owlt-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

____________________________________________________________________________

FORM 10-Q

____________________________________________________________________________

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number: 001-39516

_____________________________________________

Owlet, Inc.

(Exact Name of Registrant as Specified in its Charter)

_____________________________________________


Delaware			85-1615012
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
3300 N. Ashton Blvd., Ste. 300 Lehi, UT			84043
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (844) 334-5330

_____________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common stock, $0.0001 par value per share

OWLT

New York Stock Exchange

Warrants to purchase common stock

OWLT WS

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	x	Smaller reporting company	x
Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 10, 2022, the registrant had 113,478,021 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents


		Page

PART I.
Item 1.	Financial Statements	2
	Condensed Consolidated Balance Sheets (Unaudited)	2
	Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)	3
	Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows (Unaudited)	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	24

PART II.
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	28
	Signatures	30

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) and oral statements made from time to time by representatives of the Company may contain or incorporate by reference certain statements that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). Generally, forward-looking statements include the words “may,” “believes,” “plans,” “expects,” “anticipates,” “intends,” “estimate,” “goal,” “potential,” “upcoming,” “outlook,” “guidance,” or the negation thereof, or similar expressions. In addition, all statements (including any underlying assumptions) that address projected or future operating, financial or business performance, strategies or initiatives, future efficiencies or savings, anticipated costs or charges, future capitalization, anticipated impacts of recent or pending investments or transactions, and statements expressing general views about our future results, performance, operations or business are forward-looking statements within the meaning of the Reform Act. Forward-looking statements are based on our expectations at the time such statements are made, speak only as of the dates they are made and are susceptible to a number of risks, uncertainties and other factors. For all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Reform Act. Our actual results, performance or achievements may differ materially from any future results, performance or achievements expressed or implied by our forward-looking statements. Such factors include, but are not limited to, the following:

•the impact of the Warning Letter (defined below), dated October 1, 2021 and corrected in an amendment dated October 5, 2021, from the U.S. Food and Drug Administration, the subsequent suspension of distribution of the Owlet Smart Sock in the U.S. and our ability to obtain marketing authorization for the Owlet Smart Sock or initiate distribution of the Owlet Dream Sock;

•the impact of the COVID-19 pandemic on our business, financial condition, results of operations, supply chain constraints, and logistics;

•our ability to realize the benefits of the Merger, which may be affected by, among other things, competition and our ability to grow and manage growth profitably;

•legal proceedings, regulatory disputes, and governmental inquiries;

•privacy and data protection laws, privacy or data breaches, or the loss of data;

•the impact of changes in consumer spending patterns, consumer preferences, local, regional and national economic conditions, crime, weather, demographic trends and employee availability;

•any defects in new products or enhancements to existing products;

•our ability to continue to develop new products and innovations to meet constantly evolving customer demands;

•our ability to obtain and maintain regulatory approval or certification for our products, and any related restrictions and limitations of any approved or certified product;

•expectations regarding developments with regulatory bodies, and the timeline for related submissions by us and decisions by the regulatory bodies and notified bodies;

•our ability to hire, retain, manage and motivate employees, including key personnel;

•our ability to enhance future operating and financial results;

•changes in and our compliance with laws and regulations applicable to our business;

•our ability to upgrade and maintain our information technology systems;

•our ability to acquire and protect intellectual property;

•our ability to successfully deploy the proceeds from the Merger; and

•our ability to raise financing in the future.

All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above. Moreover, we operate in an evolving environment. In addition to the factors described above, new risk factors and uncertainties may emerge from time to time, and it is impossible for us to predict such events or how they may affect us.

Except as required by federal securities laws, we assume no obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q, whether as a result of new information, future events or otherwise, although we may do so from time to time. We do not endorse any projections regarding future performance that may be made by third parties.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Owlet, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)


Assets	March 31, 2022		December 31, 2021
Current assets:
Cash and cash equivalents	$	68,737	$	95,054
Accounts receivable, net of allowance for doubtful accounts of $425 and $403, respectively	16,636		10,468
Inventory	24,713		17,980
Prepaid expenses and other current assets	6,652		12,313
Total current assets	116,738		135,815
Property and equipment, net	1,738		1,870
Right of use assets, net	2,727		—
Intangible assets, net	2,098		1,696
Other assets	815		666
Total assets	$	124,116	$	140,047
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	23,521	$	27,765
Accrued and other expenses	35,156		31,730
Current portion of deferred revenues	1,128		1,061
Line of credit	4,644		—
Current portion of long-term debt	7,120		8,534
Total current liabilities	71,569		69,090
Long-term debt, net	6,493		7,993
Noncurrent lease liabilities	2,103		—
Common stock warrant liability	13,937		7,061
Other long-term liabilities	197		712
Total liabilities	94,299		84,856
Commitments and contingencies (Note 6)
Stockholders’ equity:
Common stock, $0.0001 par value, 1,000,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 113,406,474 and 112,996,568 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively.	11		11
Additional paid-in capital	201,986		198,602
Accumulated deficit	(172,180)		(143,422)
Total stockholders’ equity	29,817		55,191
Total liabilities and stockholders’ equity	$	124,116	$	140,047

