Good afternoon, everyone, and welcome to the Eargo first quarter of 2021 earnings conference. Call.

The press release and slides to accompany this call are available on our Investor Relations website @ir.eargo.com. Please note, we have also provided supplemental, historical, financial information at the end of the slide presentation.

As a reminder, both this live call and a digital replay will be available on our IR website. Joining me on today's call are Christian Gormsen, President and Chief Executive Officer; and Adam Laponis, Chief Financial Officer.

Christian and Adam will provide prepared remarks, and then we will open the call to Q&A. Before we begin, I'd like to remind you that some of the matters discussed in this conference call will contain forward-looking statements regarding future events as outlined in our slides.

We wish to caution you that such statements are based on management's current expectations and beliefs and forward-looking in nature and are subject to risks and uncertainties, and actual events or results may differ materially. The factors that could cause actual results or events to differ materially include, but are not limited to, factors referenced in our press release today, as well as our filings with the SEC.

We will also be discussing non-GAAP financial results on today's call. Please refer to today's press release and slide presentation for a full GAAP to non-GAAP reconciliation.

With that said, I'll turn the call over to Christian.

Thank you Nick and good afternoon everyone. Following at record fourth quarter, I'm pleased to report that we, again delivered outstanding performance in the first quarter of 202, so by increasing our confidence in our 2021 guidance and longer term financial objectives.

Before turning the call over to Adam for a more detailed review of our first quarter financial performance and 2021 guidance, I will briefly highlight some of our key revenue and volume growth drivers and provide an update on the upcoming launch of launch of Eargo 5, our the most revolutionary product ever. Starting on slide five, we delivered strong first quarter net revenue growth of approximately 74% all of first quarter growth force particular impressive given that we did not have the benefit of a new product launch or growth from repeat customers compared to the first quarter of 2020.

We also did have a gross system shifts of over 66% and a return accrual rate of approximately 23% and improvement of 8 points year-over-year. Both revenue and volume growth in the first quarter were supported by several drivers.

First is the server penetration into the insurance market, our insurance opportunity remains large and under-penetrated as we are still own this serving less than 2% of what we consider to be our immediately addressable insurance market. Second is, growth was also driven by continued scale-up of both digital marketing and on national media presence, driving consumer awareness of both our innovative products and Eargo brand.

These investments, once again, delivered volume growth across both cash pay and insurance customers as we leverage our media dollars to attract multiple customer types and, and achieve scalability and operating expenses. We know national advertising is a successful tool in attracting these diverse customer types and building consumer awareness of Eargo, innovative products, distribution model and Telecare approach to audiology.

What we continue to be impressed by are the ways in which our team continuously leverages data analytics, so methodically balance the mix of digital, TV and traditional offline media. During the second quarter, we're investing in creative website support and training ahead of the late second quarter launch of Eargo 5, preparing to introduce this game-changing product to both new and existing customers.

Supporting all of this growth is what we believe is the most established and integrated Telecare model in the hearing industry today, an important product of our competitive mode, our platform is simple, convenient, personalized, scalable, and completely transformes the consumer journey. Consumers can schedule Telecare appointments with our licensed hearing professionals before purchase offering convenient clinical support and hearing screening in the comfort of their own home.

This is proven to be a powerful conversion tool that we plan to further leverage with the launch of Eargo 5. But it doesn't stop with product purchase, this innovative infrastructure and highly trained team of Telecare based hearing professionals work just as hard post-purchase to engage customers, to share, insure an outstanding customer experience and built long-term Eargo brand loyalty.

It is becoming more evident that telecare is here to stay, not just in hearing but across healthcare. As a pioneer in bringing a vertically integrated telecare experience to hearing care, we believe we are well positioned to lead the disruption of this large and underpenetrated market as more consumers realize there is simply a better, more efficient way to solve for hearing loss.

We will continue to invest in Telecare to extend our competitive advantage and support our term revenue growth expectations. Turning now to slide six and a key growth driver for the second half of the year, Eargo 5, we are incredibly excited as we approach the initial launch of our most revolutionary product ever late in the second quarter.

