Owlet, Inc. (OWLT) Earnings

Management highlights

- **Long-term Strategic Vision** * The company is evolving from a one-time hardware-centric business to a durable data and subscription services platform for early childhood parenting, focused on turning product-collected biometric and sleep/health data into actionable insights for parents. * Core long-term objectives are: 1) Position Owlet as a data and services platform via subscription; 2) Acquire ~1 million new customers annually; 3) Retain customers for a minimum of two years, to build a recurring subscriber base of over 1 million long-term. * The company leverages what it claims is the world's largest pediatric health dataset to build personalized AI-powered insights, increasing product stickiness and lifetime value (LTV). - **Q2 2026 Operational and Financial Highlights** * Received a $4 million total tariff refund following a U.S. Supreme Court ruling, recognizing a one-time $3.5 million COGS benefit and $3.75 million adjusted EBITDA benefit. * Excluding the tariff refund, gross margin expanded 270 basis points year-over-year to 54%, including the refund gross margin reached 64.4%. Excluding the refund, adjusted EBITDA hit a record $2.9 million, up $2.4 million year-over-year; including the refund adjusted EBITDA was $6.7 million. * Entered into a new $25 million asset-based revolving credit facility with Wells Fargo, refinancing prior debt and cutting interest rates by at least 525 basis points to SOFR plus 2-2.25%, reducing annual interest expense and improving financial flexibility. Total available liquidity as of Q2 end was $38.5 million. - **Competitive Position Update** * Owlet's DreamSoc is the only FDA-cleared baby vital signs monitor on the market. Amazon will deactivate non-FDA-cleared vital sign monitoring baby products effective August 10, 2026, which management expects to be a long-term competitive tailwind. * Competitors ran aggressive discounting ahead of the August 10 deadline, which reduced Owlet's Prime Day unit sales by 8% year-over-year, though Owlet remained the market leader in baby monitoring and baby safety categories. - **Subscription Platform Progress** * Over 30% of new U.S. customers subscribe to Owlet360 in their first year, with 36% penetration among U.S. DreamSoc customers. The company is expanding subscription sign-up to point-of-sale (from in-app only) and testing bundled offers to increase adoption. * Launched Owlet360 in new non-English international markets, expanding access to 5-10% more of the company's global user base. * Launched testing of WebPay (web-based in-house checkout) to reduce third-party app store payment fees, improve subscription margins, and enable point-of-purchase enrollment. Upfront point-of-purchase subscription is already live on the company's website and will launch on BabyList soon, with retail partner bundles rolling out in H2 2026. - **Owlet OnCall Telehealth Progress** * 2026 is a deliberate test-and-learn year for the telehealth offering. Access expansion began in Q3 2026, starting with 5% of users. Management expects learning this year will position the offering as a meaningful new revenue stream in 2027.

Guidance

- Full year 2026 revenue guidance is reaffirmed at $118 million to $122 million, despite Q2 outperformance, due to near-term uncertainty from pre-deadline competitor discounting, lack of visibility into post-August 10 competitor behavior, and broader cautious consumer spending trends. - Full year 2026 gross margin guidance is raised to 53% to 55% from the prior 50% to 52%, which only reflects the one-time $3.5 million Q2 COGS benefit from the tariff refund; no additional tariff refunds are forecast for 2026, and the assumed 12.5% tariff rate for H2 2026 is maintained. - Full year 2026 adjusted EBITDA guidance is raised to $10.75 million to $12.75 million from the prior $7 million to $9 million, which only reflects the one-time $3.75 million Q2 adjusted EBITDA benefit from the tariff refund. Underlying operating and profitability expectations are unchanged excluding the one-time benefit. - Q3 2026 revenue is expected to decline both sequentially from Q2 and year-over-year versus Q3 2025, due to deep pre-deadline competitor discounting and a difficult comparison to the 2025 Q3 DreamSight camera and Duo product launch load-in. - Q4 2026 revenue forecast is maintained, despite management caution around promotional event category dynamics.

