Owlet Inc - Ordinary Shares - Class A Aktie

Hello, everyone. Thank you for joining us, and welcome to the Owlet Q2 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Jay Gentzkow, Investor Relations. Jay, please go ahead.

Good afternoon, everyone, and thank you for joining us. Earlier today, Owlet released financial results for the second quarter ended June 30, 2026. I'm pleased to be joined today by Kurt Workman, Owlet's President, CEO and Co-Founder; and Amanda Twede Crawford, Owlet's CFO.

Before we begin, please note that our financial results press release and presentation slides referred to on this call are available under the Events and Presentations section of our Investor Relations website at investors.owletcare.com. 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 Owlet. It cannot be reproduced or transcribed without our prior consent.

Before we begin, I'd like to refer you to our safe harbor disclaimer on Slide 3 of the presentation. Today's discussion will contain forward-looking statements based on the company's current views and expectations as of today's date. These statements are only predictions and are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

These risks and uncertainties include, but are not limited to, those described in our most recent filings with the SEC and in 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. With that, it's my pleasure to hand it off to Kurt.

Thanks, Jay, and good afternoon, everyone. Thank you for joining us. Before we get to our record Q2 results, I want to step back and discuss where we are taking this business, the platform we're building to support the parenting journey and the opportunity we see over the coming years. Every day, Owlet is evolving more and more into a data and services platform for the earliest years of a child's life.

Our products capture meaningful and unique information about a baby's sleep and health, turning that data into insights, guidance and peace of mind for parents. Our vision is to bring together the best of what parents use today into a single Owlet experience, sleep, health monitoring, camera and telehealth for a fraction of what separate apps and devices cost today.

Over time, we want all of our customers to get the best of what Owlet's platform has to offer because engaging with Owlet increasingly means engaging with the service, not just the device. That leads to how we're thinking about the opportunity, and I want to keep our objectives simple.

First, firmly position Owlet as a data and services platform through subscription. Second, win roughly 1 million new customers per year; and third, keep those families with us for at least 2 years. Put those together, and it points towards a recurring base over time of over 1 million subscribers. This is the evolution from a onetime hardware-centric sale into a durable multiyear subscription relationship, and it's what the entire company is now organized around.

Let me give some more color to each. First, firmly position Owlet as a data and services platform through subscription. Subscription is how we're positioning Owlet from a device families buy into a platform they rely on. We've clearly validated the subscription opportunity since launch early last year. Today, over 30% of new U.S. customers subscribed to Owlet 360 in the first year. This is an ideal category for a multiyear relationship since the intensity of parenting lasts for years, not just months.

Our goal is to make subscription the obvious choice. So we're expanding where parents can enroll, moving beyond in-app sign-up and toward the point of sale and testing offers and bundles that make enrolling in subscription at purchase a no-brainer. Another lever in subscription value proposition is inside Owlet 360 itself. Every new feature we add to sleep insights, camera intelligence and telehealth enables us to partner with families for longer and is designed to extend our lifetime value.

Second, win roughly 1 million new customers per year. This year alone, Owlet will sell to 600,000 to 700,000 new customers. Owlet's competitive moat gives us a dominant and secure position in our category. We're the first and only FDA-cleared baby monitor on the market. We're consistently the market leader in dollars spent in the category, and we've built a brand that parents deeply trust in a pediatric health and wellness market that's still early.

Given the size of our funnel, the consideration for Owlet is already massive. Each year, we see roughly 4 million unique visitors to owletcare.com and over 1 million baby registry additions. The opportunity isn't to invent demand, it's to convert more of the demand that already exists into new customers. Millions of parents are already considering Owlet, and our job is to move more of them from consideration to purchase.

Subscription is what makes this possible because the subscriber's lifetime value is designed to extend well beyond the initial sale, we're creating offerings that increase overall value, save families money upfront and still grows the economics of each customer over time. That is a winning funnel to drive conversion and LTV simultaneously. And finally, keeping families with us for at least 2 years.

Today, the average subscriber length of use is about 1 year. Our goal is to continue to make Owlet more valuable the longer a family uses it, carrying them past the newborn window when safety is top of mind into years 1 and 2 when sleep, health and wellness take focus. Owlet 360 subscription is the vehicle, a digital translator that turns real-time data from our products into insights for parents. Many already use the camera well beyond 24 months, so delivering the best of Owlet to every family naturally extends lifetime value.

Underneath it all is what we believe is the largest pediatric health data set in the world. That foundation enables us to build increasingly personalized experiences across sleep, health and wellness using AI to turn data into meaningful insights and guidance throughout the parenting journey. That's a very hard thing to walk away from. Our long-term objective is to build toward a recurring base of more than 1 million subscribers by expanding our customer base, increasing subscription adoption and extending subscriber relationships.

Now turning to the second quarter update on Slide 7, where we set records on many metrics, a record-breaking total revenue for the second quarter of $33.9 million, which represents a 29.9% increase year-over-year. In the second quarter, Owlet received approximately $4 million in tariff refunds following the U.S. Supreme Court's February decision invalidating tariffs imposed under the IEEPA. Of that $4 million, we recognized a onetime $3.5 million benefit to COGS and a onetime $3.75 million benefit to adjusted EBITDA, with the remaining balance going to inventory.

Q2 gross margin, excluding the tariff refund was 54%, expanding 270 basis points versus Q2 2025. Including the tariff refund, gross margins were 64.4% in Q2. Adjusting EBITDA, excluding the onetime tariff refund, was also a record for Owlet, $2.9 million, a $2.4 million increase compared to prior year. Including tariff refunds, adjusted EBITDA was $6.7 million.

Owlet 360 subscription continues to thrive. We ended Q2 with 130,000 paying subscribers, generating $3.2 million in revenue, up $2.4 million year-over-year. Subscription MRR increased sequentially, surpassing $1.1 million to end Q2 and penetration rate for Dream Sock in the U.S. increased to 36%. I'm really proud of the team's execution in Q2 and excited about our category leadership, which continues to deepen.

I want to address that with the recent development in our category that highlights our competitive differentiation. As you remember, in September of last year, the FDA issued a safety communication warning consumers against using over-the-counter infant monitors, making unsubstantiated claims without having been reviewed for safety and effectiveness.

In early June, we received a letter from Amazon, and we're confident other companies in the baby monitor category did as well. The letter notified sellers of baby monitoring products that measure and monitor vital signs that any such product lacking FDA clearance would be deactivated on Amazon's platform effective August 10, 2026, which was yesterday.

For Owlet, no additional action was required. Dream Sock has been and continues to be FDA cleared and Amazon already had our clearance documentation on file. To our knowledge, no other baby monitor on the market today has secured the same clearance. If Amazon continues to enforce this requirement, we believe it could provide a longer-term competitive benefit for Owlet as any company wishing to measure and monitor vital signs would need to go through the same rigor we underwent to secure FDA clearance in order to sell on Amazon's platform.

Following the letter, we observed aggressive discounting by several competitors, including products that we understand are subject to the new requirement ahead of the August 10 deadline. This pattern continued through Prime Day and after. As a result, Owlet's units sold during Prime Day were down 8% versus last year's event, underperforming our expectations.

Despite losing some units to the competition during Prime Day, we were still #1 in baby monitoring and in the baby safety category. We don't yet have full visibility into competitor pricing behavior post August 10 deadline, but we anticipate Amazon's enforcement to be a long-term tailwind for the business.

Continuing with the quarterly review, consistent with last quarter, I'd like to provide updates on our 2 core growth drivers: driving adoption of Dream Sock and Dream Duo in our core global markets and expanding the subscription platform with Owlet 360 and Owlet -- on Call. In the U.S., when adjusting for the shift in Prime Day, total sell-through units grew by 12%, including a 16.5% increase in Dream Sock and a 16% increase in Duo.

Excluding Prime Day, Q2 total sell-through units grew by 20% year-over-year with Dream Sock and Duo growth of 21% and 29%, respectively. This gives us confidence that general sell-through is growing at a healthy rate, but Prime Day dynamics weighed on the quarter as mentioned above.

Owlet Dream Sock also remains a registry priority for expecting parents with year-over-year registry additions growing 40%. Finally, international was a standout in the quarter with revenue growing 214% year-over-year. Recall that last year, we had an expected timing shift in orders from Q2 to Q3, driven by the Dream Sight camera and Duo launch and the associated load-in to our distributors, positioning Q2 2025 as a favorable year-over-year comparable.

However, we also saw significant global momentum in the quarter. Excluding the Q3 2025 quarter that benefited from the significant load-in for the new camera, Q2 2026 was the highest international revenue quarter in Owlet history at $5.7 million. This is further supported by strong international sell-through. Total sell-through unit growth was 38% year-over-year and Prime Day sell-through outside of the U.S. grew over 100% year-over-year.

Turning to Owlet 360 and Owlet -- on Call. We made real progress on the subscription platform this quarter. We launched Owlet 360 subscription in a number of new non-English-speaking international markets, now reaching an additional 5% to 10% of our user base that previously could not subscribe. We also began testing Web Pay, moving subscription enrollment and billing onto our own web-based checkout.

We will be rolling Web Pay out in Q3 and expect over time to improve our subscription margins by reducing the third-party payment fees we pay on in-app purchases, and it gives us more flexibility to enroll subscribers right at the point of purchase.

Related, we began rolling out upfront subscription, the ability to sign up for Owlet 360 at the moment of purchase rather than later in the app. It's already live on our own website and will be going live with Babylist soon. We also expect to offer subscription bundles to retail partners in the second half. Our goal is to continually optimize the LTV per customer.

Turning to Owlet -- on Call. This remains a deliberate test and learn year to explore how Owlet can best bring our unique position in the category to pediatric telehealth. We launched with around 5% of users with access to on-call service. And now in Q3, we have begun to carefully expand access more broadly. Where we are taking Owlet OnCall is toward a more seamless and proactive experience that can help parents connect with clinical resources when appropriate.

We are being intentional here, learning from real usage before we expand and begin to automate the offering. We'll share more as we go as we continue to believe this year's learnings set up for a meaningful new revenue stream as we move into next year. It's an exciting time to be part of Owlet. We are executing across our strategic growth areas, and it is showing up in our results, record revenue, standout international growth and ongoing Owlet 360 momentum. We believe our biggest opportunity from here is growing subscribers, and that is exactly where we are focusing the company.

I'll now turn the call over to Amanda and walk through our Q2 financials. Amanda, take it away.

Thanks, Kurt. Turning to our second quarter 2026 financial performance on Slide 11. Unless noted otherwise, I will be comparing Q2 2026 to the results of Q2 2025. Q2 total revenue was a record of $33.9 million, up 29.9% year-over-year. Growth was broad-based with strength in Dream Sock and Duo and strong international performance and continued momentum in subscription.

Subscription revenue grew to a record $3.2 million, up $2.4 million year-over-year as our Owlet360 base continued to expand. Q2 overall gross margin was 54%, including the tariff refund, up approximately 270 basis points versus the prior year. Including the onetime $3.5 million tariff refund allocated to COGS, Q2 overall gross margin was 64.4%.