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Owlet, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)


	For the three months ended March 31,
	2022		2021
Revenues	$	21,538	$	21,911
Cost of revenues	12,782		9,228
Gross profit	8,756		12,683
Operating expenses:
General and administrative	10,276		5,981
Sales and marketing	11,631		6,118
Research and development	8,545		3,432
Total operating expenses	30,452		15,531
Operating loss	(21,696)		(2,848)
Other income (expense):
Interest expense, net	(226)		(417)
Preferred stock warrant liability adjustment	—		(4,608)
Common stock warrant liability adjustment	(6,876)		—
Other income (expense), net	47		21
Total other income (expense), net	(7,055)		(5,004)
Loss before income tax provision	(28,751)		(7,852)
Income tax provision	(7)		(5)
Net loss and comprehensive loss	$	(28,758)	$	(7,857)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.26)	$	(0.35)
Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted	110,384,313		22,233,820

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Owlet, Inc.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share and per share amounts)

(unaudited)


	Preferred Stock Series A (1)			Preferred Stock Series A-1 (1)			Preferred Stock Series B (1)			Preferred Stock Series B-1 (1)			Common Stock (1)
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Additional Paid-in Capital		Accumulated Deficit		Total Stockholders' Equity (Deficit)
Balance as of December 31, 2020	26,157,622	$	9,569	20,238,201	$	14,083	12,366,306	$	18,854	3,047,183	$	4,682	22,118,619	$	2	$	3,707	$	(71,718)	$	(68,009)
Issuance of common stock upon exercise of stock options	—	—		—	—		—	—		—	—		367,432	—		244		—		244
Share-based compensation	—	—		—	—		—	—		—	—		—	—		828				828
Net loss	—	—		—	—		—	—		—	—		—	—		—		(7,857)		(7,857)
Balance as of March 31, 2021	26,157,622	$	9,569	20,238,201	$	14,083	12,366,306	$	18,854	3,047,183	$	4,682	22,486,051	$	2	$	4,779	$	(79,575)	$	(74,794)

Balance as of December 31, 2021	—	$	—	—	$	—	—	$	—	—	$	—	112,996,568	$	11	$	198,602	$	(143,422)	$	55,191
Issuance of common stock upon exercise of stock options	—	—		—	—		—	—		—	—		88,808	—		48		—		48
Issuance of common stock for restricted stock units vesting	—	—		—	—		—	—		—	—		321,098	—		—		—		—
Share-based compensation	—	—		—	—		—	—		—	—		—	—		3,336		—		3,336
Net loss	—	—		—	—		—	—		—	—		—	—		—		(28,758)		(28,758)
Balance as of March 31, 2022	—	$	—	—	$	—	—	$	—	—	$	—	113,406,474	$	11	$	201,986	$	(172,180)	$	29,817

(1) The shares of the Company’s common and redeemable convertible preferred stock, prior to the merger with Sandbridge Acquisition Corporation on July 15, 2021 have been retrospectively adjusted as shares reflecting the exchange ratio of approximately 2.053 established in the Merger.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Owlet, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	For the Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net loss	$	(28,758)	$	(7,857)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	348		249
Share-based compensation	3,318		828
Preferred stock warrant liability adjustment	—		4,608
Common stock warrant liability adjustment	6,876		—
Other adjustments, net	358		208
Changes in assets and liabilities:
Accounts receivable	(6,191)		(2,433)
Prepaid expenses and other assets	5,512		(2,912)
Inventory	(6,733)		(2,675)
Accounts payable and accrued and other expenses	(1,830)		3,022
Other, net	(296)		(14)
Net cash used in operating activities	(27,396)		(6,976)
Cash flows from investing activities
Purchase of property and equipment	(234)		(19)
Purchase of intangible assets	(466)		(8)
Net cash used in investing activities	(700)		(27)
Cash flows from financing activities
Proceeds from short-term borrowings	16,744		4,332
Payments of short-term borrowings	(13,514)		(1,771)
Payments of long-term borrowings	(1,500)		—
Other, net	49		244
Net cash provided by financing activities	1,779		2,805
Net change in cash and cash equivalents	(26,317)		(4,198)
Cash and cash equivalents at beginning of period	95,054		17,009
Cash and cash equivalents at end of period	$	68,737	$	12,811

