Eargo, Inc. (Nasdaq: EAR) (“Eargo” or the “Company”), a medical
device company on a mission to improve hearing health, today
reported its financial results for the first quarter ended March
31, 2023.
Christian Gormsen, President and CEO, said, “In the first
quarter of 2023, we continued to make progress on evolving Eargo
into a true omni-channel business. Retail once again led the way in
our efforts to diversify our business growth, with our
direct-to-consumer, cash-pay business seeing increased efficiency
as we continue to refine our media spend. While still early, we
also continue to pursue opportunities to expand our presence in the
insurance market. Our first quarter volume growth, combined with
our continued capital efficiency initiatives, led to increased
gross margins, reduced operating expenses and a lower net operating
loss. Lastly, in February 2023 we commercially launched our Eargo 7
self-fitting hearing aid with the use of Sound Match via our mobile
app. We look forward to further scaling the business through our
omni-channel strategy over the remainder of 2023.”
First Quarter 2023 Financial and
Operating Results
Gross systems shipped for the first quarter of 2023 were 8,705,
compared to 5,773 during the first quarter of 2022. The increase in
shipment volume year-over-year was largely driven by shipments of
our Eargo hearing devices to Victra, our largest retail partner,
for in-person customer sales at its approximately 1,500 store
locations across the United States. Gross systems shipped to Victra
in the first quarter included an initial stocking order of Eargo 7
devices as well as subsequent replenishment orders. We are
currently unable to predict the timing or size of any future Victra
orders, which may impact our net revenue and the consistency of our
results on a sequential basis. In addition, gross systems shipped
in the first quarter of 2022 were impacted by our decision in
December 2021 to temporarily stop accepting insurance benefits as a
method of direct payment. As previously disclosed, we subsequently
resumed accepting insurance benefits as a method of direct payment
in certain limited circumstances.
The sales returns rate for the first quarter of 2023 was 37.4%,
compared to 33.9% in the first quarter of 2022. The year-over-year
increase in the sales returns rate in the first quarter of 2023 was
primarily due to a higher sales returns rate for systems sold to
Victra.
Net revenue was $11.8 million for the first
quarter of 2023, compared to $9.2 million for the first quarter of
2022. The year-over-year increase was driven by the increase in
gross systems shipped.
Gross profit for the first quarter of 2023 was
$5.1 million, compared to gross profit of $3.7 million for the
first quarter of 2022. Gross margin was 43.4% for the first quarter
of 2023, compared with 40.2% for the first quarter of 2022. The
year-over-year increase in gross margin was primarily due to a
reduction in our cost of revenue per unit sold in the first quarter
of 2023.
Total operating expenses were $27.9 million, or
236.3% of net revenues, for the first quarter of 2023, compared
with $34.1 million, or 371.3%, for the first quarter of 2022. The
year-over-year decrease in total operating expenses was primarily
driven by lower media spend and lower professional fees, which were
impacted by activities related to the previously disclosed
Department of Justice investigation and compliance matters in the
first quarter of 2022, partially offset by a net increase in
personnel and personnel related costs, driven by investments in our
compliance, insurance and retail teams, in the first quarter of
2023.
Sales and marketing expenses were $13.4 million,
or 113.4% of net revenues, for the first quarter of 2023, compared
with $13.3 million, or 144.8%, for the first quarter of 2022. Lower
media spend in the first quarter of 2023 compared to the
corresponding prior year period was offset by increases in
personnel and personnel-related costs.
Research and development expenses were $4.6
million, or 39.0% of net revenues, for the first quarter of 2023,
compared with $5.8 million, or 63.7%, for the first quarter of
2022. The year-over-year decrease was primarily driven by lower
personnel-related costs and lower third-party costs.
General and administrative expenses were $9.9
million, or 83.9% of net revenues, for the first quarter of 2023,
compared with $14.9 million, or 162.8%, for the first quarter of
2022. The year-over-year decrease was primarily driven by a
reduction in general corporate costs related to legal, consulting
and other professional fees that were driven by activities related
to litigation, financing and compliance matters in the first
quarter of 2022, partially offset by an increase in personnel and
personnel-related costs.
