GlobeNewswire Inc | Nov 19, 2020 04:01PM EST

November 19, 2020

Third Quarter and Recent Highlights:

-- Net revenues of $18.2 million, up 135.3% year-over-year -- Gross systems shipped of 10,077, up 91.7% year-over-year -- Return accrual rate of 25.2%, a 10.1 percentage point improvement year-over-year -- Gross margin of 70.1%, up 16.5 percentage points year-over-year -- Sales and marketing expense as a percent of net revenues of 67.9%, a 52.3 percentage point improvement year-over-year -- Loss from operations of ($7.6) million, compared to ($12.0) million in the third quarter of 2019 -- Completed initial public offering of 9,029,629 shares of common stock on October 20, 2020, raising approximately $148 million in net proceeds

SAN JOSE, Calif., Nov. 19, 2020 (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 third quarter ended September 30, 2020.

Christian Gormsen, President and CEO, said, By all financial and operational measures, our performance in the third quarter of 2020 was very strong. Most importantly, we are helping more people hear better by offering both a revolutionary product and customer experience. Consumers continued to rapidly adopt our virtually invisible, rechargeable, completely-in-canal solution for hearing loss and our differentiated telecare model, which provides education, purchase and clinical support from the comfort and safety of home.

During the third quarter, we executed our strategy of efficient revenue growth through multi-channel marketing targeted at a diverse mix of consumers across cash pay, insurance and repeat customers. We expanded our national TV advertising, which built increased consumer awareness of Eargo while complementing our digital marketing to drive 91.7% year over year growth in gross systems shipped while leveraging sales and marketing spend. In addition, we delivered an improved customer return accrual rate and gross margin of 70.1%, all of which contributed to the continued scalability of our business.

We were also pleased to see hearing aid volumes sold through traditional brick and mortar clinics return to year-over-year growth in the third quarter, but even more pleased to see continued acceleration in our year-over-year gross systems shipped growth even as the clinics operations began to recover. We expect strong demand for Eargo as we head into the fourth quarter and holiday buying season, driving our expectation of approximately 97% full year 2020 net revenue growth. With approximately 43 million adults in the U.S. with hearing loss but only approximately 27% owning hearing aids, we believe we have barely scratched the surface of this large and underpenetrated market, concluded Mr. Gormsen.

According to data collected by the Hearing Industries Association (HIA), private/commercial sector hearing aid unit sales in the third quarter of 2020 increased by 0.5% year-over-year, following 58.6% year-over-year decline in the second quarter of 2020. Despite the improvement in traditional clinic-based distribution, Eargo saw expanded awareness and continued consumer adoption of its telecare model, which eliminates the need for cumbersome visits to the clinic by offering an easy-to-use purchasing interface and convenient access to a highly trained clinical support team consisting of licensed hearing professionals.

Third Quarter 2020 Financial ResultsNet revenue was $18.2 million for the third quarter of 2020, compared to $7.7 million in the third quarter of 2019. The increase was driven by an increase in consumer adoption of the Eargo hearing aid system and a decrease in sales return accrual rate.

Gross profit for the third quarter of 2020 was $12.8 million compared to $4.2 million for the third quarter of 2019. Gross margin increased to 70.1% for the third quarter of 2020, compared with 53.6% for the third 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, and a decrease in sales returns as a percentage of gross systems shipped.

Total operating expenses were $20.4 million or 112.1% of net revenues, for the third quarter of 2020, compared with $16.2 million or 209.5% of net revenues, for the third quarter of 2019. The increase was primarily due to higher sales and marketing investments, personnel investments to scale the organization for continued growth, and expenses related to being a public company.

Sales and marketing expenses were $12.4 million or 67.9% of net revenues, for the third quarter of 2020, compared with $9.3 million or 120.2% of net revenues, for the third quarter of 2019.

Research and development expenses were $2.9 million or 15.8% of net revenues, for the third quarter of 2020, compared with $3.2 million or 41.6% of net revenues, for the third quarter of 2019.

General and administrative expenses were $5.2 million or 28.4% of net revenues for the third quarter of 2020, compared with $3.7 million or 47.6% of net revenues, for the third quarter of 2019.

Total stock-based compensation expenses were $1.4 million for the third quarter of 2020, compared with $0.5 million for the third quarter of 2019.

Loss from operations was ($7.6) million for the third quarter of 2020 compared with ($12.0) million for the third quarter of 2019.

