EAR - Earnings call transcript Q2 2022

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Operator

Good afternoon, and welcome to the Eargo Second Quarter 2022 Earnings Conference Call. All participants are in a listen-only mode. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Nick Laudico, Senior Vice President, Strategy and Investor Relations. ahead. go Please

Nick Laudico

and earnings everyone, the second Eargo Good call. welcome XXXX conference quarter afternoon, to

As call our reminder, replay a this will a live be digital and available on IR is website. being broadcast

Officer; today's call Officer. Gormsen, Chief Chief Joining me and are Laponis, on Adam President Christian and Executive Financial

forward-looking wish some release as call and but may caution and filings Before differ forward-looking risks not will referenced factors are management's in to we that events press cause uncertainties, results statements factors The begin, today. outlined discussed events or statements matters that limited regarding on to like the could today our I'd to, or subject as nature, our events in beliefs, as contain press materially. well our are in with in actual We you future such include, based and release that remind of this SEC. differ you to are conference the are expectations results actual current to

the With turn turning to in that I GAAP want historical a table to call I said, Presentation non-GAAP Christian, over note reconciliation posted have and section. Events our to IR we the on the to website call that will make over Christian. Before

Christian Gormsen

Nick, you, us thank joining and Thank you, today. for everyone,

U.S. the investigation the The of with liability. the by investigation a with can months characterized be settlement no for we agreement after second DOJ, resolve Eargo of quarter we to as transitionary. learned the admission civil seven reached government Approximately DOJ

our and our the on SEC cured of since retaining secured activities omnichannel Eargo to strategy. NASDAQ our have capital We growth fund listing and pursue delinquency, stock filing

media reduction an as enhancing the decision on reflect the and X, at the XXXX, results to of our business, our including financial well comparisons direct well significant to but payment second call, $XXX,XXX infrastructure spend insurance as in as following to This to XX% in as year-over-year we end efficiency reduction the the as just volumes progress initiatives took across $X.X the and cash reduction cash compliance improving reduction continue our also in December form time I several a refining any down accepting have efforts quarter, down of into to reentry XXXX. of nearly our XX% mentioned. workforce, our million life management we reduce spend media processes support our conversion Clearly, last and previous sequentially, cash stop burn We expected, additional quarter burn, took Since as made sequentially reducing cycle internal XX%. risk rate in building and pay insurance our management processing market. revenue the to future claims our monthly

phone. we secured We and commitment up a the within million XXXX also $XXX the investment. online common From improve will of achieved focused over on to we discuss Adam stockholders more a of first rights XX, line both shares to experience, milestone We're a November June from significant million to million financing perspective, on of XXX tranche a convertible notes first XXX time completing closing existing now the moments. or XXth. detailed by offering the in days investment few of the Square a tranche Capital, in strategic of Patient closing $XXX that in a senior customer continue secured

to short evaluate long-term the in of as events our part months last our the management strategies. time Board and process XX macro as the financing light As and the took of the of business and well environment,

to FEHB half on on clear the continue to to Eargo government primary us that year Square we omnichannel from begin growth need work coverage a excited several under reconfirmed approach to potentially and Patient require enter to the While allows improve of our Eargo of changes returning focus to the one, capital priorities. we're trajectory. go-forward should the made for We to processes that insurance a regain documentation executing efficiency, employees we towards and The strategy, support carriers insurance individual strategy and coverage. on second align FEHB business our program. focus Number with to with be

when Although to period we two, any refine not to understanding third-party time. and reached provide with update payers with negotiations of retail payers. we our are an do an to for establish payers, with an if strategy. plan we working dialogues until we expect last And and expand physical Number have extended

we the retail consumer three, partners expanded Number retail optimize maintain demand a in conduct and customer fact, to innovation business. repeat improved spend. the second pay better refine consumer to increased and on driven media recently, launch to cash reduced continue annual pilots conversion business. to quarter optimal an to nearly We significantly physical our in XX% journey four, historically number retail price. cadence, environment which And has new our in invest retail in to Most strategy an understand our product continue with for

announced to Board August over Peter with an XXXX, X, stepped wish Directors expertise years we down Bisgaard time Peter role expanding of Sciences has the today his Nan it Board expanded Pivotal and Life and in Fund, from role. effective well to the also has turning Adam, Before him decided Fung at to that increasing has to for Peter dedicate and responsibilities. these the company's insight grateful brought the over more We're

the to Adam our of process financial in a now quarter for it summary turn me Let and more second our detailed financing next steps over results.

