Good afternoon and welcome to the Sidoti & Company Virtual Investor Conference. The next company to present is Owlet Inc. With us is the CEO Kurt Workman and the CFO Kathryn Scolnick. As usual, we have 30 minutes for the presentation. We'll probably have a few minutes at the end for Q&A, so if you have some questions, you can type them into the Q&A tab at the bottom of your screen and we'll read those off. With that, it's all yours, Kurt, Kathryn. Thanks, Jim. Appreciate it. Hello everybody, I'm Kurt Workman, one of the co-founders and CEO of Owlet. I'm joined by Kate Scolnick. She's our CFO. Excited to share our story. We're really going to share kind of just the background on Owlet, who we are, a little bit about the products that we make, and then some recent kind of financial updates and the trajectory that we believe the business is on. This is a really exciting year for Owlet in 2024. We're seeing growth. We're seeing significant improvements in margin. We're targeting profitability. So this is a big year. We feel like we're at an inflection point and excited to share more about the business. I'm a dad. I've got three kids. That's obviously probably what most of you assumed, how I created the company and the idea. Right before my oldest was born, we were worried that he might have a heart defect that my wife has. And so we're extra conscious of health and safety at home. And I remember looking at, like, okay, what exists for new parents out there? There's sound and video monitors. There's thermometers. But that's about it. And I learned about this technology called pulse oximetry that they use in the hospital. It's that little red light that they put on your finger to monitor your heart rate and oxygen levels. It's now in a lot of wearables. But at the time, it was really just for the hospital, but really helped my wife's nurse, helped nurses and doctors know when to go check on their patients, gave them more information that could give them a better chance to deliver care. I thought, that's incredible that doctors and nurses have access to this. As a parent, I would absolutely want to know if something changed with my child's heart rate or oxygen or if they needed help. Navigating that first year is really challenging. So we created the Owlet Smart Sock. It's a little sock wrap that goes on the foot. Here you can see in the image. Wraps around the foot, monitors baby's heart rate, oxygen, sleep, and activity. And I'll talk a little bit more about it, but it's a little bit about the company. We're based just outside of Salt Lake City, Utah. We've got employees across the country, a little under 100 employees. We're in Boston, Austin, San Francisco, and then the majority of the employees are in Salt Lake. Some backdrop on the market. There's over 140 million babies born every year in the world. It doesn't matter where you're born. Every parent has the same questions and concerns. We're worried about our kids' safety, their health, and their sleep. It's kind of like Maslow's hierarchy of parenting needs. And you have to know that they're safe. You have to know that they're healthy. And you have to get a good night's sleep before you can really do anything else in your life. Unfortunately, in the United States, the number one cause of infant mortality is SIDS. It's about 40 times as common as car accident fatalities. And it hasn't changed. The rate of SIDS or SUIDS has not changed in over 25 years. Babies get sick really often. They get sick eight to 10 times in the first few years of life. There are frequent visits to the doctors. Parents are constantly managing whether or not they should talk to their doctor. Parents will lose over 100 nights of sleep in the first year alone. It's an exhausting endeavor. All the parents out there know this. You know what it's like to get woken up at 2:00 A.M. and 3:00 A.M. and 4:00 A.M. with a newborn baby. And so you've got an exhausted caregiver who is fairly untrained, dealing with health challenges at home with an underlying safety concern. It drives the highest rate of healthcare utilization of any other time of life. There's over 100 million pediatric visits in the United States. The majority of those visits are in the first few years of life. The reason for healthcare at this time of life is very different than other times. I don't go into the doctor unless I know I'm about to die or something's really wrong. But for babies, because they can't actually communicate how they're doing, parents actually frequent the urgent care and primary care very often with a sick child. What they're really trying to answer is, "Is baby okay?" It's a two-hour trip. If you go in at night, it's over $1,000 to check your child into the 97% of the time. This is treat and release. It's peace of mind. You're getting Tylenol and Motrin and going home. We do that as parents for the 3% of kids who really do need care. It's just a very inefficient way to address the core questions parents are trying to answer at home. Now that we have wearable health monitors, over 70 million adults in the U.S. have a health monitor on their wrists. Parents know that this exists, and they demand access to the same information for their kids. That's what we do. We've got the world's first FDA-cleared over-the-counter monitor for pediatric health at home. We track baby's heart rate and oxygen in real time. We track and trend their sleep, their temperature, their activity. With our camera, we can get a lot of environmental data. All of that data flows to your smartphone so that Owlet is up all night so you don't have to be. It's real peace of mind, but it also gives you proactive and empowered parenting and the ability to make decisions, especially when it relates to the biggest questions that parents have. This is our suite of products here. We have the wearable wrap, the