Great. Thanks everyone for joining us for the next session here. I'm Charles Rhyee, one of the, actually the healthcare analysts at Cowen. But I'm joined here to talk about an exciting company that kind of straddles both worlds of both consumer and healthcare, and that's Owlet. And joining us today is Kurt Workman, founder and CEO, and Kate Scolnick, Chief Financial Officer. So thanks, guys, for joining us, and hopefully if you guys were here yesterday, you were able to check out their booth, and have a better sense. But for those that haven't, you know, Kurt, maybe give us a quick overview of Owlet and, you know, sort of what you guys are offering and sort of the mission that you have.
Yeah, for sure. Thank you. Thank you for having us. I'm a dad. I've got three little kids. My oldest is 10, my youngest is 5, and my oldest was actually born here in New York at Mount Sinai. We're from Salt Lake City, but he was born here near Central Park. And I still remember leaving the hospital that first day, and all of you parents will remember this, like, you walk out of the hospital that first day, I kinda just for the first time realized, like: Oh, yeah, this, this is all up to me. I'm the caregiver. I'm the doctor, the nurse, the dietician. This little child that I care more about than anything in the world is like, I am in charge of protecting and taking care of this child.
You know, there's millions of babies born in the United States. There's 140 million babies born across the world every year. On top of that, there's a lot of safety, health, and sleep issues that happen in the first year. There's over 4,000 babies that pass away unexpectedly in their crib every year from SIDS. Babies get sick 8-10 times that first year, so as parents, you're constantly dealing with new viruses and bugs that are coming into the home. They keep you up, and parents lose an average of 100 nights of sleep in the first year alone.
So, parents are exhausted, and they're concerned, and it drives the highest rate of healthcare utilization of any other time of life, up to age, I think, 70. And so, and it's parents trying to answer basic questions about their child's health at home. So at Owlet, we took. This is right before my oldest was born. We were worried he would have a heart defect that, that my wife has. She's had three heart surgeries, and we learned about this technology that they use in the hospital called pulse oximetry. It's that little red light that they put on your finger, and through light, you can tell how well this little sensor, you can tell how well somebody's breathing, what their heart rate is. And so we, we kinda captured that technology.
We put it in a little sock or a little wrap that goes around the baby's foot. It tracks their heart rate and oxygen levels, and sleep quality and sends that information to your smartphone so you can check on your baby from anywhere, and will also notify you if you need to go check on your baby. So it's really bringing that hospital technology into the comfort of the home to help parents make decisions at home. We launched in 2016. We're based in Salt Lake City, Utah. We went public in 2021, and we're listed on the NYSE.
Great. And, you know, maybe to dive into a little bit more, you know, you have two products on the market. You know, one is over-the-counter, and one is a prescribed product. Maybe talk a little bit about both of them, and really how the use cases for those two differ.
Yeah, I would say for the over-the-counter product, we just got FDA clearance as a De Novo clearance. It's the first time the FDA has ever approved an over-the-counter, direct-to-consumer health monitor for babies at home, and so we're really proud of that. It allows us to sell our Dream Sock, which is the pulse oximeter, you know, through retail. We sell in Target, we sell in Walmart, we sell in Best Buy. Really, any consumer outlet, we're able to sell that product, and it's for healthy babies. It's for parents who are coming home and primarily concerned about, you know, knowing how to assess their child's health at home on their own.
You know, when we were looking up solutions for our family, it was like we, you know, there were thermometers and audio monitors, were kind of the two solutions available at the time. And so we're really trying to, trying to really empower parents at home with this hospital technology, but in a way that's appropriate for a parent that doesn't have a medical background. It's really easy to use. It's really easy to understand. 96% of parents report better sleep and more peace of mind. We had six parents come into the office and draw. We said, "Draw your life before Owlet, and draw your life after Owlet." And they all drew the same after Owlet picture. It was them lying down with Z's coming out of their head, and they just described deeper peace of mind, better sleep, deeper sleep.
