Eargo, Inc (Nasdaq: EAR), a medical device company on a mission to improve the quality of life of people with hearing loss, announced strong financial results for the third quarter ended September 30, 2020, with net revenues of $18.2 million compared to $7.7 million in the third quarter of 2019. The company says the increase was driven by an increase in consumer adoption of the Eargo hearing aid system and a decrease in sales return accrual rate.
The company has also turned some heads with some funny (albeit somewhat racy) advertising.
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.
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“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 US with hearing loss but only approximately 27% owning hearing aids, we believe we have barely scratched the surface of this large and under-penetrated market,” he said.
Third Quarter 2020 Financial Results
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, Eargo said. The increase was primarily due to “higher average selling prices, driven by the shift in mix to Eargo’s 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 company attributes the increase 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 Offering
Eargo 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. Eargo’s 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 company’s prior year revenue.