All right, good morning, and thanks for joining us here for the next session. Sorry, we're a couple of minutes late here. I'm pleased to have with us this morning the management team from Owlet. We have Kurt Workman, co-founder and CEO; Jonathan Harris, president and chief revenue officer; and Amanda Tweed Crawford, chief financial officer. Thank you, guys, for being here.
Thanks, Charles.
Yeah.
You know, for those who may be not familiar, Kurt, maybe you can give a brief overview of Owlet, the mission, and sort of your main products.
Yeah, so Owlet, we make wearable health monitors for babies. It tracks babies' key vital signs and sleep. We launched a little over 10 years ago. I'm a dad. I've got three kids. I started Owlet because we were worried our kids would have a heart defect that my wife has. It's really what inspired it. We have now, I think, aggregated the largest pediatric patient population on the planet in terms of total number of lives and babies that we're monitoring. Our vision is to take Owlet to every family.
I want to come back to the data in a second. Maybe just to let folks know what the market looks like, how is the Owlet sock, the Dream Sock, different than other monitors that families can get for their children?
Yeah, most monitors that you can get access to, there's kind of two big buckets. One is your traditional sound and video monitors. As my wife and I were looking at, OK, what could we use at home? Those monitors are great for knowing when a baby wakes up and is crying and needs you to go get them. That's kind of the primary use case of a baby monitor today. You have these antiquated hospital monitors that are these big, bulky boxes with cords that have to go into the crib on the baby that can track vital signs. They can actually track how well your baby's breathing, what their heart rate is, temperature, things like that. What we've done is we've consumerized that technology. We've made it wearable and wireless. We are the only FDA-cleared monitor on the market available to parents.
We're the only monitor that actually tracks health information, similar to what there's 70 million adults in the U.S. with a wearable health tracker. Parents are very used to that technology and that data. We give them access to that for their children, which is a time of life when that information is really important.
Great. Maybe talk about sort of Dream Sock here. Obviously, over the last few years, we've gone through a lot of changes and a lot of challenges. As we kind of come out of this year, it seems like things have started to turn in a much more positive direction here. Obviously, back onto the retail channels, maybe talk about sort of your positioning there with the partners. Maybe give us an update here on Amazon, as an example. What steps have your retail partners taken to maybe better position Owlet?
Yeah, good question. Yeah, we have really strong retail partners. We're in over 1,000 Walmart stores with an end cap, across Target stores as well. Really strong retail presence. Babylist has been doing really well for us on the baby, on the registry side of things. Amazon is a global partner for us as well. They're continuing to invest in baby and really drive the category as a whole. Right now, we're the number one most highest registry for any monitor on Babylist, growing over 50% year over year. Parents are really asking for this product from their friends when they have a baby. That's a really good leading indicator on how our business is looking towards this year.
Obviously, the way this business works is a little different when we think about seasonality and when these are typically gifted, as an example. Maybe you can just remind us how seasonality in this business works, kind of give us a better understanding of sort of the sell-in and sell-through kind of dynamics.
Yeah, so of course, babies are born all year. We do see seasonality in our business. It's really driven by big promotions. Typically, with the retailer and distributor model, you would be selling to those retailers and distributors in advance of a promotion. That's typically 6-10 weeks before, depending on the retailer. We do see, in terms of seasonality, Q1 is always the lowest, just because we don't have a lot of promotions happening following Q1. Q2, we have a nice uptick. That's our Prime Day load-in. Q3 has historically been our highest quarter, as retailers used to load in for Black Friday in Q3. We're seeing a little shift where retailers are tightening up their balance sheets. We're now expecting Q4 to be the highest quarter, a little bit of shift between Q3 and Q4.
I guess just to round up, right, so Amazon, they're basically loading up ahead of their Prime Day, which happens in.
In July.
In July.
In July.
In their third quarter, right?
Yep.
In addition to the consumer, I think a key thing that's happened recently is the FDA approval of the prescription version, BabySat, and the opportunity to go through the, as a DME, into the provider market. Can you give us an update on what's going on here? Because ultimately, right, Kurt, you talked about every baby should have this monitor coming out of the hospital. You need doctors to prescribe it and to get reimbursed. Give us an update here on where we're at with that.
