OWLT earnings call transcript, November 12, 2026

This call is also being webcast live with a link at the same website. The webcast and accompanying slides will be available for replay for 12 months following this call. The content of today's call is the property of Owlette. It cannot be reproduced or transcribed without our prior consent. Today's discussion will include a camera cable guard safety update we recently initiated, which also is described in our earnings release in Form 10-Q, which we expect to file after market closed today. Before we begin, I'd like to refer you to our State Harbor disclaimer on slide three of the presentation and to the forward-looking statements section of the press release that we issued this morning. Today's discussion will contain forward-looking statements based on the company's current views and expectations as of today's date. These include, among others, statements regarding our camera cable guard safety update. including its timing, costs, expected effectiveness, and any additional steps, retailer returns and replenishment, as well as the impact on demand and our results, including the fourth quarter and holiday season. Insurance coverage and liquidity and ALIS long-term opportunities and expectations for future periods, including Allot360 subscriber growth and the timing and rollout of new products and features, such as the Smart Thermometer, AllotOnCall, AllotOne, and our AI-enabled features. These statements are only predictions and are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed

are implied by such statements, including that cost may differ from our estimates and that additional steps may be required. These risks and uncertainties include, but are not limited to, those described in the earnings release and in our most recent filings with the SEC and then the risk factors section of our annual report on Form 10-K as updated in the company's quarterly reports on Form 10-Q and other filings with the SEC. Please note that the company assumes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. During this call, we will discuss both GAAP and non-GAAP financial measures, including adjusted EBITDA. A reconciliation of GAAP to non-GAAP financial measures is included in today's earnings release, events. It's available on our Investor Relations website. With that, it's my pleasure to hand it over to Kurt.

Good morning, everyone, and thank you for joining us today. I'll highlight strong third quarter results and the progress we're making on our strategies. I will also walk you through an important camera cable guard safety update that we initiated this morning.

Let me start with Q3 results on slide five. We made very strong progress in the quarter delivering on our priority to drive profitable growth. Third quarter 2026 revenue was 30.4 million in line with our expectations. Gross margin was 53.8%, up 315 basis points versus prior year. Operating income was positive 1.2 million. Adjusted EBITDA was 3.5 million, a company record. Exclusive including Q2 2026 that included a tariff refund. And we were cash flow positive with 2.2 million in operating cash flow. These are meaningful profitability milestones and they give us added financial flexibility. As we carry out the camera cable guard safety work I'll discuss in a moment. Finally, OWLT360 subscription momentum continues. We ended Q3 with 142,000 paying subscribers. Generating a record 3.6 million in revenue, up 2.1 million year-over-year. Subscription MRR increased sequentially to 1.3 million to end Q3. And penetration rate for OWLT360. OWLT360 DreamSoc users in the U.S. is 36%. Now to the camera cable guard safety update we announced this morning. OWLT was made aware that a family in our community lost their child after their toddler re- reached an unsecured camera cable and became tingled in it. As a father of three there are no words that are adequate and our hearts are broken for this family.

Cable guards are a critical safety feature for corded baby products, which is why OWLT's cameras are one of the few baby monitors in the industry equipped with cable guards to keep cords out of a child's reach. We have reported... reported to the appropriate regulatory agencies as a standard practice, and there may be additional steps we need to take. I want to be clear about scope. This involves only the camp... a cable guard accessory that ships with our cameras. It does not involve the camera itself or our FDA clear DreamSock. OWLT was founded to help keep babies safe. And that purpose continues to guide our work. We are providing a replacement enclosed cable guard system that we believe delivers on our commitment to elevating safety standards in the market. This replacement. Shifts with the cord already encased in interlocking segments to address the risk of loose or exposed camera cables. To our knowledge, no other baby monitor ships with an enclosed, pre-locked cable system. We're offering it free of... charge to all qualified Owlet camera owners. Every new camera will ship with it, along with clear safety and disposal guidance. We have issued a formal stop ship notice across our retail channels. Retailers will stop selling the affected units, which are DreamSight and DreamDuo, and will be... ...begin selling the new units when they receive replenished inventory containing the replacement cable guard. DreamSock is not impacted at retail or any other channels. Starting today, every...