As we've discussed Eargo 5 will be operating on a completely new platform across hearing instruments, charger, and mobile app. We have tested the product with a range of experienced users and the response has been nothing short of outstanding.

Starting with the fundamentals of helping people hear better, all users have told us that Eargo 5 delivers significant sound quality and feedback cancellation improvements over an already impressive Neo HiFi. Eargo 5 will also deliver more audiological gain allowing the device to fit more people with hearing loss at the more severe end of the moderate hearing loss category.

Moving beyond the fundamentals, Eargo 5, will also feature a smaller physical design allowing us to fit more people who previously may not have been good candidates for an in the canal design and or improve fit for existing users such as me. But the feature we are most excited about is Eargo 5 anti [indiscernible]hearing screen and profile adjustment capabilities.

Customers will be able to measure their hearing loss in real time, in real situations. This is inside an audio booth, using the hearing itself, even by themselves while conducting a Telecare appointment of one of our licensed hearing professionals.

They can then calibrate the devices or work with our licensed hearing professionals to adjust the profiles and sound settings, which are pushed to the hearing aid in real time while the device is in the ear canal. This is a new level of consumer experience, making an already easy to use product even easier while delivering the highest level of personalization.

Other the features include accustomed designed lithium ion battery co-develop with the world leader in micro batteries, VARTA AG of germany, inductive charging with no metal context and waterproof functionality. All of which we believe will further improve the day to day functionality of a device that sits in a harsh environment inside the ear canal in parallel with the launch of Eargo 5.

We are also launching a totally redesigned mobile companion app that will take user experience to new levels. This app will enable many of the functions I just described such as in-situ hearing assessment and profile adjustments, as well as embedded Telecare scheduling and video call functions, deepening the connection between the consumer and our licensed hearing professionals.

We believe that the launch related investments we are making in the second quarter will support an exciting, Eargo 5 introduction to consumers. And we continue to expect a late second quarter launch with material revenue contribution beginning in the first quarter.

Before turning the call over to Adam, I wants to deliver a special thank you to our R&D and software teams who have worked tirelessly to make this product, everything we hoped it would be. We are incredibly fortunate to have such an impressive and dedicated professionals driving the future of ego and helping more people hear better.

Let me now turn it over to Adam for his review of our financial results.

Thanks Christian, given Christian's thorough discussion of revenue drivers, I will start with gross systems shipped. As reminder, we define a system as two hearing AIDS, a charging case and starter accessories ship is a single unit.

First quarter 2021 growth system ship or 11,704 up 66.5% year-over-year, the year-over-year change is driven by strong performance of our data-driven approach to demand generation national advertising and increased penetration of the insurance market. As expected growth system shipped with slightly down sequentially do this strong holiday promotion volumes in the fourth quarter in a product launch in the second quarter of this year, as compared to first quarter launches and previous year's first quarter 2021 return accrual rate was 23.2% compared to 28.2% in the first quarter of 2020 in 24.2% in the fourth quarter of 2020, the reduction and our return rate was driven primarily by a higher mix of insurance customers moving to non-GAAP gross margin and non-GAAP operating expenses.

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

First quarter non-GAAP gross margin was 72.2% compared to 63.2% in the first quarter of 2020 and 70.8% in the fourth quarter of 2020, the year-over-year gross margin expansion was primarily due to a decrease in sales returns as a percentage of growth system shipped higher average selling prices and lower costs of goods sold. First quarter non-GAAP sales and marketing expenses were $15.0 million or 68.8% of net revenues compared to $10.7 million or 84.7% of net revenues in the first quarter of 2020.

The increase was driven by expanded investments in demand generation, including national advertising, as well as Eargo 5 launch preparations. Non-GAAP research and development expenses were $3.7 million or 16.8% of net revenues compared to $2.6 million, or 20.9% of net revenues in the first quarter of 2020.

Non-GAAP general and administrative expenses were $5 million or 24.8%. Of net revenues compared to $5.8 million or 46.1% of net revenues in the first quarter of 2020.

On a non-GAAP basis, we experienced an increase in G&A due to higher costs associated with being a public company. These increases, however, were offset by IPO cancellation expenses incurred back in Q1 of 2020.

