Eargo Reports Fourth Quarter and Full Year 2020 Financial Results

Provides Full Year 2021 Financial Guidance

Mountain View, California, UNITED STATES


Recent Highlights:

  • Net revenues of $22.4 million in the fourth quarter and $69.2 million for the full year of 2020, representing 110.8% and 110.9% increases, respectively, over the corresponding periods of 2019
  • Gross systems shipped of 12,096 in the fourth quarter and 38,243 for the full year of 2020, representing 67.7% and 67.8% increases, respectively, over the corresponding periods of 2019
  • Return accrual rate of 24.4% in the fourth quarter and 25.9% for the full year of 2020, representing a 9.6 and 9.0 percentage point improvement, respectively, over the corresponding periods of 2019
  • Gross margin of 70.6% in the fourth quarter and 68.4% for the full year of 2020, representing a 15.4 and 16.6 percentage point improvement, respectively, over the corresponding periods of 2019; non-GAAP gross margin of 70.8% in the fourth quarter and 68.5% for the full year of 2020 representing a 15.5 and 16.6 percentage point improvement, respectively, over the corresponding periods of 2019
  • Sales and marketing expense as a percent of net revenues of 69.2% in the fourth quarter and 71.6% for the full year of 2020, a 34.7 and 37.4 percentage point improvement, respectively, over the corresponding periods of 2019; non-GAAP sales and marketing expense as a percent of net revenues of 64.6% in the fourth quarter and 69.3% for the full year of 2020, a 38.8 and 39.1 percentage point improvement, respectively, over the corresponding periods of 2019

SAN JOSE, Calif., Feb. 25, 2021 (GLOBE NEWSWIRE) -- Eargo, Inc. (Nasdaq: EAR), a medical device company on a mission to improve the quality of life of people with hearing loss, today reported its financial results for the fourth quarter and full year ended December 31, 2020.

Christian Gormsen, President and CEO, said, “Our momentum through 2020 continued to accelerate in the fourth quarter with net revenue growth above 110% year over year. This growth was driven by strong performance of our national advertising, better than expected sales to customers with insurance coverage, and robust consumer demand during the holiday buying season.”

Mr. Gormsen continued, “The improved mix of customers contributed to gross margin of 70.6%, return accrual rate of 24.4% and non-GAAP sales and marketing as a percentage of revenues, of 64.6%, all company records. We are very pleased with this execution and believe our ability to achieve both growth and efficiency demonstrates the scalability of our business model.”

“Our performance in 2020 and the continued consumer acceptance of using telecare to solve for hearing loss gives us a high degree of confidence we can continue to help more people hear better in 2021. This is reflected in our full year 2021 revenue guidance of between $87 million and $93 million,” concluded Mr. Gormsen.

Fourth Quarter 2020 Financial Results
Net revenue was $22.4 million for the fourth quarter of 2020, compared to $10.6 million in the fourth quarter of 2019. The increase was driven by higher product volume, a higher average selling price, and a decrease in sales return accrual rate.

Gross profit for the fourth quarter of 2020 was $15.8 million compared to $5.9 million for the fourth quarter of 2019. Gross margin increased to 70.6% for the fourth quarter of 2020, compared with 55.2% for the fourth quarter of 2019. The increase was primarily due to higher average selling prices, driven by the shift in mix to our latest product innovation, Neo HiFi, a decrease in sales returns as a percentage of gross systems shipped, and lower cost of goods sold.

Total operating expenses were $25.7 million or 115.0% of net revenues, for the fourth quarter of 2020, compared with $18.8 million or 176.9% of net revenues, for the fourth quarter of 2019. The increase was primarily due to higher sales and marketing investments, personnel investments to scale the organization for growth, stock-based compensation and expenses related to being a public company.

Sales and marketing (S&M) expenses were $15.5 million or 69.2% of net revenues, for the fourth quarter of 2020, compared with $11.0 million or 103.9% of net revenues, for the fourth quarter of 2019.

Research and development (R&D) expenses were $4.2 million or 18.6% of net revenues, for the fourth quarter of 2020, compared with $4.1 million or 38.2% of net revenues, for the fourth quarter of 2019.