Yeah, maybe I'll just talk about BabySat for a second. Then Jonathan, if you want to talk about what's going on with distribution. Today, when they send a baby home, they send them home with the hospital monitor. These are monitors designed for use under the care of a nurse. It's a big box with cords that go into the crib. They sound a lot of false alarms. They're really not appropriate for the home. The doctor has a big question to kind of answer, which is like, gosh, is this baby bad enough that I have to send them home with one of these? That's really kind of how they look at it. With BabySat, it's wearable. It's wireless. It's one one-hundredth the size. It's a tenth the cost. All the data syncs to the cloud. It's literally what iRhythm did for adult cardiac monitoring.
That's what we're doing for pediatrics. It's a massive market. And BabySat gives doctors the ability to actually prescribe our technology instead of the hospital monitors. We've proven that we're equivalent to them. It's a massive new channel. We don't have to go through retailers now. You can now get this from the neonatologist in the NICU. They'll send it home with you. That's the vision with BabySat, so.
Yeah. We are partnered today with six different DMEs. Adapt was our first. We actually were just at Adapt's national sales meeting last week. We are partnering very closely with them, going directly into the NICUs and into the hospitals themselves. All the NICUs have closets where they keep products that go home with the family. We are in the process now of actually getting BabySat into those closets. With that, and focused on the 12 states with the Medicaid, really focused on the reimbursement side. We are hitting it from both angles, where we are hitting the hospitals and the NICUs, but then really driving the reimbursement side. Cigna is a national carrier, but we are also working on local states one by one.
The thinking behind this, and we're partnering with AdaptHealth, is you get one leading state to really drive it, and then you start cookie cuttering it, right? One state wants to follow the other state. It is a slower process. We believe that we're already seeing very positive signs. We are very opportunistic as we drive down this path.
Which are some of the first states that you're getting into b ecause.
Virginia is a really good one. Pennsylvania is a good one. Texas is another really strong state. Each of those three are really strong with Adapt. We're driving and leaning in heavily.
I would say for the first time in our history, we now have—we were just in an investor meeting where they said, oh, my niece just came home from the NICU, and the doctors told them to go get an Owlet. This Baylor Health Care System is now telling NICU grads, go get an Owlet. They're starting to educate on it. It's a big shift for our business.
Obviously, right now, though, the vast majority of the revenue is the Dream Sock.
Yep.
Not only that, though, a large percentage is international. Maybe talk about sort of the international opportunity, where we're at.
Yeah.
Because that's been, like, had been driving a lot of the growth over the last couple of years.
Yeah, that's a bright spot, for sure. We took the effort, and we got our CE Mark, which is equivalent to FDA, all across Europe. We launched that last June. The response has been very, very positive. We are in 26 countries now with a medically cleared device. We are really driving. A big highlight, I would say, was Germany. That really helped. Amazon sales over Black Friday were up 127% year over year. We are really starting to get that growth and the momentum internationally. We are talking to a number of countries as we speak and getting those clearances across. We will be adding more international countries later this year and moving forward.
We doubled our business internationally last year.
You guys posted a really strong quarter the other day, right? Kind of certainly better than we were expecting. The guide looks pretty solid. As we go into this year, what, $88 million-$92 million in revenue. Gross margin is about 51%-52%.
50%- 52%.
Sorry, 50%-52%.
Don't cut out the low end.
Don't cut out the low end. I guess the question here is, obviously, we are still ramping in a lot of categories. We think international, particularly BabySat as well. Where do you see when we think about the long-term model, because I think, if I'm not mistaken, the margin profile for BabySat is actually better than the Dream Sock, the commercial product. Where do you kind of see what this mix likely looks like in a few years when things kind of, let's say, you get through the 12 states and it's maybe more available nationally? Do you see this more being a medical device, most of your sales coming as a medical device? Or do you see it still largely as a commercial device?
We really believe that health monitoring, 70 million adults have a health monitor or a health tracker. It's become ubiquitous. We think the same thing is going to happen for the pediatric market. Owlet's going to lead that. The average baby that leaves the hospital is going to go home with a health monitor. There's a lot of reasons for that. The biggest one is that we spend $30 billion a year on primary and urgent care for that group. Giving parents access to this information and allowing them to share it with the doctor is eventually, I think, going to drive reimbursement. BabySat, if you look at 16% of babies born come home from the NICU, you have babies with acute conditions, chronic conditions. It's about 20% of babies born are eligible for BabySat. It's reimbursable today in a bunch of states.