Non-GAAP net operating loss for the first quarter of 2021 was negative $8.2 million compared to a non-GAAP net loss of negative $11.2 million in the first quarter of 2020. Finally, we had cash and cash equivalent of $201.6 million at March 31st, 2021.

Now turning to guidance due to our high degree of confidence in our ability to drive growth and capitalize on the momentum in our business. We are raising full year 2021 net revenue guidance to $89 million to $93 million up from $87 million to $93 million.

We expect revenue growth to be driven by robust volume growth with stable customer ASPs and stable return accrual rates, as compared to how we exited 2020. Looking at revenue cadence, the remainder of the year, we expect the second half of 2020 to generate approximately 52% of full year revenue, everything to gross margin guidance.

We are reiterating GAAP gross margin guidance between 68 to 71%. We're also reiterating non-GAAP gross margin guidance of between 70 and 72%.

This guidance reflects our confidence in continued consumer adoption through the remainder of 2021, particularly with the launch initial launch of Eargo 5 in late Q2. I would now like to turn it back to Christian for summary closing remarks.

Thanks Adam. We are very pleased with our results from the first quarter of 2021 and how this momentum positions us far strong 2021.

We remain focused on executing our strategic initiatives this year, including driving volume growth through customer mix scale up of both digital and offline demand generation. And of course the launch of the Eargo 5.

Our initial progress on these initiatives gives us increased confidence and achieving our full year revenue and gross margin type. We remain focused on our mission of helping more people hear better, and couldn't be more excited for what the future holds for Eargo.

That concludes my prepared remarks. And I would like to turn the call back to the operator for Q&A.

Oh, great. Thanks for the question.

Congrats on a nice quarter. Maybe to start a couple of things, the first was, how did the mix of patients look in the quarter?

You, you would see the expectations was just hoping to get a better sense of what it repeat customers. Was it new direct to consumer customers and how much was due to the insurance channel?

Great,Good to talk. Robbie Christina we saw growth in both cash pay and insurance.

You know, we did not see a lot of repeat, so that was, significantly lower than we'd seen in prior quarters as expected. So, so that was sort of the development.

So again, where we are pleased is the fact that we were able to grow both cash fan insurance, and specifically on the mix, Adam. Yeah, we, again, it goes back to other, we were pretty close to where I worked doing about Q3 last year in the high forties on insurance.

The mix came in pretty much in line with expectations and we talked about it, I believe in prior conversations. Now we expect the full year 2021 insurance mix to be roughly where it was in the back half of that, of, of 20, 20 all in the mid forties.

Got it. Okay.

So it implies pretty nice direct to consumer growth as well in the quarter. So maybe second for me.

The return rate, I think it was a record low for you at 23%. Maybe you could just touch on what drove that.

And, you know, I, I think in the past we'd been thinking maybe something like 25% was the low, but how, how low do you think this can trend down now as you're, you're breaking barriers towards the bottom end here?

No, no, you put it right. You know, we're ahead of our own expectations.

And I think this is really due to the diligence of our support team and how do we really keep optimizing the user experience? We're not changing all assumptions on what we can do with a return rate that will be fluctuations from, from time to time here.

You know, we definitely got a little bit of benefit by the slightly better mix that Adam just talked about on the insurance side. Again, it's early to say you know, we will keep hunting this one, but, but we're not changing our assumptions on where we can say the return rates going forward.

Got it. And if I could squeeze one more in here on a guidance, you beat by $2 million versus the stream first quarter, you raised the low end, the guidance by $2 million as well.

I know you typically have a very conservative approach towards setting expectations, but just wanna make sure anything to read into that. It was just the low end and not the mid-point that went up or is it just really early in the year still?

Well, no, again, we've been getting so some, some great support and guidance and, and we, feel great and we're going to have given the strength of Q1, we seal it, even better about our full year guidance, but it is like you said, this is a one quarter into a year and it's definitely not some [indiscernible] year, but we're looking into so, we don't want to get ahead of ourselves, but we do feel very good about where we are right now. So, so that's the logic.