General and administrative (G&A) expenses were $6.1 million or 27.2% of net revenues for the fourth quarter of 2020, compared with $3.7 million or 34.8% of net revenues, for the fourth quarter of 2019.

Excluding stock-based compensation expense, non-GAAP operating expenses were $23.0 million, including R&D expenses of $3.9 million, S&M expenses of $14.4 million, and G&A expenses of $4.7 million.

Net loss attributable to common stockholders for the fourth quarter 2020 was ($11.8) million, or ($0.39) per share, compared to a net loss of ($13.4) million, or ($50.44) per share, for the fourth quarter of 2019. Excluding stock-based compensation expense, non-GAAP net loss attributable to common stockholders for the fourth quarter 2020 was ($9.1) million, or ($0.30) per share, compared to a non-GAAP net loss of ($13.0) million, or ($49.15) per share for the same period in 2019.

Full Year 2020 Financial Results
Net revenue was $69.2 million for the full year of 2020, compared to $32.8 million in 2019. The increase was driven by higher product volume, a higher average selling price, and a decrease in sales return accrual rate.

Gross profit for the full year of 2020 was $47.3 million compared to $17.0 million for 2019. Gross margin increased to 68.4% for the full year of 2020, compared with 51.8% for 2019. The increase was primarily due to higher average selling prices, driven by the shift in mix to our latest product innovation, Neo HiFi, decrease in sales returns as a percentage of gross systems shipped and lower cost of goods sold.

Total operating expenses were $82.2 million or 118.8% of net revenues, for the full year of 2020, compared with $61.0 million or 186.1% of net revenues, for 2019. The increase was primarily due to higher sales and marketing investments, personnel investments to scale the organization for growth, stock-based compensation and expenses related to being a public company.

Sales and marketing expenses were $49.5 million or 71.6% of net revenues, for the full year of 2020, compared with $35.7 million or 109.0% of net revenues, for 2019.

Research and development expenses were $12.1 million or 17.4% of net revenues, for the full year of 2020, compared with $12.8 million or 39.2% of net revenues, for 2019.

General and administrative expenses were $20.6 million or 29.8% of net revenues for the full year of 2020, compared with $12.5 million or 38.0% of net revenues, for 2019.

Excluding stock-based compensation expense, non-GAAP operating expenses were $77.1 million, including R&D expenses of $11.2 million, S&M expenses of $47.9 million, and G&A expenses of $18.0 million.

Net loss attributable to common stockholders for the full year 2020 was ($30.0) million, or ($3.80) per share, compared to a net loss of ($44.5) million, or ($173.47) per share, for the full year of 2019. Excluding stock-based compensation expense, non-GAAP net loss attributable to common stockholders for the full year 2020 was ($24.9) million, or ($3.16) per share, compared to a non-GAAP net loss of ($43.1) million, or ($168.25) per share for the same period in 2019.

Cash and cash equivalents were $212.2 million as of December 31, 2020, compared to $13.4 million as of December 31, 2019.

Full Year 2021 Financial Guidance

  • Net revenue of between $87 million and $93 million
  • GAAP gross margin of between 68% and 71%
  • Non-GAAP gross margin of between 70% and 72%

Conference Call and Web Cast Information
Eargo will host a conference call to discuss the fourth quarter financial results after market close on Thursday, February 25, 2020 at 1:30 p.m. Pacific Time / 4:30 p.m. Eastern Time. The conference call can be accessed live over the phone at (833) 649-1234 for U.S. callers or (914) 987-7293 for international callers, using conference ID: 3033109. The live webinar can be accessed at ir.eargo.com.

About Eargo
Eargo is a medical device company dedicated to improving the quality of life of people with hearing loss. Our innovative product 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 and only virtually invisible, rechargeable, completely-in-canal, FDA regulated, exempt Class I or Class II devices for the treatment of hearing loss. Our differentiated, consumer-first solution empowers consumers to take control of their hearing. Consumers can purchase online or over the phone and get personalized and convenient consultation and support from licensed hearing professionals via phone, text, email or video chat. The Eargo solution is offered to consumers at approximately half the cost of competing hearing aids purchased through traditional channels in the United States.

