Owlet(OWLT) - 2025 Q1 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements This section outlines forward-looking statements, emphasizing their inherent risks and uncertainties, and lists key factors that could materially affect the company's actual results - Forward-looking statements are predictions based on current expectations and projections, subject to significant risks and uncertainties[15][16] - Key risk factors include limited operating history, recurring operating losses and negative cash flows, growth management challenges, potential regulatory requirements, reliance on limited retailers and single manufacturers, intellectual property protection, IT system failures/cyberattacks, legal/regulatory proceedings, product liability claims, international market risks, brand reputation, and the need for additional capital[15][19] PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Owlet, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, income statements, equity changes, cash flows, and detailed explanatory notes Condensed Consolidated Balance Sheets (Unaudited) Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | -------------: | ----------------: | ---------: | ---------: | | Total Assets | $51,397 | $49,515 | $1,882 | 3.80% | | Total Liabilities | $63,397 | $66,329 | $(2,932) | -4.42% | | Total Mezzanine Equity | $13,806 | $12,937 | $869 | 6.72% | | Total Stockholders' Deficit | $(25,806) | $(29,751) | $3,945 | -13.26% | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :------------------------------------------------- | --------------------------------: | --------------------------------: | ---------: | ---------: | | Revenues | $21,104 | $14,750 | $6,354 | 43.08% | | Gross profit | $11,326 | $6,547 | $4,779 | 73.00% | | Operating loss | $(2,671) | $(5,746) | $3,075 | -53.52% | | Net income and comprehensive income | $3,025 | $3,274 | $(249) | -7.61% | | Net income attributable to common stockholders | $1,748 | $1,285 | $463 | 36.03% | | Net income per share attributable to common stockholders, basic | $0.11 | $0.15 | $(0.04) | -26.67% | | Weighted-average shares outstanding, basic | 15,383,287 | 8,740,059 | 6,643,228 | 75.99% | Condensed Consolidated Statements of Changes in Mezzanine Equity and Stockholders' Deficit (Unaudited) - Mezzanine equity increased from $12,937 thousand at December 31, 2024, to $13,806 thousand at March 31, 2025, primarily due to accretion on convertible preferred stock and redeemable common stock[26] - Stockholders' deficit improved from $(29,751) thousand to $(25,806) thousand, driven by net income of $3,025 thousand and stock-based compensation, partially offset by accretion on preferred and redeemable common stock[26] Condensed Consolidated Statements of Cash Flows (Unaudited) Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :-------------------------------- | --------------------------------: | --------------------------------: | ---------: | ---------: | | Net cash used in operating activities | $(5,925) | $(3,356) | $(2,569) | 76.54% | | Net cash used in investing activities | $(110) | $(37) | $(73) | 197.30% | | Net cash provided by financing activities | $2,014 | $5,233 | $(3,219) | -61.51% | | Net change in cash, cash equivalents, and restricted cash | $(4,021) | $1,840 | $(5,861) | -318.53% | | Cash, cash equivalents, and restricted cash at end of period | $16,610 | $18,397 | $(1,787) | -9.71% | Notes to Condensed Consolidated Financial Statements (Unaudited) These notes provide detailed explanations and disclosures for the condensed consolidated financial statements, covering accounting policies, risks, and specific financial accounts Note 1. Basis of Presentation This note details the basis of financial statement preparation, highlights going concern risks from recurring losses, outlines management's mitigation actions, and discusses customer concentration and cash flow revisions - The company has experienced recurring operating losses and negative cash flows from operations since inception, resulting in an accumulated deficit of $265,170 thousand as of March 31, 2025, raising substantial doubt about its ability to continue as a going concern[36][37] - Management's actions to address going concern risks include issuing common stock for net proceeds of $10,590 thousand (September 2024), selling preferred stock and warrants for $9,250 thousand (February 2024), and securing a $15,000 thousand WTI Loan Facility and a $15,000 thousand ABL Line of Credit (September 2024)[39][204][205] Customer Concentration by Net Accounts Receivable | Customer Group | March 31, 2025 | December 31, 2024 | | :--------------- | -------------: | ----------------: | | Three largest customers | 63 % | 63 % | Customer Concentration by Total Net Revenue (Three Months Ended March 31) | Customer | 2025 | 2024 | | :--------- | ---: | ---: | | Customer 1 | 37 % | 25 % | | Customer 2 | 14 % | 20 % | | Customer 3 | 6 % | 12 % | - The company revised its unaudited condensed consolidated statements of cash flows for the interim period ended March 31, 2024, to correct immaterial overstatements in