. And that's, I think, the exciting leverage that we've worked really hard to build for two years.
Great. No, that's really exciting here. And maybe what are sort of the key milestones on the retail side that we should be looking out for? Obviously, there's some seasonality that was generally positive in the second quarter, I remember. And is it Prime Day as well? Sort of what are the key kind of dates that you guys look forward to as big peak selling seasons?
Do you want to take that?
Yeah. Sure. So Q2 centers around Mother's Day and Father's Day. So that's usually a big selling time. Prime Day in July is important. One of the things that we were really focused on last year is having the opportunity to participate in Prime but not disrupt our whole channel. And I think you'll see that that's similar. Some of our other retailers have developed strategies around Prime. So we'll be supportive of that. And then we'll head into baby week. We also have baby week support baby safety. And maybe you want to talk a little bit about the SIDS Awareness Month in October. And then we go into the holiday season. But maybe the success we had around October.
Yeah. I think one of the unique things about Owlet is that we do a ton of work to try and give back and to try and really make our not only does the product help families, we want to make sure that the brand is helping. And so there are over 25 parents and nonprofits that we partner with across the country that donate Owlet Socks to families who can't afford them. Just last year, we donated over $1 million of Owlet Socks to families across the country. We also do a program for those who have lost a child called Nursery of Hope, where we donate trees. So we'll send a tree to the family, and they can plant it in memory of their child and then talk about their child in kind of a way that I think is easier to share.
And so we partnered with I think we did over 500 trees this last year. We raised $160,000 for SIDS research for one of the top researchers for SIDS. And we're going to continue that this year and just try and give back wherever we can to help families across the country that are struggling. So that's definitely a big part of what we do. And I think it's one of the reasons why in Nebraska and Iowa and Midwest, Owlet has like one in five babies goes home with an Owlet. It's just because parents know that the brand is making a difference. Every daycare sorry, every county in Iowa has a daycare equipped with Owlets now. So there have been thousands of babies monitored in daycare. Not a single parent has said, "Don't monitor my child." They're really grateful to have the additional tools in daycares.
Those were all donated through the foundations that we work with.
Oh, that's amazing. Kind of nice segue if we think about BabySat then for children in need. I think you were talking about working with a DME partner to get distribution. Any sort of update there that you can share?
Yeah. We're excited to announce, sorry. Sorry. I'm not crying. I just literally have something in my throat. Why don't you take it, Kate, while I?
That's okay.
Oh, yeah. I've got some water. Okay. Okay.
Give me a second.
Get emotional when I talk about DMEs. So DMEs are Durable Medical Equipment suppliers. They distribute a big portion of the medical devices in the U.S. And they're great to work with because they're set up to handle prescription verification. So they can verify the prescription, and then they work with insurance companies to get the right reimbursement for devices. So Owlet can essentially work with them like a retailer, where we ship to them, and then they handle kind of the complexity of healthcare to make sure that those pieces are working. So we announced a partnership with AdaptHealth. They're one of the largest DMEs in the country. They're in every state. They work with every major insurance plan. They partner with 100 hospitals across the country. And they're one of the biggest distributors of breast pumps. They have a really great system. So they're integrating with Owlet's website.
So when you go onto our website, parents who have a child that is sick or coming home from the NICU, they can get on there. They can put their information in, upload the prescription from their doctor. And everything looks like it's Owlet, but Adapt handles everything in the background. They then do the prescription verification. They get the insurance looped in, and then the parents pay a copay and check out. So we're really excited about that. It's new. We're working kind of through the kinks right now. It'll take a little bit of time, but the demand has been there. The demand's been really strong from families. And pediatricians have really supported Owlet post-FDA clearance. That's been another incredible thing. Remember, CHOP, Children's Hospital of Philadelphia, one of the top hospitals in the world, wrote a negative opinion piece about Owlet.
This is, I don't know, six or seven years ago. After we got the FDA clearance, one of the top pediatricians at CHOP reached out and said, "Hey, we want to partner with you guys. We want babies who leave our hospital to have an Owlet." So really excited about those opportunities that are out there. And so the DMEs can kind of help become the backbone of that. And that allows us to kind of go build these relationships and get into supply closets and also fulfill the demand that we have online, so.
Yeah. I mean, what I've been interested in knowing about is once you got the FDA clearance for BabySat, what is the strategy for getting that awareness out to KOLs in the pediatrics and children's hospitals? Are they just naturally aware of it, or what type of initiatives are you doing to get that awareness out broadly to healthcare providers?
Yeah. One of the advantages we have is that because we've been in the market for so long, nearly every pediatrician in the country is familiar with Owlet. I would say because we were a consumer device, there's been some questions on, "Is it needed or not?" Post-FDA clearance, that's the education we need to do. I think we have an opportunity through our consumers. In fact, we're developing materials and things like that. We've built out a whole section of our website for healthcare providers where we can easily update and educate on all the clinical studies we've done, the FDA clearances. That's had a huge difference. We hear now regularly from pediatricians that say, "I heard you're FDA cleared. I've started recommending it to my patients.
