Eargo, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Ergo fourth quarter 2020 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question at that time, please press star then one on your touchtone telephone. As a reminder, today's program may be recorded. I would now like to introduce your host for today's program, Nick Ledeco, Vice President of Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to the IRGO fourth quarter and full year 2020 earnings conference call. The press release and slides to accompany this call are available on our investor relations website at ir.irgo.com. As a reminder, both this live call and the digital replay will be available on our IR website. Joining me on today's call are Christian Gormson, President and Chief Executive Officer, and Adam Loponis, Chief Financial Officer. Christian and Adam will provide prepared remarks, and then we will open the call to the 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 certain non-GAAP financial results on today's call. Please refer to today's press release and slide deck for a full GAAP to non-GAAP reconciliation. With that said, I will now turn the call over to Christian.

Thank you, Nick. And good afternoon, everyone. We're very pleased with our fourth quarter and full year 2020 performance, which caps off a truly incredible year for ERGO. On that note, I would like to thank all of my colleagues at ERGO for their focus and execution, despite the challenging circumstances for everyone. Thank you. Given that we pre-announced our fourth quarter 2020 net revenues and gross system shifts, I will summarize the drivers of that performance and then turn it over to Adam, who will provide a more detailed review of our fourth quarter financial performance and then provide full year 2021 guidance. Starting on slide five, we delivered fourth quarter net revenue growth of approximately 111%, gross system shift growth of approximately 68%, and a return accrual rate of approximately 24%, down nearly 10 points year over year. Revenue and volume growth in the fourth quarter were driven by several factors. First, and as expected, we saw increased consumer demand during the holiday buying season. The typical increase in interest around the holidays was magnified by our broader media reach, combined with the sheer scale of online shopping in the U.S. Our broader media reach was driven by strong performance of our national TV advertising, which we believe continues to succeed at large because of our differentiated focus on creativity and empowering messaging compared to others in the hearing aid space. As expected, TV advertising rates came down from their peaks during the presidential election. As we saw the rates decline to more normalized levels, we ramped media spend accordingly. Combined with holiday promotions, the efforts drove high-quality leads and inbound calls. Increased national advertising also attracted an increased number of insurance customers, enabling continued penetration of a large, fast-growing, and mostly untapped segment of the hearing aid market. As a reminder, We typically target insurance customers with call-outs on our national advertising, building awareness that consumers may be eligible for a hearing aid at no cost. However, the magnitude of insurance orders we received as a result of holiday advertising was ahead of our expectations, particularly in a quarter that is seasonally more cash-paid weighted. And lastly, The consumer adoption of hearing aids and receiving clinical support online continue to increase. If 2020 has taught us anything, it's that telecare is here to stay. We are excited to lead the hearing aid industry in the growing shift of consumer preferences. We believe Eargo has the most established telecare support and service infrastructure in the hearing industry. Built through over three years of interactions with the consumer, and a real-time feedback loop that we constantly use to improve the user experience. We are committed to further investing in telecare clinical support to better help our customers solve for their hearing loss and further increase this important competitive advantage. Moving to slide six. As we've stated, we've developed the Eargo business model to grow at the lowest cost of customer acquisition possible. We are incredibly pleased with the extent to which we diversified our customer base in 2020 from largely a cash-paid business to one with a healthy mix of insurance and repeat customers, all largely driven by the same media. Insurance and repeat customers generally convert at higher rates and return at lower rates, which has the multiplying benefit of driving up net revenue growth while driving down our overall cost of customer acquisition. Looking specifically at our insurance opportunity, we believe there are approximately 12 million adults in the US over 50 who have both hearing loss and access to hearing aid benefits under certain health insurance plans. We are currently targeting approximately 1.3 million of that total and have only scratched the surface of that market opportunity. As of December 31, 2020, our insurance customer install base represents approximately 1% of our current addressable insurance market, providing what we believe is a multi-year runway for continued efficient growth. Let me now turn it over to Adam for his review of our financial results.