DreamSight and DreamDuo sold on OwletCare.com includes the enclosed cable guard system. Because the cable guard ships in the box with every camera and DreamDuo, this... creates logistical and financial challenges in the fourth quarter. There may also be a potential impact on demand we can't yet predict. These unknowns create a range of fourth quarter outcomes that's too wide for us to guide responsibly. So we are withdrawing our 2026 outlook.

Apart from the effects of these actions, we were in a position to reaffirm our 2026 guidance. Core Seltzer was pacing ahead of plan, description was progressing as anticipated, and the fourth quarter was on track. I understand this makes for a difficult period. We believe this is the right decision for the families we serve, and it reflects our commitment to best-in-class safety products, the foundation that our digital platform is built on. Amanda will walk through additional financial details. I believe the work we're doing at OWLT is extremely important. Over the years, countless parents have told us that because of our technology, they were able to help recognize important health events and seek the help they needed. We believe in our mission and we're going to be able to help them. We're seriously moving forward with it because it matters for families everywhere. Our products help keep babies safe and we're proud of that. Let me now turn to an update on our two primary focus areas. Driving adoption of DreamStock and DreamDuo in our core global markets and empowering parents with the health information through the subscription platform. In the U.S., when adjusting for the shift of Prime Day from July 2025 to June 2025, total sell-through units grew 14% year-over-year, including a 23% increase in DreamStock and an 11% increase in DUO. OWLT DreamStock also remains a registry priority. Year-over-year baby list registry additions are up 59%.

That growth was supported by a surge in registry activity in August when expecting parents shared their registries during the viral baby list registry gifting movement. Part of that lift was a one-time August boost, but it shows how often DreamSock makes the list when families plan for a new baby. We also had a strong start to the fourth quarter with Amazon's prime big deal days in October. U.S. sell-through units grew during the event. 15% versus last year's October event, with the DreamSock sell-through growing 48%. We view this as a positive signal coming off the first major Amazon event since FDA clearance became required. For VitalSigns baby monitors. Turning to international, revenue was $8 million during Q3, the second highest quarter in Owlet history. On a reported basis, that's down 18% year-over-year, but the comparison is skewed as a result of last year's Q3 launch of DreamSight and DreamDuo. and the associated distributor load-in. International sell-through units when adjusting for the shift in Prime Day grew by 23% versus prior year. Before moving on to our next focus area, I'm proud to share a product we're very excited about. The Owlet Smart Thermometer, which we launched this week. It's an FDA-registered, no-touch forehead thermometer that gives a clinically accurate reading in one second without waking a sleeping child. Parents can use it on its own for a quick check or sync it to the

OWLT dream map to track each child's temperature history. For DreamSoc families that means pulse rate, oxygen, sleep, and temperature all in one place. The thermometer is also a new way for OWLT to reach parents. It's an everyday product at an accessible price in a category found in nearly every home with children and it brings OWLT into one of the most routine moments of child care. It's available now in the U.S. on OwLTCare.com with retail partners and international markets to follow. We see it as a way to reach more families more often and to build a connected health platform that grows with the family. Adding temperature expands the information parents can track along with DreamSock readings, which we believe strengthens the value of our connected platform. Turning to our subscription platform. We ended Q3 with more than 142,000 paying subscribers. Up 83% from a year ago and up 10% from Q2. And more families are coming to Owlet 360 for the long term. Annual signups nearly tripled quarter over quarter and annual plans now make up 13% of subscribers, up from 8%. Last quarter, we said we'd bring subscriptions to the point of purchase across more channels. Parents have been able to subscribe at checkout on our website and this quarter we extended that to retail with our first subscription bundle. on Amazon, which includes three months of OWLT 360 with the device. Many families first discover OWLT on Amazon, so building a subscription into that purchase means more parents will start with the full experience from day one. We're continuing.

to test WebPay before rolling it out broadly, and we're working with BabyList to bring upfront subscription to their customers. We're also making OWLT 360 more valuable every day. Our AI-powered morning report, one of our most used features, is now live for OWLT 360. All subscribers in 13 countries, localized in seven languages. Each morning, it reviews the baby's prior night and recent sleep history, and gives parents what a sleep coach would, what we noticed overnight, trends to watch out for, and tips for tomorrow night. It turns our data into... ...simple, personalized content that gives parents a reason to check in every morning. Beyond the morning report, we're working to make OWLT part of every day, not just every night. Parents want more predictability around naps. So we're developing new features to show subscribers the entire day's nap schedule that adapts on the fly when baby skips a nap or oversleeps. And because parents often forget to track naps, we're building nap reminder notifications and nap timers on the phone's lock screen for all users. While subscribers will get one tap logging for predicted sessions in their day schedule. The goal is to give parents a reason to open OWLT every day, not just at night, which we believe makes OWLT 360 sleep guidance more valuable and drives retention through engagement. Camera remains a big subscription opportunity for us, anchored on what parents tell us they need, a camera they can trust every night, and gives them guidance every day.