And so it enables parents to make decisions at home. We also have clearance on a prescription monitor, and I remember the first time we went in, we were trying to see, you know, is the hospital technology adequate for home use or not? And we went into this home, and it was a mom with her little baby there that was hooked up to one of these big boxes that had cords that were going into the crib, and we showed her our little sock, and she literally started crying. She's like: "I can't go anywhere with this thing. There's always the cord, the alarm's always going off. You know, my child's always pulling this cord off their foot. We can't get sleep at night." And Owlet is literally a hundredth the size. It's a tenth the cost.
It's wearable and wireless, and we proved that it's just as accurate as these big hospital monitors through our 510(k). So we also have clearance for that, which enables us to distribute in hospitals and enables us to go through DMEs. Insurance companies will now reimburse our prescription monitor for babies that are higher risk or sick, and so it really enables us to, you know, serve every parent and every baby, whether your child's coming home from the NICU or if they're a healthy baby, you can have access to this technology.
Great, and I wanna come back to that in a little bit, particularly on the direct medical equipment side. Maybe just to help people kinda level set it here, you know, what is the size - How do you guys think about the market opportunity? What's the size of the market here for monitoring right now for infants, maybe in the U.S. and worldwide?
...Yeah, there's about 4 million babies born in the U.S. every year. There's 140 million babies born worldwide. I think every parent has the same fundamental concerns. One interesting thing, if you just look at the U.S., with this category specifically, every baby that leaves the hospital has to go home with a car seat. You know, the nurse actually shows you how to, you know, get the baby properly adjusted in the car seat. They walk you out to the car, show you how to install it. There are 40 times as many babies that pass away unexpectedly in the crib than pass away from car accidents. We just can't imagine a world 5 years from now where every child doesn't have access to a health monitor at home.
Doesn't make any sense not to, now that we have really, really convenient access to this hospital-grade technology at home. So we think, you know, eventually this will become a standard of care, just like breast pumps and thermometers and car seats, and even strollers. You know, every family has a stroller. We think health monitoring is gonna be the same thing, both in the U.S. and Europe. We just got our CE Mark for Europe. There's 4 million babies born as well in Europe every year, so it's a very large market. On top of that, you know, we spend about $30 billion a year just on primary care for this age group. 97% of those visits are peace of mind visits. They're treat and release.
Very different than like, I only go into the doctor if I have... you know, if I know I'm about to die or if I have some, you know, serious medical condition. But my kids go in probably every few months just for either a checkup or because they're sick, and a lot of that care could be done at home. And so, when you combine the adoption opportunity with, sort of the standard of care, we believe we're bringing to the home, just like car seats and thermometers, with the ability to triage in the home, we think that's a very, very large market opportunity.
And certainly you, you've seen a lot of entrants into this market. You know, Masimo's one was coming to the market more recently, but other brands like Nanit and others, you know, have been really advancing sort of this higher-end category of, you know, baby monitoring devices. Maybe talk about how you feel Owlet kinda differentiates from the competition.
Yeah, I mean, first of all, I would say, there's several different areas that I think we have a real advantage. And the first one is that Owlet's the first one to actually get the FDA clearance for over-the-counter use. So we're, you know, if you look across all of these retail shelves, we're the only monitor on shelf that actually has FDA approval, and that's having a huge impact on our sales. We got that clearance at the end of last year. We announced in Q1 our sales, our sell-through for our Dream Sock product is up by 60% already. We think that that's gonna continue to grow.
It answers parents' number one question or concern about this product category, which is, you know, "Can I, can I rely on it?" Trust is the number one word to own, and Owlet is leading the category in that way. We have the number one brand. We have, by far, the most awareness in terms of Google search or unaided awareness. We have the highest Net Promoter Scores in our category. We've also collected the largest data set of infant health at home that's ever been collected, and we use that data to actually improve our algorithms. We showed in a study that our sock has significantly fewer false alarms compared to competitors, so we're not waking parents up at night.
We also are launching new features into the product so that as we gather more data, we make the product better and add new features, which just continues to build a moat on top of that. And so from a brand perspective, Owlet, Owlet is the clear leader. From a regulatory perspective, we're the clear leader, and from a data perspective, we're also leading the way.
FDA clearance, I mean, that was... We lived through that. It was a long process here.
Yeah.
And, you know, 'cause I think that really is a big competitive advantage, the process you took. Maybe kind of remind folks here, you know, how long does that take? You know, how you know what kind of hurdles do you have to cross to get, you know, get those approved eventually?
