Eargo, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Eargo First Quarter 2021 Earnings Conference Call. At this time, all participants are on a listening 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 you'll find, today's conference call is being recorded. I will now turn the conference to the host, Mr. Nick Ledeco, Vice President of Investor Relations. Sir, you may begin.

Good afternoon, everyone, and welcome to the IRGO first quarter 2021 earnings conference call. The press release and slides to accompany this call are available on our investor relations website at ir.irgo.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 Gormson, President and Chief Executive Officer, and Adam Lapotis, 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 those statements are based on management's current expectations and beliefs. are forward-looking in nature, 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 gap to non-gap reconciliation. With that said, I will now turn the call over to Christian.

Thank you, Nick, and good afternoon, everyone. Following a record fourth quarter, I'm pleased to report that we again delivered outstanding performance in the first quarter of 2021, further 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 Eargo 5, our most revolutionary product ever. Starting on slide five, we delivered strong first quarter net revenue growth of approximately 74%. Our first quarter growth was particularly 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 delivered gross system shift growth of over 66% and a return accrual rate of approximately 23%, an improvement of eight points year over year. Both revenue and volume growth in the first quarter were supported by several drivers. First is the further penetration into the insurance market. Our insurance opportunity remains large and underpenetrated, as we are still only serving less than 2% of what we consider to be our immediately addressable insurance market. Secondly, growth was also driven by the continued scale-up of both digital marketing and our national media presence, driving consumer awareness of both our innovative products and the Ergo brand. These investments once again delivered volume growth across both cash pay and insurance customers as we leveraged our media dollars to attract multiple customer types and achieve scalability on operating expenses. We know national advertising is a successful tool in attracting these diverse customer types, and building consumer awareness of Eargo's 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 to 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 Yirgo 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 part of our competitive mode. Our platform is simple, convenient, personalized, scalable, and completely transforms 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 has proven to be a powerful conversion tool that we plan to further leverage with the launch of Yearbook 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 ensure an outstanding customer experience and build long-term year-ago 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 all well-positioned to lead the disruption of this large and under-penetrated 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 long-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, our users have told us that Eargo 5 delivers significant sound quality and feedback cancellation improvements over an already impressive Neo Hi5. 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, Yirgo 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's in situ hearing screen and profile adjustment capabilities. Customers will be able to measure their hearing loss in real time in real situations versus inside an audio booth using the hearing aid itself either by themselves or while conducting a telecare appointment with one of our licensed hearing professionals. They can then calibrate their 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 features include a custom-designed lithium-ion battery co-developed with the world leader in micro batteries, WADA, out of Germany, inductive charging with no metal contacts 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 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 third quarter. Before turning the call over to Adam, I want 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 Eargo and helping more people hear better. Let me now turn it over to Adam for his review of our financial results.