Our planned AI features include cry translation, which helps parents understand what their baby needs, and camera-based sleep tracking that requires no wearable. Not available yet, but it's how we see OWLT staying valuable for families well beyond the first 18 months. Turning to OWLT on-call, the next step in our development includes expanding on-call from only on-demand access to pediatricians. into features that support how they care for baby every day, right inside the OWLT Dream app. We're developing three new features to bring that to life, and we expect to begin rolling them out late this year into next. First, a weekly snapshot of what's going on. Using CDC data on RSV, flu, and COVID for the family zip code. Second, a daily journal that will keep feeds, diapers, medicine, and notes in one timeline with age-based suggestions from the AAP and CDC. And third, a visit note taker. With everyone's consent, we'll record a doctor visit. and give parents a recap of the next steps. We're also working to make overnight care one tap away. We're developing a new feature called Nightwatch. Healthcare visit requests run about twice as high between 8 p.m. and 8 a.m. And that's the gap we want to fill. Parents will be able to complete the visit intake forms in advance. And we'll also be able to share a 7-day summary of their baby's DreamSock readings with the pediatrician or save it for their own records.

This is how we see on-call becoming part of a family's everyday routine and adding value to our subscription platform over time. Finally, an update on OWLT1. As I mentioned, we continue to focus on moving subscription to the point of purchase and OWLT1 takes that a step further. The goal is to give families the best of what OWLT has to offer with a lower cost up front paired with the monthly subscription. That makes OWLT more accessible to families who may not have already been ready to spend more up front. Our testing has gone really well. OWLT1 has been converting at around four times Dreamstock's non-promotional conversion rate, which tells us we're reaching families who weren't buying before. We're still in the test and learn phase, but see OWLT1 as an important long-term driver of our subscription base. Let me close with this. OWLT's core mission is safety. We've had an incredible impact on OWLT1. on safety for families around the world, and that's why this matters so much to us. We anticipate some near-term disruption during the safety update process, but it's the right thing to do for families to trust us and for the long-term business. The foundation that brought many of you to OWLT is intact. The competitive differentiation of the first and only FDA-cleared baby monitor, a subscription base that today has more than 142,000 families and growing, one of the largest pediatric health and sleep data sets in the world, multiple growth drivers, and a team that continues to innovate. That's why we remain confident in our long-term

opportunity building the leading pediatric health platform in the world. I'll now turn the call over to Amanda.

Turning to our third quarter 2026 results on slide 13. Unless noted otherwise, I will be comparing Q3 2026 to Q3 2025. Q3 total revenue was $30.4 million, down 4.9% versus $32 million in the prior year. As we detailed on the Q2 financial results call in August, two factors were expected to impact Q3 results. The first was lapping last year's Q3 DreamSight camera launch and the associated distributor load-in, making for a challenging year-over-year comparable. The second factor was aggressive competitor discounting ahead of Amazon's... August 10th FDA clearance deadline. Although non-compliant third-party products remained on the platform past the deadline, which impacted our Q3 sales, Amazon had removed all of them by the end of September. As a result, Alep's DreamSight is now the only baby monitor on Amazon that tracks infant vital signs, giving us a durable, long-term advantage. Subscription revenue grew to a record $3.6 million, up to $2.1 million year-over-year. Q3 overall gross margin was 53.8% of approximately 315 basis points versus the prior year. Subscription gross margin was 68.4%. Total operating expense for Q3 were 15.2 million compared to 14.9 million in the prior period. Operating expenses as a percentage of revenue were 49.9%. Q3 operating income was positive 1.2 million. Q3 adjusted EBITDA was 3.5 million. up 1.9 million from the prior year. Excluding last quarter that included the one-time tariff refund, adjusted EBITDA was a record quarter. As Kurt noted, we were