Subscription gross margin expanded again sequentially to 68.4%. Total operating expenses for the second quarter were $20.1 million compared to $15.1 million in the prior period or approximately 59% of revenue. The year-over-year increase was primarily driven by higher marketing spend as Prime Day promotional timing shifted from Q3 to Q2 as well as severance costs, including stock-based compensation. We remain committed to raising our level of operational efficiency and financial discipline through the balance of 2026.

Excluding the tariff refund, we experienced an operating loss of $1.8 million. Including the tariff refund, we saw operating income of $1.7 million. Adjusted EBITDA, excluding the onetime tariff refund was a record $2.9 million compared to $0.5 million in the prior year. Including the tariff refund, adjusted EBITDA was $6.7 million. I want to note that our financial statements will include routine immaterial revisions to prior year amounts across certain line items, including revenue and operating expenses.

I want to emphasize that these immaterial adjustments have no impact on our cash balance or cash flows. Complete details will be provided in our upcoming Form 10-Q filing. During the quarter, we entered into a new $25 million asset-based revolving credit facility with Wells Fargo that refinances and replaces both our prior asset-based facility and term loan.

The new facility significantly reduces our cost of capital, lowering our interest rate margin to SOFR plus 2% to 2.25%, down from SOFR plus 7.5% to 8.5% under the prior asset-based facility, a reduction of at least 525 basis points. We expect this to meaningfully lower our annual interest expense going forward, including no minimum interest requirement. These improved terms reduce our cost of capital and provide additional flexibility to continue investing in our strategic priorities while maintaining a disciplined approach to capital allocation.

Turning to our balance sheet. Cash and cash equivalents, excluding restricted cash, were $30.9 million as of June 30, 2026, versus $35.5 million in the prior quarter March 31, 2026. The change in cash was primarily due to $2.7 million in debt payoff, CapEx investments and working capital timing. Combined with $7.5 million of availability under our new credit facility, total available liquidity was approximately $38.5 million.

Turning to our guidance. We are pleased with our first half performance, including a strong second quarter. At the same time, we are taking a deliberately measured view of the second half given the aggressive competitor discounting prior to the August 10 Amazon deadline and not having full visibility into competitor behavior post deadline. In addition, we are observing some broader macro signals we want to be cautious about. Prime Day's baby monitor category was down versus last year with consumers appearing to spend more cautiously and prioritizing everyday essentials.

This is in line with what we've recently observed with the category being roughly flat or down versus prior year for the last several large Amazon promotional events. For those reasons, rather than extrapolate our second quarter outperformance across the year, we believe it is prudent to absorb that near-term pressure within our existing range. For the full year 2026, we are reaffirming our revenue outlook of $118 million to $122 million.

For Q3, we expect to decline both sequentially and versus Q3 2025, reflecting that deep competitor discounting discussed, together with a challenging comparison against last year's Dream Sight camera and Duo launch. For Q4, we have 2 large events and given our caution regarding the promotional event dynamics, we are maintaining our Q4 forecast. On gross margin, we are raising our full year outlook to a range of 53% to 55% from 50% to 52%, which reflects only the onetime $3.5 million reduction in COGS in the second quarter as a result of the tariff refund. The tariff rate assumed in our second half guidance is 12.5%. We are not forecasting additional tariff refunds for 2026 nor repayment risk of the Q2 tariff refunds at this time.

Finally, we are raising our full year adjusted EBITDA outlook to a range of $10.75 million to $12.75 million from $7 million to $9 million. This increase reflects only the onetime $3.75 million tariff refund recognized in the second quarter. Excluding the tariff refund, our underlying expectations for the year are essentially unchanged as we remain focused on driving operational efficiency and profitable growth.

With that, we will now take your questions.

Your first question comes from the line of Jonna Kim with TD Cowen.

This is Julia Shelanski on for Jonna Kim. We have 2 questions this afternoon. First, we'd love to hear what has been the sell-through trends quarter-to-date? And how is the gap between sell-in and sell-through at this point? And second, could you update us on the attachment rates for subscription? And what does retention look like as you continue to observe new cohorts?

Thanks Julia. Just a quick clarification on that question. Are you asking about Q3 quarter-to-date sell-in specifically or sell?

Yes, that's correct. Yes, 3Q quarter-to-date.

Okay. First, I'll take the other question while I pull up the data regarding Q3 sell-through. So from an attach perspective, so far, what we're seeing with the subscription offering is that around 30% of parents are ultimately subscribing within that first year. We've shared as far as retention goes that we're seeing an average life of about 12 months for our subscribers. Just a reminder that we launched about 18 months ago, so we're just starting to see the cohorts mature.

I think what I would add to that, too, is that -- we're now seeing nearly 30% of new users in the trial period elect the annual plan, which is really exciting for us from an LTV perspective. We're seeing decent renewal rates on that plan, which is exciting. 36% of our whole Sock customer base now has subscription, and we're just getting started. I mean if you think about the Cam feature rollout the second half, really exciting. That's more than half of our user base, and we're just starting on those features and AI capabilities. They use the camera twice as long as they use the Sock. So it's half of the customer base using it twice as long. It just represents a really big opportunity.

Telehealth is expanding. That's an exciting new position for us. And the integration with AI and new AI features that are going into sleep and health and overall parenting guidance is creating a stickier and stickier product. And I think the second half, you'll see more and more value released to the consumer. So we're really excited about where we're at, and there's a lot of potential moving forward.

Yes. And then just regarding sell-through compared to last year, it's a little bit nuanced, especially if you're going back. I know that Jonah publishes the Nielsen data. There's just a reminder that Prime Day shifted from Q3 to Q2 this year. So making year-over-year comparisons at this point is a little bit muddy in the quarter just because Prime Day last year was such a large quarter-to-date relative proportion of the quarter.

Your next question comes from the line of Steve Lichtman with William Blair.

Congratulations on the quarter. Kurt, I'm wondering, as telehealth continues to expand and you ratably grow that opportunity, how will this merge into 360 ultimately and be an additional driver of that subscription model? Just trying to think of -- I know they're separate now, but how are you thinking about that over the longer term?

Yes, that's a great question. I think we -- when we think about telehealth, we think about it in tiers. There's an element of telehealth and 360 today, obviously, not connected to a doctor, but it gives parents additional health trends and health information. It allows them to share information with their doctor. And so we're building out kind of the AI capabilities and automated features within 360. There will be another tier that gives access to physicians.

Right now, it's on call. That will morph and evolve as we test and learn this year. It's the purpose of this year to make that more accessible, more affordable and ultimately something that we want a majority of our users to be able to have access to. When you look at the challenges with care for a newborn, so much of that is just a communication gap.

And when you chat with a pediatrician today without any data or context and you tell them that your baby is congested, you're worried about their breathing, 100% of those visits turn into an ER visit if it's after hours or an extra pediatrician visit. And now that we have FDA-cleared data at home that physicians can actually review and make decisions based on.

We think it just totally changes the paradigm for at-home care and creates a new level of care, which is continued monitoring, routine data collection and a check-in with the doctor from the comfort of your home, you're not exposing baby to more sickness. So there will be multiple tiers of telehealth. You have Owlet 360 and likely an Owlet 360 plus the telehealth offering.

That's helpful. And then just following up on the international strength. Where are you seeing the most momentum today? And what do you see as the most ripe opportunities internationally looking out over the next few years?

I'm really excited about Europe. Europe continues to grow. It's really very close to the pace that we set in the U.S. if you look at year-by-year growth and penetration. Germany is expanding really well. Everybody told us when we went into France, it would take a few years and then you kind of see it spike. That's exactly what's happening. We're seeing incredible growth in France.

Eastern Europe is actually doing really well. The Czech Republic and the countries around there actually have the highest penetration in terms of percent of parents that use monitoring. It's very similar to the U.S. now. So that's really taken off. Those are probably the areas that we're most excited about. And some of the more -- the longer-term markets like the U.K. and Australia and the Nordics continue to grow really well for us.

So there's more babies born in Europe than the United States. And I just can't imagine a world where as we say it all the time for the United States, every baby will have access to some sort of health sensing technology when they leave the hospital. That's going to be just as true for Europe as it is for the U.S.

Your next question comes from the line of Owen Rickert with Northland Capital Markets.

Congrats on a pretty awesome quarter. First for me, can you describe that AI parenting copilot offering for us? What does the product road map look like there? How are you thinking about monetization? I guess, is this a feature within Outlet 360? Is it separate or something else? Just anything there would be great.

Yes. I think the unique thing about Owlet is we're pulling together the most comprehensive and contextualized data set of infant health that's ever existed. So we've got, obviously, the largest set of biometrics. We're bringing in access through the telehealth, the health records and health interaction, parent logging and parent context, other device data, cross-device data between the Sock, the camera, other devices potentially in the future.

That becomes a very rich data set that has a lot of context about your baby. And the more parents use it, the more context it has to help guide them. I can't imagine a world where Owlet has all of this rich context, and I'm going to ChatGPT for answers about my baby, if that makes sense.

So it's going to evolve over time. We're going to take the low-hanging fruits in AI and implement those quickly. We have right now an AI morning report that takes all of your baby's sleep data. And just like a digital sleep coach -- or just like a sleep Coach would, it prepares a summary and gives recommendations for your child for that next day. It's really powerful. 85% of parents who use it, engage with that daily and report that, that's a really strong, powerful feature. That's just one example of taking this contextualized data set and integrating it.

We see it as a component of Owlet360. Owlet360 may increase in price over time as we're able to grow the value. But we essentially want everybody on Owlet 360, and we want them to have an incredible experience that's very sticky over time that goes well beyond that first year.

Got it. Got it. Super helpful. And then secondly for me, -- you mentioned Babylist as an upcoming channel for that upfront subscription enrollment. Are there any other retail or registry partners in the pipeline? And how important is the D2C channel versus third-party retail to the long-term subscription conversion strategy?

Yes. Babylist is unique because it's a gifting platform. That's the registry platform. So people are going on to get Owlet Duos. We generally see higher order values on Baby list than we see on our other platforms because gift givers are at a different stage of life. And so we're selling annual memberships to 360. We'll bundle those memberships to Owlet 360 with the product so that parents have -- or grandparents can gift that to their kids.

You'll see that roll out across all of our retail channels, smart bundles like that, 360 being sold. It gives us a lot of flexibility and in creating really smart offerings based on the consumer segment. So I think you'll see that continue to expand across all retail and especially on our website, and we'll get smarter and smarter about optimizing that kind of lift percentage versus LTV to drive growth for the business.

But we want to meet parents where they're at. Registry is a big part of the parenting journey and parents shop across all those retail channels. So that's where we want subscription to be. We want parents to think of Owlet as a service, not just as a product. And I think we're seeing that more and more come to reality.

Your next question comes from the line of Ben Haynor with Lake Street Capital Markets.

First off for me, just thinking about the international subscription opportunities. I guess, are there any bigger countries that you're missing right now? I know you mentioned additional international subscribers were up 5% to 10%. The availability, I guess, it was there. Maybe if you could just talk about that a little bit.

Yes. We just completed the majority of our language translation and rollout for subscription across the majority of our kind of our biggest markets and biggest countries. So we feel like we're there in terms of availability. Most of that rolled out at the end of the quarter. So we should see some of those benefits in Q3 and beyond.