Excluding stock-based compensation expense,
non-GAAP operating expenses for the first quarter of 2023 were
$24.6 million, including research and development expenses of $4.0
million, sales and marketing expenses of $12.5 million, and general
and administrative expenses of $8.1 million. Please refer to the
section below titled “Use of Non-GAAP Financial Measures” and the
non-GAAP reconciliation tables at the end of this press
release.
GAAP loss from operations was $22.8 million, or
193.0% of net revenues, for the first quarter of 2023, compared
with $30.4 million, or 331.1% of net revenues, for the first
quarter of 2022. The year-over-year decrease in GAAP loss from
operations was primarily due to factors described in the above
paragraphs. Excluding stock-based compensation expense, non-GAAP
loss from operations losses for the first quarter of 2023 were
$19.4 million, compared with $27.4 million in the first quarter of
2022.
Net loss attributable to common stockholders for
the first quarter of 2023 was $21.9 million, or $1.06 per share,
compared to a net loss attributable to common stockholders of $30.6
million, or $15.59 per share, for the first quarter of 2022.
Excluding stock-based compensation expense, non-GAAP net loss
attributable to common stockholders for the first quarter of 2023
was $18.5 million, or $0.90 per share, compared to a non-GAAP net
loss of $27.7 million, or $14.07 per share, for the same period in
2022. The year-over-year decrease in both GAAP and non-GAAP net
loss per share attributable to common stockholders was primarily
driven by a reduction in GAAP and non-GAAP net loss, respectively,
and the Company’s rights offering and related conversion of senior
secured convertible notes completed in November 2022, which
resulted in the issuance of 18.75 million additional shares of our
common stock.
Net operating cash burn, defined as cash used in
operating and investment activities, for the first quarter of 2023
was approximately $21.5 million.
Cash and cash equivalents were $79.8 million as
of March 31, 2023, compared to $101.2 million as of December 31,
2022.
2023 Financial GuidanceThe
Company expects modest sequential improvements to net operating
cash burn, defined as cash used in operating and investment
activities, in the remaining quarters of 2023. The Company is not
providing further financial guidance at this time.
Conference Call and Webcast
InformationEargo will host a conference call to discuss
the first quarter financial results after market close on May 11,
2023, at 1:30 p.m. Pacific Time / 4:30 p.m. Eastern Time. The
conference call can be accessed live over the phone at (800)
715-9871 for U.S. callers or (646) 307-1963 for international
callers, using conference ID: 2789592. The live webinar can be
accessed at ir.eargo.com.
About EargoEargo is a medical
device company on a mission to improve hearing health. Our
innovative products and go-to-market approach address the major
challenges of traditional hearing aid adoption, including social
stigma, accessibility and cost. We believe our Eargo hearing aids
are the first virtually invisible, rechargeable,
completely-in-canal, FDA-regulated devices indicated to compensate
for mild to moderate hearing loss. Our differentiated,
consumer-first approach empowers consumers to take control of their
hearing. Consumers can purchase online, at retail locations or over
the phone and get personalized and convenient consultation and
support from hearing professionals via phone, text, email or video
chat. Eargo hearing aids are offered to consumers at approximately
half the cost of competing hearing aids purchased through
traditional channels in the United States.
Eargo’s seventh generation device, Eargo 7, is
an FDA 510(k) cleared, self-fitting over-the-counter hearing aid
featuring Sound Adjust+ with Comfort and Clarity Modes, which
focuses on noise reduction and adapting to the user’s environment
and needs. Eargo 7 is available for purchase here.
Related Linkshttp://eargo.com
Forward-Looking StatementsThis
press release contains forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other
than statements of historical fact contained in this press release
are forward-looking statements, including but not limited to
statements regarding the continued evolution and scaling of the
Company’s omni-channel business, the efficiency of the Company’s
cash-pay business and media spend, the Company’s partnership with
Victra and other retail partners, the expansion of the Company’s
insurance business, the effects of the Company’s capital efficiency
initiatives, the effects of the Company’s consumer-first approach
and expected improvement in net operating cash burn.