short-term borrowings and payments, and classification errors between operating and investing activities, with no impact on net income or total cash flow[45][46] Note 2. Certain Balance Sheet Accounts This note breaks down specific balance sheet accounts, including restricted cash, allowance for losses, inventory, property and equipment, and intangible assets with associated expenses Restricted Cash (in thousands) | Category | March 31, 2025 | December 31, 2024 | | :-------------------------------------------------------------------------------- | -------------: | ----------------: | | Cash and cash equivalents | $16,310 | $18,397 | | Restricted cash | $300 | $0 | | Total cash, cash equivalents, and restricted cash | $16,610 | $18,397 | Allowance for Credit and Other Losses (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :---------------------------------- | --------------------------------: | --------------------------------: | | Beginning balance | $653 | $3,322 | | Charges to expense | $95 | $(388) | | Charges to revenue | $63 | $56 | | Write-offs | $0 | $(2,490) | | Ending balance | $811 | $500 | Inventory Details (in thousands) | Category | March 31, 2025 | December 31, 2024 | | :----------- | -------------: | ----------------: | | Raw materials | $140 | $100 | | Finished goods | $11,673 | $10,423 | | Total inventory | $11,813 | $10,523 | Intangible Assets, Net (in thousands) | Category | March 31, 2025 (Net) | December 31, 2024 (Net) | | :---------------------- | -------------------: | --------------------: | | Trademarks and patents | $338 | $331 | | Internally developed software | $711 | $644 | | Total intangible assets | $1,049 | $975 | Estimated Future Amortization Expenses of Intangible Assets (in thousands) | Period | Amount | | :------------------------ | -------: | | Remaining nine months of 2025 | $262 | | 2026 | $347 | | 2027 | $255 | | 2028 | $47 | | 2029 | $27 | | Thereafter | $45 | | Total future amortization expenses | $983 | Note 3. Deferred Revenues This note explains deferred revenues from mobile applications and subscription services, recognized over 1 to 27 months, and details changes in the deferred revenue balance Changes in Deferred Revenues (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------------- | --------------------------------: | --------------------------------: | | Beginning balance | $1,544 | $1,302 | | Deferral of revenues | $743 | $521 | | Recognition of deferred revenues | $(702) | $(543) | | Ending balance | $1,585 | $1,280 | - Revenue recognized from beginning deferred revenue balance was $574 thousand in Q1 2025 and $477 thousand in Q1 2024[62] Note 4. Debt and Other Financing Arrangements This note details the company's debt, including WTI Loan Facility and ABL Line of Credit, outlining terms, interest rates, covenants, collateral, and future maturities Total Debt (in thousands) | Category | March 31, 2025 | December 31, 2024 | | :-------------------------- | -------------: | ----------------: | | Term loan facility payable to WTI, net | $5,088 | $4,819 | | Line of credit | $8,498 | $6,263 | | Financed insurance premium | $313 | $615 | | Total debt | $13,899 | $11,697 | | Less: current portion | $(10,053) | $(7,366) | | Total long-term debt, net | $3,846 | $4,331 | - The WTI Loan Facility, initiated in September 2024, provides up to $15,000 thousand, with $7,500 thousand drawn initially[66][67] - The company elected not to draw the remaining $2,500 thousand of the first tranche, resulting in the forfeiture of 62,500 unvested shares of redeemable common stock[68] - The ABL Line of Credit, also established in September 2024, has a maximum principal of $15,000 thousand (increasing to $20,000 thousand on September 11, 2025)[79] - As of March 31, 2025, $8,498 thousand was outstanding, with $46 thousand remaining borrowing base availability[84] - The company was in compliance with all covenants under both the WTI Loan Facility and the ABL Line of Credit as of March 31, 2025[73][82] Future Aggregate Maturities (in thousands) | Period | Amount | | :------------------------ | -------: | | Remaining nine months of 2025 | $801 | | 2026 | $3,146 | | 2027 | $3,550 | | 2028 | $420 | | Total | $7,917 | Note 5. Commitments and Contingencies This note outlines purchase obligations and details ongoing legal proceedings, including class action lawsuits and derivative complaints, reporting on settlement agreements reached - The company has a purchase obligation of $5,313 thousand remaining as of March 31, 2025, for cloud platform services, to be paid over a 48-month period starting June 2024[87] - Settlements in the Butala class action for Section 10(b) Claims ($3,500 thousand) and Section 14(a) Claims ($1,750 thousand) were agreed upon, totaling $5,250 thousand, recognized as general and administrative expense in 2024[93] - A settlement agreement for the Vargas derivative action resulted in $675 thousand of general and administrative expense recognized in Q1 2025[96] Note 6. Stock-based Compensation This note describes the company's stock compensation plans (options, RSAs, RSUs, PSUs) and