10-Q: Owlet Inc. Q1 2026 Earnings: Revenue Up, Losses Narrow

Owlet, Inc. reported a 6.4% increase in total revenue for Q1 2026, driven by strong subscription growth, though the company still posted a net loss.

Summary

• Owlet, Inc. reported total revenue of $22.46 million for the first quarter of 2026, a 6.4% increase compared to $21.10 million in the same period of 2025.
• Hardware revenue decreased by 4.5% to $19.78 million, while subscription revenue surged by 569.3% to $2.68 million.
• Gross profit increased by 8.1% to $12.24 million, with a total gross margin of 54.5%, up from 53.7% in the prior year.
• Operating expenses increased by 26.7% to $17.73 million, primarily due to higher general and administrative, sales and marketing, and research and development costs.
• The company reported an operating loss of $5.49 million, an increase from $2.67 million in Q1 2025.
• Net loss for the quarter was $3.34 million, compared to a net income of $3.03 million in Q1 2025.
• Adjusted EBITDA was a loss of $1.55 million, compared to a gain of $0.03 million in the prior year.
• The company ended the quarter with $35.46 million in cash and cash equivalents and $3.94 million in available credit on its line of credit.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing as negative due to the increased operating losses, the swing from net income to net loss, and the decline in hardware revenue, despite positive subscription growth.

Positives

• Total revenue increased by 6.4% to $22.46 million.
• Subscription revenue saw significant growth of 569.3% to $2.68 million, indicating successful expansion of the Owlet360 service.
• Gross profit increased by 8.1% to $12.24 million.
• Total gross margin improved to 54.5% from 53.7% in the prior year.
• The company's cash and cash equivalents remained stable at $35.46 million.
• The company has $3.94 million in available borrowing capacity on its line of credit.
• The company believes its current liquidity and credit lines are sufficient for at least the next 12 months.

Negatives

• Hardware revenue decreased by 4.5% to $19.78 million.
• Operating expenses increased significantly by 26.7% to $17.73 million.
• The company reported an operating loss of $5.49 million, an increase from $2.67 million in the prior year.
• A net loss of $3.34 million was recorded for the quarter, a reversal from a net income of $3.03 million in Q1 2025.
• Adjusted EBITDA turned negative, showing a loss of $1.55 million compared to a small gain in the prior year.
• The company continues to face challenges with a large retail partner tightening inventory levels.
• Material weaknesses in internal control over financial reporting persist, although remediation efforts are underway.

Risks

• The company has a history of losses and may not achieve or sustain profitability.
• Operating losses could continue, materially and adversely affecting the business.
• Fluctuations in business growth are anticipated, and failure to manage growth effectively could be detrimental.
• Reliance on mobile app stores (Apple App Store, Google Play Store) for product functionality and distribution.
• Dependence on a limited number of retailers for a substantial portion of sales.
• The need to obtain and maintain marketing authorizations or certifications from regulatory bodies like the FDA can be lengthy and costly.
• Reliance on single manufacturers for product assembly poses supply chain risks.
• Potential for product liability claims exceeding insurance coverage.
• Exposure to international market risks, including political, regulatory, and economic factors.
• The company has identified material weaknesses in internal control over financial reporting and may identify additional ones.
• The company may need to raise additional capital, which may not be available on acceptable terms or at all.
• Tariffs and trade restrictions could adversely impact operations.
• The company is involved in ongoing legal and regulatory proceedings that could materially affect its business.
• The company's success depends on its reputation and brand.

Future Outlook

The company believes its existing cash and cash equivalent balances, cash flows from operations, and committed credit lines will be sufficient to meet its working capital and capital expenditure needs for at least the next 12 months. However, future capital requirements may vary and could necessitate seeking additional equity or debt financing, which could result in dilution or increased debt service obligations.

