10-Q: Owlet Inc. Reports Strong Revenue Growth in Q2 2026

Owlet, Inc. announced a significant increase in total revenue for the second quarter of 2026, driven by strong hardware sales and substantial subscription growth, despite continued net losses.

Summary

• Owlet, Inc. reported total revenue of $33.865 million for the three months ended June 30, 2026, a 29.9% increase compared to $26.063 million in the same period of 2025.
• Hardware revenue increased by 21.6% to $30.645 million, while subscription revenue surged by 273.1% to $3.220 million.
• Gross profit for the quarter rose by 63.1% to $21.823 million, with a gross margin of 64.4%, up from 51.3% in the prior year.
• The company reported a net loss of $0.620 million for the three months ended June 30, 2026, an improvement from a net loss of $37.411 million in the prior year.
• Operating expenses increased to $20.083 million from $15.063 million, driven by higher general and administrative, sales and marketing, and research and development costs.
• The company has identified material weaknesses in its internal control over financial reporting, particularly concerning control environment, segregation of duties, inventory, and accrued liabilities, though remediation plans are in progress.
• As of June 30, 2026, the company had $30.948 million in cash and cash equivalents and $7.531 million in borrowing capacity under its revolving credit facility.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this filing as cautiously optimistic. While revenue and gross profit show significant year-over-year growth, the company continues to report net losses and has identified material weaknesses in internal controls, though remediation efforts are underway.

Positives

• Total revenue increased by 29.9% to $33.865 million for the three months ended June 30, 2026, compared to $26.063 million in the prior year.
• Hardware revenue saw a significant increase of 21.6% to $30.645 million.
• Subscription revenue experienced a substantial surge of 273.1% to $3.220 million, indicating strong adoption of the Owlet360 service.
• Gross profit increased by 63.1% to $21.823 million, with gross margin improving to 64.4% from 51.3% year-over-year.
• Net loss significantly narrowed to $0.620 million from $37.411 million in the comparable prior-year period.
• The company successfully refinanced its debt, entering into a new asset-based revolving credit facility with Wells Fargo, providing $25 million with an accordion feature up to $35 million.
• The company received $3.960 million in IEEPA tariff refunds, positively impacting cost of goods sold and inventory valuation.

Negatives

• The company continues to report a net loss, although it has narrowed significantly.
• Operating expenses increased by 33.3% to $20.083 million for the three months ended June 30, 2026, driven by higher G&A, sales & marketing, and R&D costs.
• Material weaknesses in internal control over financial reporting were identified, including issues with control environment, segregation of duties, inventory, and accrued liabilities.
• Despite improvements, the company's cash and cash equivalents decreased to $30.948 million from $35.461 million at the end of the previous year.
• The company has a history of losses and may not achieve or sustain profitability.

Risks

• The company has a limited operating history and a history of losses, with no assurance of achieving or sustaining profitability.
• The company's products rely on mobile applications and distribution through app stores, making it dependent on third-party platforms.
• A substantial portion of sales comes from a limited number of retailers.
• The company relies on single manufacturers for assembly of key products, posing a risk if manufacturing problems arise.
• Failure to obtain or maintain marketing authorizations or certifications from regulatory bodies like the FDA could severely harm the business.
• The company has identified material weaknesses in internal control over financial reporting, which could lead to material misstatements or impair access to capital markets.
• The company may need to raise additional capital in the future, which may not be available on acceptable terms or at all.
• Operations in international markets expose the company to additional business, political, regulatory, operational, financial, and economic risks.

Future Outlook

The company believes its existing cash and cash equivalent balances, cash flows from operations, and borrowing capacity under the Revolving Facility 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 company is a leading pediatric health platform and the only company globally to offer U.S. FDA-cleared and internationally medically-certified wearable pediatric monitors for home use.
• The company believes its presentation of adjusted EBITDA provides a meaningful perspective of the underlying operating performance of its current business and enables investors to better understand and evaluate its historical and prospective operating performance.
• Management has concluded that the remediation measures for accounting for debt and equity arrangements and IT general controls have been designed, implemented, and operated effectively, and previously identified material weaknesses have been remediated as of June 30, 2026.

Industry Context

StockSavvy.ai notes that Owlet's performance aligns with a growing trend in the health-tech sector, particularly in the pediatric and remote monitoring space. The significant increase in subscription revenue highlights the industry shift towards recurring revenue models and value-added services beyond hardware sales. The company's focus on FDA-cleared and medically-certified products positions it favorably in a market increasingly scrutinized for regulatory compliance and efficacy.

Comparison to Industry Standards

• Owlet's subscription revenue growth of 273.1% for the quarter significantly outpaces the typical SaaS growth rates seen in many established software companies, indicating strong market penetration for its Owlet360 service.
• The hardware gross margin of 64.0% is robust, especially considering the consumer electronics nature of the products, and is competitive within the connected device industry.
• The company's continued net loss, while narrowing, is not uncommon for growth-stage companies in the health-tech sector that are investing heavily in R&D and market expansion.
• The identified material weaknesses in internal controls are a concern, but the active remediation efforts are a positive step. Many emerging tech companies face similar challenges as they scale rapidly.

Corporate Governance

Legal Proceedings

• The consolidated securities class action (Butala v. Owlet, Inc.) and the consolidated shareholder derivative action (Vargas v. Workman, et al.) have been fully resolved and dismissed with prejudice following court approval of settlements on August 3, 2026.

Stakeholder Impact

• Shareholders: Continued net losses and identified material weaknesses in internal controls may impact investor confidence, although revenue growth and narrowing losses are positive signs. Potential for future dilution if capital is raised through equity.
• Employees: Restructuring costs related to CEO transition and reprioritization of geographies suggest potential workforce adjustments.
• Creditors: The company has secured a new revolving credit facility, providing liquidity and demonstrating continued access to debt financing.
• Suppliers: No specific impact mentioned, but reliance on single manufacturers for key products poses a risk to supply chain continuity.

Next Steps

• Continue to execute the plan to remediate material weaknesses in internal control over financial reporting.
• Monitor developments in tariff policies and take actions to mitigate potential impacts.
• Continue to develop and enhance subscription app features and services.
• Manage working capital and capital expenditure needs, potentially seeking additional financing if required.

Key Dates

Recommendation

The company shows strong revenue growth and improving gross margins, alongside a significant reduction in net loss. However, the continued net loss, identified material weaknesses in internal controls, and the need for potential future capital raises warrant a cautious approach. The positive developments are balanced by ongoing risks, suggesting a 'hold' position until sustained profitability and full remediation of control issues are demonstrated.

Keywords

pediatric health platform, wearable monitors, FDA-cleared, subscription service, hardware sales, financial results, revenue growth, internal controls