Earnings call transcript Q1 2023

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Operator

Ladies and gentlemen, good afternoon. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Eargo First Quarter 2023 Earnings Conference Call. Today's conference is being recorded [Operator Instructions]

And I will now turn the conference over to Nick Laudico, Chief Retail Officer.

begin. may You

Nick Laudico

afternoon, quarter Good welcome the to Thanks, earnings everyone, conference first XXXX call. Eargo operator. and

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

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

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

Presentations the posted Before have to note in want make to IR reconciliation Events I on Christian, we website the & over to our historical that table GAAP a call non-GAAP section. turning

call said, to I that turn the will now With Christian. over

Christian Gormsen

refine way a as thank into spend. joining our to seeing increased our true XXXX, the efforts first omnichannel cash-pay we with business Thank Retail you, quarter in everyone, our you, Eargo business us growth business. Nick, again we of on media to progress continued and for today. efficiency the led evolving direct-to-consumer Through diversify to our once continue make

insurance to presence continue market. also pursue opportunities we the our early, to in still expand While

margins, quarter. the enabling incremental volume increased with and of direction initiatives, us, each led the believe the quarter steps net impacting We efficiency operating us gross capital our worst is to first business behind in continued operating combined right lower a expenses uncertainty our to loss. growth, reduced Our make

that net the will continue believe XXXX. see improvements quarterly we modest operating burn to As such, of in sequential quarters cash remaining

quarter of summary a performance. business our to Moving first

million, and XX% year-over-year net quarter down revenue a was $XX.X basis. First on up sequential approximately slightly

QX QX. typically the holiday following quarter heightened in promotional As a sequentially is activity end a reminder, down of

shipment this primarily In quarter first submitted Victra to last an quarter, Since channel. in addition Victra, replenishment retail First stocking have Eargo been aid in orders. partnership nationwide progress was pleased by new largest announcing driven growth our with X devices we sales the initial the gross order subsequent of to partner. our hearing Victra fall, with early

that retail partnership. through continue reports devices the trend future approximately growth the of sell Eargo to Victra's positive potential X,XXX gives Victra confidence Importantly, locations. us This in

With partners on of continue staff We overall the our to with improving devices. customer how and gathering and our education Victra, key training feedback to respect by support to educating Eargo continued about consumers remainder partnership training experience. differentiators Victra our force, the for sales customer focus sales is the with XXXX communicate of the retail their of and

to continue been our cash-pay channel focus as cost efficiency. spend. media customer acquiring we of to media our a perspective, a refine direct-to-consumer has and incremental make spend From And our optimize to strategy improvements continue on the we

Turning a on brief access. update to insurance

particular currently we a testing in payment and low establish accepting as insurance and provider additional to limited supporting volumes operate undergone by direct customers shared our In medical licensed believe to at to lift clinical call, meantime, health care certain last on we're will when take documentation. volume time. meaningful expect we a some insurance with the continue of necessity As in method both non-FEHB have FEHB circumstances,

earlier for were Eargo device been Since across let and long-standing an this Eargo available to device example CES, of innovation. year the Adam, to turning We X at Before by mid-February. touch has commitment in a our full launch purchase our commercial to generation channels. it X, then, all on me seventh followed announce thrilled

well We expectations our the have far, been customer and -- customer pleased with positive feedback. both tracked which device uptake the to initial so has

complaints overall Eargo better X customer Specifically, reviews received and has Eargo reduced prior versus connectivity devices.

pursuant -- XXX(k) received with Sound hearing last from OTC marketed clearance the FDA's Eargo regulatory each currently X, app, Following FDA Match to receipt is use X and be as mobile X can new self-fitting as of our quarter, and Eargo marketed via of requirements. aids Eargo each over-the-counter the the

With customers has require other benefit hearing Eargo our far in-office like as get up at resonated set fitting adjustments our and X and and does direct-to-consumer personalize not technology, to in home they their self-fit settings with easily. so really or This are aids. devices traditional quickly visits retail for able

will are We're we distribution our aid physical first especially hearing the of leaders incredibly the hearing We quarter that this the of evolution. in of results, continue proud and grow in believe to one channel evolving context in believe market industry. the U.S. the an retail of through aids

our summary now and turn me first more for Adam to Let operating it results. financial of quarter a over detailed

Adam Laponis

Thanks, Christian.

