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By the numbers
2nd quarter net sales: $7.25 million
68% decrease year over year
Raw systems shipped: 4,455
Compared to 12,548 in the prior year period
Gross profit: $2.51M
85% decrease year over year
Eargo said it saw a 68% drop in revenue in the second quarter after lower shipments of its hearing aids.
CEO Christian Gormsen noted on an earnings call on Monday that the company expected volume declines and that negative financial comparisons to 2021 “clearly” reflected the company’s decision to no longer accept insurance as a form of direct payment. The company’s gross shipments fell to 4,455 in the quarter from 12,548 in the year-ago period.
Along with the decision to no longer accept insurance, the company said in its revenue report that the decline in revenue during the quarter was due to “a decrease in the average selling price and an increase in the rate of return of sales”, as the company only operated on a cash payment basis for the three months ended June 30.
Eargo stopped accepting insurance as direct payment in December amid a US Department of Justice investigation. The DOJ alleged that Eargo submitted unsupported hearing loss-related diagnosis codes on claims to the Federal Employee Health Benefits Program (FEHBP), the largest government-sponsored insurance plan. employer in the world.
The company colonized with the DOJ for $34.37 million in April, despite admitting no wrongdoing.
Gormsen told investors that resuming coverage of FEHBP would be a top priority, along with increasing the company’s retail presence. Eargo is also awaiting a finalized rule from the Food and Drug Administration that would allow the sale of over-the-counter hearing aids.
The CEO said in July that the rule will expand the market and improve access for the millions of people in the United States who have hearing loss but do not use hearing aids. The OTC rule has undergone regulatory review and may be finalized soon.
JP Morgan analysts wrote in a Monday note that Eargo’s revenue of about $7.2 million last quarter “dropped below us and the street to $10.8 million.”
While Gormsen assured investors that Eargo is prioritizing the return of insurance coverage, the CEO did not provide any details on a timeline, adding that the company will not provide an update until an agreement is reached. will not have been concluded with the payers.
The lack of a timetable was noted by analysts at William Blair and JP Morgan. William Blair analysts wrote in a note on Tuesday that it “will still take time for this segment to materialize” even if the company can re-enter the insurance market. JP Morgan analysts said that in the absence of a specific timeline, they “view Eargo’s outlook as contested even though management views 2Q22 as a stabilizing point for cash payment activity.” .
Eargo shares continue to languish after hitting $75.37 on Feb. 10, 2021. Since then, the stock price has fallen to $1.04 on Tuesday morning.
To cut expenses, Gormsen said the company cut its workforce an additional 17% after a 27% reduction at the end of 2021.