Owlet, Inc. (NYSE:OWLT) Q4 2022 Earnings Call Transcript

Allen Lutz: Got it. And then one for Kate. On the gross margins, as we think about them over the course of 2023 and versus 2022, you mentioned that nonrecurring costs impacted margins by almost 1,000 basis points, 800 to 900. I guess as we think about those nonrecurring costs or just the impact over the course of 2023, should we think about where you ended 2022 as sort of the starting point and then a step function over the course of the year higher. Just trying to get a sense because that’s a pretty big range from where you ended 2022 to getting back to the 40%, 45% plus margins before. Just trying to understand the timing and then the size of the margin increase over the course of the year?

Kate Scolnick: Yes. What I would say is that our goal will be to be back in the range. Some of that that came out was really just a lot of that rework cost that happened. A lot of the – just the back-and-forth nature of the entire liability that we took in working with the retailers. There’s probably a little bit of step function at the very beginning of the year, but we should be able to have that type of range most of the year with that type of cost completely behind us. There is some PPV associated or that cost that’s associated depending on when the inventory specific is sold through. So it’s not a complete snapback. But what I would say is that the real cost related to the overall warning letter should be overall out. And then you just kind of see the opportunity for most of the year.

Allen Lutz: Great. And then kind of a two pointed question. So Kurt, you mentioned the NPS is at all-time highs here. And if we sort of look at the model from a revenue perspective over the past couple of years, it’s been clearly very challenging to kind of understand what type of normal seasonality this business would have in a normal year. But you talked about Mother’s Day, Father’s Day kind of in Prime Day driving a lot of demand. I’m just curious, as we think about sort of some of the onetime dynamics that are still playing out, how would you think about the seasonality of this business in a more normalized year? And would it be reasonable to assume that 2Q, 3Q should be kind of viewed as a more normalized year? Thanks.

Kurt Workman: Yes, that’s a really good question because if you go back for the past 2 years, there’s definitely quite a bit of nuance to the story with the warning letter and then getting Dream Sock back in the market. So I appreciate the question. I think in a normal year, usually, what you see is Q1 is the lightest quarter. It’s not as seasonal as like your normal consumer electronics companies where it’s just – it’s 70% back half weighted. We’re a little bit more even than that, but Q1 is generally down 10% to 15% from Q4. Q2 picked up really nicely because you have the Mother’s Day, Father’s Day and then you do a load-in for Prime Day. Q3, Baby Safety Month in September, and then you load in, in Q3 for your holiday promotions for Black Friday, Cyber Monday, Fall Prime Day, any promotions you do in December.

Usually, that loading happens in Q3. And then you see a little bit of a kind of a tail off in Q4 for us in terms of sell-in, if you’re tracking revenue. I think what you’ll see – you’ll definitely see a step function in Q1 to Q2. I think it’s – we’re still going to be getting healthy. So it’s not going to be totally normal in Q3 or sorry, in Q2, I think it starts to normalize in Q3. So Kate, anything you’d add to that?

Kate Scolnick: No. That’s great.