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Owlet, Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

Note 1. Basis of Presentation

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and applicable rules and regulations of the U.S. Securities and Exchange Commission (the "SEC") regarding interim financial reporting. The condensed consolidated balance sheet as of December 31, 2021, included herein, was derived from the audited consolidated financial statements as of that date, but does not include all disclosures including certain notes required by U.S. GAAP on an annual reporting basis. All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary for the fair statement of the Company’s financial position, results of operations, and cash flows for the interim periods presented. All dollar amounts, except per share amounts, in the notes are presented in thousands, unless otherwise specified.

As a result of the merger completed with Sandbridge Acquisition Corporation on July 15, 2021 (the "Merger"), prior period share and per share amounts presented in the accompanying consolidated financial statements and these related notes have been retrospectively adjusted. See Part II, Item 8 "Financial Statements and Supplementary Data - Note 3 to the Consolidated Financial Statements - Merger" in the 2021 Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "Form 10-K") for more information.

The Company adopted Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) on January 1, 2022 using the modified retrospective transition method. Prior periods were not retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods, as further discussed in Note 3.

Certain prior year amounts have been reclassified to conform to the current period presentation.

Food and Drug Administration Letter

On October 1, 2021, the Company received a Warning Letter, later corrected in an amendment to the letter dated October 5, 2021 (the “Warning Letter”), from the U.S. Food and Drug Administration (the “FDA”) regarding the Owlet Smart Sock. During the fourth quarter of 2021, the Company agreed with certain customers and retailers to accept returns of the Owlet Smart Sock and Owlet Monitor Duo.

A refund liability of $18,210 and $20,145 has been accrued as of March 31, 2022 and December 31, 2021, respectively, in accrued and other expenses and represents the amount due to customers. As of March 31, 2022, the Company has recorded $6,172 within inventory for returned inventory received and a $2,047 asset within prepaid expenses and other current assets for inventory expected to be returned but not yet received.

Risks and Uncertainties

Since inception, the Company has experienced recurring losses from operations and generated negative cash flows from operations. The Company has an accumulated deficit as of March 31, 2022 of $172,180 and expects to incur additional losses from operations in the future. On July 15, 2021, the Company completed the Merger and received $133,889 in combined net proceeds from the Merger and the private investment in the Company's equity (the "PIPE"). Therefore, as of the date on which these consolidated financial statements were issued, the Company believes that its cash on hand, together with cash generated from sales to customers, will satisfy its working capital and capital requirements for at least the next twelve months. However, we are still in the growth stage of our business and expect to continue to make substantial investments in our business, including in the expansion of our product portfolio and in our research and development, sales and marketing teams, in addition to incurring additional costs as a result of being a public company. There can be no assurance that we will be able to obtain additional debt or equity financing on terms acceptable to us, if at all, or that we will generate sufficient future revenues.

The Company maintains its cash in bank deposit accounts which, at times, exceed federally insured limits. As of March 31, 2022, all of the Company's cash was held with Silicon Valley Bank and exceeded federally insured limits. To date, the Company has not experienced a loss or lack of access to its invested cash; however, no assurance can be provided that access to the Company’s invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets.

Note 2. Certain Balance Sheet Accounts

Inventory

Substantially all of the Company's inventory consisted of finished goods as of March 31, 2022 and December 31, 2021.

Property and Equipment, net

Property and equipment consisted of the following as of:


	March 31, 2022		December 31, 2021
Tooling and manufacturing equipment	$	2,481	$	2,333
Furniture and fixtures	579		579
Computer equipment	654		625
Software	213		213
Leasehold improvements	26		26
Total property and equipment	3,953		3,776
Less accumulated depreciation and amortization	(2,215)		(1,906)
Property and equipment, net	$	1,738	$	1,870

Depreciation and amortization expense on property and equipment was $309 and $214 for the three months ended March 31, 2022 and March 31, 2021, respectively. For the three months ended March 31, 2022 and March 31, 2021, the Company allocated $190 and $150, respectively, of depreciation and amortization expense related to tooling and manufacturing equipment and software to cost of revenues.

Intangible Assets Subject to Amortization

Intangible assets were $2,098, net of accumulated amortization of $368 as of March 31, 2022 and $1,696, net of accumulated amortization of $329, as of December 31, 2021.