Yeah, it's a great question, and I think that's one of our advantages. When you think about Owlet, like, we're at a consumer show. We're a consumer brand. Parents know our brand. They buy it in Target. They engage with the app three or four times every single day. So we're very much a consumer-facing brand, but having the, I think the, the trust and the legitimacy of, of being also a medical device and the only medical device really available to parents, through those channels is, is a huge, huge benefit. It. I would say it took us years. We, you know, not only is it the third version of our product, and it took getting to that third version of the product to actually get through these hurdles with the FDA, but it also, you know, is three years of clinical studies.
It was actually a couple submissions that going back and forth with the FDA. We did four different clinical studies across the home, the hospital, and then looking across all the different skin pigmentations. Owlet is one of the first companies in pulse oximetry to show accuracy across every skin pigmentation. So, yeah, it's quite a, quite a bit of of an effort, multiple years, millions of dollars, and has created a moat. And I think Owlet set a standard that unless you have the data set that we have, to to prove that sensitivity and specificity is gonna be really hard.
That's it.
Anything you'd add to that, Kate?
No, no.
All right. Okay.
And maybe, Kate, bringing you in a little bit. You know, you recently. Your prime retail partners, right, are Amazon, Target. Maybe talk about sort of the revised Amazon partnership here, and, you know, what does that advantage bring for you guys?
Yep, we talked about this at the end of the last calendar year, but our decision to go with 1P with Amazon has been really strategic for us. It's given us a lot of breadth with the platform and allowed us to have a lot more visibility directly with the right players there. I think that our ability to grow on Amazon is gonna be really critical in 2024 and beyond, and we're looking at also our international opportunities there specifically in Europe. So I think that it will continue to be a really important part of our strategy going forward with the consumer product.
And maybe how's the reception from your retail partners have been since the FDA approval had, you know, sort of the feedback? You talked about Dream Sock being up 60%. Is that just from the sell-in versus the sell-through? Like, maybe talk a little bit about what you're kind of seeing, you know, feedback from the retail side.
Do you wanna start with that?
Yeah. Mm-hmm.
Okay. All right. Yeah, I would say that number one is, I think it's really kind of set Owlet apart from other baby monitors, you know, sound and video monitors, and maybe companies trying to catch up to what we're doing. Target created a whole new category within their store called health monitors, and they put it on the top shelf in their stores. Owlet is the feature brand, we're really the only brand in health monitoring. So I think that's been really exciting. Walmart's expanded our presence with 1,000 end caps across their doors. We're seeing sales really grow in Walmart, which is really exciting for us 'cause they've got such broad reach and millions and millions of parents going to their stores every day. So, you know, that's really exciting.
I also think the message is just resonating more. So our big assumption was when we get this clearance, our sales are gonna grow significantly because it addresses the number one concern that parents have. It's, it's been their number one objection for the last two years, and I think that that message is, is more efficient. Having the FDA-cleared logo is more efficient. We're also able to share now the... we get stories almost every day from parents where Owlet has helped save a life.
We, we identified that the baby had an issue, whether that was some underlying heart defect, we've had hundreds and hundreds of stories like that, or something as simple as mom fell asleep while nursing baby, and they didn't know, and they rolled over on the baby, and we sound an alarm, and they wake up and they pick the baby up. You'd be surprised how many times that happens. With all of these stories, we're able to share those stories now because we're a medical device, and that's created a lot of positive momentum on social. It's why our sock specifically. We have our sock and our camera. Sock sales specifically have really skyrocketed, because parents, I think, are really resonating with that message.
And then lastly, with the BabySat, which is our prescription product, we're actually able to open up medical device distribution, and through our website, you can go, you know, get an online prescription. You can check out on the website and get that fulfilled. All of that messaging, I think, really resonates, too, and that flows down through our retail partners and has really widened the bottom of the funnel for Owlet right now.
Maybe talk about sort of, market penetration at this point. I know a couple of years ago, you know, you had great awareness in certain states, parts of the Midwest, parts of the Southeast, to certain times, interestingly, less on the coasts. You know, how has that changed, and, and what are you seeing in terms of... Like, how is that kind of guiding your sort of marketing strategy?