Okay. Fair enough. And then just curious on how much of guidance embeds or what subscriber count, call it, at year-end does guidance embed or a range? Anything that would be taking up what there would be.

Yes, we're not sharing a specific range as far as subscriber count goes. But what we are considering is how we've been trending this year, and we built that into our guidance in terms of subscribers. So said a different way, if you look at the run rate and how many additional adds we've been seeing, essentially, that's what we're modeling in the guide through the end of the year.

Okay. Fair enough. And then lastly, on the Web Pay, does that take kind of the gross margin on subscriptions from kind of the 70% that you're able to get with or a little bit less out of the app stores to kind of mid- to high 90s? Or what's the difference there? Is it just credit card fees and that's it? Or is there more to it?

Yes. Essentially, with the App Store for the first 12 months of the subscriber life, we pay about 30% in fees. So what the Web Pay allows for is for us to bypass those fees. There's some small immaterial credit card charges that are much more affordable in comparison. And then we have a small amount of like software amortization for development costs, but it truly is something that would be significant to the margin.

But I do have to remind though, that a lot of our customers have already signed up through the App Store. So it will take time for that subscriber mix to move from like an App Store purchase to web pay. So this is something that will improve over time.

The next question comes from the line of Alim Kanaka with Freedom Broker.

I have one question left, and you have touched upon that quite slightly, and it's about Web Pay. Web Pay and Up-front subscription at the point of purchase went live this quarter and got one line in the presentation that you put. From where I sit, those look like the most significantly -- economically significant since you announced. Is that a fair way? Or how are the early results tracking in that way?

Yes, that's a great point and a great call out. Actually, it is significant. It may not be significant on this year's P&L because of what Amanda shared. It's going to take some time for the blend of our customer base to move towards direct Web Pay with Owlet. But it's significant for a few reasons.

Over time, it expands our margin. It also allows us to essentially get the credit card at the point of purchase as people enroll in Owlet 360, they're pulling out their credit card once, not twice. And so it has the ability to not only help us lift the overall percentage of our users that get Owlet 360, but increases the margin on Owlet 360, which is substantial and definitely substantial over time. So that's right.

There are no further questions at this time. I will now turn the call back to Kurt for closing remarks.

Yes. Thanks again, everyone, for joining us. Just to wrap up, I'll leave you with the bigger picture. Owlet has multiple clear pathways for sustainable growth, continuing to reach new families, expanding our recurring revenue through Owlet360, scaling into our existing international markets and growing the pediatric telehealth opportunity. We're well positioned for the road ahead, and we're excited about our momentum, very grateful for the continued partnership as we set the standard in pediatric care technology. So thank you, everybody, for being with us today.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to the Owlet Q1 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Jay Gentzkow, Investor Relations. Jay, please go ahead.

Good afternoon, everyone, and thank you for joining us. Earlier today, Owlet released financial results for the first quarter ended March 31, 2026. I'm pleased to be joined today by Kurt Workman, Owlet's President, CEO and Co-Founder; and Amanda Twede Crawford, Owlet's CFO.

Before we begin, please note that our financial results press release and presentation slides referred to on this call are available under the Events and Presentations section of our Investor Relations website at investors.owletcare.com. 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 Owlet. It cannot be reproduced or transcribed without our prior consent.

Before we begin today, I'd like to refer you to our safe harbor disclaimer on Slide 3 of the presentation. Today's discussion will contain forward-looking statements based on the company's current views and expectations as of today's date. These statements are only predictions and are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, but are not limited to, those described in our most recent filings with the SEC and in 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.

With that, it's my pleasure to turn the call over to Kurt.

Thanks, Jay. Good afternoon, everyone, and thank you for joining. Before we dive into the business results, I want to address a recent leadership transition and a renewed path forward for Owlet. On behalf of the Board and the entire Owlet team, I'd like to share our deep gratitude for Jonathan Harris.

Jonathan was instrumental in navigating Owlet's breakthrough growth following FDA clearances. Owlet is in a better position as a result of his contributions, and we wish him well. As Owlet enters this next stage of our growth and evolution, I'm stepping back into the CEO role as announced in April. I'm back to build on the mission I started in a garage 12 years ago with a clear long-term mandate to lead Owlet through this next phase of scale and development in pediatric health.

While our core mission hasn't changed, we are sharpening our focus on execution and concentrating resources on our highest value opportunities. I want to highlight 3 strategic priorities where we see the greatest opportunity to improve performance.

First, we're prioritizing the Owlet360 subscription and telehealth opportunity more deliberately than we have in the past. With well over 0.5 million parents purchasing a new Owlet device every year, we already have an established user base to support subscription conversion. We believe the structure of the modern parenting journey creates a meaningful opportunity.

Among parents, the average family grows to just over 2 children with siblings typically arriving within a few years of each other. Owlet is uniquely positioned to secure a 4-year subscription window. By extending high-value subscription features that span the child's first 2 years, we aim to increase engagement and retention over time, evolving the customer relationship from a onetime user into a 4-year subscriber. This evolution from a hardware-centric sales to a multiyear subscription model fundamentally shifts our growth trajectory, compounding our recurring subscriber base into the millions.

Owlet is increasingly operating with a subscription-first approach across the business. That means the product road map, marketing and channel partnerships are aligned toward increasing subscription penetration across our entire customer base. We have 3 key Owlet360 subscription priorities to execute this year.

Number one, launch new features and AI integrations for Dream Sock to enhance the subscription value proposition and support continued increases in our attach rate. Number two, launch compelling new camera subscription features that deliver value to hundreds of thousands of nightly active cam users. The Dream Sight subscription feature set is critical toward extending LTV as many families use their cameras throughout the toddler years.

Number three, expand subscription access to our large and growing customer base outside of the U.S. Our objective is to establish Owlet360 subscription as a foundational value add for a family's first 2 years of parenthood. For families with a single child, this can significantly extend LTV. For those families that grow to a second child, it can extend the subscription life cycle to multiple years, supporting a longer-term high-margin subscription relationship. This evolution from a hardware-centric sale to a multiyear subscription model has the potential to fundamentally transform our business profile and strengthen Owlet's role as a long-term partner in the parenting journey.

Owlet is building a generational opportunity on AI, anchored by what we believe is the most scaled pediatric health data set in the world. By combining our data moat, FDA-cleared hardware and trusted parent relationships, we believe we can deliver the kind of personalized proactive infant care that has never before been possible in the home and establish Owlet as the defining pediatric health platform of this AI era.

Turning to our second strategic priority. We are sharpening focus on the high-value opportunities within our existing core markets, where we continue to see meaningful growth potential. In the geographies we're currently in, we still have large underpenetrated markets of just under 20 million children under 24 months of age. With market penetration sitting at just over 11% in the U.S. and low single digits in Europe, we believe there is substantial room for expansion within our existing footprint.

We continue to see significant runway for growth in the U.S. with penetration rates approaching at or above 20% in key states like Utah, Nebraska, Wyoming and Kentucky. We view these markets as potential benchmarks for what we can accomplish nationwide and in Europe. We believe the business has the potential to scale toward over 1 million new customers annually over time. Combined with our efforts to extend LTV, we believe this can support a 4-year family subscription life cycle, a recurring subscriber base that can scale meaningfully over time.

To capitalize on what we see as a significant opportunity ahead in our core markets, we are consolidating our focus and resources to capture the significant white space available in our current high-value geographies where we have established category leadership. As part of this targeted approach, we have deferred our planned entries into India, Hong Kong and Singapore for the current year and redirected investments to core markets with higher near-term return potential.

This leads into our final strategic priority, a heightened focus on operational efficiency and financial discipline to drive profitable growth. While we continue to invest in operating expenses year-over-year, we've optimized our spending plans to support operating at a higher level of efficiency. Our goal is to drive meaningful operating leverage by prioritizing a disciplined strategy, where we align our cost structure to scale efficiently.

Specifically, we're pausing new global clearances and delaying country launches that carry upfront regulatory app development quality and marketing costs. We've eliminated previously planned headcount additions through leveraging internal technology and AI-driven efficiencies, allowing us to grow efficiently with fewer resource constraints. We are deferring lower ROI projects outside of our core 0 to 24-month segment.

This disciplined financial profile prioritizing growing profitability is intended to provide flexibility to reinvest strategically, which we believe will support our long-term growth and strengthen our market position.

To fully align with these 3 priorities and a more focused profitable growth strategy, we are proactively updating our full year 2026 outlook. For the full year, we are adjusting our revenue guidance to a range of $118 million to $122 million, representing 12% to 15% year-over-year growth compared to our previous guidance of $126 million to $130 million. This revised range accounts for our deliberate decision to exit lower-margin, high-burden revenue streams in noncore geographies and new channels. Additionally, this outlook incorporates a more conservative view on sell-through for the remainder of the year. I will provide more specific color on these category trends in our consumer data in a few moments.

By concentrating our resources only on high-impact priorities and eliminating the overhead associated with noncore channels, we've created a much more efficient engine. Consequently, we are raising full year 2026 adjusted EBITDA to be in the range of $7 million to $9 million or 250% to 350% growth year-over-year compared to our previous guidance of $3 million to $5 million. While this disciplined approach may result in lower near-term revenue, it is a purposeful trade-off designed to improve operating leverage and profitability. We believe this approach will provide greater flexibility to invest in our highest value opportunities and support stronger, more sustainable long-term growth.

I'll now turn to our first quarter business update. I want to give more clarity on where we're gaining momentum and identify specific areas where we need to sharpen our execution. To align with the strategic priorities I just outlined, going forward, we will focus our quarterly updates on the following core growth drivers: First, driving adoption of Dream Sock and Duo in core global markets; and second, expanding the subscription platform with Owlet360 and Owlet OnCall.

In the U.S., our Q1 domestic sell-through units for Sock and Duo grew 10.5% year-over-year, led by a 45% increase in Duo and a 3% increase in Dream Sock. One item of note, Owlet was the only brand in the category to grow during a period of general decline. Excluding Owlet, the baby monitoring category was down 19% in dollars versus prior year Q1, while Owlet dollars grew 11%.

Q1 inherently has low promotional activity following the holidays. We believe customers are delaying purchases in anticipation of key promotional events like Mother's Day and Pride Day, which drive significant volumes at a lower selling price.

We started Q2 optimizing marketing and retail placements to accelerate momentum and take share from our competitors. These efforts are already yielding results. Quarter-to-date in Q2, sell-through has increased to over 30% for both Duo and Dream Sock versus prior year. This performance validates our strategy and is a positive indicator for the rest of the year.

However, we have not yet factored this Q2 performance into our full year outlook, preferring to see additional sell-through data before adjusting our projections.

Brand health remains exceptional, evidenced by a Dream Sock NPS of 77 and a blended product NPS of 71 to [ Q1 ]. Also importantly, for our Dream Sight camera, customer service contact volumes have decreased by 74% versus our second-generation camera as Dream Sight is clearly removing friction points with our customers, including solving core setup and connectivity issues.

Owlet products are maintaining their position as a registry priority. In Q1, year-over-year registry additions increased 31% for Dream Sock and 44% for Duo. Finally, momentum in our current global markets remains robust. In Q1, international revenue grew 22% year-over-year. Sell-through continues to show strength internationally, ending Q1 with 37% year-over-year growth.