The company’s 4th generation product, the Eargo Neo HiFi, was launched in January 2020 and features improved capabilities across audio fidelity and bandwidth. The Eargo Neo HiFi is available for purchase here.

Related Links
http://eargo.com

Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact contained in this presentation are forward-looking statements, including statements regarding our full year 2021 financial guidance. 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 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 our ability to increase insurance coverage of Eargo hearing aids; our ability to release new hearing aids and the anticipated features of any such hearing aids; 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 pending over-the-counter hearing aid pathway regulatory framework; and our estimates regarding the COVID-19 pandemic, including but not limited to, its duration and its impact on our business and results of operations. These and other risks are described in greater detail under the section titled “Risk Factors” contained in Eargo’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (SEC) on November 20, 2020 and the company’s other filings with the SEC. 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, the company undertakes 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 Measures
The company may report non-GAAP results for gross profit/loss, gross margin, operating expenses, operating margins, net income/loss, and basic and diluted net income/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 this item in non-GAAP measures to assist investors in analyzing and assessing past and future operating performance. The company encourages investors to carefully consider its results under GAAP, as well as its supplemental non-GAAP information and the reconciliation between these presentations, to more fully understand its business.

Investor Contact
Nick Laudico
Vice President of Investor Relations
ir@eargo.com

Media Contact
Brad Sheets
eargo@edelman.com


Eargo, Inc.
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share and per share amounts)
     
  December 31, December 31,
  2020 2019
ASSETS    
Current assets:    
Cash and cash equivalents $212,185  $13,384 
Accounts receivable, net  3,793   2,051 
Inventories  2,739   2,880 
Prepaid expenses and other current assets  3,740   1,598 
Total current assets  222,457   19,913 
Operating lease right-of-use assets  1,079    
Property and equipment, net  8,034   5,400 
Other assets  1,062   1,992 
Total assets $232,632  $27,305 
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)    
Current liabilities:    
Accounts payable $6,020  $5,428 
Accrued expenses  13,909   9,939 
Long-term debt, current portion     4,800 
Other current liabilities  2,448   1,717 
Deferred revenue, current  311   406 
Lease liability, current portion  1,030    
Total current liabilities  23,718   22,290 
Lease liability, noncurrent portion  166    
Deferred revenue, noncurrent portion     269 
Long-term debt, noncurrent portion  14,837   7,446 
Convertible preferred stock warrant liability     396 
Other liabilities     127 
Total liabilities  38,721   30,528 
Convertible preferred stock, $0.0001 par value; zero and 36,269,166 shares authorized as of December 31, 2020 and 2019, respectively; zero and 11,825,812 shares issued and outstanding as of December 31, 2020 and 2019, respectively     152,880 
Stockholders’ equity (deficit):    
Preferred stock, $0.0001 par value per share; 5,000,000 and zero shares authorized as of December 31, 2020 and 2019, respectively; zero shares issued and outstanding as of December 31, 2020 and 2019, respectively      
Common stock; $0.0001 par value; 110,000,000 and 55,190,000 shares authorized as of December 31, 2020 and 2019, respectively; 38,246,601 and 265,943 shares issued and outstanding as of December 31, 2020 and 2019, respectively  4    
Additional paid in capital  392,965   3,100 
Accumulated deficit  (199,058)  (159,203)
Total stockholders’ equity (deficit)  193,911   (156,103)
Total liabilities, convertible preferred stock and stockholders’ equity (deficit) $232,632  $27,305 
     


Eargo, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(In thousands, except share and per share amounts)
     
