Eargo, Inc.

Thank you for standing by, and welcome to the EARGO Second Quarter 2021 Earnings Conference Call. At this time, all participants are on a 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 1 on your touch-tone telephone. As a reminder, today's conference call is being recorded. I will now turn the conference over to your host, Mr. Nicola Deco, Vice President, Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to the IRGO Second 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 this live 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 Loponis, 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 the 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, 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 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. Our business continued to outperform in the second quarter as we again executed on several very significant operational milestones. To name a few listed on slide five, delivered robust revenue growth of 44% year-over-year. We completed the initial launch of Eargo 5, our most revolutionary product ever, and we completed the acquisition of a web-based hearing screening technology called Clementine, which I will discuss more in a moment. Before turning the call over to Adam for a more detailed review of our financial performance, I will first briefly highlight our revenue and volume growth drivers and then elaborate on the strategic benefits of the milestones I just summarized. Starting with revenue growth. we achieved another quarter of robust growth with revenue up 44% year-over-year, despite a particularly challenging comparison to the second quarter of last year when we benefited from the early 2020 launch of HiFi and from the significant acceleration of our insurance business. This performance was also against the backdrop of a second quarter 2021 cable TV viewership in the 50-plus demographic that was at a five-year low. In the second quarter of 2021, we also delivered cross-system shift growth of 39% and recorded a return accrual rate of approximately 24.1%, representing an improvement of three points year over year. Revenue growth in the second quarter was once again supported by continued penetration into the insurance market. We were also pleased to grow cash pay volumes both year over year and sequentially despite lower media viewership in the quarter. Turning now to slide six and seven, we're incredibly pleased and excited to have launched Eargo 5 on schedule with initial shipments occurring late in the second quarter to select repeat customers and a full commercial launch on July 13th. Eargo 5 is the smallest in-canal rechargeable device we've ever produced. The device operates on a completely new platform across hearing instruments, charger, and mobile app, and delivers significant sound quality and feedback cancellation improvements over an already impressive Neo Hi-Fi. Most notably, Eargo 5 introduces a key feature that they're very excited about, our all-new SoundMatch technology. Through our proprietary in situ hearing screen and profile adjustment capabilities, SoundMatch provides customers the ability to assess their hearing loss in real time using the hearing aid itself either by themselves or while conducting a telecare appointment with one of our licensed hearing professionals. This is accomplished by test tones that are emitted through the device to assist the user in establishing their hearing profile and personalized recommendations based on the results. Customers can then further self-calibrate their devices or work directly with our licensed hearing professionals to remotely make needed adjustments in real time. This is a new level of consumer experience, making an already easy-to-use product even easier while delivering the highest level of personalization. Our Eargo 5 awareness generation strategy leverages media tools across multiple digital and traditional offline channels. We've also initiated robust direct marketing to existing Eargo customers, following two quarters of limited repeat customer marketing, offering a unique opportunity for current customers to own our latest generation product. All of this has driven strong early commercial traction of Eargo 5. We believe we have created a solution that puts customers first and provides them with the tools that they need to address their hearing loss within minutes, without the barriers of clinic visits, high cost, and obtrusive design. We look forward to further shaping the future of hearing with ErgoFi. Moving to slide eight. We're very pleased to have completed the acquisition of assets from Clementine. a developer of web-based hearing screening solutions for approximately $2.9 million in the second quarter. Clementine offers remote audiology solutions and self-administered hearing screen technology to consumers with an online tool as well as a kiosk to screen hearing in physical settings. Clementine's online hearing screen is currently integrated on the Eargo website is utilized as part of our free online hearing assessment. We believe integrating this technology with Eargo's telecare infrastructure will further advance our core mission of making it easier for consumers to assess their hearing, consult with hearing professionals, and purchase Eargo in the most seamless and convenient way possible. As part of his acquisition, We're also adding Clementine's high-quality R&D and software engineering talent to the ERGO team. Our immediate focus is to further optimize the Clementine technology and obtain FDA registration for the kiosk in 2022, followed closely by initial commercial testing. Therefore, we expect acquisition to have no impact on 2021 revenues and to modestly increase 2021 R&D expenses. Lastly, and before turning the call over to Adam, I want to briefly touch on last month's executive order from the Biden administration promoting competition in the American economy. As a reminder, this executive order directs the Department of Health and Human Services to consider issuing proposed rules within 120 days for allowing hearing aids to be sold over the counter. As another reminder, Eargo is not an OTC hearing aid. as this regulatory category does not yet exist. However, we applaud the executive order and support the Biden administration's efforts to increase access to hearing aids and lower costs for consumers. Eargo's mission is to increase consumer access to high-quality, virtually invisible hearing solutions and help more people hear better, while doing so at approximately half the cost of hearing aids purchased through a traditional audiology clinic. While the specifics of the proposed legislation are still pending, Yirgo has since inception been providing the type of consumer-friendly hearing care experience we believe the industry has needed for decades. As we look at the future of the hearing industry, we believe we're well-positioned for the future of how consumers will solve for their hearing loss. Let me now turn it over to Adam for his review of our financial results.