We're excited about the progress we're seeing in our current international markets. For example, the Czech Republic already has nearly 9% of all babies born using an Owlet. Other markets like the U.K., Germany, France and Australia are all on a similar trajectory for market penetration as the U.S. on a year-by-year basis. Given that more babies born in Europe than the U.S., our current growth opportunity in Europe is massive if we focus and continue to execute at a high level.

Shifting to our second focus area, expansion of Owlet 360 and Owlet OnCall, our subscription engine is thriving. Having surpassed the 1-year mark since launch, we've validated the value proposition of our subscription model, scaling to over 115,000 paying subscribers in Q1. As a note, we'll begin reporting subscriber count at quarter end to align with the subscription revenue metric we will begin disclosing in our quarterly filings. The underlying subscriber momentum is translating into durable top line growth as monthly recurring revenue, or MRR, was $1 million at end Q1, highlighting the compounding value of our subscriber base.

Furthermore, subscription achieved a 34% penetration rate for Dream Sock users in the U.S. in the first quarter. This high conversion rate validates our bundled value proposition and demonstrates that parents increasingly view Owlet 360's pediatric health insights as an important extension of Dream Sock. As discussed, we're prioritizing the launch of camera-specific Owlet 360 features to enhance the subscription value proposition and extend LTV across multiple children.

In April, we launched Camera Extended Clips. The Extended Clips feature for Dream Sight enhances the user experience by offering AI-assisted event detection. While Owlet 360 subscribers gain expanded benefits like a 14-day cloud archive and longer 60-second recording.

In addition, in the coming weeks, we are launching built-in white noise, a Dream Sight subscription feature that transforms the camera into a daily sleep essential, eliminating the need for extra hardware. By integrating the product into nightly sleep routines, we can foster consistent platform engagement and support long-term Owlet 360 subscription retention.

Subscription is the cornerstone for our evolution into a data-driven pediatric health platform. The rapid adoption we've seen over the last year validates our decision to prioritize the growth and expansion of our recurring platform features.

And finally, ending on Owlet's OnCall telehealth opportunity. We're excited to report that this week, Owlet OnCall telehealth is officially going live in our app for select participants. That means that for the first time, Owlet parents can communicate directly with the pediatrician in our app. We will begin scaling access to more and more users over the coming weeks and months to test and learn.

As we further integrate our wellness data with professional pediatric access and oversight, we see an opportunity to provide deeper value to parents, potentially reduce health care costs and extend the customer relationship. Our telehealth launch this year is a pivotal step in this evolution, and we expect the insights gained from this initiative to inform our long-term platform expansion and future revenue opportunities. We believe that combining insights from our platform with access to pediatric consultation will provide greater value to parents, simplify access to care and lengthen the customer relationship.

And we believe the learnings from this year's telehealth launch will fuel a significant new revenue stream for the business as we move into next year.

I'll now turn the call over to Amanda to go over Q1 financial highlights. Amanda, take it away.

Thanks, Kurt. Turning to our first quarter 2026 financial performance on Slide 11. Unless noted otherwise, I will be comparing first quarter 2026 results to the first quarter of 2025. Q1 total revenue was $22.5 million, up 6.4% year-over-year, coming in above our Q1 guidance range of $20 million to $21 million.

Q1 results reflect a onetime inventory rightsizing at a large retail partner where they reduced their weeks of supply from 8 to 10 weeks to 4 to 6 weeks, which negatively impacted sell-in revenue. This partner ended Q1 with approximately 5 weeks of inventory. The first quarter is consistently our seasonally lowest revenue quarter due to the lack of promotions, so a meaningful amount of revenue quickly dropping out created a short-term headwind.

Subscription revenue grew sequentially for another quarter to a record of $2.7 million in Q1. Subscription gross margin also expanded to 67.4% in Q1. Q1 overall gross margin was 54.5%, above our Q1 guidance range of 50% to 52%. Overall, gross margin was up 80 basis points versus prior year, including a 480 basis point impact from the cost of tariffs.

Total operating expenses for the first quarter were $17.7 million compared to $14 million in the prior period. This increase was primarily driven by higher compensation costs, including stock-based compensation. The rise in personnel expenses reflects full period impact of headcount additions made throughout 2025, supplemented by strategic new hires in the current quarter. Additionally, stock-based compensation increased due to expanded headcount and the timing of long-term incentive plan grants. As a percentage of revenue, Q1 operating expenses were 79% compared to 66% in Q1 2025.

As Kurt referenced, we are committed to raising our level of operational efficiency and financial discipline for the balance of this year and beyond. Q1 operating loss was $5.5 million compared to $2.7 million in the same period last year. Net loss in the current quarter was $3.3 million. Q1 adjusted EBITDA was negative $1.5 million at the high end of our Q1 guidance range of negative $2.5 million to $1.5 million. Adjusted EBITDA was down versus prior year, primarily a result of tariff cost impacts.

Turning to our balance sheet. Overall financial health remains strong. Cash and cash equivalents, excluding restricted cash as of quarter end March 31, 2026, were $35.5 million, in line with fourth quarter 2025. We had $3.9 million of undrawn availability on the line of credit at the end of Q1, increasing our total liquidity to $39.4 million as of March 31, 2026. The principal balance on our term loan was $6.3 million at the end of Q1 versus $7 million at the end of Q4.

Turning to our guidance. Detailing what Kurt outlined for the full year 2026, we expect revenue in the range of $118 million to $122 million, representing growth of 12% to 15% over 2025. Revenue is expected to trend upward in Q2 following our historical seasonal patterns. We project Q3 to have a slight sequential decline versus Q2 before reaching an annual high in Q4.

For the full year 2026, we expect gross margins in the range of 50% to 52%. The tariff situation remains dynamic. At this time, we're estimating a 15% tariff rate as a current baseline for the remainder of the year, down from the previous 19% and 20% attributed to Thailand and Vietnam, respectively. We continue to monitor the dynamic trade environment closely.

And finally, we expect adjusted EBITDA in the range of $7 million to $9 million, representing growth of 250% to 350% over 2025 as we prioritize operational efficiency and profitable growth.

With that, we will now take your questions.

[Operator Instructions] Your first question comes from the line of Owen Rickert with Northland Capital.

Gross margin expanded pretty healthy year-over-year despite those continued tariff headwinds. I guess, can you just discuss the operational improvements and mix benefits that helped offset those pressures?

Yes. Primarily, what impacted the quarter was a higher relative proportion of subscription revenue, which was at about 67% for the quarter. In addition, we did see favorable product mix in the current year of Sock versus camera in the prior year.

And then secondly for me, OpEx did increase a bit year-over-year, largely tied to that G&A line. Just as you sharpen the focus on that operating efficiency, I think that was the third strategic focus. Where do you see the biggest opportunities to improve leverage going forward?

Yes, it's multifaceted when it comes to operating leverage. The first priority is we had in the previous guide, a pretty significant amount of headcount investment across the board. And as we looked at our plans and with how fast AI is changing and transforming, we just determined that we would not be adding as many headcount as initially planned, but we believe that we're going to be able to achieve more with less. So those have been removed from the plan. In addition, we are reprioritizing our focus. We have deprioritized entering new geographies, which come with upfront costs in regulatory, quality, engineering, marketing, it's a multidepartmental cost that we've taken out of the plan.

And then finally, this year, we're prioritizing 0 to 24 months. So really what the core market that we are in and deferring any other projects that are outside of that scope.

And I would just add that by focusing on these higher ROI initiatives that will provide longer -- higher long-term growth, it allows us to actually increase investments in those initiatives while decreasing the overall OpEx throughout the rest of the year.

And then maybe lastly for me. How are you thinking about monetization for OnCall initially? Is the near-term focus more around engagement and retention within Owlet360? Or do you expect it to become more of a direct revenue contributor sooner rather than later?

Yes. And it's very similar to kind of how we framed up subscription last year, where we didn't include it in our guide. We were really focused on testing and learning and improving the experience for the customer. That's the same focus for this year for us. This is a transformational opportunity where for the first time, our customers are going to be able to chat with the doctor inside of our app. That doctor is going to be able to use the Owlet data to empower parents at home to give care to their children without needing to go into the ER or the pediatrician in some instances. And so we're going to really leverage the opportunity this year to learn and to nail that model. And then we expect it to be a meaningful contributor in future years.

[Operator Instructions] Your next question comes from the line of Jonna Kim with TD Cowen.

I would love to get additional color just around what changed in your latest guidance versus your prior guide on the top line. Would love to get just additional color there. And then what is assumed in your guidance in terms of the ramp in the subscription growth and that color will be helpful.

And then just lastly, as you think about activating more opportunities in the U.S., does your marketing strategy change at all? How are you sort of envisioning your marketing strategy for the year?

Yes. Thanks, Jonna. And keep me honest on making sure I answer all 3 of those questions as I go through this. Feel free to ask a follow-up if I don't cover it all. The 2026 revenue outlook is a reflection of our sharpened focus and strategy toward profitable growth. We've intentionally removed lower-margin, high-burden revenue kind of previously tied to the noncore geographies and some of the new channels, resulting in kind of that lower top line revenue. It also takes a more conservative outlook for the remainder of the year. I think when we look at the new guidance, it also raises our EBITDA outlook to $7 million to $9 million versus the prior year. It's a purposeful trade-off.

And really, the goal is to focus on these bigger opportunities. If we can take our subscriber base to the millions, we can get to 1 million new customers per year, and we hold them for 2 years. This business is transformationally different. And so it's really reflecting of that focus and a little bit more conservative outlook on the remainder of the year.

And yes, any perspective on subscription growth, how you're thinking about that for the year? And then the marketing piece will be helpful.

Yes. Yes. Thanks for following up. Look, when you bring your baby home for the first time, life stops. Like it's -- you're taking time off work. Everything is focused on -- for that first year on this new member of your family. It's the biggest change we go through in spending, in habits, in sleep. So it's no surprise to us that 360 is resonating. We beat all of our internal goals on 360. The fact that we're already close to 35% of our Dream Sock customer base in the U.S. is incredible, and we know that, that number can go much higher. And it's just not a normal kind of premium consumer app model. It's a critical health and sleep data set that empowers parents to better care for their children. So who wouldn't want that?

The re-guide, we're still very optimistic on 360. It's growing well. We expect it to continue to grow well for the business. And it just makes life better for baby, better for parent. And we think AI is going to unlock massive growth here over the next few years. So we're very bullish on 360. It's why it's one of our primary focus areas for the next few years.

[Operator Instructions] Your next question comes from the line of Ian Arnt with Lake Street Capital Markets.

Filling in for Ben Haynor here. You noted on the last call that you would share some more cohort data going forward. And now that we're kind of just past a year here on the original cohort retention data, I was wondering if you could give us a sense of where annual retention is shaking out and kind of how that compares to your initial assumptions when you launched the service?