Yeah, it's a great question. So just some background on that. We actually one in five babies in Nebraska. This is a little bit of a dated study, but when we did it, one in five babies in Nebraska was leaving the hospital with an Owlet sock on their foot, one in five babies in Iowa and Louisiana. So really, really incredible market penetration in Middle America, and we're actually struggling on the coast. Usually, when you have a new technology, you see it New York, California, and you hope you can scale to Middle America. But Owlet's done such a good job working with nonprofit organizations across the country, a lot in, you know, the Midwest, you know, Alaska, just kind of all wherever these nonprofits are, we partner with them, and they actually tell our story.
I was in Norfolk, Nebraska, in December of last year at one of these events that they hold, you know, raising money to build awareness around SIDS education or safe sleep or... A lot of these, a lot of these, nonprofits give Owlet monitors to families who can't afford them, and we match it at cost. So for every monitor they buy, we ship three monitors to them. That's been an incredible way to build our brand because they are on local TV, they're on local radio, talking about Owlet, talking about how we're giving back, talking about the importance of having access to this technology at home, and with the FDA clearance, that message for them has only amplified. It's been a really exciting thing. They're even advocating in their, you know, hospitals and provider networks who...
Just at this event in December, I was at Norfolk. We had multiple hospital systems in Nebraska come up to us and say, "Hey, we want every baby leaving the NICU to have access to one of these monitors." So that's been really exciting, and that's the primary driving force behind that uneven market penetration.
Yeah. And just speaking of health systems, you know, I wanna go back to sort of the BabySat side here. You signed an agreement with AdaptHealth recently. Maybe give any update you can give us on how that's progressing, and maybe a little more details on how that works, financially for you guys?
Yeah, it's a really great partnership for us because we grew up as a consumer company, right? So we have I think we've built a real competency in marketing, in product, in brand, and sales. This medical device channel is new for us. Adapt is a nationwide medical equipment distributor. They've got relationships with most of the provider systems in the U.S. They have a sales force of 300 people. And on top of that, they do a lot of work with breast pumps, so they have a lot of parents coming to their website to get a breast pump reimbursed by insurance. So they felt like it felt like our, you know, perfect partner to start with. We've integrated with them. We've done a whole teach-in to their sales force.
They're working on trying to get Owlet into 111 supply closets in hospitals. They've integrated with our website so that a parent that comes on, all they have to do is enter their insurance information and a prescription, and AdaptHealth covers all of the rest of it. For Owlet, it's also really nice 'cause we wholesale to them. So we ship bulk units to them at a wholesale price, which are about 50% higher than our wholesale for our consumer device. And then they handle all of the logistics of medical device distribution. We'll sign up another 4-5 partnerships like that. We're also working on direct relationships with hospitals, but it's just been a great kind of first step into it.
They've now integrated with 70% of the private payers in the U.S., so there are families that are getting Owlet reimbursed completely by insurance. That's really starting to grow, so.
In terms of financial impact, I think you guys talked about we should expect BabySat more of a 2025 event. But the way you make it sound like, it seems like it's ramping fairly quickly. Is that something we could see sooner, potentially, or?
Sorry, I should just so Kate doesn't have a heart attack. I should clarify. I feel like ramping quickly to me means we're getting all of that infrastructure in place. We're seeing that more and more families are getting reimbursed. I still think it's gonna take through the end of the year to really build out the infrastructure completely, and then we'll see revenue next year. So anything you wanna add to that?
Yeah. Yeah, I think ramping quickly definitely means putting the infrastructure in place and then getting the units to scale is next year.
Is AdaptHealth taking an inventory at this point, or is it-
Yes.
Okay.
Yeah, they're starting to take inventory.
Yep.
All right. You know, maybe as we talk about international expansion, right? You got the CE Mark recently. You'd already been in several European countries, kinda ramping up. Maybe talk about sort of your strategy here, international. I know at one point you were also talking about Asia at some point in the future. But let me talk about Europe at the moment.
Yeah, we opened up Europe a couple of years ago. We've got great distribution partnerships there. It started with a very similar strategy to the U.S., where it was online, a lot of marketing through social media, and then expanding through retail partners. We work with some of the top retail partners in the U.K. and Germany and France for baby. And so that's kind of our distribution footprint right now. A lot of these distributors also have connections into pharmacy and med device. And so with the CE med clearance, we're actually launching that here very soon. We just announced we got it. That's gonna expand our distribution footprint in Europe to include pharmacy. Doctors are then gonna be able to recommend the product to their patients.