sock, that communicates with this base station you can see on the right. The base station glows different colors based on the status of your baby. Green means good. And then sends all that information to your smartphone. If your baby's heart rate or oxygen levels drop, you get an alarm on your phone that says, "Go check on baby. Maren has low oxygen," which is really helpful for parents. We had six parents come into the office and draw their life before Owlet and draw their life after Owlet. And they all drew the same after-Owlet picture, which was them laying down with Z's coming out of their head. And they all described just getting deeper sleep. I glance over at the base station. Everything's green. I can go to bed. I can actually get some rest. The worst thing, if you weren't waking up all night with a baby who's learning how to sleep, the worst thing is to stay up because you're worried. We also track and trend all this data. So you can open up our history tab in the app. You can see all the vital signs trended over time. This is really helpful when your child's getting sick. Helps you navigate the conversations with your pediatrician. And then we use all this data to drive AI algorithms. We have a digital sleep coach in our app that, instead of having to read a bunch of books on sleep coaching or hire a sleep coach, you can actually use the Owlet app. It's personalized based on your baby's sleep patterns and gives you optimal sleep windows and sleep tips and tricks to help you get your baby to sleep better. So it's a full platform that connects parents to the health of their baby. We believe we're helping kind of bridge the gap and becoming the voice of the baby. On top of that, we have the Owlet Cam, which is a 1080p night vision camera, two-way audio that connects into the same app. So when you open up our app, you can see baby, you hear baby, and you know baby's okay. One of the exciting things about Owlet is just in the last few months, we got two FDA approvals. One is for our consumer product, the Dream Sock. It was a De Novo clearance. It's the first time the FDA has ever cleared a baby monitor. And it allows us to sell a medical device over the counter through our retail channels. And we also got a clearance for a prescription version of our product called BabySat. It's based on the same technology, but it's for kids who are high risk, coming home from the NICU, have some sort of severe respiratory condition or heart defect. A doctor can actually write a prescription for BabySat, and insurance companies will reimburse that. We're now integrated. We launched in January. As of March, we've integrated about 70% of the private payers into BabySat. We launched our first distribution partnership with a group called AdaptHealth. And we're working on really building all the piping and infrastructure for this channel this year with new partnerships with provider networks, children's hospitals, and more DMEs. We also launched a telehealth service on our website so that parents can chat with the doctor, and they can get a prescription for BabySat if their child is sick. In addition to all of this, this is our new channel. It's a new area of growth for the business. We currently distribute our consumer product on our website through Amazon. We're in all of the Target stores, most of the Walmart stores, every Best Buy store, and then some specialty retail with companies like BuyBuy Baby. This year, with the FDA clearance, we're getting more shelf space. We're getting endcaps, which are prominent displays in Walmart in 1,000 stores. Target has just recently created a new health monitoring section in their baby monitoring endcap as well for Owlet. So this is a really big year of expansion for the business. And we believe that eventually, just like every baby goes home with a car seat or every parent can get a breast pump reimbursed by insurance, eventually, every baby will have access to a health monitor. And Owlet is in the prime position to not only did we create the category, not only did we establish it with the FDA, but we're growing this category. We believe we're the ones that are bringing this to life. We're the number one brand in infant health. We have the highest product satisfaction ratings, over 500,000 users in 2023, a real revenue base and sales base with over $70 million in gross sales in 2023. We have two FDA clearances. We just announced our CE Mark clearance. We're positioned as the premium, most trusted brand in the market. We have one of the largest communities. We had over 100 million organic video views last year, and we've sold over 2 million units. Owlet is the leader of this category. One of the unique advantages we have, on top of our 58 issued patents, the large community that we have, our FDA clearances, we also collect a lot of data. We use that data to drive more insights and new features in the product, which helps us sell more products, which then we get more data. So it becomes this virtual flywheel of growth and also a moat that continues to build. So even if you can get the clearances, you can overcome the IP, you still have to have the data to match the value. That's one of the reasons why Owlet's been so successful is because we really do leverage that data to drive success in our market. From a financial perspective, we've done a lot of work to bring cost out in the business and grow the business over the last two years. We brought our CPAs down by 80%. We brought our operating expenses down by 70%, while growing the underlying sell-through in the business by 20%, which got us to near break-even from an Adjusted EBITDA perspective in Q4 of last year. Our goal is to be profitable as we move forward. And the catalyst that's driving that is the growth that we're seeing from these FDA clearances. So we got the clearances at the end of last