Yes, that's a great question. So we're actually -- we're very optimistic on this. When you think about churn and retention, we've had meaningful improvement sequentially since we launched last year. The increase in value in the subscription, I think, has been a big part of that and also just the value in the device and the performance of the devices is increasing usage and retention has been fantastic. We're in -- from a churn perspective, we're in kind of that monthly single-digit range, which has improved sequentially. And having surpassed that 1-year mark, I would say that subscriptions exceeded our internal benchmarks. And we're going to drive continued efficiency there.

Our goal is that parents use subscription across multiple years across multiple children. So this can become a 4-year LTV opportunity. Our whole product road map is designed to continue to reinforce that for the next several years, including telehealth. The highest rate of health care utilization is in the first years of life. Parents can now with contextualized data chat with the pediatrician in our app. That should unlock significant continued engagement past the first year, especially for stock users.

Cam is another big unlock for us. Parents use cam for multiple years. They anchor it to the wall and it becomes part of that daily routine. So we're launching a bunch of new camera features as well. We expect that this will continue to go down, and we're really pleased with the performance so far.

And then just one more for me. On the Q4 call, you guys mentioned 4 new hospital partnerships had engaged following the CHKD launch. Could you give us an update on where those stand and the timing of announcements and maybe what the average ramp looks like once hospitals go live in terms of monitors deployed per month?

Yes. I think what I want to share is that BabySat was up meaningfully in Q1 over last year. It was nearly 100% in terms of revenue growth. Still a very small number for the business, but the hospital partnerships are growing. It takes a little bit more time to get into those partnerships. So we're going to let that continue to progress inside of the business. It creates incredible partnerships and brand opportunities. It helps us address the babies with the most vulnerable needs of our population, and we see it as a long-term big opportunity for Owlet. We'll proactively report out on it when it reaches the level of scale that kind of I think, makes sense for earnings calls, but we continue to see good progress in BabySat, and it's just a really important part of making sure we're addressing the entire population of children.

There are no further questions at this time. We have reached the end of the Q&A session. I will now turn the call back to Kurt for closing remarks.

Yes. Thank you. Thanks again, everyone, for joining us and for the continued support. I just want to state again that Owlet's generational AI opportunity is massive. We have a large, unique pediatric data set, and we're contextualizing that data right now. And that's why we're so focused on the Owlet 360 and telehealth opportunities. They alone represent massive growth potential, and we're excited about our current progress and the long-term opportunity for this platform. Look forward to updating you on this on coming calls.

And I've just never been more confident in Owlet's path. I started this company in a garage. I have been with the company for 12 years, and this is the most exciting period for Owlet. So thank you for your continued support as we build the standard of at-home care for babies.

This concludes today's call. Thank you for attending. You may now disconnect.

Good afternoon. Thank you for attending the Owlet Q4 and Full Year 2025 Earnings Conference Call. My name is Matt, and I'll be your moderator for today's call. [Operator Instructions]

I'll now like to pass the conference over to our host, Jay Ginko, Investor Relations. Jay, please go ahead. .

Good afternoon, everyone, and thank you for joining us. Earlier today, Owlet released financial results for the fourth quarter and full year ended December 31, 2025. The I'm pleased to be joined today by Jonathan Harris, Owlet Owlet's President and CEO; and Amanda Twede Crawford, our CFO. Before we begin, please note that our financial results, press release and presentation slides referred to on this call are available under the Events and Presentations section of our Investor Relations website at investors.palatcare.com. This call is also being webcast live with a link of 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 Owlet. It cannot be reproduced or transcribed without our prior consent. Before we begin, I'd like to refer you to our safe harbor disclaimer on Slide 3 of the presentation. Today's discussion will contain forward-looking statements based on the company's current views and expectations as of today's date. These statements are only predictions and are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

These risks and uncertainties include, but are not limited to, those described in our most recent filings with the SEC and in 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.

With that, it's my pleasure to turn the call over to Jonathan.

Thanks, Jay. Good afternoon, everyone, and thank you for joining. I'm excited to recap the significant progress we've been making as 2025 was the strongest year in outlets history, and we are positioned for continued outperformance in 2026.

We I'll begin on Slide #5. 2025 was truly a monumental and transformative year for outlet, marked by significant growth and expanding our leadership in scale in pediatric health monitoring. The team achieved many milestones and accomplishments, and I'd like to highlight 3 of the most critical. First, the launch of our Owlet360 subscription service in January of last year proved to be a resounding success. Fundamentally reshaping our relationship with our customers and our long-term business strategy. We're proud to announce that we have crossed 110,000 paying subscribers to begin March, a testament to the value and peace of mind our connected services provide to families. And we've recently launched our international subscription offering.

Opening new high-margin revenue streams and extending our ecosystem benefits across borders. The introduction of Owlet360 marked a major milestone in our evolution into a comprehensive pediatric data platform. By leveraging outlet's massive data set of pediatric health we're better able to deliver more advanced and personalized health and wellness information for our families. We're excited about the foundation we laid in 2025 for subscription and to capitalize on that momentum in 2026.

Second, we launched our new Dream Side camera in September last year, our next-generation video monitor. Dream site levels up our camera platform with greater reliability and security and future-forward technologies, including onboard AI capabilities, all at a price point that makes sense. When paired with Dream Sock, it delivers a holistic view of a child's wellness that no other offering can match. We view the introduction of Dream Sight as an important strategic catalyst to expand our LTV as cameras remain in use past 3 years of age. We've seen outstanding momentum in streamside launch, and we're thrilled to begin rolling out our new camera specific subscription features in the coming quarters, yet another opportunity to increase subscriber growth.

Third, in 2025, we achieved record annual revenue, gross margin and adjusted EBITDA, showcasing new heights of financial performance and operational efficiency despite the new tariffs. Last October, we simplified our capital structure via warrant exchange, followed by a successful offering to strengthen our balance sheet, support a path to cash flow independence and provide flexibility for opportunistic growth investment. Outlets financial and operational health is stronger than ever, positioning us to well execute on our pediatric health growth opportunity and deliver long-term stakeholder value.

Owlet's journey to date has been extraordinary. Marked by innovation, strategic expansion and a relentless focus on our mission, reaching every baby. Our strategy is anchored in partnering with families during some of the most challenging but rewarding times in the parent journey. We are looking at a demographic of new parents, Gen Z and young millennials, where 60% of the women already own and rely on a connected wearable device. For them, biometric data isn't a novelty. It's a baseline expectation. Owlet is perfectly positioned to capture this audience by bridging the gap between the wearable tech they already use for themselves and the predictive care they want for their babies.

Owlet is now a leading family wellness technology. beyond just a monitor for parent calm. We use our product suite and massive pediatric data set to digitally translate safety, health, wellness and development patterns. This allows parents to make proactive informed decisions and establishes a true biometric baseline for babies from night one -- with the rise of AI and advanced monitoring, old data and ability to deliver actionable insights will become increasingly valuable as children grow.

From that larger vision, let's send it into our fourth quarter 2025 performance on Slide 6. Owlet delivered another strong quarter to cap a record year. We achieved revenue of $26.6 million in Q4 2025 and increasing 29.6% versus Q4 2024. Revenue strength was driven by broad-based growth across the Dream product suite and Owlet360 subscription. Q4 revenue concluded a record year for outlet with total revenue of $105.7 million for 2025, 35.4% growth over 2024. Fourth quarter 2025 gross margins were 47.6%, including a 510 basis point impact from the cost of tariffs. Despite the tariff overhang, full year 2025 gross margins were also a record at 50.6%. Adjusted EBITDA was $0.1 million in Q4 and compared to $0.5 million in the fourth quarter 2024.

Tariff costs were the primary impact versus prior year's adjusted EBITDA. For full year 2025 adjusted EBITDA was another record for outlet at $2 million, a $3.8 million improvement over 2024. The strength of our results in the fourth quarter and records across all key metrics for the full year 2025 and underscore our confidence in strong performance and growth into 2026. Owlet is very well positioned as a company as we take last year's momentum and even higher in 2026.

Turning to our strategic growth areas. Our strategy remains consistent from last year, and we have refreshed our priorities to reflect what is most critical in 2026. First, drive global adoption of Dream Stock. Second, expand the Outlet 360 subscription platform; third, continue to grow the health care channels. Finally, launch the outlet on-call telehealth platform. Beginning with our core business in the U.S., Dream stock demand continues to be strong. Dream Stock and Duo demonstrated strong domestic year-over-year sell-through at 9% and 53%, respectively, driven by another strong holiday selling period. We observed an expected shift in sales of individual Dream tox to the Duo package which we're pleased to see as Duo represents an expanded LTV opportunity and increase for subscription, giving parents a holistic view of a child's wellness that no other offering can match.

Strong customer satisfaction supports this growth as Dream Sock's NPS score to end Q4 was 77 and overall blended product NPS of 72 Registry trends continue to demonstrate Dream Sock is a priority for pets. Q4 showed a 23% increase in year-over-year DreamStock additions across the registries we track including Amazon, Baby List and Target. We also continue to gain market share at scale. According to Sarcone consumer research and our own data, Owlet expanded our share of total dollars spent on baby monitors to 41% in Q4 2025, up 24% versus Q4 2024 and another record high for market share since we started tracking Sircana data. The data also shows our overall category is growing with consumer spending on baby monitors in 2025 was the highest it's been in the last 5 years.

Shifting to International. Q4 international revenue reached $3.9 million, closing a record year of $19.2 million, up 27% versus 2024. And -- while Q4 revenue declined year-over-year, this was primarily due to transitioning Amazon U.K. to a direct import model. This operational shift moved the revenue recognition point from the collection to delivery pushing a significant portion of U.K. sell-in revenue, our largest international market from Q4 into Q1 2026. International sell-through remained strong with the U.K. up 58% and France up 41% and the Nordics up 80% versus Q4 2024. In Q4, we secured regulatory clearance for Dream Stock sales in India, a major step forward in our planned commercial launch in the first half of 2026. This market is massive with over 23 million annual births, the top 1% alone rivals the size of the United States or European opportunities.

We are also pleased to announce that we have received regulatory approval for Dream Sock distribution in Israel, another exciting new sales channel. This gives us another layer of international growth as we plan to launch in the back half of 2026. Dream Sock is a universal product now sold in 31 countries with 7 regulatory clearances. In 2026, with both India and Israel expected to be on board, we are focused on scaling our current geographies and consistently opening up new regulatory approved global sales channels as we ensure availability of Dream sock to every corner of the globe.

Turning to Owlet360. We continue to drive meaningful progress expanding the value of our subscription platform. which contributed to our fourth consecutive quarter of sequential growth across paying subscribers, MRR attach rate and retention rate. January 28 marked our first full year since subscription launch, and the reception from parents and the performance of the offering has exceeded our expectations. We're proud to report over 110,000 total paying subscribers to begin March. In Q4, we successfully launched Owlet360 in our first international markets: U.K., Ireland, Australia, New Zealand and South Africa, and we plan to continue rolling out subscription capabilities to the balance of our regulatory cleared countries in the coming quarters.

As discussed last quarter, nearly all of our subscriber growth since launch has come from a focus around Dream sock, and we see a significant opportunity to drive increased subscription adoption by layering differentiated camera-based features onto our latest AI-enabled camera platform, Dream Site and Duo to drive subscriber growth while extending customer LTV.

