Eargo, Inc.

First quarter net revenue was $11.8 million, up approximately 29% year over year and slightly down sequentially. Gross systems shipped were 8,705, up approximately 51% year over year and roughly flat sequentially. Non-GAAP gross margin was 43.8% versus 40.5% in Q1 2022. The first quarter sales return rate was 37.4%, up 3.5 percentage points year over year and 2.5 points sequentially. Non-GAAP sales and marketing expense was $12.5 million, R&D was $3.9 million, G&A was $8.1 million, and non-GAAP net operating loss was $19.4 million versus $27.4 million a year ago. Cash and cash equivalents were $79.8 million at March 31, 2023, down from $101.2 million at December 31, 2022, and net operating cash burn was approximately $21.5 million. Management did not provide additional financial guidance, but said it expects modest sequential improvement in net operating cash burn in the remaining quarters of 2023.

Christian Gormsen framed the quarter as evidence that Eargo is progressing toward a true omnichannel model, with retail leading growth and direct-to-consumer becoming more efficient. He emphasized early success with Victra, broader availability of Eargo 7, and positive customer feedback on the device’s self-fit and reduced connectivity complaints. His tone was optimistic but still cautious, repeatedly saying the business is still early in the transition and that there is more work to do.

Adam Laponis focused on the math behind the quarter: higher shipments, better gross margin, lower operating expenses, and a smaller loss. He highlighted the 43.8% non-GAAP gross margin, the $19.4 million non-GAAP operating loss, and the $79.8 million cash balance, while noting that $21.5 million of net operating cash burn in Q1 should improve modestly sequentially through 2023. He also cautioned that Victra order timing and size may remain lumpy and affect sequential comparability, and said higher return rates should ease over time as retail initiatives mature.

Analysts focused mainly on Victra: management said every one of the 1,500 stores now has Eargo inventory, that initial stocking is basically complete, and that sell-through is improving even though sell-in still exceeded sell-through in Q1. On returns, Adam said the company previously cut return rates by about 10 points over four quarters in DTC and expects a similar, quarter-by-quarter improvement in retail, helped by training and education. On DTC, management said the business was roughly flat to slightly down year over year, but there is cross-pollination between retail and DTC leads that they expect to grow over time.