Segment performance

Total company revenue for Q2 2026 was a record $33.9 million, representing a 29.9% year-over-year increase. - **Owlet360 Subscription**: Generated $3.2 million in revenue, up $2.4 million year-over-year, ended the quarter with 130,000 paying subscribers, and hit a monthly recurring revenue (MRR) of over $1.1 million. Subscription gross margin reached 68.4% sequentially. Subscription revenue contributed approximately 9.4% of total Q2 revenue. - **Hardware (DreamSoc, DreamDuo, DreamSight Camera)**: In the U.S., adjusted for the 2026 Prime Day timing shift, total sell-through units grew 12% year-over-year, with DreamSoc up 16.5% and DreamDuo up 16%. Excluding Prime Day, total sell-through units grew 20% year-over-year, with DreamSoc up 21% and DreamDuo up 29%. Year-over-year baby registry additions for hardware grew 40%. - **International**: International revenue grew 214% year-over-year to a record $5.7 million (the highest international revenue quarter in company history excluding the Q3 2025 new product load-in quarter). Total international sell-through unit growth hit 38% year-over-year, with international Prime Day sell-through growing over 100% year-over-year. International revenue contributed approximately 16.8% of total Q2 revenue.

Risks & headwinds

- Uncertainty around competitor pricing and market behavior following the August 10, 2026 Amazon deactivation deadline for non-FDA-cleared products, with no full visibility into post-deadline competitive dynamics as of the call. - Broad macroeconomic headwinds and cautious consumer spending, with the baby monitor category registering flat to down results in recent large Amazon promotional events, creating near-term demand uncertainty. - Aggressive pre-deadline discounting by competitors pressured Q2 Prime Day results and is expected to pressure Q3 2026 performance. - Forward-looking statements are inherently uncertain, with actual results potentially differing materially from expectations due to risks disclosed in the company's SEC filings (including 10-K and 10-Q filings).

Analyst Q&A

• Q: What are Q3 2026 quarter-to-date sell-through trends, what are current Owlet360 subscription attachment rates, and what does subscriber retention look like for newer cohorts? /

  A: 30% of new customers subscribe within the first year, with average current subscriber tenure at 12 months. Nearly 30% of new users now select annual subscription plans during trial, which improves LTV, and renewal rates for annual plans are decent. Year-over-year Q3 sell-through comparisons are muddied by Prime Day shifting from Q3 2025 to Q2 2026, making near-term trend analysis unclear at this point. The 36% overall penetration of subscription for U.S. DreamSoc customers leaves significant room for growth, with new AI and camera features expected to increase adoption and retention.\n\nQ: How will the Owlet OnCall telehealth offering integrate with the Owlet360 subscription long-term, and what is the long-term product structure? / A: Telehealth will be structured in multiple tiers. Basic health trend insights and data sharing tools will remain part of core Owlet360, while a higher tier will offer direct access to physicians, currently being tested as Owlet OnCall. The offering leverages Owlet's FDA-cleared at-home data to let physicians make more informed care decisions, reducing unnecessary after-hours ER and clinic visits. The long-term plan will likely be core Owlet360 and a premium Owlet360+ tier that includes the physician telehealth access.\n\nQ: Can you describe the AI parenting co-pilot offering, its product roadmap, and how it will be monetized? / A: The offering leverages Owlet's unique large pediatric health dataset to deliver personalized contextual guidance, rather than generic AI outputs. An existing AI daily morning sleep summary feature already sees 85% daily engagement from users who access it. The AI co-pilot will be a core feature integrated into Owlet360, not a separate standalone offering. As more high-value AI features are added, management may increase Owlet360 pricing over time, and the added value will increase subscriber retention and LTV.\n\nQ: How economically significant is the new WebPay in-house checkout for subscription margins, and how are early results tracking? / A: WebPay is economically significant long-term: app stores charge 30% fees for the first 12 months of subscriptions, which WebPay eliminates, leaving only low immaterial credit card processing fees. It also simplifies checkout by requiring only one credit card entry at product purchase, which is expected to increase overall subscription adoption rates. The benefit will build gradually over time as the subscriber base shifts to direct web enrollment, so it will not have a large impact on 2026 full-year results.