Adam Laponis

Thanks, Christian.

secured one are to in the second the second initiatives XXXX. of significant In capital on update company can we The half start strategy. to or XXX short-term XX, existing the completing shareholders million XXth, notes. and the investment of any terms rights we us the on the rights by such we to up rights XXX to a convertible debt closing November quarter, to intend of the XXXX. million enable Capital. we event, bridge we within XX, XXXX, omnichannel at issue of agreement, number common do to complete date first shares on offering. by achieved in which Prior milestone offering, shares approval a for potential raise This closed the October record in XX, growth stockholders, of that we intend stockholder the the our the me tranche be to Square of equity senior tranche days Let focused pursue the issue with our offering offering, our the from investment increase timing commitment of June we the Patient commencing shares in significant Meeting to of rights major of our date to will of the transaction strategic an intend secured offering in of to seek for Pursuant proceed conversion rights meeting. the of On and amount Annual to at time Stockholders held our as We not to the annual million XXXX. of $XXX full December $XXX first authorized

to the summary of second XXXX moving Now quarter financial results.

decision and company's direct form Our results of second a efforts as December our as quarter XXXX, on comparisons cash to as the stop accepting insurance burn. payment reduce to well X, year-over-year reflect

in was by rates as decrease the decrease basis revenue no net selling and the operated was cash million, systems shipped growth a year-over-year. in that a during XX, X, insurance price XXXX. $X.X increase driven company as an XXXX. sales direct Decreased XXXX months December in longer average quarter company down of payment the the is on ended only as three June return Second pay XX% The accepted

shipped to systems was shipment gross were December XX% The company's XXXX. XXXX direct longer as as quarter method decision of no insurance accept year-over-year. year-over-year a change payment Second X,XXX, the by down of driven

up points in driven the XXXX the shift to primarily pay quarter only by Second second X.X accrual cash was return rate business quarter. year-over-year, percentage XX.X%,

Our cash-pay than traditionally has our business. insurance return higher carried rate business a

non-GAAP gross non-GAAP to and on margin Moving expenses. operating

the included release. of a metrics be reconciliation expenses. margin non-GAAP today's gross excludes Please in earnings basis, our financial to of will non-GAAP GAAP discussion on below to compensation line and stock-based which refer Our

decline for of of an to primarily compared increase return costs in X. year-over-year non-GAAP Second change shipment gross related was in X margin in in in quarter to due spread XX.X% quarter XX.X% rate, and the The cost to fixed an increase causing was mix goods software gross capitalized of units, commercial over the XXXX. second volume Eargo margin be lower to due of smaller and sold amortization to an product increase a a cost Eargo of number products launch sales

agreement million general costs of $XX related a $XX compared and or revenue. million XXXX. general or research is to to XXXX, quarter $X.X direct related Non-GAAP X, net in increase December decrease net in in personnel-related due compared of stop Second of advertising was XXXX second percentage or revenues professional revenues and in costs of to on for driven by was a XXXX. insurance DOJ primarily second net related and XX.X% million method legal net in XXXX. $XX.X quarter due our operating by revenues million quarter revenues and to the a to million the Non-GAAP net net or the revenues and increase Non-GAAP fees second quarter transactional sales non-GAAP development million, second of expenses as direct $X.X losses and second to $X.X as expenses accessing XX.X% to and marketing $X.X the to activities following in The in The in net million reduction $X.X payment non-GAAP negative a $XX.X revenues net of or of compared $XX.X quarter of purchase the decreases of expenses marketing, loss benefits personnel of of note corporate decreases of in promotional in sales compared were or of XXX.X% was were XX.X% quarter the negative the net and expenses to in costs. XXX% driven million of administrative other XX.X% The XXXX. to investigation. decision were marketing of and primarily revenues increase expense million a million

of at compares tranche includes as SVB of obligation cash previous notes XXXX, XX, of off million well to closing Moving We on December the XXth, This transaction the which our the balance June sheet. as debt to $XXX.X senior June $XX.X from as pay had $XXX.X costs. first proceeds XXXX. using million cash to XX, quoting convertible approximately and equivalents and million

guidance. Moving burn to cash

continue million from slight expect We back it quarter-to-quarter. burn now the near-term cash for will Christian and turn a to to I $XX in $XX commentary. between million with closing variability quarterly

Christian Gormsen

up. a give we've been glad Thanks, regulations of hard positioned have a us, product, return market innovative work believe to at on remains large Eargo the one on Despite with don't now turn commercial to future objective. quarter Thank Eargo, us initiatives pending the If the is that We're there feel and potential good mode. we Clearly, and energized there about Adam. is have the lot to executing capitalize our very the to well and for begun through, the but behind our the ahead the call changes achieve capital remote to what of have second a people of to will structure, growth to you. we the incentivized of operator established raise, organization is support that Q&A. it the I to recent opportunity, is we're underpenetrated motivated, Eargo. characteristic we we over believe

Operator

The from [Operator go of We ahead. session. Marcus JPMorgan. begin first question-and-answer the Instructions] Robbie comes will question Please now

Unidentified Analyst

questions. on Robbie. much Hi, the taking actually is Lilly this Thanks for so for

with to frame here? market sort start And just OPM keeping insurance there any we sort out, in of time is regarding decision be your of conversations mind should some First, for progressing? have reentering how been the the

Christian Gormsen

prior the are the with carriers. that. update, for with have discussions our good And had update we clear will announcement, to question. stated we when also material any we is script updates spoke the ongoing we as And FEHB next you discussions about that step and OPM. in Thank The as we the have in

Unidentified Analyst

Got it.