We're now kind of fully on board, and we feel like we can use the data and trust the data," so.
That's amazing. In terms of the opportunities with the data, I know a lot of studies have been done looking at it. What other opportunities do you see there to kind of advance sort of the capabilities of the monitoring, and what kind of other opportunities do you think that could open up for you?
Yeah. I mean, I think it's immense that Owlet has collected one of the largest datasets of infant health that's ever been collected. And now with FDA clearance, we can actually empower parents to share that data with their doctor. Doctors can use that data like any other medical device. And so there's a lot of opportunity, I think, specifically around primary care. There's 94 million visits in just the first few years of life. It's a higher rate of healthcare utilization of any other time of life up to age 60 or 70. Most of those visits are actually peace-of-mind visits. Baby gets a cold. As a parent, I don't know if it's something more serious or not. I have no way of kind of telling in the home if it is. And so I take baby in. 97% of the time, it's treat and release.
Baby gets Tylenol and Motrin, and they send him home. As a parent, I'll take 1 in 30 odds all day long just to make sure my child's okay. But now with Owlet being FDA cleared and the only FDA cleared monitor, we can now move that center of triage to the home. Parents can now use the Owlet data. They can share it with their doctor remotely. Another big challenge with it is as soon as you don't want to go in too early if your child has a respiratory infection because you go in and the doctor's like, "they're fine." And then four hours later, you're like, "Oh, I know that they're not fine, but I have no way of kind of communicating that fact to the doctor." And so there's just a ton of guesswork in parents trying to triage. Owlet can help eliminate that guesswork.
When you take your baby in, they hook them up to a pulse oximeter. If their oxygen's at 95% and they're not retracting and they have a respiratory virus, literally, their body just needs to fight it off. It's a virus. And so there's nothing the doctor can do. So we think we can eliminate a lot of that, bring care to the home, and also detect the babies who are at risk sooner. There's been a lot of cases where Owlet's detected babies who had actually gotten to very dangerous levels, and parents had no idea because, again, there's no way to know, especially at night, where babies are unsupervised 10 hours of a 24-hour day. And so having access to that information, we think, can kind of bring that center of care home, make it a lot more efficient. That's exciting.
We also have the largest dataset of infant sleep that's ever been gathered. We just launched a new predictive sleep section or app. It's like a digital sleep coach where parents don't have to hire a night nanny or get a PhD in how to help babies fight through sleep regressions. You can use Owlet, and it'll actually predict the optimal sleep windows for your baby, kind of the next best sleep window, give you tools and tips. We're doing a lot more to drive insights for parents there. I would say the next big area for our data is kind of developmental milestones that can follow the child past the first year.
And in terms of bringing care into the home, maybe talk about some other features that will be available. I know you've talked about telehealth capabilities to bring care directly into the home if something is wrong. And I know in the past, you've talked about eventually expanding beyond the SOC, this concept of connected nursery. I don't know. Right now, we're really focused on SOC. But just to give people a sense on where you think this where you think you can go with this.
Yeah. Well, yeah, I really believe we spend $30 billion a year on infant primary care. So I mean, that's an astronomic number. I really believe that a lot of these visits are as simple as getting vital sign information, getting parents overread, and then having a quick check-in with the doctor remotely to then monitor through the symptoms versus taking the child in for 2 hours, exposing them to more sickness. I think that's a huge opportunity. So Owlet's going to build the platform that can easily integrate with your provider, with Amwell, with Teladoc, with anybody that you want to use. And we'll have some of our own partners eventually that will integrate there. Parents use our app 5-7 times a day. They're opening up the app.
Compare that to any other telehealth app that you might engage with every month or a few times a year. There's constant engagement. So it's the perfect place to start that conversation empowered with data. We're excited about that. As we grow, yeah, I mean, parents are this journey from kind of conception to kindergarten, every few months, the baby's changing and has kind of new needs. Our vision is that we can partner with parents early in the journey and then have the technology and tools to help them keep their baby safe and healthy through that whole journey. And there's several kind of pieces of that equation that Owlet's invested a lot of money in R&D too. And we're starting to look at some partnerships as well that can kind of bring that together into just a really simple journey for parents through those first few years.
Great. So, Kate, wrapping this together, right, as Kurt said, right, a lot of restructuring and trying to right-size everything and get everything in position. And so now the company is poised to reach EBITDA positive this year. How are you thinking once we get over that horizon? So how do you think about long-term margins? What should the company look like? How do you think about the time frame possibly to get there as well?