For example, combining our proprietary biometric data from the SOC with computer vision from the camera to deliver increasingly personalized and proactive experiences for caregivers in upcoming feature releases. We are focusing intensely on integrating AI across all of our platforms, viewing it as a long-term investment to strengthen our competitive edge and better support parents. Our strategic partnership with Web AI will accelerate the development of secured specialized intelligence using our unique pediatric health data set. This enterprise-grade AI infrastructure aims to unlock value for personalized experience and better insights, which we believe will become increasingly differentiated as our data grows. We're excited about the future as we combine AI with our valuable pediatric data built on the foundation of Owlet360.

Turning to our third strategic growth area. We continue to make solid progress in growing outlets health care channels. In Q4, we sent our first outlet monitors home from Children's Hospital of the King's Daughters officially launching this collaboration. Building on the success and foundation we established with CHKD, in the last few months, we have engaged 4 new hospital partnerships. Our work in establishing the consignment functionality and RPM integration with CHKD laid the groundwork to announce these next hospital collaboration soon. We're at various stages of integration and expect to share more information in the near term. We also continue to make important progress expanding our coverage network. We ended the year with 37 states on Medicaid reimbursement up from 6 to in last year. And we now have 258 commercial insurance carriers, up from 105 from last year, now supporting over 90% of commercial U.S. births. And finally, our last strategic growth area, outlet on-call telehealth. We believe the pediatric telehealth opportunity is a game changer.

As we've detailed in the past, there are over $30 billion in pediatric health care costs every single year just in the U.S. and over 90% of those visits are treated and release. By leveraging real-time infant data from Dream Sock and Owlet360 to provide more personalized actionable remote care, we believe we can make a meaningful impact improving overall child health outcomes and reducing cost for families. We will launch the outlet Onco telehealth platform utilizing Dream Sock and Owlet360 to capitalize on this opportunity. This will enable parents to share health vitals pulse rate, heart rate, oxygen saturation and the 30-day history from Dream sock during a telehealth visit.

This capability is expected to significantly enhance care quality and patient outcomes, as traditional telehealth often relies on inadequate visual diagnosis without this crucial data. The first half of 2026 is the time to test, learn and expand on outlet on call. We are still in the piloting stages for our telehealth offering as we want to get the experience right before a full launch scheduled later in the year in advance of the winter flu season. To wrap up, I want to thank and congratulate the outlet team for a record 2025. I also want to thank our customers and investors for your confidence. The differentiation in our product platform and the leadership and expertise in pediatric health monitoring are a strong foundation to build from as we look to the future. We are laser-focused on sustaining our momentum and continuing to execute at a high level across our strategic growth areas. I'm confident this strategy will translate into long-term durable growth and value creation.

Now I'll hand it over to Amanda to go over the financial highlights and our outlook for 2026.

Thanks, Jonathan, and thank you to everyone for joining. I also want to thank our employees for another successful quarter and for the terrific execution that delivered our record 2025 performance.

I'll begin on Slide 12, and Unless noted otherwise, I will be comparing fourth quarter 2025 to the fourth quarter of 2024. Financial results are preliminary prior to our 10-K filing. The fourth quarter was another strong quarter as the momentum continued for Owlet. Q4 revenue was $26.6 million, up 29.6% year-over-year. Revenue strength was driven by broad-based growth across the Dream product suite and Owlet360 subscription. Full year 2025 revenue was a record at $105.7 million, up 35.4% versus 2024 at the high end of our guidance range. Q4 gross margin was 47.6%, including a 510 basis point impact from the cost of tariffs.

Full year 2025 gross margin was a record at 50.6%, exceeding the high end of our guidance. Tariff costs impacted our gross margin by 270 basis points for the full year 2025. Moving to the next slide. We have continued to maintain discipline with our operating expenses as we grow the business. Total operating expenses in the fourth quarter were $17.5 million versus $18.4 million in 2024, improving by $0.9 million. As a percentage of revenue, Q4 operating expenses were 66% compared to 90% in Q4 2024 as we continue to drive strong operating leverage. This has led to consistently strong operating efficiency as we manage investing operating expenses behind revenue growth.

Our LTV to customer acquisition cost ratio of 4.4% remains low, and is poised to improve as we layer on recurring revenues from subscriptions. From a revenue per full-time employee perspective, we're running a lean and efficient team at $1 million per average FTE Q4 operating loss was $4.9 million compared to $7.4 million in the same period last year, improving $2.5 million. Net loss in the quarter was $9.2 million versus $9.1 million in the same period last year. Q4 adjusted EBITDA was $0.1 million compared to $0.5 million in Q4 2024. Tariff costs were the primary impact versus prior year. Full year 2025 adjusted EBITDA was a record per outlet at $2 million and at the high end of our guidance expectations. 2025 adjusted EBITDA improved $3.8 million compared to 2024.

Turning to our balance sheet. Cash and cash equivalents, excluding restricted cash as of quarter end December 31, 2025, were $35.5 million, up from $23.8 million in the third quarter at 2025. With a portion of the proceeds from the equity offering in October, we paid down $12 million on our line of credit, decreasing to $7 million at the end of Q4. We had $10 million of undrawn availability on the line of credit at the end of Q4, increasing our total liquidity to $45.5 million as of December 31, 2025. The principal balance on our term loan was $7 million at the end of Q4 versus $7.5 million at the end of Q3. We began repayment on the term loan in November 2025, and we expect it to be paid off by January 2028.

Shifting to our financial outlook on Slide 16. Following the most successful year in Alex's history, our 2026 outlook is built on the scale and strength we established in 2025 and centered on continued execution on our strategic areas for growth. For the first quarter of 2026, we expect revenue in the range of $20 million to $21 million, gross margins of 52% and and adjusted EBITDA of negative $2.5 million to negative $1.5 million. Reminder that the seasonality of the business positions the first quarter is consistently our lowest revenue contribution quarter -- and also of note, when comparing Q1 26 revenue to prior year Q1 '25, revenue was especially strong due to a heavy RSV and flu season.

We also began investing post offering in Q4 and now in Q1 in additional R&D resources to drive software and services for our outlet 360 subscription and on-call telehealth. And for our full year 2026 outlook, we are expecting another record year of growth. For 2026, we expect revenue in the range of $126 million to $130 million representing growth of 19% to 23% over 2025. Similar to prior years, we're expecting revenue contribution to be roughly 40% in the first half of 2026 and and 60% in the back half as we observe our typical seasonality and as subscription revenue sequentially becomes a larger portion of revenue throughout 2026. For full year 2026, we expect gross margins in the range of 49% to 52% and and adjusted EBITDA in the range of $3 million to $5 million, representing growth of 50% to 150% over 2025.

There remains uncertainty surrounding the volatile tariff situation and the war in the Middle East. As a result, our 2026 guidance includes tariff cost impacts consistent with Q4 and 2025 at 510 basis points to our margin per quarter. With that, operator, can you please open up the call for questions.

[Operator Instructions] First question is from the line of Andrew Brackmann with William Blair.

Maybe we could start here on guidance. As I sort of look at the full year, it looks like you've cracked industry sort of on key metrics. But for Q1, in particular, I think revenue was a bit below where -- the Street was. But also just as I look at sort of the percentage of the full year revenue expectation versus what we've seen in prior years, I think it's a little bit lower. So can you maybe just talk about why that is this year? And I guess, more importantly, can you just talk about your line of sight to that second half ramp that sort of implied here?

Yes. Yes, that's a fair question, Andrew. And I wanted to provide some context for the Q1 guide. First, inherently, we've got seasonality in the business with Q1, which is historically the lightest revenue contributor. When we're looking at the year-over-year comparison, we're lapping an certainly strong Q1, which was driven by a heavy RSV and flu season. The other thing to look at is the current macro environment. We did observe some softness in consumer spending through the Q4 holiday period, whether it was influenced by the government shutdown or broader macroeconomic pressures, we have seen retailers respond by tightening their weeks of supply which is reflected in the Q1 guide. Just to be clear, though, our -- we are a leader in the category. The timing of when the revenue is going to hit within the quarter, -- it's coming off lighter in Q1. But fundamentally, we are a strong competitive position, and this confidence is baked into the full year guide. -- which reflects the strong long-term demand that we're expecting? .

Okay. I appreciate all that color. And then, Jonathan, you talked about launching some iterative AI insights here in the coming months. Can you maybe just talk a little bit more about that, give a little bit of color on what those offerings might look like. And then as you sort of think about increasing the stickiness to 360, how do those sort of play into that?

Yes. Yes, we see a massive opportunity to leverage AI to support and drive our evolution from a hardware company into a leading pediatric data platform. We see it a couple of different ways. We see product intelligence. We're evolving from a simple hardware monitoring to real-time personalized AI sleep coaching. AI lessons will convert static data into actionable daily plans for parents. We believe that this is also going to drive high-value subscription features in our audio and our vision, really driving the whole ecosystem across both the SOC and resi or camera.

Additionally, we're really driving and focused on AI-assisted engineering workflows to reduce turnaround times and improve across all functions of the business to streamline regulatory submissions to automate financial data entry to drive miserable productivity gains. And then we're in the early phases of our web AI partnership where we're really going to work on real-time actionable on the edge AI functionality that again, is going to help parents with real-time data held on their parenting journey.

The next question is from the line of Jon Kim with TD Cowen.

As it relates to the international expansion, when should we start to see some of the sell-in revenue for new markets there? And would love to hear any early learnings from the international subscription that you've rolled out, how that progress has been and any early learnings there? And then just lastly, in terms of your guidance for the year, what is baked in, in terms of your expectation on the low end and high end? Just would like to get additional color on the expectations that you have embedded in your guidance?

Great. I'll take the first half of that. So we expect further international expansion revenue to begin the first half of this year with rollout in the first half of these new markets. So we're very excited about that. We continue to see very strong sell-through success across our European markets and continue to grow. And we're still very, very early on our international subscription that we are excited to drive that. Right now, it's only English-speaking countries, and we look to expand further European languages in the first half of this year as well. So very excited to see more subscription drive on a global basis.

All right. And then just regarding your question on what is baked in the low end and the high end. As far as revenue goes in our guidance, we have not baked in any like material contribution from our new countries or the telehealth opportunity we see that as upside in the guide. The high versus the end will depend on our harbor growth as well as the contribution from subscription.

So within that range, the higher end would imply stronger growth in both of those areas. And then just from a cost perspective, we said that in the remarks that we are including tariffs that are consistent with what we saw in -- as everyone knows, the tariff situation remains volatile and it's changing day-to-day. So just hitting on where those ultimately land, there could be a little bit of upside in the cost of goods as well.

The next question is from the line of Owen Rickert with Northland Capital Markets.

Looks like that on call telehealth offering is launching in the back half of the year. I guess, can just walk us through the go-to-market strategy there? And what specifically -- is this in position as a stand-alone to clear an add on to L16 to bundled into existing subscription plans. I guess can you just give us some more color on that afting.

Yes. I got that, Owen. Good to see you or hear you. So we began internally piloting a friends and family just recently, and we're continuing to grow that. So we're really fleshing that out based on that real-world experience. And this will be an additional upsell cross-sell, if you will, to Owlet360, it will be a separate platform. So we're really working on getting the experience right before launching in the second half and well ahead of the cold and flu season.