A lot of these countries use midwives as kind of a primary source for product, you know, pediatric product recommendations. We're gonna be able to really kinda grow that channel as well. And again, I think consumer confidence will increase with having these medical clearances, and the technology will become more trusted. So we're excited about the deepening penetration in Europe. We think the U.S. and Europe represent a massive market opportunity. We're only 8% of the United States and 2% of Europe, so there's a lot of room to grow. And then Asia, you know, there's 16 million babies born a year, every year in China. India is a massive market, Southeast Asia.
So that'll, that'll come in the future, not quite this year, but we really believe that, you know, it doesn't matter where you're born, every parent cares about their child's health and their safety and, and getting a good night's sleep. So...
Yeah. In the past, you've talked about the idea of a connected nursery, right? And, and really, the Dream Sock was sort of the start of it. Maybe talk about sort of how you envision, you know, as obviously, the focus right now is getting Dream Sock up and running, particularly on DME as well. But as you think forward in terms of the product roadmap, I know at one point you were working on a pregnancy band. How do you envision sort of the product roadmap for Owlet? You know, what kind of other offerings or features, you know, would you like to bring in, and and what do you think makes the most sense over the near medium term?
Yeah. I think if you were to ask me, like, what does success look like over the next, you know, year or two, I would say it's, you know, if we can double adoption of our Dream Sock, that's, that's number one focus for us right now. We announced we're launching a subscription service this summer that's gonna utilize the data that we capture to better inform care at home and connect into a kind of a telehealth setting. We're also, you know, expanding on our roadmap with the cam that will, will integrate into that as well. So I think driving adoption in LTV with what we have today over the next year or two, there's a lot of room for revenue growth. We're seeing it right now as our time to really go after that.
And as Owlet positions itself as really the hub for the home, we're really kind of the voice for baby that first year. Babies can't actually communicate when they're feeling sick. Owlet knows that a baby's getting sick, usually before parents even recognize the symptoms because of the data we have. We know when a baby has not had a good night's sleep. We're in the perfect position to then integrate solutions and recommendations, whether that's, you know, a smart crib that can automatically soothe the baby when they're coming out of a sleep cycle, you know, or actually connecting a parent who's really struggling to get their baby to sleep through the night to a sleep coach that can help them solve that problem. You know, Owlet's in that perfect position, and so we're gonna expand on that connected nursery theme.
I think through a lot of partnerships and integrations is probably gonna be how we do that, but Owlet will become kind of the hub for, for a lot of those solutions.
Okay, great. Kate, so you've done a lot over the last year or two here to really get the company into a strong financial position here, and, you know, the company is reaching EBITDA breakeven, you know, in the relatively near term here. How are you thinking about sort of the range? Like, what should the profitability profile of a company like Owlet look like? You know, maybe in this, in terms of, you know, what do you envision, like, a run rate, gross margin, EBITDA margin type for this kind of business?
Yeah, thanks. You know, we have worked hard to put ourselves in a growth mode position. I think in 2024, our most important objective is on the top line with the opportunity around the clearances, so that's both on the consumer side and then readying the BabySat side for 2025 and also on the subscription front. So with those tailwinds, next year, I think, that'll put us in gross margin territory of getting towards that upper end of the 40s and potentially over 50%, BabySat and subscription are obviously benefits to that. In terms of the EBITDA margin and the operating margin, you know, we'd like to see that profitability tilt as we head into the back half of the year.
We haven't given guidance on it, but I think that, you know, with the, you know, double-digit growth in revenue, that will certainly put us towards that potential in 2025. So we'll, we'll be looking forward to putting a range out there soon.
... And then as we look even beyond that, I mean, just sort of like, you know, what is the contribution margin for every incremental unit. I mean, 'cause if you remind me, I think the OTC product is priced at, what is it right now? It's-
$299.
$299.
Yeah, for the sock, $399 for the duo.
Right. But for the prescribed product, it's more, right? It's-
Yeah, and it-
I guess it depends.
It depends on insurance reimbursement.