Forward-looking statements are not guarantees of future performance
and are subject to risks, uncertainties and assumptions that could
cause actual results and events to differ materially from those
anticipated, including, but not limited to, risks, uncertainties
and assumptions related to: our expectations regarding our
omni-channel business, including partnerships with retailers,
resellers and other distributors (whether brick and mortar or
online); the extent to which we may be able to validate and
establish processes to support the submission of claims for
reimbursement from third-party payors, including those
participating in the Federal Employee Health Benefits program, and
our ability to maintain or increase insurance coverage of our
hearing aids; the timing or results of ongoing claims audits and
medical records reviews by third-party payors; estimates of our
future capital needs and our ability to raise capital on favorable
terms, if at all, including the timing of future capital
requirements and the terms or timing of any future financings; the
impact of third-party payor audits and the regulatory landscape for
hearing aid devices on our business and results of operations; our
expectations concerning additional orders by existing customers;
our expectations regarding the potential market size and size of
the potential consumer populations for our products and any future
products, including insurance coverage of our hearing aids; our
ability to release new hearing aids and the anticipated features of
any such hearing aids; the performance, differentiation and
attractiveness to consumers of our products; developments and
projections relating to our competitors and our industry, including
competing products; our ability to maintain our competitive
technological advantages against new entrants in our industry; the
pricing of our hearing aids; our expectations regarding the ability
to make certain claims related to the performance of our hearing
aids relative to competitive products; our expectations with regard
to changes in the regulatory landscape for hearing aid devices,
including the implementation of the new over-the-counter hearing
aid regulatory framework; and our expectations regarding
macroeconomic conditions, including but not limited to the impact
of COVID-19, inflationary trends, uncertainty or volatility in the
market (including recent and potential disruption in the banking
system and financial markets and geopolitical events (such as the
conflict in Ukraine and tensions across the Taiwan Strait)) on our
business and results of operations. These and other risks are
described in greater detail in the sections titled “Risk Factors”
contained in our Annual Report on Form 10-K and Quarterly Reports
on Form 10-Q and in our other filings with the Securities and
Exchange Commission. Any forward-looking statements in this press
release are made pursuant to the Private Securities Litigation
Reform Act of 1995, as amended, are based on current expectations,
forecasts and assumptions, and speak only as of the date of this
press release. Except as required by law, we undertake no
obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or
otherwise.
Use of Non-GAAP Financial
MeasuresThe Company reports non-GAAP results for gross
profit, gross margin, total operating expenses, sales and marketing
expenses, research & development expenses, general &
administrative expenses, total operating loss, net loss, and net
loss per share in addition to, and not as a substitute for, or
superior to, financial measures calculated in accordance with GAAP.
The Company’s financial measures under GAAP include charges such as
stock-based compensation, as listed in the itemized reconciliations
between GAAP and non-GAAP financial measures included in this press
release. Management has excluded the effects of stock-based
compensation in its non-GAAP financial measures to assist investors
in analyzing and assessing the Company’s operating performance. In
addition, these non-GAAP financial measures are not based on any
comprehensive set of accounting rules or principles, and they may
not be comparable with similarly named financial measures of other
companies. The Company encourages investors to carefully consider
its results under GAAP, as well as its supplemental non-GAAP
financial measures and the reconciliation between these
presentations, to more fully understand its business.
