Owlet, Inc. Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. This is an annual Form 10-K; the filing does not provide a complete standalone fourth-quarter income statement. All share and per-share data reflect the 1-for-14 reverse stock split effective July 7, 2023.
Business Context
Owlet develops connected infant-monitoring products and digital parenting solutions, including Dream Sock, BabySat, Owlet Cam, and related accessories and applications. In 2023, Owlet transitioned further from a consumer technology company toward a medical-device business after receiving FDA authorization for BabySat and de novo classification for Dream Sock with Health Notifications.
- Dream Sock is an over-the-counter FDA-authorized device for certain infants aged 1 to 18 months and weighing 6 to 30 pounds.
- BabySat is a prescription-use-only pulse oximeter for certain infants in the home environment.
- Products are sold through direct-to-consumer channels, major retailers, distributors, and developing healthcare channels.
- As of December 31, 2023, Owlet had 76 full-time employees, compared with 106 at December 31, 2022.
Financial Metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $54.0 million | $69.2 million | Down 22.0% |
| Gross profit | $22.6 million | $23.3 million | Down 3.1% |
| Gross margin | 41.8% | 33.7% | Up 8.1 percentage points |
| Operating loss | $28.6 million | $84.6 million | Improved $56.0 million |
| Net loss | $32.9 million | $79.3 million | Improved $46.4 million |
| Net loss attributable to common stockholders | $37.5 million | $79.3 million | Improved $41.8 million |
| Basic and diluted loss per share | $4.53 | $9.98 | Improved |
| Cash used in operating activities | $23.5 million | $81.4 million | Improved $57.9 million |
| Net cash provided by financing activities | $28.9 million | $(0.9) million | Improved $29.8 million |
- Sales and marketing expense fell 64.9% to $13.5 million, including advertising expense of $6.7 million versus $26.2 million in 2022.
- General and administrative expense declined 34.2% to $27.3 million.
- Research and development expense declined 62.9% to $10.3 million.
- Operating expenses decreased 52.5%, from $107.9 million to $51.2 million.
- Revenue was $46.4 million in the United States and $7.6 million internationally.
- Accounts receivable declined to $14.0 million from $16.0 million, and inventory declined to $6.5 million from $18.5 million.
Liquidity, Debt and Capitalization
- Cash and cash equivalents were $16.6 million at December 31, 2023, compared with $11.2 million at December 31, 2022.
- Accumulated deficit was $255.7 million, and stockholders’ deficit was $37.5 million.
- Debt included $9.3 million outstanding under the SVB revolving facility and $5.0 million under the term loan. All $5.9 million of term loan and financed insurance premium debt was classified as current.
- The revolving facility had $9.3 million of borrowing-base availability at year-end and originally matured April 22, 2024. A March 8, 2024 amendment extended maturity to December 31, 2024 and modified covenants.
- Owlet raised $30.0 million in gross proceeds through a February 2023 Series A preferred stock and warrant financing.
- After year-end, Owlet raised an additional $9.3 million in gross proceeds through a February 2024 Series B preferred stock and warrant financing.
- The February 2023 financing resulted in 7.9 million warrants with a $4.66 exercise price and increased warrant liabilities to $27.8 million at year-end.
Material Changes Versus 2022
- Revenue declined substantially because retailers reduced inventory levels and 2022 benefited from initial Dream Sock sell-in across channel partners.
- Gross margin improved materially because of lower product returns and lower direct product costs.
- Cost reductions, workforce reductions and lower marketing activity significantly reduced operating losses and cash burn.
- Management stated that it came close to achieving positive adjusted EBITDA in the fourth quarter of 2023, but the filing does not provide a clear standalone fourth-quarter adjusted EBITDA amount.
- Operating cash outflow improved primarily because of lower losses and reduced accounts receivable and inventory balances, partly offset by payments to reduce accounts payable and accrued expenses.
- Owlet received FDA 510(k) clearance for BabySat in June 2023 and de novo classification for Dream Sock in November 2023.
- The company remained in violation of its adjusted EBITDA covenant at December 31, 2023, with the lender subsequently providing a waiver and covenant amendments.
- Material weaknesses in internal control over financial reporting continued at year-end, and management concluded that disclosure controls and procedures were not effective.
Outlook, Commentary and Risks
Management’s 2024 strategy emphasizes commercializing FDA-authorized products, expanding healthcare distribution, pursuing potential insurance reimbursement, increasing retail and international reach, improving customer lifetime value, and achieving sustainable profitability. Management expects healthcare partnerships and medical-device channels to improve access and potentially margins, but the filing provides no quantified revenue, margin, EBITDA or cash-flow guidance.
- Going concern: Recurring losses, negative operating cash flow, low cash relative to obligations and declining revenue raise substantial doubt about Owlet’s ability to continue as a going concern within one year after issuance of the financial statements.
- Financing dependence: Additional capital may be required. Future equity or convertible financings could materially dilute common stockholders.
- Regulatory exposure: Owlet previously received an FDA Warning Letter concerning Smart Sock health notifications and ceased U.S. Smart Sock distribution. International authorities may require additional authorizations or certifications, including CE marking and UK approvals.
- Reimbursement uncertainty: Current products are generally not reimbursed by third-party payors. BabySat’s commercial potential depends partly on physician adoption and successful reimbursement arrangements.
- Customer concentration: The top three retail customers represented 55% of 2023 revenue.
- Supply-chain concentration: Owlet relies on a single manufacturer for Sock products, a single manufacturer for Owlet Cam, and several single- or limited-source component suppliers.
- Debt and covenant risk: The company relies on lender waivers and amendments and must continue meeting liquidity and adjusted EBITDA requirements.
- Legal proceedings: Two consolidated securities class-action cases remain pending concerning alleged disclosures about the FDA’s likely classification of Smart Sock. Owlet filed motions to dismiss on February 9, 2024.
- Control environment: Material weaknesses involve staffing and accounting expertise, journal-entry segregation, inventory and accrued liabilities, preferred stock and warrant accounting, sales returns and taxes, and IT general controls.
- Technology and data: Products depend on mobile applications, cloud providers and the Apple App Store and Google Play Store. Cybersecurity, privacy and service interruptions could affect product functionality and demand.
Important Facts for Investors to Verify
- Whether the February 2024 financing and March 2024 debt amendment provide sufficient liquidity to fund operations through the next twelve months.
- Actual fourth-quarter 2023 revenue, adjusted EBITDA, cash burn and product sell-through, which are not fully presented in this annual filing.
- Progress toward positive adjusted EBITDA and sustainable positive operating cash flow.
- Retail inventory levels, customer concentration and the durability of the 2023 gross-margin improvement.
- Commercial adoption, prescription volume and reimbursement coverage for BabySat, as well as demand for FDA-authorized Dream Sock.
- Status of international regulatory matters, including CE marking, UK certification and Health Canada’s position.
- Remediation of the material weaknesses in internal control over financial reporting.
- Potential dilution and future obligations from Series A and Series B preferred stock, warrant issuances and other outstanding equity awards.
- Developments in the securities class-action litigation and any related insurance coverage or settlement exposure.