Yeah.
But we wholesale that for 50% more than we wholesale the consumer device.
Right.
So.
So I would imagine as the DME side of it kind of picks up, we should see a bigger pickup in gross margin as well?
Yeah.
So, I mean, would you... I mean, is this a long term? Is this like a, would you say it's like a 60% gross margin type business or, or more?
With more contribution-
Yeah
... on the medical side, for sure there's that potential, and then also in the subscription, that's a software-
Yeah
- benefit.
Longer term, you know, you touched on a little bit on partnerships. What other areas would you like to expand into? You know, and I guess the question is, like, is pregnancy band still in the cards here, or is that kind of, you know, kind of shelved?
Yeah, I mean, I, so-
Maybe remind folks, you know, what that is.
Yeah, so we, we've developed a wearable pregnancy band for the last trimester of pregnancy. One in 100, so 1% of babies passes away unexpectedly in that last trimester. These are healthy babies. They still don't know completely why. A lot of this spikes towards the last few weeks, and if doctors just knew that the baby needed help, a lot of times they could be delivered safely. And so there's a need for home monitoring. We've developed a technology that can essentially do everything that a Non-Stress Test does, in the clinic at home, wireless. You can connect to a doctor wirelessly. And so that's, that's, you know, something that we've put a lot of money and R&D into. And I'm not gonna share a whole lot more about that roadmap.
There's still discussions on kinda how we bring that to market. We've got more regulatory work to do on that, but that's a really exciting new opportunity. When we had our second, you know, Target had this space in their store called the Connected Nursery. So I bought all the products from Connected Nursery. You know, my kids are the beta testers for Owlet, so we set it all up. I had to download 12 different apps. You know, I was constantly switching, trying to use all these different devices to try and get basic information about my child. Parents, because baby's developing so quickly, you're constantly onboarding new partnerships.
We really believe that from conception to kindergarten, having kind of one technology partner to hold your hand is a really big opportunity to kind of bring this category together. So that's, that's kinda how we think about the future, is that there is going to be a home platform for kind of maternal and pediatric health, and today it's extremely fragmented, so. And I would say Owlet today is probably one of the largest. If you look at, like, home monitoring or pediatric monitoring, Owlet probably has, on a daily basis, the largest population of babies at home, where we're collecting health information and helping make recommendations in the world.
That's, that's great. I, I guess, in the last minute or so, what would you say biggest opportunity, near term, biggest challenge that you're, you know, kind of looking out for? I, I guess within that, you know, how much do you think the, the macro environment, is a factor as well? Maybe just touch on those three, and then we can-
Yeah, do you wanna start, and then I can-
Yeah. Yeah, I think the biggest opportunity is the accomplishments that we have on the FDA clearances. We are the only, dual-cleared device on the market, and so that's for us to go and accomplish, and I think it's also educating the market on, what that really means. As Kurt said, I think, you know, monitoring for every baby. In terms of the headwinds on the macro, we're continuing to watch, on the supply chain front, mostly on the, just the shipping concerns, just globally, and how we make sure that we're able to, to move around the globe and get our product where we need to.
Yeah, when I think about just the near-term opportunity that's staring us in the face, is this standard of care. I think Owlet is, you know, with the FDA clearance, I think eventually what we'll see is that. And what we're seeing today is that doctors are prescribing, and they're recommending Owlet more than they ever have. I think we'll see that that drives a tipping point in the United States. Owlet's gonna continue to publish data and studies that show that this is the health, you know, the safest and the most healthy thing for kids at home. I think that that's just right, right in front of us, both in the U.S. and Europe.
We have some really interesting conversations happening with some of the national health systems in Europe, and so that's number 1. And then number 2, you know, parents are engaging with our app 3-5 times per day. They use the sock today for about a year, and then when baby gets sick, we see them pull them, pull it out of the closet and continue to use it. The camera they use for multiple years in the home. If we can tie together the journey from baby one to baby two, it's a 6-year relationship with customers at home, and if we're successful with this subscription product, that's significant LTV and really changes the margin profile of the business.
I think those two are just with the exact same product suite we have today, driving adoption and then driving, driving the subscription attachment.
Great. Well, look forward to watching how this happens.
Yeah. Thanks.