Owlet Q3 Earnings Call Highlights

Key Points

• Owlet withdrew its 2026 financial outlook after launching a safety update for camera cable guards following a child’s death involving an unsecured cable. The company estimates a $13 million to $18 million net impact from program costs and retailer returns, with restocking and insurance recovery uncertain.
• The update prompted a stop-ship of affected Dream Sight and Dream Duo products at retailers; Dream Sock remains available. Owlet is offering qualified camera owners a free replacement system with an enclosed cable guard.
• Third-quarter revenue declined 4.9% to $30.4 million, but gross margin rose to 53.8%, operating income was $1.2 million, and operating cash flow reached $2.2 million. Owlet360 subscribers grew 83% year over year to more than 142,000.

Owlet NYSE: OWLT withdrew its 2026 financial outlook after initiating a safety update for camera cable guards following the death of a child who became tangled in an unsecured camera cable.

The company estimates a $13 million to $18 million net impact from identifiable costs and retailer returns, before potential inventory replenishment or insurance recovery. Executives said the timing of restocking and the effect on holiday demand remain uncertain.

The announcement accompanied third-quarter results that included positive operating income and cash flow, even as revenue declined from a year earlier.

Safety Update and Retail Disruption

CEO and Co-Founder Kurt Workman said a family reported that their toddler had reached an unsecured camera cable and became tangled in it. Owlet reported the incident to appropriate regulatory agencies, and additional steps may be required, he said.

The update concerns the Cable Guard accessory shipped with Owlet cameras, not the cameras themselves or the Dream Sock monitoring device, according to Workman. The company is offering qualified camera owners a free replacement system with the cord enclosed in interlocking segments.

Owlet issued a stop-ship notice for affected Dream Sight and Dream Duo units at retailers. The products will return to shelves when retailers receive inventory with the replacement guard, Workman said. Dream Sock remains available across channels, while Dream Sight and Dream Duo sold through Owlet’s website now include the new system.

Workman said approximately 40,000 camera and Duo units were in retail channels. CFO Amanda Twede Crawford said the majority were Dream Duo units and that both products were included in the company’s retailer-return estimate.

Workman told an analyst that production was continuing, including production of the replacement guards. Returned cameras can be repackaged with the new guards for resale, he said.

Financial Impact and Withdrawn Outlook

Owlet expects direct program costs of $7 million to $10 million for replacement guards, shipping, logistics, customer support, legal work and consulting. It also estimates $9 million to $12 million in retailer returns, which will reduce fourth-quarter revenue, and expects to recognize a $3 million to $4 million asset for returned inventory that can be resold.

Crawford said the company anticipates $2 million to $5 million in initial retailer replenishment revenue, although the timing and amount will depend on retailer orders and inventory availability. Owlet also has a $10 million insurance policy that may cover some costs, but it has not recognized any recovery, and coverage and timing are uncertain.

Owlet withdrew its previous full-year forecast for revenue of $118 million to $122 million, gross margin of 53% to 55%, and adjusted EBITDA of $10.75 million to $12.75 million. Workman said the company would have been positioned to reaffirm the outlook apart from the safety actions.

Dream Sock accounts for about 70% of revenue to date, Crawford said. Workman said some demand for the Dream Duo bundle could shift to the standalone Sock while retailers transition inventory, though the broader effect on demand is not yet clear.

Quarterly Results and Subscription Growth

Third-quarter revenue fell 4.9% to $30.4 million from $32 million a year earlier. Crawford attributed the comparison in part to the prior-year launch of Dream Sight and Dream Duo and associated distributor inventory loading. She also cited competitor discounting ahead of an Amazon deadline for FDA clearance of vital-signs baby monitors.

Gross margin rose to 53.8%, an improvement of approximately 315 basis points. Operating income was $1.2 million, while adjusted EBITDA increased by $1.9 million to $3.5 million. Owlet generated $2.2 million in operating cash flow.

The company ended September with $31.6 million in cash and cash equivalents, excluding restricted cash, and approximately $39.5 million in total available liquidity including its credit facility.

Owlet360 ended the quarter with more than 142,000 paying subscribers, up 83% from a year earlier. Subscription revenue reached $3.6 million, an increase of $2.1 million, and monthly recurring revenue was $1.3 million at quarter-end.

Product Plans

Workman said Owlet launched its Smart Thermometer in the U.S. during the week of the call. The no-touch thermometer can be used independently or synced to the Owlet Dream App, with retail and international availability planned to follow.

The company is also developing additional sleep and health features, including nap scheduling tools and expanded Owlet OnCall services. Workman said Owlet One, a lower-upfront-cost offering paired with a subscription, remains in testing and is converting at around four times the Dream Sock’s nonpromotional conversion rate.

Crawford said Owlet has tested a $19 monthly membership for Owlet One and that its break-even point compared with the existing sales model is currently a few months. Workman said the safety update is not expected to delay Owlet One’s rollout plans.

About Owlet (NYSE:OWLT)

Owlet develops connected baby-monitoring products designed to give parents information about an infant's sleep and well-being. Its offerings include the Dream Sock, a wearable monitor that tracks sleep-related readings, and Owlet Cam cameras, which provide video and audio monitoring through the company's app. The company's products combine wearable sensors, cameras and mobile software to help families monitor their babies at home. The Dream Sock has FDA clearance to monitor pulse rate and oxygen saturation in infants from 1 to 18 months of age.

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