It's going to be recommended at the hospital. Of that market, we're going to see really high penetration as we build the scaffolding. That has the potential to really grow the business. Long term, as we look at our model, it really comes down to the blend of those two things, but then the LTV we can get from Owlet360. It's our new subscription service we just launched. Parents are using our sock for about 18 months. They're using the camera for three years. There's an average of two children per household. You can build a five-year relationship with each family that onboards Owlet360. That can more than double the LTV of the business. That gross margin is 85%-90%. We have a lot of room for growth just in what we're looking at right now. We'll continue to expand that.
You recently launched the subscription service. How is that going to market? What is the way you're trying to acquire members for that?
Yeah, we have over 500,000 parents using our app every night. They're engaging with the product or with the app three to five times per day. The customer base is already using our app. It's all about driving conversion through our app. That's free. It's owned media. We shared we have 25,000 active subscribers now, one month after launch, and growing fast. It's really just about building all of those funnels in the app and making that experience really clear to parents that it will make their life better.
OK, that sounds really interesting. Where do you see that kind of going into the future? Because is this the way where you're, I guess the question is, once you have all the members captured, and you talked about sort of this five-year relationship, we haven't talked about it in a while, though. Talk about maybe the product roadmap beyond Dream Sock, BabySat. There were some ideas for the band, the crib. Are those still sort of potentially in the works?
Yeah, I would say long term, being the leader of the connected nursery is definitely part of the vision. As we look over the next few years, we are laser-focused on this $30 billion home health opportunity. As we roll out 360, we integrate telehealth, the ability to chat with a doctor inside of our app using Owlet's data, integrating GenAI into that to make that experience really personalized for every family. That's such a massive opportunity for the business that if we just go execute on that, that's going to drive, that can be a multi-billion dollar revenue company.
OK, that's helpful. Now that you're about to reach, now that you're reaching sort of a break-even on adjusted EBITDA and a full year and become really cash flow positive, how should we think about what the long-term margins for this business should look like? What's the time frame we should think about getting there?
Yeah, as far as margins go, if we think about where we're headed, just given that subscription will be a much larger proportion of the relative business, I mean, I don't want to give any guidance, but they should be higher than what we're expecting, above the 50%-52% that we're guiding to this year. We do expect margins to expand in the future.
In terms from the operating expense side, obviously, a couple of years back, right, went through a lot of restructuring to kind of right-size the business. Maybe talk about sort of what we should think from an OpEx standpoint. Do you have enough? How scalable right now is your infrastructure? Are we going to have to start investing more as we continue to grow here?
Yeah, I think the good news about our OpEx is a lot of the major investments have already been made. We do anticipate needing to invest a little bit in our operating expenses, specifically surrounding our subscription offering, the development there, product innovation. We just want to make sure that we're always making progress. We do expect some investment, but not too much incrementally.
We think a lot about our contribution margin, which for us is gross margin, and then minus marketing expenses. How much are we actually contributing into the business? The ratio between contribution margin and operating expenses should continue to grow if we're doing our job right with subscription and BabySat and all of the other opportunities. Growing operating expenses, but at a slower rate than we're growing contribution margin.
Got it. Just going back, because you had mentioned Cigna, obviously, sort of the first major carrier to reimburse. That is for the commercial population? That's for the commercial?
No, that's for BabySat.
BabySat, but for their commercial members?
Yeah, correct. That's national coverage. We're working with Adapt and their team to reach out to other insurers as well. We're not done.
Was that Cigna through AdaptHealth?
That was through AdaptHealth. We helped build that relationship, yeah.
Where are you with other carriers at this point, with other insurance carriers?
Yeah, so we're continuing to have relationships through Adapt and their teams. We're talking to the Aetnas of the world as well. Of course, we have the Medicaid across the 12 states. That's also pushing on the Blues as well. This is an ongoing dialogue, leveraging the relationships that our DMEs have with those insurers and really trying to broaden that reach.
With six DMEs today, is there a need for additional ones to partner with? Or do you feel pretty well covered?
I think right now we're really well covered because we're really driving execution. If we get too thin on trying to manage too many relationships with DMEs, we're not going to really be able to go deep. We need to be able to go deep to unlock the opportunity. I think we're good this year.