will Given commentary summary shipment begin Christian's of the gross line. net my at revenues, I

shipped systems quarter and sales to The was primarily in year-over-year were XX% up increase gross flat gross First shipped year-over-year X,XXX, Victra. driven roughly approximately sequentially. systems by

significant build of approximately they volume levels retail at quarter XX% quarter locations. It inventory purchase shipment their QX first up Victra a XXXX noted, Victra. basis. and slightly down both stocking to impacted approximately that maintain first quarter fourth sequential to XXXX net our was from X,XXX our and on is XXXX the net approximately derived important We of were the million, revenue and as large note sales by to Christian XX% of through in $XX.X made revenue As year-over-year in orders

timing Victra size orders, of Going accurately results basis. our forward, our sequential on and to revenue which we net the future able may not be predict the may any of a impact or consistency

are where rate increase year-over-year points up partner, percentage direct-to-consumer hope was ultimately implemented achieve into the over mix shift The similar rate driven we and quarters of initiatives. to experienced is channel therefore quarter The Victra, rate and given the primarily attributed our return-reduction those sales transient. We recently sales X.X X.X have initiatives by reduced return first higher and a in the return ago, the the points stabilized sales mid-XXs. retail our was years initiatives sales benefits return only implemented rate percentage sequentially. in actual from which sales our first larger channel cash-pay percentage These sales similar sales to quarter the the to return XXXX XX.X%, retail channel in in these coming believe

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

in today's Presentations line Please will in stock-based the to below a refer GAAP on margin release Events non-GAAP the historical of non-GAAP section. financial table GAAP website our basis, which metrics the our be reconciliation discussion non-GAAP excludes reconciliation and in earnings to gross to & IR included Our compensation expense. on

XX.X% gross non-GAAP to the quarter first quarter was margin First compared in XXXX. of XX.X%

We with pleased are we margins our as to ability volumes. gross expand consistently continue scale to

Moving to expenses. operating

to retail supporting op selectively will be cost continue have in and invested our as our compliance drivers including well refine we structure, the insurance infrastructure. the areas business, of as we While future we believe

revenues revenues and expenses were of XXX.X% quarter compared First in of XXXX. marketing $XX.X or the net quarter XXX.X% sales to of first or $XX.X million non-GAAP million

to of The primarily in compared and $X.X to to to net costs. quarter net is a million the of for reduction and of XX.X% research $X.X million a net $XX.X revenues were of partially revenues expenses of the XXXX compared the first due of costs increase revenues lower compared offset $XX.X XXXX. in first XXXX. net million costs. in XXXX. quarter and loss operating expenses net quarter million $X.X was primarily Non-GAAP personnel Non-GAAP Non-GAAP million fees, professional or of net or in decrease for first million was XXX.X% by decrease personnel-related of were operating lower development general and XX.X% $XX.X an loss revenues third-party due XX% or the to of non-GAAP administrative personnel-related or first This quarter

of We million December as cash balance XX, to the XXXX. cash of XXXX. to compares XX, $XXX.X Moving million and at had March This sheet. equivalents $XX.X

operating million. approximately we cash in as activities, cash first in and the define net Our $XX.X used quarter investment was XXXX burn, which operating of

to burn The remaining Now of operating turning XXXX. quarters guidance. to sequential cash net the in company burn improvement modest expects cash

further guidance are at providing time. financial this any We not

I will now turn it Christian for back closing commentary. to

Christian Gormsen

to in with momentum now that for business, strategy. last and we of were pleased well XXXX in you work us, with even further a ability ended return optimism the execute to to behind with XXXX here on we have today mode. Eargo March, confidence Adam. in our success. omnichannel first we growth progress greater to believe report spoke the laying We of I'm we that belief When quarter on Eargo transform first our capitalize recent our note positioned Thanks, the demonstrated business as we in our Standing a groundwork quarter our to

we backed to and we customer revolutionary in our course market the on is in remain business to unpenetrated to of direction future industry, capitalize have worst the quarter. progress updates is for robust we change remains our opportunity particular the forward over While uncertainty Most in that care. belief the in a importantly, innovative enabling XXXX. look remote technology and clearly direct-to-consumer, incremental and a the impacting do very steps on, work to by large behind we believe right us make driving us, do, Eargo hearing of each us steadfast providing There our

over turn now to the will Q&A. for call I the We operator

Operator

our William Margaret Instructions] take And we [Operator with Kaczor first from will question Blair.

Margaret Kaczor

stocking that and but that largely I've wanted seem of us many you meaning I point to apologize; of, the of an got So Eargo rates, most questions. these of a given some an clearly sense dynamic? Victra. replacing And is sales behind stores series the stocking, seeing you're that how can guess, some I at of then you hopefully, the have increase this device were start I be in mentioned a sales. Victra to with they devices, selling return But us? And give

us sense, much that a on sell-in? either may rate, guess, sell-through, as you suggest can I give return versus So or least the based a the percentage at how for number the

Christian Gormsen

Margaret. Thanks,

inventory get Victra place. here, has level, we've But also Let is sold replenishment sold set details all can in highest system stores. they have Eargo out. haven't Eargo, you're for. at a X,XXX assuming All so I'll at and Adam you me start Verizon the recently see But looking some just any that X store, if Victra of there into more

we So in terms development, that behind getting -- in more there. of We've seen terms of in QX is QX. than what completely we've stocking initial sell-through in us saw also seen clearly that

financially. it's in inventory, Obviously, on So which about masked are to sell-in what actual the we that of being seeing to level sell-through. we're is over improvements the reporting

I color color? further any don't think -- further anything right? we give, Adam, have to

Adam Laponis

No.