Management Comments

• The decrease in hardware revenue was primarily due to approximately $3,100 impact from a large retail partner tightening weeks of supply on hand as well as timing differences of load-ins to retailers, partially offset by approximately $1,800 decrease in retail discounts due to the timing of promotion load-in dates, and approximately $400 increased direct-to-consumer demand.
• The increase in subscription revenue was due to an increase in subscribers for our Owlet360 service and higher average revenue per user.
• The increase in general and administrative expenses was driven primarily by approximately $1,400 of stock-based compensation, and by approximately $800 in increases of headcount related expenses, including salaries and benefits.
• The increase in sales and marketing expenses was driven primarily by approximately $300 in higher marketing personnel and consulting costs, $200 in expanded retail marketing spend, and $100 in increased stock-based compensation, partially offset by $100 in miscellaneous net decreases.
• The increase in research and development expenses was driven primarily by approximately $800 in higher personnel costs, $400 in stock-based compensation, and $200 in regulatory testing and geographic expansion costs. These increases were partially offset primarily by approximately $300 in increased capitalized software costs.
• The decrease in interest expense was driven primarily by a decrease in loan commitment amortization related to our current term loan facility due to the last loan commitment period ending in November 2025.
• Fluctuations in our common stock warrant liability adjustment resulted from a decrease in our common stock price, and the related decrease in the fair value of liability-classified common stock warrants.
• Changes in other income (expense) were driven primarily by a gain from insurance proceeds.
• The company believes its existing cash and cash equivalent balances, cash flows from operations, and committed credit lines will be sufficient to meet its long-term working capital and capital expenditure needs for at least the next 12 months.

Industry Context

StockSavvy.ai notes that Owlet's Q1 2026 results reflect a common trend in the consumer electronics and health tech sectors: a shift towards recurring revenue models (subscriptions) to offset hardware sales volatility. The significant growth in subscription revenue is a positive indicator of this strategy's traction, while the decline in hardware revenue highlights ongoing challenges in retail channels and potential market saturation or competitive pressures.

Comparison to Industry Standards

• The subscription revenue growth of 569.3% significantly outpaces typical SaaS growth rates for established companies but is strong for a company transitioning its business model.
• The hardware revenue decline of 4.5% is concerning and contrasts with some competitors in the connected device space who are seeing renewed growth, though this may be specific to Owlet's retail partnerships.
• The increase in operating expenses, particularly in R&D and G&A, is higher than the revenue growth rate, suggesting potential inefficiencies or necessary investments for future growth that are not yet yielding proportional returns.
• The overall net loss, while reduced from prior periods in terms of profitability per share, indicates continued pressure on the bottom line, a common challenge for hardware-focused companies investing heavily in software and services.

Management Changes

Legal Proceedings

• The company is involved in ongoing litigation related to alleged violations of the Securities Exchange Act of 1934 (Butala v. Owlet, Inc. and Cherian v. Owlet, Inc.). Settlements for Section 10(b) Claims ($3,500) and Section 14(a) Claims ($1,750) have been reached, with final approval pending.
• Derivative complaints (Vargas v. Workman, et al.) have been filed against directors and officers, alleging violations of Section 14(a) of the Exchange Act and state law claims. A settlement has been reached in principle, with final approval pending, which includes corporate governance reforms and attorneys' fees.
• The company has entered into indemnification agreements with its directors and officers.

Related Party Transactions

• In September 2024, as partial consideration for the WTI Loan Facility, the company issued 750,000 shares of redeemable common stock to WTI Funds. These shares are recorded in mezzanine equity and are subject to a redemption option.
• During Q1 2026, WTI Funds sold 310,000 shares of redeemable common stock to an unrelated third party.

Stakeholder Impact

• Shareholders may experience dilution if additional equity financing is required.
• The ongoing legal proceedings and settlement costs could impact financial results.
• The company's ability to continue as a going concern, while currently assessed as sufficient for the next 12 months, remains a factor for investors.
• The material weaknesses in internal controls could impact investor confidence and potentially lead to restatements or access to capital markets issues.

Next Steps

• Continue to monitor the impact of a large retail partner tightening inventory levels.
• Focus on growing the Owlet360 subscription service.
• Continue remediation efforts for material weaknesses in internal control over financial reporting.
• Evaluate the potential effects of the U.S. Supreme Court ruling on tariffs for potential refunds.
• Prepare for the 2026 Annual Meeting of Stockholders on July 10, 2026.

Key Dates

Recommendation

While the subscription revenue growth is a positive sign for Owlet's strategic shift, the continued decline in hardware revenue, increased operating losses, and the swing from net income to net loss in the current quarter are significant concerns. The company's ability to achieve profitability remains uncertain, and the ongoing remediation of internal control weaknesses adds further risk. Therefore, a 'hold' recommendation is appropriate, pending clearer signs of sustained profitability and stabilization in hardware sales.

Keywords

Owlet, 10-Q, Quarterly Report, Financial Statements, Revenue, Net Loss, Subscription Revenue, Hardware Revenue, Pediatric Health, Wearable Technology, SEC Filing