Capitalized software development costs were $1,541 and $1,101 as of March 31, 2022 and December 31, 2021, respectively. The Company's internally developed software capitalized within intangible assets on the balance sheet is still in development and not ready for general release. As such, the Company has not recognized any amortization for the three months ended March 31, 2022.

The Company did not recognize any impairment charges for intangible assets during the three months ended March 31, 2022 or 2021.

Accrued and Other Expenses

Accrued and other expenses, among other things, included accrued sales returns of $20,668 and $21,179 as of March 31, 2022 and December 31, 2021, respectively. As described in Note 1, $18,210 and $20,145 of the accrued sales returns as of March 31, 2022 and December 31, 2021, respectively, was attributable to returns resulting from the Warning Letter.

Changes in accrued warranty were as follows:


	For the Three Months Ended March 31,
	2022		2021
Accrued warranty, beginning of period	$	661	$	924
Provision for warranties issued during the period	200		242
Settlements of warranty claims during the period	(136)		(244)
Accrued warranty, end of period	$	725	$	922

Stockholders' Equity

The Company is authorized to issue up to 100,000,000 shares of $0.0001 par value preferred stock, of which none is currently outstanding.

Note 3. Leases

The new lease standard was adopted on January 1, 2022 using the modified retrospective transition method. Prior periods were not retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods. The Company elected the package of practical expedients permitted under the transition guidance and did not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. The Company also elected the practical expedients to exclude right-of-use ("ROU") assets and lease liabilities for leases with an initial term of 12 months or less from the balance sheet, and to combine lease and non-lease components for property leases, which primarily relate to ancillary expenses such as common area maintenance charges and management fees.

Leases are determined at inception by assessing whether the arrangement conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Owlet's leases consist of leases for corporate offices and office equipment, and have remaining lease terms of 2 to 5 years, with options for renewal. Renewal and termination options have not been included in the lease terms, as it is not reasonably certain that such options will be exercised. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Leases typically contain rent escalations over the lease term. The Company recognizes expense for these leases on a straight-line basis over the lease term. Certain leases require the Company to pay taxes, insurance, maintenance and other operating expenses associated with the leased asset. Such amounts are not included in the measurement of the ROU assets and lease liabilities to the extent they are variable in nature. These variable lease costs are recognized as a variable lease expense when incurred.

ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Owlet uses its incremental borrowing rate, based on the information available at the lease commencement date, to determine the present value of lease payments. Upon adoption, Owlet recorded lease assets and lease liabilities of approximately $3,003 and $3,764, respectively, which did not have a net impact on the condensed consolidated statement of cash flows for the three months ended March 31, 2022. The lease assets were adjusted for deferred rent, lease incentives, and prepaid rent, which were recorded as a decrease to accrued and other expenses and other long-term liabilities for the amounts of $234 and $527, respectively. There were no finance leases as of adoption or during the quarter.

Income from subleased properties is recognized on a straight-line basis and presented as a reduction of costs, allocated among operating expense line items in the Company’s Consolidated Statements of Operations and Comprehensive Loss. In addition to sublease rent, variable non-lease costs such as common area maintenance and utilities are charged to subtenants over the duration of the lease for their proportionate share of these costs. These variable non-lease income receipts are recognized in operating expenses as a reduction to costs incurred by the Company in relation to the head lease.

The impact of the new lease standard on the March 31, 2022 consolidated balance sheet was as follows:


	March 31, 2022
Right of use assets, net	$	2,727

Accrued and other expenses	$	1,336
Noncurrent lease liabilities	2,103
Total lease liabilities, net	$	3,439

Weighted average remaining lease term	2.3 years

Weighted average discount rate	6.5%

Operating lease costs are recognized on a straight-line basis over the lease term. Total operating lease costs for the three months ended March 31, 2022 were $346, which included approximately $11 related to short-term and variable lease costs.

Supplemental cash flow information related to leases was as follows:


	March 31, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows	$	385

The following table shows the future maturities of lease liabilities for leases in effect as of March 31, 2022:


Years Ending December 31,	Lease Liabilities
2022 (excluding the three months ended March 31, 2022)	$	1,156
2023	1,587
2024	953
Total lease payments	3,696
Less: imputed interest	(257)
Total	$	3,439

As of March 31, 2022, the Company had four sublease arrangements which are noncancellable and have remaining lease terms of 0.5 to 2.5 years. These subleases do not contain any options to renew or terminate the sublease agreement. The following table shows the expected future sublease receipts as of March 31, 2022:


Years Ending December 31,	Sublease Receipts
2022 (excluding the three months ended March 31, 2022)	$	947
2023