So we're really excited and continue to build, and we're going to have this rolling out ahead of the second half of...

Got it. And then secondly for me, the past 110,000 tonne subscribers, how is the sticking it in the monthly time later on excitement over the past, we quoted -- could you repeat the question?

You were breaking up a little bit. Sorry.

Yes, no problem. I was just asking about how it's going looking on outlets in subscribers and maybe how that trended over the past few liters.

Yes. We continue to see Atlet360 grow. We'll be sharing more data on L350 on our upcoming calls because we just had our 1-year anniversary -- but what we can share is the metrics are turning in all the right directions. We've had 4 consecutive quarters of sequential growth across paying subscribers MRR, attach rate and retention rate. We've also been tracking a cohort analysis -- it's showing retention continues to improve at a consistent basis. And this is also helping us identify a time period where there's opportunity to target rolling out specific features to improve retention even further.

Great example of that is just adding the additional features that we're looking to launch on Dream site and really bring in both the SOC and the camera subscription, and that holistic view for the parent.

Next question is from the line of Ian Art with Lake Street Capital Markets.

I'm on here with Ben and I was just wondering how do you guys view international revenue longer term? There's a strategic show that there's more babies born outside developed world, obviously. And I'm just wondering where you guys kind of see international sales ending up as a percentage of revenue several years down the road. No, no, no, go ahead, sorry, going to add for you if you have any thoughts on I think if there is a meaningful difference with the adding subscription internationally or kind of where you thought prints well?

Yes, we continue to see this as a great opportunity. We have roughly 11% penetration in the U.S., meaning 11 out of 100 babies are actually wearing an outlet stock. So we see that opportunity where in Europe, for example, we're closer to 3%. So if you just look at Europe, there's a tremendous amount of growth opportunity there. As we've mentioned before, there's 23 million babies born a year in India alone.

So even if we look at the top strata, the top 1%, that -- just that top 1% is as larger market opportunities both in the United States and Europe. So we see that as a really strong opportunity, and they are English-speaking by and large over there. So we're really excited to roll out more international subscription in various languages. To provide the amazing success we've seen on Owlet360 in the English-speaking countries and continue to expand and grow that.

So we're going to continue to work on expanding and growing our adoption both here in the U.S. in Europe and opening up new markets where we see strong opportunity and then layering on our subscription platform on top of that to drive a really nice high-margin recurring revenue stream.

Okay. That's great. And then 1 more, you could comment on if there have been any additional follow-through from the FDA safety communication last year.

Another good question. Yes, we have not heard anything further from that communication that went out in September of 2025. But there is quite a bit of turmoil going on within the FDA, but we have a really strong relationship with them, and we're continuing to dive in. Our market share continues to grow in the U.S. where that is most applicable. And we're at over 41% of all dollars spent in the entire baby monitor category and feel really strong about our position with or without the FDA, and we're going to continue to drive, and that would be a really nice additional tailwind if and when the FDA actually does something. Thank you for your question.

No further questions registered. [Operator Instructions] There are no additional questions waiting at this time. So I'll pass the call back to Jonathan Harris for any closing remarks.

Thank you, operator, and thanks again to everyone for joining us. and for your continued support. After a record-breaking year, our team has not taken the foot off the gas. We're entering 2026 ready to build on our performance and our massive long-term opportunity. Owlet is evolving into a comprehensive pediatric sleep health and wellness platform. We are focused on executing this vision, which positions us as much more than just a baby monitor brand. How it is a sophisticated data platform designed to establish the gold standard for accurate infant biometric baselines from the very first night. Ultimately, Owlet is uniquely positioned to redefine modern parenting and become the essential wellness technology for families worldwide. Thank you again, and talk to you next quarter.

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.

Good afternoon. Thank you for attending the Owlet Q3 '25 Earnings Conference Call. My name is Matt, and I'll be your moderator for today's call. [Operator Instructions].

I'd now like to pass the conference over to our host, Jay Gentzkow, Investor Relations. Jay, please go ahead.

Good afternoon, everyone, and thank you for joining us. Earlier today, Owlet released financial results for the third quarter ended September 30, 2025. I'm pleased to be joined today by Jonathan Harris, Owlet's President and CEO; and Amanda Twede Crawford, our CFO.

Before we begin, please note that our financial results press release and presentation slides referred to on this call are available under the Events & Presentations section of our Investor Relations website at investors.allletcare.com. 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 Owlet. It cannot be reproduced or transcribed without our prior consent.

Before we begin, I'd like to refer you to our safe harbor disclaimer on Slide 3 of the presentation. Today's discussion will contain forward-looking statements based on the company's current views and expectations as of today's date. These statements are only predictions and are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, but are not limited to, those described in our most recent filings with the SEC and in 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.

With that, it's my pleasure to turn the call over to Jonathan Harris, Owlet's President and CEO.

Thanks, Jay, and good afternoon, everyone. Thank you for joining Owlet's Third Quarter 2025 Financial Results Call. As you saw from our results, Q3 was another exceptional quarter, the best in Owlet history across key metrics. We are firing on all cylinders as a business.

Let's get right to the financial highlights and updates. I'll start with the third quarter results at the top of Slide 5. We drove broad-based growth in Q3, setting company records across the business. Q3 revenue was a record for Owlet at $32 million, increasing 45% versus Q3 2024. Revenue outperformance was driven by the launch of our new Dream Sight camera and ongoing momentum in the core business.

Q3 gross profit of $16.2 million was a record, resulting in Q3 gross margins of 50.6% as top line strength was able to offset tariff impacts.

Q3 adjusted EBITDA of $1.6 million was also a record for Owlet and our sixth consecutive quarter of adjusted EBITDA profitability. And we're proud to announce Q3 operating income of $1.2 million, our first quarterly operating profit in company history.

Before highlighting some key developments in our strategic growth areas, I would like to comment on the FDA's recent safety communication on September 16 regarding unauthorized infant monitors as a critical moment of market clarification and how this can translate into a strong validation of Owlet's strategy. The FDA's warning clearly cautions consumers and caregivers against over-the-counter infant monitors that have not been reviewed for safety and effectiveness and make unsubstantiated claims. This action creates a firm demarcation in the market.

On one side, unreviewed unauthorized devices the FDA is actively cautioning against. On the other side, Owlet's Dream Sock. We are proud to stand alone as the first FDA-cleared over-the-counter infant monitoring device and the only one on the market today. This clearance confirms the Dream Sock has met the FDA's rigorous standards for safety and accuracy in providing live pulse rate and oxygen saturation readings. For both parents and our retail healthcare partners, this regulatory clarity can help to increase the value proposition of our regulated products, reinforces our market leadership and creates a significant competitive advantage.

We are strategically positioned to capitalize on this heightened consumer awareness to drive market share gains and greater brand trust as we move into the crucial holiday and Q4 period. The progress in the third quarter on all key fronts has been outstanding as we continue to stack wins across the business, both financially and operationally. I'm incredibly proud of this team as we leverage our leadership in the category and ongoing momentum to deliver key results.

Now turning to our strategic focus areas for growth. We've continued to make outstanding progress on driving continued global adoption of Dream Sock; two, transitioning Owlet into a service through the Owlet360 subscription, supporting parents from infancy into the toddler years and increasing customer lifetime value; and lastly, expanding health care channels to offer an insurance reimbursed monitor.

Kicking off with our core business, Dream Sock continues to drive adoption, demonstrating what we believe is the most differentiated product in the nursery ecosystem. Dream Sock demand remains robust in the U.S. In Q3, domestic sell-through grew 42% versus prior year. The strong performance was driven by ongoing adoption for Dream Sock as well as a record-setting Amazon Prime Day in July, where total sell-through units were up 72% versus prior year.

Another valuable leading indicator on the momentum of our core business is registry data. Across the registries we track, including Amazon, Babylist and Target, total Dream Sock additions remained strong with 30% year-over-year growth in Q3.

We also continue to solidify our position as the market-leading pediatric health brand. According to Circana customer research and our own data, Owlet increased our share of total dollars spent on baby monitors to 40% in the third quarter of 2025, a record high for market share since we started tracking Circana data. Brand health also remains in a very good position with Dream Sock's recent NPS at 77 at the end of the third quarter and overall blended product NPS at 71. With the differentiation our FDA clearance provides and in light of FDA's recent warning statement, we're confident with our position in the market and ability to drive further share gains.

In September, we launched the new Dream Sight camera, our third-generation video baby monitor. Dream Sight represents an important next step in the category for Owlet with this new camera offering the latest and advanced technologies while also delivering greater reliability, deeper security and a price point that makes sense. Importantly, Dream Sight is future-ready, including onboard AI capabilities to support our rollout of camera-specific subscription features and future build-outs.

Paired with Dream Sock, it can create a connected monitoring experience that gives parents a holistic view of the health and wellness of their children. We're thrilled at the feedback we've received since launch and are excited about Dream Sight's potential in the category and as a key part of our platform.

Turning to international. Dream Sock momentum is surging globally as we drive growth in our current geographies and open up new global sales channels. In the third quarter of 2025, international revenue growth was up 171% year-over-year. International strength in the quarter was in part driven by the September 9 launch of our new Dream Sight video monitor and the associated timing of our load-in to our distributors as well as ongoing momentum globally.

As we recently announced, the Central Drug Standard Control Organization approved Dream Sock for distribution in India, opening up a new global sales channel starting in early 2026. This marks an important milestone as Owlet becomes one of the few infant health technology companies to meet India's stringent medical device requirements.

In addition to our 2 FDA clearances, we now have 6 international regulatory clearances for Dream Sock, including Europe, United Kingdom, Australia, New Zealand, South Africa and now India as we look to capture adoption globally and continue to drive the substantial international opportunity.

Shifting to Owlet360 subscription. Total paying subscribers has continued to grow, recently surpassing 85,000. The strong trends and overall feedback have been outstanding with another quarter of sequential growth in monthly reoccurring revenue, attach rate and improved retention. What's particularly exciting is that we're still just getting started. Owlet360 only launched at the end of January and has so far been available exclusively in the U.S. With more than 650,000 active Owlet device users globally, we see tremendous runway ahead to expand our subscriber base.

We're beginning to roll out subscriptions in the first international markets in Q4, starting with the U.K., Ireland, Australia, New Zealand and South Africa with plans to expand our subscription offering to all existing and new markets in 2026. Subscription attach rate for Dream Sock passed 25% as of the end of the third quarter as the value of our subscription offering to parents continues to grow. We also see major growth opportunity for the new Dream Sight camera. To date, our subscription adoption has primarily come from Dream Sock users, but the new Dream Sight and Dream Duo opens an entirely new segment of opportunity.

In 2026, we plan to introduce camera-based subscription features that take advantage of the new cameras, advanced capabilities and onboard AI chipset, combining the best of our biometric data from the Sock with computer vision technology from the camera to create a uniquely integrated experience that no one else in the market can deliver.

Parents' biggest challenges continue to center around sleep patterns and routines. They lose an average of 3 hours of sleep each night and 61% report feeling exhausted. Our upcoming Dream Sight subscription features are designed specifically to help parents better understand and improve their baby sleep through actionable insights, intelligent guidance and a smart nursery ecosystem that sees, senses and responds, taking the guesswork out of parenting.