Investor ContactNick LaudicoChief Retail
Officerir@eargo.com
Eargo, Inc. |
Consolidated Balance Sheets |
(Unaudited) |
(In thousands, except share and per share
amounts) |
|
|
March 31, |
|
December 31, |
|
|
|
2023 |
|
|
|
2022 |
|
ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
79,776 |
|
|
$ |
101,238 |
|
Accounts receivable, net |
|
|
1,920 |
|
|
|
1,910 |
|
Inventories |
|
|
4,837 |
|
|
|
5,036 |
|
Prepaid expenses and other
current assets |
|
|
11,104 |
|
|
|
7,846 |
|
Total current assets |
|
|
97,637 |
|
|
|
116,030 |
|
Operating lease right-of-use
assets |
|
|
7,835 |
|
|
|
5,765 |
|
Property and equipment,
net |
|
|
6,430 |
|
|
|
7,441 |
|
Intangible assets, net |
|
|
956 |
|
|
|
1,063 |
|
Goodwill |
|
|
873 |
|
|
|
873 |
|
Other assets |
|
|
779 |
|
|
|
906 |
|
Total assets |
|
$ |
114,510 |
|
|
$ |
132,078 |
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
|
$ |
8,976 |
|
|
$ |
6,504 |
|
Accrued expenses |
|
|
8,114 |
|
|
|
12,715 |
|
Sales returns reserve |
|
|
5,840 |
|
|
|
3,942 |
|
Other current liabilities |
|
|
1,379 |
|
|
|
1,462 |
|
Lease liability, current
portion |
|
|
695 |
|
|
|
628 |
|
Total current liabilities |
|
|
25,004 |
|
|
|
25,251 |
|
Lease liability, noncurrent
portion |
|
|
7,166 |
|
|
|
5,973 |
|
Total liabilities |
|
|
32,170 |
|
|
|
31,224 |
|
Stockholders’ equity: |
|
|
|
|
Preferred stock, $0.0001 par
value per share; 5,000,000 shares authorized as of March 31, 2023
and December 31, 2022, respectively; zero shares issued and
outstanding as of March 31, 2023 and December 31, 2022,
respectively |
|
|
— |
|
|
|
— |
|
Common stock; $0.0001 par
value; 450,000,000 shares authorized as of March 31, 2023 and
December 31, 2022, respectively; 20,741,841 and 20,726,965 shares
issued and outstanding as of March 31, 2023 and December 31, 2022,
respectively |
|
|
2 |
|
|
|
2 |
|
Additional paid-in
capital |
|
|
618,559 |
|
|
|
615,151 |
|
Accumulated deficit |
|
|
(536,221 |
) |
|
|
(514,299 |
) |
Total stockholders’
equity |
|
|
82,340 |
|
|
|
100,854 |
|
Total liabilities and
stockholders’ equity |
|
$ |
114,510 |
|
|
$ |
132,078 |
|
Eargo, Inc. |
Consolidated Statements of Operations and Comprehensive
Loss |
(Unaudited) |
(In thousands, except share and per share
amounts) |
|
|
|
Three months
endedMarch 31, |
|
|
|
2023 |
|
|
|
2022 |
|
Revenue, net |
|
$ |
11,813 |
|
|
$ |
9,176 |
|
Cost of revenue |
|
|
6,691 |
|
|
|
5,491 |
|
Gross profit (loss) |
|
|
5,122 |
|
|
|
3,685 |
|
Operating expenses: |
|
|
|
|
Research and development |
|
|
4,605 |
|
|
|
5,847 |
|
Sales and marketing |
|
|
13,401 |
|
|
|
13,290 |
|
General and administrative |
|
|
9,908 |
|
|
|
14,934 |
|
Total operating expenses |
|
|
27,914 |
|
|
|
34,071 |
|
Loss from operations |
|
|
(22,792 |
) |
|
|
(30,386 |
) |
Other income (expense), net: |
|
|
|
|
Interest income |
|
|
870 |
|
|
|
5 |
|
Interest expense |
|
|
— |
|
|
|
(264 |
) |
Total other income (expense),
net |
|
|
870 |
|
|
|
(259 |
) |
Loss before income taxes |
|
|
(21,922 |
) |
|
|