year. We've seen our Sock sell-through pick up by 60% since we got the clearances. And that additional growth, while maintaining our operating leverage, is what's driving us to profitability. Just to kind of show how we think about what our target operating model is and how we believe we can drive sustainable growth, we have this core growth that's come into the business post-2023 from the launch of our FDA clearance. We're now opening up new medical sales channels with hospitals, with DMEs, telehealth partnerships. These are completely new channels. There's a lot of opportunity for growth in this area. We believe about 20% of babies born in the United States could get insurance reimbursement for the BabySat. And then we've announced that we're launching a subscription service that uses all of our data to drive new insights for parents and connects that data to a telehealth service. So that's really the target operating model we have of driving growth from the FDA clearances, new med sales channels, and then driving LTV through subscription that will add significant margin contribution to the business as well. These are kind of the main things you'll see from us this year. You'll continue to hear year-over-year sell-through growth and margin growth. You'll hear more about our medical channel expansion and new partnerships. You'll hear more about new features and services that are launching in our app. We've got an incredible team that's leading this with experience from consumer to healthcare, IoT, an awesome board, decades of experience in public companies and managing public companies. This is our year for growth post-FDA clearances. Happy to take any questions. Kate, anything you want to add to that before we go to questions? No, that's great. Thanks. Okay. Sorry. So it seems like you've a little bit of a roller coaster since the FDA decided that you needed clearance for these devices. You had to do a lot of work to get there, but it seems like you're over the hump at this point. I mean, is there any other regulatory issues that you're facing? No, no. We have the two U.S. FDA clearances. We have our European clearance. We're then leveraging the European clearance for clearances in other countries. So from a regulatory standpoint, Owlet has not only cleared the hurdle that the FDA put in front of us, but we're now leading this category, and it's driving a lot of growth in the business. Your partner, AdaptHealth, I assume they're just going to sell the BabySat, the prescription product, or will they sell all the products? That's right. They'll just sell the prescription product. They've got relationships with all of the major payers, over 111 hospitals. They have a sales force of 300 sales reps. So they're a great first distribution partner to kind of expand BabySat's distribution across the United States and start to integrate insurance. We've integrated AdaptHealth into our website. So as a parent and you're learning about our products on our website, you can go into BabySat, and the checkout experience feels like it's Owlet, but it's all powered by AdaptHealth. You can chat with a doctor through our website. You can get a prescription. You can bring your own prescription. And then AdaptHealth does all the backend work to verify prescription or sorry, yeah, verify the prescription, but also the insurance. And so a lot of families are able to get BabySat reimbursed with $0 out of pocket. But that whole process, that revenue cycle management process, is done at Adapt. It's not done at Owlet, right? That's right. Yeah. We sell to Adapt like they're a distributor or like a retailer. They buy the devices at a wholesale price, and then they handle all of the logistics for Owlet. How does profitability for that product compare with your consumer-based products? I guess they're all consumer-based, but your retail-based products. Yeah. We sell BabySat for 50% higher wholesale price than we do the consumer product. As the volumes grow on BabySat, the margins are going to get really healthy. There'll be significantly higher margins. Operating margins, not just gross margins? Gross margins and operating margins because it's the same technology set. So it's managed and maintained by the same team. Okay. How do people find out about the product? How do you build brand awareness? Owlet's done an incredible job through word of mouth, primarily having a great product. Parents talk about it. 50% of our purchases are referred by a friend. So we do a really good job of having a great product experience. That's the foundation. But then we do a lot of activity with influencers and through social media, so TikTok, Facebook, Instagram, working with parent influencers, working with pediatrician influencers. But social media is the primary driver of awareness. We have incredible awareness in the United States. And then the FDA clearances have kind of opened up the bottom of the funnel. What we're seeing is the conversion rates are increasing. On the retail side, can you talk about some of your partners there? Yeah. Owlet, we sell online and through kind of traditional brick and mortar. So Amazon's about 30% of our business. We do really well on Amazon. We just signed a partnership with Amazon Direct. So we're selling to Amazon now instead of on Amazon. They give us additional placement. That's a really successful channel. Our website is very successful. We do really well in Target. We're in all 1,700 Target stores with our products. We're in every Best Buy store. We're in most of the Walmart doors, the ones that make sense. It's about 2,000 stores. BuyBuy Baby is a big baby specialty retailer and registry. And so those are kind of the primary distribution channels in the United States for consumer. Okay. If we switch back to the BabySat, there is a reimbursement code in place. I mean, is it a