details the recognized stock-based compensation expense across operating categories Total Stock-based Compensation (in thousands) | Category | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------ | --------------------------------: | --------------------------------: | | General and administrative | $779 | $1,283 | | Sales and marketing | $455 | $344 | | Research and development | $423 | $600 | | Total stock-based compensation | $1,657 | $2,227 | - During Q1 2025, $27 thousand of stock-based compensation was capitalized for internally developed software, compared to none in Q1 2024[100] - As of March 31, 2025, unrecognized stock-based compensation costs totaled $5,815 thousand for RSUs (weighted-average period of 1.2 years) and $101 thousand for PSUs (weighted-average period of 0.8 years)[102] Note 7. Common Stock Issuance, Redeemable Common Stock, Common Stock Warrants, and Convertible Preferred Stock This note details the company's equity and warrant activities, including common stock offerings, preferred stock placements, conversions, and accounting for redeemable common stock - In September 2024, the company issued 3,135,136 shares of common stock, generating net proceeds of $10,590 thousand, and issued Titan Warrants to purchase 125,405 shares as underwriting compensation[104][106] - In February 2024, the company sold 9,250 shares of Series B convertible preferred stock and warrants to purchase 1,799,021 shares of common stock for a gross purchase price of $9,250 thousand[110] - As of March 31, 2025, the redemption value for Series A convertible preferred stock is $11,479 thousand and for Series B convertible preferred stock is $9,250 thousand[109][115] - 750,000 shares of redeemable common stock were issued to WTI in September 2024, of which 62,500 shares were forfeited due to the company not drawing on the remaining first tranche of the WTI Loan Facility[108][68] Common Stock Warrants Activity (Shares Issuable) | Warrant Type | December 31, 2024 | New Warrants | Shares Purchased by Exercise | March 31, 2025 | | :----------------------------- | ----------------: | -----------: | ---------------------------: | -------------: | | SBG Public Warrants | 821,428 | — | — | 821,428 | | SBG Private Placement Warrants | 471,428 | — | — | 471,428 | | Series A Warrants | 7,871,712 | — | — | 7,871,712 | | Series B Warrants | 1,799,021 | — | — | 1,799,021 | | SVB Warrants | 10,714 | — | — | 10,714 | | Titan Warrants | 125,405 | — | — | 125,405 | | Total | 11,099,708 | — | — | 11,099,708 | Note 8. Fair Value Measurements This note details fair value measurements of assets and liabilities across the fair value hierarchy, focusing on common stock warrant valuation using the Black-Scholes model Fair Value Measurements (in thousands) - March 31, 2025 | Category | Level 1 | Level 2 | Level 3 | Balance | | :-------------------------- | ------: | ------: | --------: | --------: | | Assets: | | | | | | Money market funds | $9,104 | $— | $— | $9,104 | | Liabilities: | | | | | | SBG Public Warrants | $— | $— | $1 | $1 | | SBG Private Placement Warrants | $— | $— | $1 | $1 | | Series A Warrants | $— | $— | $15,263 | $15,263 | | Series B Warrants | $— | $— | $3,391 | $3,391 | | Total liabilities | $— | $— | $18,656 | $18,656 | Fair Value Measurements (in thousands) - December 31, 2024 | Category | Level 1 | Level 2 | Level 3 | Balance | | :-------------------------- | ------: | ------: | --------: | --------: | | Assets: | | | | | | Money market funds | $8,223 | $— | $— | $8,223 | | Liabilities: | | | | | | SBG Public Warrants | $— | $— | $5 | $5 | | SBG Private Placement Warrants | $— | $— | $2 | $2 | | Series A Warrants | $— | $— | $20,750 | $20,750 | | Series B Warrants | $— | $— | $4,586 | $4,586 | | Total liabilities | $— | $— | $25,343 | $25,343 | - The fair value of common stock warrant liabilities decreased by $6,687 thousand from December 31, 2024, to March 31, 2025, primarily due to a smaller decrease in the fair value of outstanding warrants[130] Note 9. Net Income (Loss) Per Share This note presents basic and diluted net income (loss) per share calculations using the two-class method and identifies anti-dilutive securities excluded from diluted EPS Net Income Per Share Attributable to Common Stockholders (Basic) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------------------------------------------------------------------- | --------------------------------: | --------------------------------: | | Allocated net income attributable to common stockholders | $1,748 | $1,285 | | Weighted average common shares outstanding, basic | 15,383,287 | 8,740,059 | | Net income per share attributable to common stockholders, basic | $0.11 | $0.15 | Net Income (Loss) Per Share Attributable to Common Stockholders (Diluted) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------------------------------------------------------------------- | --------------------------------: | --------------------------------: | | Allocated net income (loss) attributable to common stockholders | $1,748 | $(4,863) | | Weighted average common shares