Cash and cash equivalents were $70.2 million as of September 30, 2020, compared to $25.3 million as of September 30, 2019.

Initial Public OfferingEargo closed its initial public offering of 9,029,629 shares of its common stock at a public offering price of $18.00 per share, which included 1,177,777 shares of common stock issued upon the exercise in full by the underwriters of their option to purchase additional shares, for total net proceeds from the offering of approximately $148 million. All of the shares of common stock were offered by Eargo. Eargos common stock began trading on The Nasdaq Global Select Market on October 16, 2020, under the ticker symbol EAR.

Full Year 2020 Financial Guidance Eargo expects revenue for the full year 2020 of approximately $64.5 million, which represents approximately 97% growth over the companys prior year revenue.

Conference Call and Web Cast InformationEargo will host a conference call to discuss the third quarter financial results after market close on Thursday, November 19, 2020 at 1:30 p.m. Pacific Time / 4:30 p.m. Eastern Time. The conference call can be accessed live over the phone (833) 649-1234 for U.S. callers or (914) 987-7293 for international callers, using conference ID: 2826509. The live webinar can be accessed at ir.eargo.com.

About EargoEargo 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 device 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 companys 4th generation product, the Eargo Neo HiFi, was launched in January 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 StatementsThis press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended. In some cases, you can identify forward-looking statements by terminology such as aim, anticipate, assume, believe, contemplate, continue, could, design, due, estimate, expect, goal, intend, may, objective, plan, positioned, potential, predict, seek, should, target, will, would and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. All statements other than statements of historical fact contained in this press release are forward-looking statements. These forward-looking statements include, but are not limited to, statements about: our 2020 revenue guidance; consumer adoption of our hearing loss solution and telecare model; the continued scalability of our business; expectations regarding strong demand for Eargo during the fourth quarter and holiday buying season; and the size of the hearing loss market and our ability to penetrate the market. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results and events to differ materially from those anticipated, including, but not limited to, risks and uncertainties 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 Eargos prospectus filed with the Securities and Exchange Commission (SEC) on October 19, 2020 pursuant to Rule 424(b) under the Securities Act and the companys 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, 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.

Investor ContactNick LaudicoVice President of Investor Relationsir@eargo.com

Media ContactBrad Sheetseargo@edelman.com

Eargo, Inc. Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (In thousands, except share and per share amounts) Three months ended Nine months ended September 30, September 30, 2020 2019 2020 2019 Revenue, net $ 18,186 $ 7,730 $ 46,776 $ 22,175 Cost of revenue 5,434 3,583 15,295 11,033 Gross profit 12,752 4,147 31,481 11,142 Operating expenses: Research and 2,871 3,219 7,888 8,781 developmentSales and marketing 12,354 9,290 34,041 24,698 General and 5,163 3,683 14,498 8,781 administrativeTotal operating 20,388 16,192 56,427 42,260 expensesLoss from operations (7,636 ) (12,045 ) (24,946 ) (31,118 ) Other income (expense), net:Interest income 3 136 26 555 Interest expense (279 ) (218 ) (1,422 ) (492 ) Other income (187 ) (30 ) (87 ) (84 ) (expense), netLoss onextinguishment of (1,627 ) ? (1,627 ) ? debtTotal other income (2,090 ) (112 ) (3,110 ) (21 ) (expense), netLoss before income (9,726 ) (12,157 ) (28,056 ) (31,139 ) taxesIncome tax provision ? ? ? ? Net loss and $ (9,726 ) $ (12,157 ) $ (28,056 ) $ (31,139 ) comprehensive lossNet income (loss)attributable to $ ? $ (12,157 ) $ (18,216 ) $ (31,139 ) common stockholders,basic and dilutedNet income (loss) pershare attributable to $ ? $ (46.26 ) $ (57.73 ) $ (122.74 ) common stockholders,basic and dilutedWeighted-averageshares used incomputing net income(loss) per share 398,895 262,785 315,546 253,701 attributable tocommon stockholders,basic and diluted