(30,645 |
) |
Income tax provision |
|
|
— |
|
|
|
— |
|
Net loss and comprehensive
loss |
|
$ |
(21,922 |
) |
|
$ |
(30,645 |
) |
Net income (loss) attributable to
common stockholders, basic anddiluted |
|
$ |
(21,922 |
) |
|
$ |
(30,645 |
) |
Net income (loss) per share
attributable to common stockholders,basic and diluted |
|
$ |
(1.06 |
) |
|
$ |
(15.59 |
) |
Weighted-average shares used in
computing net income (loss) pershare attributable to common
stockholders, basic and diluted |
|
|
20,734,403 |
|
|
|
1,966,154 |
|
Eargo, Inc. Results of
Operations – Reconciliation between GAAP and Non-GAAP
(Unaudited) (In thousands, except per
share amounts)
Reconciliation between GAAP and non-GAAP net loss per
share attributable to common stockholders:
|
Three months
endedMarch 31, |
|
|
2023 |
|
|
|
2022 |
|
GAAP net loss per share to
common stockholders, basicand diluted |
$ |
(1.06 |
) |
|
$ |
(15.59 |
) |
Stock-based compensation |
|
0.16 |
|
|
|
1.52 |
|
Non-GAAP net loss per share to
common stockholders,basic and diluted |
$ |
(0.90 |
) |
|
$ |
(14.07 |
) |
Reconciliation between GAAP and non-GAAP net loss
attributable to common stockholders:
|
Three months
endedMarch 31, |
|
|
2023 |
|
|
|
2022 |
|
GAAP net loss attributable to
common stockholders, basicand diluted |
$ |
(21,922 |
) |
|
$ |
(30,645 |
) |
Stock-based compensation |
|
3,407 |
|
|
|
2,985 |
|
Non-GAAP net loss attributable
to common stockholders,basic and diluted |
$ |
(18,515 |
) |
|
$ |
(27,660 |
) |
Reconciliation between GAAP and non-GAAP operating
expenses and operating loss:
|
Three months
endedMarch 31, |
|
|
2023 |
|
|
|
2022 |
|
GAAP gross
profit |
$ |
5,122 |
|
|
$ |
3,685 |
|
Stock-based compensation |
|
42 |
|
|
|
22 |
|
Non-GAAP gross profit |
$ |
5,164 |
|
|
$ |
3,707 |
|
|
|
|
|
GAAP gross
margin |
|
43.4 |
% |
|
|
40.2 |
% |
Stock-based compensation |
|
0.4 |
% |
|
|
0.3 |
% |
Non-GAAP gross margin |
|
43.8 |
% |
|
|
40.5 |
% |
|
|
|
|
GAAP research and
development expense |
$ |
4,605 |
|
|
$ |
5,847 |
|
Stock-based compensation |
|
(653 |
) |
|
|
(985 |
) |
Non-GAAP research and
development expense |
$ |
3,952 |
|
|
$ |
4,862 |
|
|
|
|
|
GAAP sales and
marketing expense |
$ |
13,401 |
|
|
$ |
13,290 |
|
Stock-based compensation |
|
(890 |
) |
|
|
(637 |
) |
Non-GAAP sales and marketing
expense |
$ |
12,511 |
|
|
$ |
12,653 |
|
|
|
|
|
GAAP general and
administrative expense |
$ |
9,908 |
|
|
$ |
14,934 |
|
Stock-based compensation |
|
(1,822 |
) |
|
|
(1,341 |
) |
Non-GAAP general and
administrative expense |
$ |
8,086 |
|
|
$ |
13,593 |
|
|
|
|
|
GAAP total operating
expense |
$ |
27,914 |
|
|
$ |
34,071 |
|
Stock-based compensation |
|
(3,365 |
) |
|
|
(2,963 |
) |
Non-GAAP total operating
expense |
$ |
24,549 |
|
|
$ |
31,108 |
|
|
|
|
|
GAAP loss from
operations |
$ |
(22,792 |
) |
|
$ |
(30,386 |
) |
Stock-based compensation |
|
3,407 |
|
|
|
2,985 |
|
Non-GAAP loss from
operations |
$ |
(19,385 |
) |
|
$ |
(27,401 |
) |
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