Hey, good afternoon, everyone. Thanks for taking the questions.

I was hoping to start a little bit on the April trends or even at the beginning of May. Are you guys seeing any pullback potentially in demand as audiologists clinics open up or patients begin to return there?

You know, you're, actually saying maybe more demand as patients start to go to restaurants and be mobile and try to be more in groups

That, again, we don't give specific quarterly guidance in terms of what we're doing here. We're definitely seeing, you know, but there's always moving pieces and the sort of demand landscape, I would say, you know, where are we benefiting here from having multiple ways of driving our demand, be that through digital, be through T V, be that through more direct mail activities as well.

So, so we're not seeing any major changes that are, you know, changing any of our outlooks in terms of the business here. I think what we really have built Margaret is a model that is really resilient to set up large macro changes.

And I think we also have the ability to adapt our media mix and how we focus our business based on what it's telling us. So this is something we track real time and we're making adjustments real-time, but we're not giving sort of specific guidance to the quarter here.

Fair enough. I had to try as we think of Eargo 5 has channel that everyone wants to but as I think of Eargo 5 and that launch, you know, you guys talked about it being a more material in the back half of this year, that what have you guys traditionally seen when you've launched a new product?

Does that give you a short-term bullish? Is it a long-term bullish?

You know, does it help you on close rates? What are the metrics we should be looking at for success with that launch?

Yeah, so really what we've seen, and I think the best example we have, what's the launch of the Eargo Hi-Fi last year.in Q1, it's really a long-term impact. So for us, what's going to be key, but if you go five it's a brand new platform.

Everything is new around was, and we do believe it has a lot of potential. The key is not to drive a short-term impact or a spike in Q3, but it's really, this is a platform at bet.

We will be driving, you know, going forward. So that's really our emphasis.

I think that's also the KPI’s would say, what is the use of reception? Are we dividing that?

And where we really see this, as you know, we see it on conversion rate. The other piece we see as we young returning customers, right?

And I think this is where we do have expectations that we can drive a higher level of returning customers when we launch a year ago, five, and then the rest is more, how do we really continue to build the long-term growth of year ago? And this is an important platform in terms of improving also our Telecare approach, given all the, you know, higher degree of personalization and integrations that we can do.

Okay. And then just one last one for me, I was hoping to touch on competition a little bit, just because we've started getting more questions around that.

Have you seen any changes to the competitive the environment either today or in the future? And that could be, you know, some of the online services companies like a hear.com or some of the other manufacturers maybe outside of the big five that could be looking at you and saying, Oh, I can just go ahead and copy you guys?.

Thanks.

Yeah, exactly. No, no.

You know, that's obviously a lot of things happening in the industry and I think it's proving to potential of this industry in general, across [indiscernible], you know know, across lively, of course with reason for these Sonova reason acquisition of Sennheisers their consumer. So that's definitely a lot of activity in this space.

You know, back to my earlier comment about a year ago, I think we're not seeing that impact our business to be fair. None of this outside Bose's announcement is new.

You know, get a comment around live has been around for, for a long time. So this is not anything it's not a new dynamic in ministry.

I think it's just more visibility into the industry, which is something we will always applaud. So we haven't seen anything that is sort of making us think extra hard about what we're doing.

I think if anything, you know, we're feeling more confident that what we're building being fully vertically integrated is still a very differentiated and a unique value proposition that will, you know, hopefully, you know, continue to push our leadership in terms of driving, you know, penetration into this industry.

Good afternoon guys. Thanks for taking the question.

A couple of start on a year ago, five. So Christian what still needs to be done before you launch and you know, have you decided if there's going to be a price premium?

Good questions as always and there where we are with Eargo 5 is, planning, the back end of the ramp. So this is more of a, you know, the logistics, supply chain piece of it.

You know, we have, you know, we've gone through our registrations and all of this, right? We are, you know, constantly monitoring all of the feedback we're getting from test users in terms of sort of the software experience, but from a hardware point of view, we're fully locked in and it's more around, right?