I in sell-in sell-in said well, did think sell-through sequential We it in QX. improvement see still but exceeded Margaret. the Christian sell-through, even the -- the

Christian Gormsen

Yes.

Margaret Kaczor

in And maybe that... true March? was Is that

Adam Laponis

yet. we're there don't of I'd I'd still say average come got kind to we're not of up every question point, now, of, total and came sell-through. pretty we say in in the in, on inventory done, in well, regard. are of in in seeing to so the that lumpy this But sell-in we've still a But where -- week. building QX, sell-in and we're big But in momentum we're average state a that steady again, QX. dynamic They is at orders inventory months, it's March we're in it -- continued your the order store closer, so -- in at the orders in but week getting

RFC In of dynamics, terms an are RFC. in seeing increase yes, we

that actions but that other implementing country impact that and positively So over also sell-through, we now we the in we're that the the RFC -- did XXXX, time. XXXX trainings back are rate that we seeing the think can across

Margaret Kaczor

Okay.

sense maybe you us a of a can you or DTC as So the in impact maybe those initiatives matter how could quickly business? Is of to I help rate, rate, than can devices. the reuse the return despite gross those high Was margins little years? remind devices, current past. well Eargo it true? bit quarters did less a moving that on the give if believe of so still return us the that And generation that you

Adam Laponis

Yes.

So kind X let there, you Margaret. give parts of me

time XXXX course X XX-point mid-XXs, So over in the reduction back XXXX we when that mid-XXs a range. quarters, in first in the to this rates, we part return the is of saw the in did to

So proxy kind a move I time expecting things to decent of probably think we're here. that's the for

but So years. it won't will take quarters, it take

and refurbish our terms we In X, able refurbishment of X to the we us. to X are Eargo it capabilities lines that the, all returned call of of products, get

as still minimize both higher return. there margin costs the that we're does there associated sensitive rework. still it that gross a as some is customer But it experience So impact to to with from when well is

Margaret Kaczor

Two Yes. questions. more Okay.

on one, you're there. number seeing So obviously, the success Victra some experience,

to So need so may to you suggest not, if further? partnerships? expand then want And metrics expand does that these of And what want if do to why? see types to you so, any

Christian Gormsen

Yes. that the the which grow are in mission getting to is the we like helping where locations No, believe goal strong let hearing we're think Victra meet those grab And Verizon Clearly, way penetration, I that and people me that. better, of more people people hear feedback is to overall they stores. are. Eargo, best

expecting People store are strategy to that a building walking on. is clear hearing it's It's a location. aid. a buy into that also we're that Verizon new not So whole basically the

that educating part not you such And I managing consumers is that and the location. a people's expectations. actually sell-in, and health of sell-through, driving, in obviously, return So think that's rate can managing it product also get a journey the now of the

So us. to. But as something for we've it's a are always a long-term this long-term said, is initiative. strategy as It's committed we

into. do that Adam through continue are capability so investing quarter rest organization's As to investing we'll the support actively our and continued here, through in we an it's then mentioned, of area the year. we've the to also And

customer -- the important for experience. not be And sell-in, the ultimately the and the it's is So rates. we'll absolutely KPIs most sell-throughs looking combined is ultimately, the with return the

far, learning we're And they did is opportunity. customers it, not but appreciate expect that what so

that but we're future. journey the embarked have So about excited a literally it's we just on for

Margaret Kaczor

Okay. Last question.

can and launch? the expense that X Victra, You with marketing sense change potential you the but us And from around Eargo mentioned have? how in a increase basis give then most year-over-year seems of be sales growth on you DTC to may latest might any a

Adam Laponis

Yes.

coming Margaret, DTC business. of cut you you when roughly if essentially at business you how depending that it. So from kind look even retail, on year-on-year, we're of existing it slightly -- the revenue into repeat the our can XX% between back We're down, and flat,

seeing marketing So we're the focused and that that's really to -- where there's the it, on and then in off driving on growth are optimizing me, first and improvement there. building we and sales from

that into creates that phone Victra. Victra is there convert a effect. versa. A seeing, customer online can are then into can vice goes We cross-pollination phone customer that though, the goes and on lead and they go the or A

phenomena So the forward. as X want to expect but are of commingling each go that more other as well. to And we see that's we a we see,

Operator

And ladies participation. thank your and you today's and call, for gentlemen, this we conference concludes

You may now disconnect.

Eargo (EAR) 11 May 232023 Q1 Earnings call transcript