outstanding, diluted | 15,383,287 | 9,617,825 | | Net income (loss) per share attributable to common stockholders, diluted | $0.11 | $(0.51) | Common Stock Equivalents Excluded from Diluted EPS (Anti-Dilutive Effect) | Security Type | March 31, 2025 | March 31, 2024 | | :-------------------- | -------------: | -------------: | | Stock options | 377,012 | 463,168 | | RSUs | 1,450,316 | 1,526,327 | | RSAs | 107,636 | — | | PSUs | 56,391 | 71,428 | | ESPP shares committed | 51,073 | 19,388 | | Common stock warrants | 11,099,708 | 3,102,591 | | Preferred stock | 2,872,668 | 5,200,802 | | Total | 16,014,804 | 10,383,704 | Note 10. Segments This note clarifies the company operates as a single segment with the CEO as decision maker, providing revenue and long-lived asset breakdowns by geographic area - The company operates as a single operating segment, with all significant operating decisions based on a consolidated analysis[139] Revenue by Geographic Area (in thousands) | Geographic Area | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :---------------- | --------------------------------: | --------------------------------: | | United States | $17,333 | $12,901 | | United Kingdom | $1,207 | $856 | | Other | $2,564 | $993 | | Total revenues | $21,104 | $14,750 | Long-Lived Assets by Geographic Area (in thousands) | Geographic Area | March 31, 2025 | December 31, 2024 | | :---------------- | -------------: | ----------------: | | United States | $134 | $167 | | International | $74 | $73 | | Total long-lived assets, net | $208 | $240 | Note 11. Revision of Previously Issued Quarterly Information (Unaudited) This note details revisions to the Q1 2024 unaudited condensed consolidated cash flow statements, correcting immaterial errors in borrowings, payments, and activity classifications without impacting net income or total cash flow Revisions to Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31, 2024, in thousands) | Cash Flow Activity | As Reported | Adjustments | As Revised | | :-------------------------------- | ----------: | ----------: | ---------: | | Other, net (Operating Activities) | $(680) | $(17) | $(697) | | Net cash used in operating activities | $(3,339) | $(17) | $(3,356) | | Purchase of intangible assets (Investing Activities) | $(54) | $17 | $(37) | | Net cash used in investing activities | $(54) | $17 | $(37) | | Proceeds from short-term borrowings (Financing Activities) | $28,941 | $(21,688) | $7,253 | | Payments of short-term borrowings (Financing Activities) | $(31,392) | $21,688 | $(9,704) | | Net cash provided by financing activities | $5,233 | $— | $5,233 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial performance, including mission overview, detailed operating results analysis, and a comprehensive discussion of liquidity and capital resources Overview - Owlet's mission is to empower parents with real-time data and insights through its digital parenting platform, aiming to provide peace of mind and support child health[149] Components of Operating Results - Revenues are primarily derived from product sales and associated mobile applications, recognized upon transfer of control[150] - Cost of revenues includes product costs, manufacturing, shipping, depreciation, warranty, fulfillment, warehousing, hosting, and inventory reserves[151] - Operating expenses are categorized into General and Administrative (salaries, legal, accounting, professional services, facilities, settlements), Sales and Marketing (salaries, commissions, third-party marketing), and Research and Development (salaries, product design, development, testing, clinical testing)[152][153][154] Results of Operations This section analyzes the company's Q1 2025 financial performance versus Q1 2024, covering revenues, cost of revenues, gross profit, operating expenses, and other income/expense Key Financial Results (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :-------------------------------- | --------------------------------: | --------------------------------: | ---------: | ---------: | | Revenues | $21,104 | $14,750 | $6,354 | 43.1% | | Cost of revenues | $9,778 | $8,203 | $1,575 | 19.2% | | Gross profit | $11,326 | $6,547 | $4,779 | 73.0% | | Gross margin | 53.7% | 44.4% | 9.3% | 20.95% | | Operating loss | $(2,671) | $(5,746) | $3,075 | -53.5% | | Interest expense, net | $(991) | $(161) | $(830) | 515.5% | | Common stock warrant liability adjustment | $6,687 | $9,179 | $(2,492) | -27.1% | | Net income and comprehensive income | $3,025 | $3,274 | $(249) | -7.6% | | Net income attributable to common stockholders | $1,748 | $1,285 | $463 | 36.0% | - Revenue increase was primarily driven by higher sales of Dream Sock and Dream Duo products, reflecting increased consumer demand[161] - Gross margin improved due to higher revenue, favorable product mix, lower returns, improved fixed cost absorption, and lower direct product and fulfillment costs[162] - General and administrative expenses increased due to litigation settlements and higher compensation, partially offset by lower stock-based compensation[163] - Research and