Yep. We'll be talking a lot more in our earnings call on Thursday. I think that 2023 was really important for a lot of reasons. We were maniacally focused, if you will, on the clearances and really adjusting our operating model to be in a very strong position to leverage the opportunities. Going to market with both the commercial or the consumer side and the medical side is critical. The consumer side is right in front of us. The medical side, we're developing. Then we have the expense run rate that we need. We'll be tucking in additional studies as we have the opportunity. We'll be investing in partnerships as we see fit. Really, that's this year. We have it laid out for us. In terms of the operating expense management, we don't need to do much more. We don't need to hire much more.
That's laid out for us too. So when it comes to the margin side, a lot of the work that we had to do was around kind of the past, getting back into the market and some of the efficiencies. We have had expense increases like other people have had around shipping costs and some of the componentry increases that we've absorbed. But I think we'll continue to try to manage that. Our long-term model calls for getting to that higher 40% margins and shooting for beyond. And I think that's within our sights over the long term. So we'll continue to try to reach back with the higher margin with the revenue growth this year. And I think that the operating expense will take care of itself too. So we're really excited about everything that we have in front of us for this year.
We knew what we had to do last year. I think the opportunities this year is really well set for us too. It's about execution.
Great. Maybe touch on one area, which is international. Before things kind of went sideways, right, you had launched into Europe. I think it's, what, over 10% of revenue or maybe a little bit more. Talk about sort of where we are in terms of the international opportunity. I know at one point, you talked about moving into Asia as well. Maybe give us an update there.
Yeah. There's 140 million babies born globally. Only a small fraction are born in the United States. It's 3.6 million in the United States. So the global opportunity, I think, is massive. And I don't think there's a parent out there that doesn't care deeply about their child's health and safety. And so for us, it's about how do we expand in the right way at the right time by giving parents more access to this technology. Europe has 4.3 million babies born every year. So it's actually bigger than the United States. We launched into Europe. We've actually seen great success there. We're very close to getting our CE med mark. So it'll be a medical device in Europe, which opens up even more distribution in the continent, more partners. And so that's a really big opportunity.
And then we're starting to look now kind of again because we were, I think, on that track, starting to look now again at some of the other opportunities in Asia and some other areas that we think are also really big opportunities. India has 25 million babies born every year. And so obviously, we need to work on affordability and different programs. And being a medical device, can we get in can we kind of integrate into healthcare systems? Because a lot of healthcare systems don't actually have access to the pulse oximetry technology. And Owlet's a tenth the cost. So can we look at innovative models as we grow? But for the next 1 to 2 years, we're really focused on U.S., Europe, commercializing medical devices, driving deeper adoption, and then building out services and opportunities like that, so.
Any sense on timing for the CE mark at this point? Have we been submitted, and then we're just waiting for a decision, or?
Yeah. We're submitted. What I'll say is it's very, very close, so.
Great. Oh, is there a question? Oh, please, go ahead.
Hearing you talk about getting this device into the healthcare system, I just wanted to hear, Owlet, what's your thoughts about this new FDA, especially when a parent then kind of leaves the hospital because of all the connections and stuff, right? I'm curious to hear what your thoughts are about getting that into hospitals. I hear you say at home, which is absolutely necessary, but how about even in the hospitals?
Yeah. That's a great point. And we hear a lot from doctors, actually, about that need. In the mother-baby unit, there's no monitoring in the mother-baby. There's tons of equipment and expense, but babies aren't monitored in the mother-baby unit. The ICU, it's really hard for parents to actually interact with their child because of all the cords. So we know it's a huge need. I think we're kind of in that innovator's dilemma, that disruption curve. We're starting in the home. And we're proving that our technology is as accurate as what's used in the hospital. And so over time, I think we'll have the opportunity to fill in use cases where wireless technology makes sense. But it takes us a little bit of time, so. It's a great comment.
Any other questions? Well, actually, I mean, we're kind of right on time here. Anything else you want to add here? That's a great example of a long-term opportunity. Anything else where you're seeing potential to take this monitoring into?
Yeah. I think I just kind of wanted to. We started last year when we were sitting here this time last year. And you've been a great support. But saying, "Look, our two goals for 2023 are we want to get our two FDA approvals, and we want to get to profitability." And we got both FDA clearances. We got to near break-even at the end of the year. Margins have returned back. We're excited for 2024. And I think that the operational execution from the team this last year has been phenomenal. We've reduced our cost by 70%. Walmart growing sell-through by over 20%. And now we've put ourselves in a position to really succeed as a business this year, which will help a lot of families, so. Anything you want to add to that?
No. I agree. You said it.
Okay.
Great. Thanks, Kurt.
Thanks, Charles. Appreciate it.
Thanks, guys.
Thanks for being here.
Thank you, guys.
Thank you.
Thank you, everyone.