OK, and then Kurt, you mentioned some of your meetings. They're hearing from their doctors, get an Owlet. Is the doctor still the final gatekeeper? How much education do we need to get to pediatricians and pediatric specialists to really get to prescribe this?
Yeah, I mean, I think that's been one of the great things. We go to all the medical conferences now. We just met with Intermountain Healthcare's entire pediatric team. What's great is they've heard about the FDA clearance. As we educate them on BabySat and Dream Sock, and we go through the clinical studies, it answers all of their kind of key questions or concerns. It's safe. It's accurate. The benefits outweigh the risks. There's not over-alarming with our product. The data will, the first half of this year, integrate with their EMRs. All of that is creating a lot of awareness. As we're out selling BabySat, it's actually educating on Dream Sock. That's where we're seeing more and more health systems are just organically telling parents, as they're leaving the NICU, you should go buy a Dream Sock. Or you can get the BabySat through this pathway. It's just about building all those relationships now.
You said at the beginning, right, was it 500,000 Dream Socks in use today? How many Dream Socks are actively being used today?
Today, I don't know today, but we shared on the earnings call over 500,000.
Over $500,000, right?
Yeah.
It all goes into the cloud. You're collecting all this data. Arguably, you have probably the largest data set of pediatric vital signs out there. What is the opportunity? You look at to use AI and to find new signals in that data. Maybe talk about sort of what you're thinking about how to maybe monetize this data set.
Yeah, we're doing a couple of things. Feel free to weigh in here. One is we want to add more contextual information to make that data even more valuable. As part of Owlet360, we're starting to collect symptoms, any doctor's notes that parents are willing to put in. We're going to integrate telehealth. We'll have the full loop of care. If we see vital signs were low, doctor recommended this, we'll have a data set that we can start to pull there. Lastly, we want to start allowing parents to enroll in clinical, like a large health registry in our app. They're able to sign up for that. We'll be able to pull health outcomes with the vital signs data. That'll be the most comprehensive data set for pediatrics on the planet by far.
Yeah, I think the way to look at it is we're in evolution, right? We've been a hardware company traditionally that has a data set. Now we're really merging those and becoming a software and services company enabled by our hardware. Owlet360 is the first phase of this. It'll continue to grow and evolve with Owlet360, with the data insights, telehealth, and beyond. Have you had pharma companies kind of reach out, interested to see the data?
We have, yep. Yep, and then clinical research is a big one, too. A lot of health care institutions and researchers want access to it. As you add the outcomes data with the vital signs data, that's going to become a pool of information that will have continued value.
You mentioned EMR integration in the first part of this year. Which ones are you looking to integrate first with? How much time is that going to take? Are there any kind of strong stumbling blocks? Is it simple, kind of an API?
It's a pretty simple API. We're integrating right now into the BabySat and integrating that data stream, Epic being the largest. The nice part about the partner we're using for the middleware is it's just API. We can connect to any different platform. We expect to have this coming online back half of this year. It's going to be exciting.
In terms of the data set, what other kind of hurdles do you need? Or not hurdles. What are the next steps to really add in outcomes data to capture symptoms? Is that all just simple additions to the app itself? Or is there anything you need to do more to kind of make the data set more contextual and more robust, I guess?
Yeah, you'll see a lot of this happening this year. It's really software integrations. We just hired a new VP of Clinical that came from Medtronic and Boston Scientific and has worked on projects like this before. We worked with him on some of our FDA clearances. The business is making an investment, a conscious investment in this. 360 is our big launch this year. We're going to grow it this year. Telehealth will come out towards the end of the year. It's really all about integrating this data set in a way that can help parents better navigate health at home and allow us to publish on that data.
The telehealth component, talk about how are you going to go to market with that? Because arguably, you don't want to be running your own telehealth operations. What kind of partners are you looking to? Is it with local area providers in market? Or are there some national groups that you're looking to partner with?
Yeah, to start, it'll be a nationwide provider network that does millions of visits per year. We'll just offer that within our app so parents can chat with a—we'll build a specialized program with them. It'll be with a partner network. We're not going to hire physicians. Long term, we'd love to, as we build out more and more integrations, we'd love for parents to be able to share that data with their pediatrician as well through the app.
Yeah, is that possible to also allow just connect to local pediatricians, to their own pediatrician possibly in the future?