monitoring code? For the reimbursement? Yeah. So there's different codes depending on the condition of the baby. So there are pulse oximetry codes. So we have a 510(k). We've shown that we're equivalent to the hospital monitoring technology. So anything that they're sending a baby home with monitoring for, BabySat can actually replace that. And they can have our wireless, wearable, much more convenient solution for the home. So there's existing codes for pulse oximeters that we're able to use. Okay. Is there competition? Yeah. Just like any market, I would say kind of primary buckets of competition are the antiquated baby monitor competition, kind of your basic sound or video monitors. You've got some new innovative tech in video that can detect things like respiration rate, like the baby's chest moving. I would say it's not very reliable at this point, which is why Owlet does so well. And then there's a few kind of copycats of Owlet that are on the fringes that don't have a lot of market penetration. Owlet is by far the leader in this health monitoring category. What level is the reimbursement? Do you have a specific number? You know what? I'm learning reimbursement is more complicated than I had originally thought. Every state and every plan reimburses differently. Some reimburse up to $2,000 for a home monitor. Others are a few hundred dollars. So it really depends on the state. That's one of the things as we talk about our medical sales channel, we're building all that infrastructure this year. We're building the relationships with all the payers. We're doing all the firsts in terms of reimbursing the BabySat. And as we come out through the end of the year, our hope is that we're able to have one price, one out-of-pocket price for parents as they're checking out or they're buying this with these different DMEs. That's sort of a blended price just to keep things really simple because we can share that, "Hey, you can get a BabySat for $100 out of pocket." That message is really going to catch on. So that's what we're building to right now with all these partners. But the revenue to Owlet for the BabySat is going to be significantly higher than for the retail products. That's right. Yep. How are the retail products priced? The Sock is priced at $300. The Duo is priced at $400. That's the Sock plus the camera. The camera is $159. Okay. All right. A question here about AI. Is there an AI-related opportunity to the service or usage of data? So I guess maybe you could just go over the subscriptions that you sell again. Just what is the consumer getting if they sign up for the subscription? So the subscription is launching this summer. It's not available yet. But we do use AI in sort of all aspects of our product. We use machine learning algorithms that do the detection for the heart rate and oxygen levels. It makes it more accurate. There's fewer false alarms. There's earlier detection of issues. So use AI for that. There's going to be quite a bit of AI into the new subscription service that analyzes the data and compares it to population, to your baby's trending data so that you can see if something's outside of the normal. And then we'll help surface that to a telehealth professional. We're also integrating kind of generative AI chat into the app for customer service-related issues to start. And then we'll grow that over time to be a helpful tool for parents that are navigating sleep and lactation consulting and those types of things in the home. Is there anything new that you guys are working on? Is there a new product pipeline? Well, it's all new. We got two major FDA clearances that we just launched. We're launching our med device in Europe. We're launching our new subscription service. And then we do have other hardware products in R&D that we haven't announced dates yet or some of the features of those. Those will be in future years, though. Because I looked briefly at the chart. I mean, the stock was trading multiples higher before the Dream Sock issue with the FDA. But now that you've basically resolved that issue, I mean, do you see any reason why sales wouldn't get back to the level they were prior to the FDA warning? No, I don't. I would say that we're getting there. What we're seeing with the lift in sell-through post-FDA clearance, we are seeing the momentum trend in that right direction. We're seeing the registries really fill back up again. The conversion rates are starting to look more and more like that. And to be honest, I think it's almost in some ways kind of like apples and oranges. We're now in a much better opportunity. We now have not only do we have the same features and additional features in the product, we now can claim we're the first product, the first baby monitor with FDA clearance. Trust is really the word to own in this category. We think it's an even bigger opportunity than what we were looking at before with all of these new medical sales channels, with the ability to integrate the data now with telehealth, which we couldn't do before. We actually expect that this should be a much bigger business over time. Yeah. Talk a little bit more about AdaptHealth. I mean, your partner there, what type of products do they sell? And do you think they've been good at adopting your product and launching it? Do they understand it? Do you think that they're doing a good job? Yeah. I mean, I think it's a great organization. I feel like their reach and distribution is fantastic. This year, we're building the infrastructure for that. It just takes a little bit of time with these insurance companies. It takes time to sort out all of the reimbursement for a new device. Even though there's an existing code, it takes time. It's kind of how I'm going to put it. And we have other partners we're going to launch this year. So we kind of look at it as this year is