Strategic Transformation and Market Dynamics

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• Management is transitioning Owlet from a hardware-centric model to a data and services platform, targeting a recurring base of over 1 million subscribers by extending the customer relationship beyond the newborn window.

• Record Q2 revenue growth of 29.9% was driven by strong international performance and the continued expansion of the Owlet 360 subscription base, which now includes 130,000 paying members.

• The company anticipates a significant competitive tailwind following Amazon's decision to deactivate non-FDA-cleared baby monitors that measure vital signs, a requirement only Owlet currently meets.

• International revenue surged 214% year-over-year, supported by strong momentum in Germany, France, and Eastern Europe, where penetration rates are beginning to mirror U.S. levels.

• Operational efficiency improved with gross margins reaching 54% (excluding one-time tariff refunds), aided by a new $25 million credit facility that reduced the cost of capital by over 525 basis points.

• Management attributed a slight underperformance during Prime Day to aggressive, pre-deadline discounting by competitors whose products faced deactivation on Amazon's platform.

Guidance Assumptions and Strategic Initiatives

• Full-year revenue guidance remains at $118 million to $122 million, reflecting a cautious stance due to uncertain competitor pricing behavior post-Amazon enforcement and broader macro consumer softness.

• Q3 outlook assumes a sequential and year-over-year decline due to deep competitor discounting and a challenging comparison against the prior year's major product launches.

• The rollout of 'Web Pay' and upfront subscription enrollment is expected to improve long-term subscription margins by bypassing third-party app store fees and capturing payment details at the initial point of sale.

• Management is treating 2026 as a 'test and learn' year for pediatric telehealth, with plans to automate and expand the 'Owlet OnCall' service into a meaningful revenue stream by 2027.

• Future product development will focus on AI-driven features, such as the 'AI morning report,' to increase platform stickiness and justify potential price increases for the Owlet 360 tier.

One-Time Impacts and Risk Factors

• Recognized a one-time $3.75 million benefit to adjusted EBITDA following a U.S. Supreme Court decision invalidating certain tariffs, though no further refunds are forecasted for 2026.

• Management flagged a shift in consumer behavior during recent promotional events, with parents appearing to prioritize everyday essentials over discretionary baby monitoring technology.

• The company noted routine, immaterial revisions to prior-year financial statements across revenue and operating expenses, emphasizing no impact on cash flows or balances.

• Execution risk remains regarding the transition of the subscriber mix from app-store billing to the higher-margin Web Pay system, which management expects will take time to materialize.