Owlet's Q3 2025 Earnings Call: Contradictions Emerge in Healthcare Partnerships, International Growth, Tariff Impacts, and CHKD Collaboration

Date of Call: None provided

Financials Results

• Revenue: $32.0M, up 44.6% YOY
• Gross Margin: 50.6%, with tariff headwind of ~280 basis points in Q3

Guidance:

• Full year 2025 revenue expected to be $103M–$106M (up ~32%–36% YOY)
• Full year 2025 gross margin expected to be 48%–50% (Q4 includes ~500 bps incremental tariff pressure from 20% Vietnam and 19% Thailand)
• Full year 2025 adjusted EBITDA expected to be $1.25M–$2.0M (first full-year adjusted EBITDA profitability; ~$3.1M–$3.8M improvement vs 2024)

Business Commentary:

* Revenue Growth and Product Launches: - Owlet reported record revenue of $32 million for Q3, up 45% year-over-year. - This growth was driven by the launch of the new Dream Sight camera and ongoing momentum in the core business.

• Gross Profit and Margin Improvement:
• Owlet achieved a record gross profit of $16.2 million, resulting in gross margins of 50.6%.

• The improvement in margins was attributed to top-line strength offsetting tariff impacts.

• International Expansion and Market Penetration:

• International revenue growth was up 171% year-over-year for Q3, with international revenue now accounting for a significant portion of Owlet's total revenue.

• This growth was driven by the launch of the Dream Sight video monitor, penetration of new global sales channels, and regulatory clearances.

• Subscription Platform Growth:

• Owlet's paying subscribers surpassed 85,000, with a 25% subscription attach rate for Dream Sock by the end of Q3.
• Growth was driven by the value proposition of the Owlet360 subscription, which supports parents from infancy into the toddler years, increasing customer lifetime value.

• FDA Clearance and Market Leadership:
• Owlet's Dream Sock received FDA clearance, positioning it as the only over-the-counter infant monitoring device with FDA approval.
• This regulatory validation reinforces Owlet's market leadership, enhances brand trust, and creates a competitive advantage in the market.

Sentiment Analysis:

Overall Tone: Positive

• Management described Q3 as "the best in Owlet history" and reported record Q3 revenue of $32M (up ~45% YoY) and record Q3 operating income of $1.2M — the company’s first quarterly operating profit — highlighting sustained product momentum and profitability progress.

Q&A:

• Question from Lucas Romanski (TD Cowen): 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.
  Response: CHKD RPM integration is live and successful; it's being used as a pilot/reference to accelerate conversations with other health systems and should enable near-term additional partnerships.

• Question from Lucas Romanski (TD Cowen): 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?
  Response: International sell-through is growing broadly (notably across Europe); Q3 strength was driven by Dream Sight distributor load-ins and new regulatory clearances (including India), providing runway for 2026 expansion.

• Question from Owen Rickert (Northland Capital Markets): 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 more specifically, how does it streamline implementation or improve clinician engagement compared to before the integration?
  Response: Rhapsody/Owlet Connect delivers real-time BabySat data into hospitals' clinician platforms, simplifying integration and enabling rapid plug-and-play expansion to additional hospital systems.

• Question from Owen Rickert (Northland Capital Markets): 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?
  Response: They declined to disclose churn but report strong engagement and multi-month retention; current adoption driven by Sock features, with upcoming camera and AI features from Dream Sight expected to further boost engagement and LTV.

Contradiction Point 1

Partnership with Healthcare Systems

It highlights the differing levels of success and engagement with healthcare systems, which is crucial for understanding Owlet's growth strategy and potential revenue streams.