development expenses increased due to higher compensation, increased headcount, and greater investment in R&D[165] - Interest expense significantly increased due to interest and amortization of issuance costs related to the WTI Loan Facility and ABL Line of Credit, entered into in September 2024[166] Liquidity and Capital Resources This section discusses funding sources, reiterates going concern warnings, outlines management's mitigation actions, and summarizes cash flow activities from operations, investing, and financing - As of March 31, 2025, the company had cash and cash equivalents of $16,310 thousand[168] - The company continues to face substantial doubt about its ability to continue as a going concern due to recurring operating losses, negative cash flows from operations, and a low cash balance relative to current obligations[206] - Management's actions to address liquidity include a September 2024 common stock offering ($10,590 thousand net proceeds), a February 2024 preferred stock and warrant sale ($9,250 thousand gross proceeds), and securing the WTI Loan Facility and ABL Line of Credit in September 2024[204][205] - Failure to secure additional funding on acceptable terms may require modifying or abandoning planned development, or further operating cost reductions, which could materially adversely affect the business[208] Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------------------- | --------------------------------: | --------------------------------: | | Net cash used in operating activities | $(5,925) | $(3,356) | | Net cash used in investing activities | $(110) | $(37) | | Net cash provided by financing activities | $2,014 | $5,233 | | Net change in cash, cash equivalents, and restricted cash | $(4,021) | $1,840 | - The increase in net cash used in operating activities was primarily driven by an increase in accounts receivable[211] - Net cash used in investing activities increased due to investments in various projects, primarily for the development of a new subscription app[212] - The decrease in net cash provided by financing activities was primarily due to the proceeds raised by the Series B preferred stock offering in February 2024, which occurred in the prior year period[213] Critical Accounting Policies and Estimates - There have been no material changes to the critical accounting policies and estimates disclosed in the company's Form 10-K, other than those explicitly disclosed in this report[214] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Owlet, Inc. is not required to provide quantitative and qualitative disclosures regarding market risk Item 4. Controls and Procedures This section details the evaluation of disclosure controls and procedures, concluding they were ineffective due to material weaknesses in internal control over financial reporting, and outlines remediation plans - The company's disclosure controls and procedures were not effective as of March 31, 2025, due to material weaknesses in internal control over financial reporting[218] - Material weaknesses include an ineffective control environment due to insufficient personnel with appropriate internal controls and accounting knowledge, inadequate segregation of duties for journal entries, ineffective controls over inventory accuracy and existence, completeness and accuracy of accrued liabilities, accounting for debt and equity arrangements (including convertible preferred stock, warrants, and stock-based compensation modifications), sales returns, accrued sales tax, and IT general controls[221][223] - The remediation plan involves hiring additional accounting and financial reporting personnel, implementing new policies, procedures, and controls, and enhancing existing controls related to IT general controls, segregation of duties, inventory, accrued liabilities, and debt/equity arrangements[222][225][226] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section states the company is involved in various legal proceedings and refers to Note 5 for detailed descriptions and potential impacts on financial position Item 1A. Risk Factors This section directs readers to the Form 10-K and 10-K/A for comprehensive risk factors that could materially affect the business, financial condition, or results Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms no unregistered sales of equity securities occurred during the three months ended March 31, 2025 Item 3. Defaults Upon Senior Securities This section states no defaults upon senior securities occurred during the reporting period Item 4. Mine Safety Disclosures This section indicates mine safety disclosures are not applicable to the company Item 5. Other Information This section reports no other material information to disclose and no Rule 10b5-1 trading arrangement changes by directors, officers, or the company Item 6. Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including officer certifications and Inline XBRL documents Signatures This section contains the required signatures of the Principal Executive Officer and Principal Financial Officer, certifying the report's submission