And increased this level how how maybe you're been then support and and higher a a yourself conversion marketing Can follow-up. lower how of to growth able so Thanks into deeper on conversion do bit able to drive media you advertising Okay. drive you've being see spend? And approaching rates little much. just and differently? you dig

Christian Gormsen

rate in on on really do at making and very marketing -- conversion that everything we up reductions actually up metric been time has for the company side. #X were that and this through, focused we are and take future spend for. No, that driving of or was we've that we people the aiming the time did We also kept reducing this the well same sure media sales has the middle been the set how make team this we achieved and while the

level the think we've in it but we sales really our lot both selling that how additional an learned category, believe easy question, what our consumers been to direct apply that again, working hearing a manner on based your of within what expanding media a up on do and I in this presence can of task, focused not and think to historically believe health team open of over complements has to really the on channel way our So also I that level. efficient we can start we a and as marketing for efficiency. years driving than And we a that do more done we've we channels

Unidentified Analyst

thanks much. Great, so

Operator

Please Blair. the next comes from go ahead. And question Kaczor of William Margaret

Unidentified Analyst

ask for taking split of questions. your repeat and the the cash-pay based during -- between how you're putting your your and on I to the Thanks business Maggie you much. This second going Thanks trend wanted place? guys. the Hey, in so on initiatives the first quarter, today. Margaret that the marketing see on forward for customers is year

Adam Laponis

from take repeat stable number business it's to mix the QX, And that the was about XX% I'd both an perspective, expect I can Hi, total QX Adam. In and Maggie, in half. of numbers relatively be of absolute back one. the volume.

Unidentified Analyst

cash The [Technical close within wanted guidance that much so rates is how $XX converted? of ask, trying you're Difficulty] be so you. next, if Thank Great. provided, $XX you how understand to can million I to just million -- that are that to burn

Christian Gormsen

you my if Sorry repeat the you same had tough, you can question? little line issue. okay was Maybe the

Unidentified Analyst

Yes, sure.

burning and be much per quarter. can are that much $XX rates are so sale? lease how the close So BXC that then generating, you the to trying How that million spend you of understand into of within

Christian Gormsen

direct following you are the question? Adam,

Adam Laponis

retail and the heard into Difficulty] in question we'll is said of or side or is I of apologize. of insurance the on I a what I'll I'll or have in account million Is the question. please that those don't I much repeat if think either that not cash [Technical we've I we're of answered for burn doesn't to forecasting any every sure other create note, and the terms update $XX scaling that turning BXC we how business. one it. insurance that your did be two that Maggie, quarterly to either of of $XX I'm in any movement but could million, positive And covered -- when get things. retail word, what

Unidentified Analyst

That's you. great. Thank

Operator

comes Please question next Larry Biegelsen The Wells Instructions] from [Operator ahead. from go Fargo.

Unidentified Analyst

was is Hi. obviously, at within you as of seems it cash where in could I like more the you This still burn the into stable I'm say a cash-pay Charles like, you rate business, that seems is, Larry. got dig it well. optimize wanted like I the bit cash-pay just mean mean, hoping a there like you the like on I if for business. QX point say but has stable get you insurance kind to what at and feel year-over-year a declined spend the to trying there? you're maybe And decline for

a do So I you if you that maintain shocking even to mean, find in point efficient. get know stable you guidance, might just hit to it get cash-pay low trying you baseline it's hit might to Is business find or think mean, -- at you Or at, up -- a that just investment? you reduced I that spend, but sense to didn't bit a once return though -- on to eventually are is baseline when like But or in is near start if need that be a to where able a I to... give that spend that growth? -- where that I trying I'm that more

Christian Gormsen

with which well can stability business the fundraising kind given have associated the that a with business activities, think think management reset. the going the cash-pay I point all found side we as in settling the distraction I and from as and of of activity the of the commercial the we outside DOJ of hit was on

I was as well in are And we a back business. now say on with providing feel think some strategy, -- we conversations new state progression can we the that the guidance, I business. on -- focus think although have cash-pay the of period can a transitional QX the of the funding steady as the we it's to fair omnichannel that found we

Unidentified Analyst

answered you that's well think -- I that.

Christian Gormsen

efficiency the of we operating right positioning do we what really where lay think spend sort priorities a And clearly for Exactly, through the and team we how I establish where balance lot us versus like find to forward. the is -- QX. learned of move do

Unidentified Analyst

hear. Perfect. to guys. Good Thanks,

Operator

now conference Thank concluded. for The is today's presentation. you attending

You may disconnect. now

Eargo (EAR) 9 Aug 222022 Q2 Earnings call transcript