cash flow positive in Q3 with a record 2.2 million in operating cash flow as we made continued steps to prioritize operational efficiency and grow profitably. Turning to our balance sheet. Cash and cash equivalents, excluding restricted cash, were 31.6 million as of September 30, 2026 versus 30.9 million in the prior quarter, June 30, 2026. Bind with 7.9 million of availability under our Wells Fargo Credit Facility, total available liquidity was approximately 39.5 million to end Q3. Turning to the financial impact of the Q3. Camera Cable Guard Safety Update. I want to reiterate the scope of this work. This update is related only to the cable guard accessory for our cameras and does not involve our core DreamSock product or our monitoring. We have initiated a voluntary safety update and a temporary stop sale regarding our DreamSight camera and DreamDuo products. This update will provide reports. placement cable guards to all qualified outlet camera owners. The majority of direct financial impacts will be recorded in the fourth quarter of 2026 across areas. Direct program costs and retailer returns. First, on direct program costs, we estimate the expense for producing and shipping replacement cable guards, logistics, customer support, legal and consulting fees at approximately 7 to 10 million, depending primarily on the number of customers who request a replacement. Second, on retailer returns in connection with the stop sale, we will

accept returns of existing inventory that does not include the replacement cable guard. We estimate retailer returns of 9 to 12 million, which will be recorded as a reduction of revenue in the fourth quarter. We expect to... recognize an asset for the estimated value of 3 to 4 million for returned inventory that can be resold in the future. Our return estimate cost does not... reflect potential inventory replenishment. However, as retailers restock products with the replacement cable guard, we estimate an initial load in of 2 to 5 million as a partial offset to the retail... returns we just discussed. Any replenishment will be recorded as revenue when it occurs based on retailer demand and the availability of the replacement cable guard. We are working closely with our retail partners who have been supportive.

Dreamsock, which represents 70% of revenue to date, will remain in all channels during Black Friday. Additionally, because Dreamsock drives much of the demand for Dream Duo, some of these lost sales may shift to Dreamsock. Finally, DreamSight and Dream Duo, including the replacement cable guard system, will be available on OwletCare.com throughout the Black Friday promotion. Lastly, we maintain an insurance policy with a limit of... of $10 million, which may help offset certain costs of the program. Any recovery is subject to the policy's terms, conditions, and retention. We have not recognized any insurance recovery to date. The timing and amount of any recovery are uncertain. Turning to our outlook. As Kurt said, outside of these actions, we were in a position to reaffirm full year outlook. The fundamentals of our business are strong. However, due to the safety update, we are withdrawing our full year 2026 outlook, which was revenue of $118 million to $122 million, gross margin of $53 million. to $55% and adjusted EBITDA of $10.75 to $12.75 million. I want to walk through why. The safety update affects our fourth quarter. in a number of ways. Three of them we can reasonably estimate today. First, the $9 to $12 million in retailer returns, which reduces fourth quarter revenue. Second, the offset of $3 to $4 million for return inventory that can be reworked and resold in the future. And third, $7 to $10 million in direct program costs, which is a total net impact of $13 to $18.

million. There are three impacts we can't yet fully quantify. First, the timing of retailer replenishment as product with the replacement cable guards reaches shelves. We anticipate approximately $2-5 million of initial load in revenue. The timing and amount will depend on retailers acceptance, order timing, and inventory availability. Second, the potential impact on demand, especially during the Black Friday and holiday sales periods. And third, any potential insurance recovery, which could be up to $10 million. Coverage is not guaranteed, but we are working closely with our insurance carriers to quantify reimbursement. Together, these unknowns create a range of fourth quarter outcomes that's too wide for us to guide responsibly. Before we open the line, I want to reiterate Kurt's confidence. While we anticipate some near-term disruption during this process, it's the right decision for the business, and we're confident in the foundation. And long-term opportunity for OWLT to remain intact. With that, we will now take your questions.

Your first question comes from the line of Owen Rickert with Northland Capital Markets. Owen, your line is open. Please go ahead.

Please go ahead.

with TD Cohen. Jonah, your line is open. Please go ahead.

Your next question comes from the line of Stephen Lipman with William Blair. Stephen, your line is open. Please go ahead.

Thank you for your continue.

partnership.