So now it's really tuning on the software and how do we actually position this the right way as a supplier question to Margaret I'll focus here is how do we, how do we bring this new platform out in a way that, you know, allows us to, to continue to our customers? So that's really the timeline piece off at, or, you know, the remaining blocks in front of us on the, on the price point.

You know, we, we've debated there's a lot you know, we believe it's very, very important to drive more access into this category. So we're not going to be introducing you go five at a premium, and this is not audible and lack of confidence in the product.

On the contrary, we do believe by bringing out a revolutionary product at a similar price point to what we're seeing today you know, we can drive hopefully even stronger conversions and motivate more people to get into the industry. So it's something that we from a strategic point of view are very proud of being able to do.

And again, very consistent with what we faced into our guidance here. Just to, to preempt that question,

Christian, just to follow up how de-risk do you think the late Q2 launches based on what you said that there's some software tweaks you know, how de-risk is the late Q2 launch?

No, I feel very comfortable or else we wouldn't be talking about this openly on this call, right. I'm wearing the hearing AIDS as we speak.

Right. I think for us, it's more, how do we, how do we scale the launch?

And that's why we're also saying, you know, we will see material revenue impact in Q3, but from a product readiness point of view, you know, both, you know, from a hardware point of view, from an acoustic point of view I've never felt that are around where we are. Right.

You know, obviously there's a lot of things that you need to tie together at the end of the day, but sort of core hardware plus core or audiological business, the best I've felt, but then year ago, product launch

Christian and maybe Adam I'm trying to understand kind of the guidance and, the ear go five impact because you know, it, you know, the benefit seems so clear. And you said kind of, this is the biggest product launch in the company's history.

So why wouldn't there be an inflection in the business, you know, given these large number of improvements, you know, your guidance seems to imply, you know, a modest, sequential increase in dollar sales. If I looked at that 52% for this year that you talked about Adam, that's lower than what we saw in, in 2019 and 2020.

So help me reconcile you know, what seems like a pretty important and should be successful launch for you guys with, with the guidance you gave?

Yeah, no, no, maybe I thought, and I'll definitely add them, you know, give you the nuance here. I think what's, what's been so important in everything that we've done from a guidance point of view, since we started exploring the public markets with you has really been, we want to base it on what we've seen historically, if we don't want to make assumptions to pushing things to, to a new level, right.

That does not mean we're not going to lean into opportunities. We will always do that.

And I hope I also believe that we have proven that we will do that, but in terms of phasing our guidance on higher conversion rates or higher adoption I think we would be putting a lot of risk into our guidance and best not what we've set out to do, but Adam, you can, you can probably provide more of an well, Larry, my approach, the team's approach has always been, let's put guy into guidance, things we know we can achieve, and we feel very confident in, so we are, you know, you can hear it from, if you can't hear from the tone, I'll say it directly. We feel very good about, you know, having opportunity to, to meet and exceed our guidance in 2021.

I think for me, the biggest off, getting the things on thinking about as we built, this are really around. Let's not get ahead of ourselves in the pricing.

It's not going to have herself on the RFC rate with like a head herself in the volume, but we see opportunity across the board to outperform in every area and a full year basis.

Got it. And just last for me, Christian, how are you thinking about the timelines for opportunities outside of the DTC model, such as the omni-channel opportunity international and other insured market.

Thanks for taking the questions. Yeah,

No, this is another part that we really been doubling down on our investments in, through Q1 and insecure too. So, you know, first of all, I believe in all of these opportunities, you know, as we've spoken about before specifically given the, the construction and, you know, plan to signs within insurance markets, we're not expecting any meaningful insurance to happen inside this year.

But there are a lot of moving, you know, elements in the marketplace right now, given that obviously the world is opening up more and more and people can get out and about more, but it's just also opening some of the additional omni-channel opportunities when, and to what scale that's going to happen is it's hard to predict, but it's something that we're, you know, very focused on. We, you know, who we're building our teams to be able to execute on it.

But I can't give any guidance on, on specific timing here. Although events, you know, when something happens, you know, we definitely believe that we're in the ready spot to participate.

When opportunities come up, I hope that's a fair way of putting it.

Thank you everyone for joining us on the call today. This concludes ergo first quarter of 2021 earnings conference call.