Looking ahead, we're also investing in next-generation AI experiences built on Owlet's proprietary pediatric data set. In early 2026, we plan to pilot a new generative AI insights feature that will provide parents with personalized sleep coaching and tips tailored to their baby's unique patterns. This is just the beginning. We'll continue to experiment with and integrate AI capabilities to deliver even more meaningful support for parents and caregivers throughout their journey.

Also, we began piloting our telehealth platform, which we are calling Owlet OnCall. We're still early here and want to get the experience right before we launch in 2026 and are excited about this opportunity to begin testing a more personalized, actionable remote care and begin to commercialize and scale this opportunity next year. The momentum we're seeing from Owlet360 subscription continues to be exciting as this serves as the cornerstone of our transition to a pediatric health platform with data and digital service enabled by our hardware.

And finally, turning to our third strategic growth area. We've continued to make steady progress expanding the medical and health care channels to provide insurance reimbursed monitoring for infants who need it the most. We officially launched our new consignment agreement with the Children's Hospital of the King's Daughters or CHKD on November 7, enabling certain babies to be sit at home with BabySat to monitor their oxygen levels and/or heart rate. This is an important milestone for our health care opportunity as this is a first for Owlet, providers prescribing Owlet devices in the hospital, patients being able to obtain insurance prior authorization, prior to hospital discharge and taking home our medical-grade infant monitoring devices.

We are also rounding out our RPM integration with Owlet Connect as we finalize infrastructure integration with Rhapsody Health, our digital health platform partner. Owlet Connect will also go live this week with our first customer and we'll be able to very quickly connect to future hospitals with RPM programs.

We continue to have more and more conversations with potential additional hospital partnerships similar to CHKD. The official launch and successful implementation of Owlet Connect are important milestones, and we look forward to updating you on that progress in the coming quarters as this has become an important strategy towards unlocking the large health care opportunity for BabySat. It's an exciting time to be part of Owlet as we're executing across our strategic growth areas, and that progress is translating into strong results.

Now I'd like to turn the call over to Amanda to discuss those results for Q3 and provide an update on our 2025 outlook.

Thanks, Jonathan, and good afternoon, everyone. I'll begin on Slide 9. Unless noted otherwise, I will be comparing third quarter 2025 results to the third quarter of 2024. Q3 was another very strong quarter, setting records across the business. As Jonathan referenced, the best in Owlet history.

Third quarter 2025 revenue was $32 million, an increase of 44.6% compared to prior year. Revenue strength was driven by the launch of our next-generation camera, Dream Sight, with load-in from our domestic and international retail partners as well as ongoing momentum in Dream Sock and Owlet360 subscription.

Q3 gross profit of $16.2 million was a record for the business, resulting in Q3 gross margin of 50.6% as top line strength was able to offset tariff impacts. Reminder that in Q3, tariff cost impacts included a blend of the previously announced 10% tariffs on Thailand and Vietnam and newly increased tariffs of 19% and 20% on Thailand and Vietnam, respectively. In Q3, tariff costs negatively impacted our gross margin by 280 basis points.

Total operating expenses in the third quarter were $15 million versus $16.4 million in the same period last year. It is important to note 2 specific items that impact year-over-year comparability. First, this quarter includes a $1.2 million insurance recovery related to the shareholder litigation we discussed in Q4 2024. Second, the prior year quarter included a $1.9 million noncash impairment charge associated with our internally developed software. As a percentage of revenue, Q3 operating expenses were 47% compared to 74% in Q3 2024 as we continue to drive strong operating leverage as we scale the business.

Q3 operating income was a record for Owlet at $1.2 million, the first quarter of positive operating profit in company history.

Net income was also positive in the third quarter at $4.1 million versus $5.6 million net loss in the same period last year. Q3 net income includes a positive $4.3 million common stock warrant liability adjustment.

Q3 adjusted EBITDA was $1.6 million, another quarterly record for the business, improving $1 million compared to the same period last year. Strong revenue growth despite tariff costs drove the increase, our sixth consecutive quarter of adjusted EBITDA profitability.

Cash and cash equivalents as of quarter end September 30, 2025, were $23.8 million versus $21.8 million at the end of second quarter 2025. In the quarter, we drew down on our line of credit, increasing to $18.6 million at the end of Q3 versus $14.9 million at the end of Q2. The principal balance on our term loan was $7.5 million at the end of Q3 and Q2. Repayment of the term loan begins in November, and we expect it to be paid off by January 2028.

In October, we completed 2 important critical capital markets milestones to strengthen our business and support Owlet's long-term growth opportunity. First, we completed the warrant exchange announced on our second quarter earnings call. We received shareholder approval at our Annual Meeting on October 8, and the transaction was completed on October 10 with over 96% of Series A warrants and all of the Series B warrants converting into 5.4 million in shares of our common stock. We're pleased to be able to complete the exchange and be able to simplify our capital structure and improve the attractiveness of our stock for current and potential investors.

In addition, we successfully completed a follow-on equity offering on October 23, raising net proceeds of approximately $32 million. After giving effect of the warrant exchange and equity offering, as of November 10, 2025, we had approximately 27.6 million shares of common stock outstanding. The strategic raise bolsters our balance sheet, furthers a bridge to cash flow independence and provides financial flexibility to opportunistically invest for growth.

We have some near-term R&D investments that we will begin prioritizing in this current fourth quarter as well as into 2026. But to be clear, despite the capital raise, we intend to maintain the financial discipline we have instilled over the past few years and aim for long-term consistent profitable growth.

Now turning to an update on our financial outlook. Given our performance in the third quarter and expectations for the fourth quarter, we are updating our 2025 guidance. For the full year 2025, we are raising revenue expectations to the range of $103 million to $106 million or 32% to 36% growth year-over-year. The momentum of the business remains strong despite a macro backdrop that includes uncertainty around the consumer environment, government shutdown after effects and tariff policies that could impact our important Q4 holiday sales period.

We are narrowing our 2025 expectation range for gross margin to 48% to 50%. This updated guidance includes Q4 as the first full quarter of increased tariff cost impacts of 20% on imports from Vietnam and 19% on imports from Thailand or approximately 500 basis points to our margin in the quarter.

And finally, for the full year 2025, we expect adjusted EBITDA to be in the range of $1.25 million to $2 million, representing a $3.1 million to $3.8 million improvement versus 2024 and our first full year of adjusted EBITDA profitability.

As we look ahead to 2026, we're expecting ongoing momentum as we drive further growth in our core business, subscription platform and the health care opportunity. We look forward to discussing 2026 expectations in more detail on our fourth quarter earnings call.

With that, we will now take your questions.

[Operator Instructions] First question is from the line of Charles Rhyee with TD Cowen.

This is Lucas on for Charles, and congrats on the quarter. I want to ask about your guys' opportunity to partner with health systems. I would love to hear some incremental color on the early experience that you guys have had with the Children's Hospital the King's Daughters in Virginia. I guess just how the partnership has gone so far? And then obviously, I understand it's early days, but would be curious to see if you've seen other health systems reach out seeking to form similar partnerships.

Yes. Thank you very much. Great question. As you know, we're super early with the CHKD partnership, and we just went live with our integration with them on the RPM. So far, the integration is very successful. They're happy. We're happy. And we are leveraging the CHKD relationship and partnership as a pilot for other healthcare systems. who are already in conversations with both us and looking at the CHKD integration. So we don't have anything to share today, but look for something very soon, and we're very opportunistic on this as we get down the road.

Okay. Appreciate that. And then just a follow-up. I want to ask about international growth, obviously, strong 171% growth in 3Q as well as adding new regulatory clearance in India. So I would expect this momentum to continue. But can you just help us understand which countries are you seeing the most growth in right now? And I guess, as we think out to 2026, what markets should we think about continuing to drive the growth in adoption in international markets?

Yes. Overall, international performed very well this quarter. This is one of the things that we hinted at on our Q2 earnings call. If you recall, Q2 was a lighter quarter for international. And the reason for that is that we just launched our third-generation Dream Sight and Dream Duo product with the sell-in to our distributors occurring during Q3. So that's why we saw the Q2 softness. It's really a catch-up year-to-date. But overall, really pleased with the performance internationally. We still have continued momentum. We're seeing sell-through growing in all of our European countries. It's going well. We've also been announcing new clearances, which will give us further opportunity for global expansion.

Next question is from the line of Owen Rickert with Northland Capital Markets.

Congrats on a great quarter. I guess quickly, can you elaborate on how the Rhapsody partnership changes the value proposition of BabySat or your broader clinical platform for these hospitals or potential hospital partners? And then more specifically on that, how does it streamline implementation or improve clinician engagement compared to before the integration?

Yes. Thank you, Owen. Good to hear your voice again. Yes, we're super excited about the Rhapsody integration. This is the RPM integration. This is the engine that drives, which we're calling Owlet Connect. And by driving this, this is giving neonatologists and hospitals real-time access to the Dream Sock -- I'm sorry, the BabySat data as the babies are discharged from the NICU in their home. So the neonatologists can log in through their platforms, leveraging the Rhapsody and the Owlet Connect to get real-time data.

So what's really great about this integration is we've built the structure and now we can very quickly plug this into other hospital systems. So we believe that this is going to give us the opportunity to scale and add new hospital networks and new platforms at a much more rapid pace.

Got it. Super helpful. And then secondly for me, in terms of Owlet360, how are those subscriber retention rates trending? And maybe are there any specific features or new features to call out that might be driving some higher engagement or improved LTVs?

Yes. Another great question. We're not sharing any of our subscriber churn numbers today, but we are seeing subscribers stay on our platform for quite a while. As you'll recall, we launched this at the end of January, so we don't have full year results yet. But we are seeing strong engagement from our Owlet360 customers. We are -- we can actually already tell many of the families who are using Oura Ring because we're getting a lot of the same feature sets that Oura is delivering on their platform, and they're asking for that same feature set for their babies on Owlet360. So super excited about that.

And as you'll recall, Owlet360 today is primarily based on Sock features. So look forward to a lot more camera features, especially with the new launch of Dream Sight which is a next-generation platform and has AI capabilities built right in. So we see a lot more camera and Duo features coming to the market as we begin to grow and expand. And as you'll recall, we have as many camera users on our platform every night as Sock. So we really believe that we can scale and grow this opportunity.

There are currently no further questions registered. [Operator Instructions]

There are no additional questions waiting at this time. So I'll pass the call back to Jonathan Harris for any concluding remarks.

Sorry about that. So as we head into the final months of 2025, I'm incredibly proud of our progress our team has made in strengthening Owlet's foundation and delivering meaningful innovation for every family. This quarter's results demonstrate both resilience and focus, proof that our strategy to expand our products globally and enhance our hero product ecosystem is working.

As we look ahead, we're entering a pivotal phase, scaling our impact, broadening our reach, deepening consumer investor trust and driving sustainable growth through smarter technology and operational excellence. Our mission remains clear, to become the wellness ally for parents by empowering them with peace of mind and valuable health and sleep data. We're excited about what lies ahead as we continue building on this momentum and broaden our relationship with Owlet families across the globe. Again, thank you, and let's soar.

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.