building all the infrastructure, getting all the pieces in place. We're seeing the top of the funnel is full. Parents want the BabySat. Pediatricians are prescribing it. We're now working on the payer integration and the fulfillment pieces. Once those all come together, it's going to be a really great business. I think AdaptHealth's a perfect first partner to help us work through all of that with these payers because they have great relationships with them. All right. right. Kathryn, maybe can you talk about the balance sheet? I know you have cash on hand now. Do you think you have enough to fund you through the point you get to profitability? Yeah. We did a $9 million raise in Q1. We have a revolver that we're using for working capital. So our goal here is to continue to march towards first Adjusted EBITDA profitability, and then get on the other side of profitability with these revenue growth opportunities. We've been working hard also to not only deliver cost reductions in our model, but then getting to a steady state of cost and then improving gross margins in our business. So 2023 was all of those improvements delivered. And then I think the 2024, what you'll see is the leverage starting to build in the model. So that really is our goal as we march towards a sustained profitability for our business. Is the hardware all outsourced, or do you manufacture any of those products yourself? We use a third party to manufacture. No issues, though, with scaling up as demand grows? You don't anticipate any problems scaling up with that? Correct. All right. Who would you say are your biggest competitors or your biggest peers in the space if investors want to compare you to somebody else? Because I know Masimo is a big company doing monitors, but I don't think they have much of a retail business. Yeah. I would say in the patient monitoring space, Masimo is definitely same technology. I think they're trying to enter consumer from the healthcare position. There's other patient monitoring companies like iRhythm and Dexcom that I think are good comparables. They're not competitive. On the consumer side, companies like VTech that make baby monitors, there's a company called Nanit that is a video monitor with a wearable chest wrap that goes around the baby's chest. So you've got kind of the traditional baby monitors, and then you've got the med devices. I think what sets Owlet apart is that we really do stand in both worlds really well. It's medical-grade accuracy. We've compared ourselves against every hospital pulse oximeter. But it's a very consumer-focused, parent-focused brand. That's something that a lot of these med companies just have not figured out yet is how to actually build a brand and build trust with parents and build a community. This category is driven by word of mouth. It's too small. It's like when you have a baby, everybody knows it. You're talking to everybody. Really being parent-centric, parent-first has been something that's allowed Owlet to create a lot of success in this market. There's still a lot of room for growth. We believe eventually every baby will have a health monitor at home. Right now, it's only about 8% of parents are getting an Owlet. There's a lot of room for growth in this category. It's also a new category. We don't see it the same as a traditional baby monitor. When we launched in Target stores, their overall baby monitor category grew by the same amount of Owlet's revenue. So it's seen as a new category. Parents buy a health monitor and a video camera. And so Owlet's positioned to be the leader in a category that we think will be similar to car seats and strollers. Yeah. And honestly, that was the impression I got when I first heard the story is you have a nice technology, but you also seem to be good at marketing the product and getting to the people who need it. I can't see Masimo with a social media presence out there marketing. So it does seem like a pretty unique business to me. All right. Yeah. Our team drove over 100 million organic video views last year. So they're really good at meeting parents in the channels and in the conversations that they're having. Okay. We are just about out of time. Do you have any closing comments before we sign off? Yeah. I think what I would just also share is Owlet, on top of all the work we do with technology and marketing, we also work with 30 nonprofit organizations across the country. These are usually parents who have lost a child and have started a nonprofit to give back to their communities. They educate on safe sleep. They become a resource for other families who have experienced loss. And one of the amazing things we've seen is that they also really believe in families having access to technology like Owlet. So they donate Owlets to families that can't afford them. And Owlet matches that so that more families are able to get monitors. For example, in every county in Iowa, there's a daycare that's equipped with Owlet. That's one of the nonprofits we work with, give Owlets to families who can't afford them in daycare. Then there's situations like that across the country. One of the things that I really think that that demonstrates is that this isn't seen as a nice-to-have product. This isn't like a Nest thermostat or a Fitbit. This is something that people really know has a huge impact and believe should be available to every family. So as we continue our work with BabySat to get insurance set up, we want to take that to the next level and have eventually, every family will have access to this through insurance. Got it. Got it. Well, again, it seems like a very unique story, and it seems like you're right on the verge of really starting to take off here. So I want to thank you and Kathryn for presenting. And hopefully, we'll hear again from you soon. Okay. Thanks, Jim. Appreciate it. Okay. Thank you.