Can you discuss partnerships with health systems and share early experiences with the Children's Hospital of the King's Daughters in Virginia? - Lucas Romanski(TD Cowen)

20251114-2025 Q3: The partnership with CHKD is very successful, with both parties happy. Owlet is leveraging the CHKD integration as a pilot for other healthcare systems and opportunistically exploring new partnerships. - [Jonathan Harris](CEO)

Can you share additional details on the early experience with the Children's Hospital of the King's Daughters in Virginia? Have other health systems shown interest in similar partnerships? - Lucas Romanski(TD Cowen)

2025Q3: We're very early with the CHKD partnership, and integration with them on the RPM is successful. They're happy, and we're happy. We're leveraging CHKD as a pilot for other healthcare systems already in conversations with us. - [Jonathan Harris](CEO)

Contradiction Point 2

International Market Growth

It addresses the consistency in international growth strategy and performance, which is crucial for understanding Owlet's expansion plans and potential revenue streams.

Which countries are driving the most international market growth and where should we focus in 2026? - Lucas Romanski(TD Cowen)

20251114-2025 Q3: International performance was strong, with new product sell-in during Q3. Growth is seen in European countries, and new clearances will open more opportunities globally. - [Amanda Crawford](CFO)

Which countries are driving the most growth currently, and which markets should we prioritize in 2026? - Lucas Romanski(TD Cowen)

2025Q3: International performed well with catch-up from Q2. We're seeing sell-through growth in all European countries. Dream Sight cleared new markets, providing opportunities for global expansion. - [Amanda Crawford](CFO)

Contradiction Point 3

Tariff Impact on Operating Results

The discrepancy in the reported tariff impact on gross margins and operating results highlights a potential inconsistency in the company's financial forecasting and management of its cost structure.

Can you discuss partnership opportunities with health systems and early experiences with Children's Hospital of the King's Daughters in Virginia? - Lucas Romanski (TD Cowen)

20251114-2025 Q3: The tariff impact in Q2 was about $500,000 to gross profit, with expectations for a 5% impact on gross margin in Q4. Q3 will be a blend, as current inventory holds a 10% tariff, with an increase expected as higher tariff rates hit. - [Amanda Twede Crawford](CFO)

Can you quantify tariff costs as a percentage of COGS and their impact on the second half of the year? - Charles Rhyee (TD Cowen)

2025Q2: Q3 will be a blend, as current inventory holds a 10% tariff, with an increase expected as higher tariff rates hit. - [Amanda Twede Crawford](CFO)

Contradiction Point 4

Healthcare Revenue Contribution

The inconsistency in the description of healthcare revenue contributions between quarters may suggest differing expectations or strategic focus on this segment.

Can you quantify the tariff cost as a percentage of COGS and its impact on the second half? - Lucas Romanski (TD Cowen)

20251114-2025 Q3: Healthcare revenue was inconsequential but growing. Owlet is expanding Medicaid plans acceptance to 29 states and progressing with Children's Hospital of the King's Daughters (CHKD) through Owlet Connect integration. - [Jonathan Harris](CEO)

What was the healthcare revenue contribution for the quarter? - Charles Rhyee (TD Cowen)

2025Q2: Healthcare revenue was inconsequential but growing. - [Jonathan Harris](CEO)

Contradiction Point 5

Partnership with Children's Hospital of the King's Daughters (CHKD)

It involves the nature and success of the partnership with CHKD, which is a strategic alliance for Owlet's growth in the healthcare sector, impacting potential partnerships and market expansion.

What is the opportunity to partner with health systems and what early experience do you have with the Children's Hospital of the King's Daughters in Virginia? - Lucas Romanski (TD Cowen)

20251114-2025 Q3: The partnership with CHKD is very successful, with both parties happy. Owlet is leveraging the CHKD integration as a pilot for other healthcare systems and opportunistically exploring new partnerships. - [Jonathan Harris](CRO)

Can you elaborate on the partnership with the Children's Hospital of the King's Daughters and how it works? Are there other hospitals involved? - Lucas Romanski (TD Cowen)

2025Q1: For the first time, babies can leave the hospital with an Owlet monitor... This collaboration marks the first Adapt has helped Owlet with, but more partnerships are in the queue. - [Jonathan Harris](CRO)