Eargo, Inc. Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except share and per share amounts) September December 31, 30, 2020 2019 ASSETS Current assets: Cash and cash equivalents 70,224 13,384 Accounts receivable, net 2,576 2,051 Inventories 3,289 2,880 Prepaid expenses and other current assets 1,379 1,598 Total current assets 77,468 19,913 Operating lease right-of-use assets 1,369 ? Property and equipment, net 6,946 5,400 Other assets 2,304 1,992 Total assets $ 88,087 $ 27,305 LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS? DEFICITCurrent liabilities: Accounts payable $ 6,658 $ 5,428 Accrued expenses 10,809 9,939 Long-term debt, current portion ? 4,800 Other current liabilities 2,079 1,717 Deferred revenue, current 441 406 Lease liability, current portion 1,097 ? Total current liabilities 21,084 22,290 Lease liability, noncurrent portion 412 ? Deferred revenue, noncurrent portion 17 269 Long-term debt, noncurrent portion 14,502 7,446 Convertible preferred stock warrant liability 544 396 Other liabilities ? 127 Total liabilities 36,559 30,528 Commitments and contingencies (Note 5) Convertible preferred stock, $0.0001 par value;73,108,323 and 36,269,166 shares authorized asof September 30, 2020 and December 31, 2019, 223,125 152,880 respectively; 24,229,281 and 11,825,812 issuedand outstanding as of September 30, 2020 andDecember 31, 2019, respectivelyStockholders? deficit: Common stock; $0.0001 par value; 110,000,000and 55,190,000 shares authorized as ofSeptember 30, 2020 and December 31, 2019, ? ? respectively; 534,599 and 265,943 shares issuedand outstanding as of September 30, 2020 andDecember 31, 2019, respectivelyAdditional paid in capital 15,662 3,100 Accumulated deficit (187,259 ) (159,203 ) Total stockholders? deficit (171,597 ) (156,103 ) Total liabilities, convertible preferred stock $ 88,087 $ 27,305 and stockholders? deficit

Eargo, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Nine months ended September 30, 2020 2019 Operating activities: Net loss $ (28,056 ) $ (31,139 ) Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization 1,805 1,011 Stock-based compensation 2,363 997 Non-cash interest expense and amortization of 1,178 200 debt discountNon-cash operating lease expense 838 ? Bad debt expense 2,135 44 Loss on extinguishment of debt 1,627 ? Change in fair value of warrant liability (122 ) 84 Change in fair value of derivative liability 206 ? Changes in operating assets and liabilities: Accounts receivable (2,660 ) (113 ) Inventories (409 ) (1,110 ) Prepaid expenses and other current assets 219 (199 ) Other assets 963 (311 ) Accounts payable 579 (585 ) Accrued expenses 147 1,750 Other current liabilities 362 (172 ) Deferred revenue (217 ) 409 Operating lease liabilities (883 ) ? Other liabilities (127 ) (59 ) Net cash used in operating activities (20,052 ) (29,193 ) Investing activities: Purchases of property and equipment (844 ) (1,616 ) Capitalized software development costs (2,601 ) (1,017 ) Net cash used in investing activities (3,445 ) (2,633 ) Financing activities: Proceeds from stock options exercised 359 40 Proceeds from debt financing 15,000 5,000 Proceeds from convertible preferred stock 67,867 865 issuance, net of issuance costsProceeds from issuance of convertible notes, 10,053 ? net of issuance costsProceeds from PPP loan 4,574 ? Repayment of PPP loan (4,574 ) ? Debt repayments (12,720 ) ? Payments of deferred offering costs (222 ) ? Net cash provided by financing activities 80,337 5,905 Net increase (decrease) in cash and cash 56,840 (25,921 ) equivalents and restricted cashCash and cash equivalents and restricted cash 13,384 51,201 at beginning of periodCash and cash equivalents and restricted cash $ 70,224 $ 25,280 at end of periodSupplemental disclosure of cash flow information:Cash paid for interest $ 253 $ 275 Non-cash operating activities: Lease liability obtained in exchange for $ 2,392 $ ? right-of-use assetNon-cash investing and financing activities: Property and equipment and capitalizedsoftware costs in accounts payable and $ 421 $ 307 accrued liabilitiesDeferred offering costs in accounts payable $ 1,053 $ ? and accrued liabilitiesConvertible preferred stock issuance costs $ 600 $ ? included in accounts payableDerivative liability in connection withissuance of convertible promissory notes on $ 2,879 $ ? issuanceIssuance of Series E convertible preferredstock upon extinguishment of convertible $ 12,818 $ ? notesSettlement of derivative liability inconnection with extinguishment of convertible $ 3,085 $ ? notesIssuance of convertible preferred stock $ 270 $ 41 warrants in connection with debt financing