  Three months ended
December 31,
 Twelve months ended
December 31,
  2020 2019 2020 2019
Revenue, net $22,378  $10,615  $69,154  $32,790 
Cost of revenue  6,578   4,757   21,873   15,790 
Gross profit  15,800   5,858   47,281   17,000 
Operating expenses:        
Research and development  4,157   4,060   12,045   12,841 
Sales and marketing  15,484   11,027   49,525   35,725 
General and administrative  6,084   3,689   20,582   12,470 
Total operating expenses  25,725   18,776   82,152   61,036 
Loss from operations  (9,925)  (12,918)  (34,871)  (44,036)
Other income (expense), net:        
Interest income  11   72   37   627 
Interest expense  (498)  (219)  (1,920)  (711)
Other income (expense), net  (1,387)  (282)  (1,474)  (366)
Loss on extinguishment of debt        (1,627)   
Total other income (expense), net  (1,874)  (429)  (4,984)  (450)
Loss before income taxes  (11,799)  (13,347)  (39,855)  (44,486)
Income tax provision            
Net loss and comprehensive loss $(11,799) $(13,347) $(39,855) $(44,486)
Net loss attributable to common stockholders, basic and diluted $(11,799) $(13,347) $(30,015) $(44,486)
Net loss per share attributable to common stockholders, basic and diluted $(0.39) $(50.44) $(3.80) $(173.47)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted  30,450,191   264,617   7,890,375   256,452 


 
Eargo, Inc.
Results of Operations – Non-GAAP
(Unaudited)
(In thousands, except share and per share amounts)
        
Reconciliation between GAAP and non-GAAP net loss per share attributable to common stockholders:     
 Three months ended
December 31,
 Twelve months ended
December 31,
 2020 2019 2020 2019
GAAP net loss per share to common stockholders, basic and diluted$(0.39) $(50.44) $(3.80) $(173.47)
Stock-based compensation 0.09   1.29   0.64   5.22 
Non-GAAP net loss per share to common stockholders, basic and diluted$(0.30) $(49.15) $(3.16) $(168.25)
        
        
Reconciliation between GAAP and non-GAAP net loss attributable to common stockholders:      
 Three months ended
December 31,
 Twelve months ended
December 31,
 2020 2019 2020 2019
GAAP net loss attributable to common stockholders, basic and diluted$(11,799) $(13,347) $(30,015) $(44,486)
Stock-based compensation 2,726   342   5,089   1,339 
Non-GAAP net loss attributable to common stockholders, basic and diluted$(9,073) $(13,005) $(24,926) $(43,147)
        
        
Reconciliation between GAAP and non-GAAP results of operations:       
 Three months ended
December 31,
 Twelve months ended
December 31,
 2020 2019 2020 2019
GAAP gross profit$15,800  $5,858  $47,281  $17,000 
Stock-based compensation 43   9   60   16 
Non-GAAP gross profit$15,843  $5,867  $47,341  $17,016 
        
GAAP gross margin 70.6%  55.2%  68.4%  51.8%
Stock-based compensation 0.2%  0.1%  0.1%  0.0%
Non-GAAP gross margin 70.8%  55.3%  68.5%  51.8%
        
GAAP research and development expense$4,157  $4,060  $12,045  $12,841 
Stock-based compensation (272)  (49)  (822)  (232)
Non-GAAP research and development expense$3,885  $4,011  $11,223  $12,609 
        
GAAP sales and marketing expense$15,484  $11,027  $49,525  $35,725 
Stock-based compensation (1,035)  (62)  (1,629)  (188)
Non-GAAP sales and marketing expense$14,449  $10,965  $47,896   35,537 
        
GAAP general and administrative expense$6,084  $3,689  $20,582  $12,470 
Stock-based compensation (1,376)  (222)  (2,578)  (903)
Non-GAAP general and administrative expense$4,708  $3,467  $18,004  $11,567 
        
GAAP total operating expense$25,725  $18,776  $82,152  $61,036 
Stock-based compensation (2,683)  (333)  (5,029)  (1,322)
Non-GAAP total operating expense$23,042  $18,443  $77,123  $59,714 
        
GAAP operating loss$(9,925) $(12,918) $(34,871) $(44,036)
Stock-based compensation 2,726   342   5,089   1,339 
Non-GAAP operating loss$(7,199) $(12,576) $(29,782) $(42,697)
        


    
Reconciliation between GAAP and non-GAAP full year 2021 forecasted gross margin
    
  
 Low High
Forecasted 2021 GAAP gross margin68% 71%
Estimated impact of stock-based compensation2.0% 1.0%
Forecasted 2021 non-GAAP gross margin70% 72%