It's a pretty fragmented network. I think it's going to have to be Owlet building this large population first and then pediatricians choosing to start to use it as our population grows. Right now, 1 in 10 babies. If you think about for the average pediatrician, 1 in 10 of the babies that they care for has an Owlet. We think that this is going to become a standard of care. As we start to cross the tipping point, I think we'll have a lot of leverage to bring people into the network.
Talking about going back to BabySat a little bit again, how should we think about the growth ramp for BabySat within the guide of this year? If you had to guess by year end, what % of sales are you expecting for BabySat?
We have not specifically disclosed BabySat. What I can say is that with BabySat, it's still ramping. It is not a material part of our guide.
What do we need to see for that to really get the tipping point? Is it sort of the rollout within Medicaid?
I think it's a rollout within Medicaid. It's also the adoption through the hospitals and the NICUs in particular, and really getting that adoption and getting the product into the closets. We have momentum behind us. We're continuing to grow. We are taking it very slow and steady because the health care system moves extremely slow.
I think part of it, too, is we want to nail it before we scale it. It's not like we're not dumping money, or not dumping is the wrong word. We're not putting a ton of marketing spend behind BabySat yet because we know it would be inefficient at this point.
As we get the rest of the Medicaid states, as we start to build some of these hospital relationships, when we turn that on and the message is, if your baby's coming home from the NICU or if they have an acute or chronic condition, you can get an Owlet device reimbursed by insurance, just even just the consumer push on that is going to be fantastic. We know that. We want to make sure that we can have a campaign that we can take to every family.
Basically, you want to be able to supply it on the back end, right?
Exactly. So fragmented right now. It's got to come together, yep.
Any kind of pushback that you get from you talked about presenting before like Intermountain. What are the key concerns that come up? What are the questions that still come up from clinicians regarding the device, if any?
Yeah, I mean, educating them on FDA clearance. Most of them know that by now. They're used to using this hospital technology. When they think about pulse oximetry, they think intrusive, lots of alarms, tons of questions from parents. We go and we say, look, FDA had us do this study where we compared our device to the hospital monitor. We had 1/10 the alarm rate. We picked up all the clinical events. It's like, wow, OK, that's a game changer. We talk about the patient experience and the usability that we have that makes it so it's not intrusive in their lives. That's a big unlock for them. We talk about the benefits. We share case studies. We've published some of the studies on infant heart issues and on SIDS. We start to share that information. They really start to align.
A lot of them are using it with their own kids. We index way higher with pediatricians and nurses that use our device. We already have a base that I think understands it. The FDA clearance is the biggest catalyst to that.
That's interesting. I guess then finally, in the last couple of minutes, what are the key milestones that we should be watching for? Obviously, you gave pretty strong guidance for the year. Is it just really just tracking sort of the momentum here? Or are we waiting for any kind of key milestones you think that we should be alert for that as another good signal of things going well?
Yeah, I would say that we're really focused on driving sustained, profitable growth. We're not growing at all costs. We're growing profitably to really drive the business for long-term value. We don't want to scale this thing and spend too much money. We want to really grow profitably, keep a sharp eye on OpEx, keep a sharp eye on margins, and really continue to strengthen our relationships both here and abroad.
We should think that over time, right? If you're talking about a subscription service that is 80%-90% gross margins, BabySat, which actually has a much higher ASP, so a higher gross margin as well, is it fair to think that we could see gross profit dollars growing at a faster rate than revenue as we build out of next years?
Yeah, I mean, think—oh, sorry.
I was going to say that's exactly what we saw happen in 2024, where revenue grew 45%. Margin was up about 75%. I do think that we'll continue to see margins expand ahead of revenue growth.
In our guide this year, we said no material revenue for 360, no material revenue for BabySat. Those are our highest margin activities. We are driving those right now, right? We are trying to be realistic and make sure we do not get ahead of ourselves. We are really optimistic about those opportunities. We have not even modeled into it the telehealth opportunity that will start to expand at the end of the year.
When should we expect the telehealth capabilities for parents in-app?
It'll be in our app, first doctor visit the first half of this year. And then we'll scale it towards the end of the year.
Is that an announcement that we might hear of who you're partnering with? Or is that just.
Yeah.
OK.
Yeah, you'll hear that.
All right. We're about at time here. Maybe we'll pause here and want to thank everyone for being with us today and listening on the webcast. Thank you very much.
Awesome. Thanks, Charles.
Thank you .