Eargo CEO on company outlook amid NASDAQ listing

Christian Gormsen, Eargo CEO, joins Yahoo Finance’s The First Trade with Alexis Christoforous and Brian Sozzi to discuss the company's public debut and much more.

Video Transcript

BRIAN SOZZI: The Eargo's listing on the NASDAQ today. The company is coming off its best year with over $47 million in sales year over year for the six months ended in June. CEO Christian Gormsen joins us now.

Christian, good to see you. Congrats on the IPO. We've talked to a lot of folks in the health care sector throughout the pandemic. And what they've told us-- you have a lot of consumers have put off other procedures, elective procedures, and are squarely focused on COVID-19 and preventing getting COVID-19. What have you seen in your business throughout this whole situation?

CHRISTIAN GORMSEN: Well, thank you for having me, first of all. And I think the industry, the hearing loss industry, has seen a decline. However, as you mentioned, we have a direct-to-consumer based model, so not only do we have revolutionary medical technology through invisible hearing aids-- I'm actually wearing one of them just for [INAUDIBLE]-- but we also have a telecare-based model.

So being able to be available for consumers through this pandemic has actually seen Q2 growth of more than 120%. And we just flashed our Q3 figures as well-- growing more than 130%. So we've seen a significant acceleration into consumer adoption for hearing AIDS in a telecare-based model.

ALEXIS CHRISTOFOROUS: Yeah, definitely some impressive numbers that you're putting up, Christian. And it seems like demand has been strong for the IPO thus far. But I did notice that you are spending more than you're bringing in at the moment. You have some negative cash flow of about $37 million. How do you-- when do you expect to be positive cash flow? Or how do you hope to get there?

CHRISTIAN GORMSEN: Well, first of all, we are in a very, very large industry. There's more than 43 million Americans suffering from hearing loss. So we've been fortunate to be backed by very strong investors as a private company and, now, as a public company. That basically allows us to participate in this industry.

We've been very, very focused on driving efficiency in everything we do. So we are driving solid cross margins, and that's our main metric. Every new customer we bring in is decreasing our cash flow. That's the background for our IPO.

We do see us reaching profitability sometime around '23. However, you know, there's so much growth for us to have. And we believe we add more value by having more people hear better.

BRIAN SOZZI: Christian, as part of that path to profitability, what you just said, I believe, 2023-- does that include going into retail with cheaper price points? One product I saw on your site was close to $3,000. It's not a cheap purchase. But what are your plans?

CHRISTIAN GORMSEN: Well, that's a very good question, something we spend a lot of time on, there's been a lot of discussion on. Again, we sell over the web on eargo.com. We sell over the phone. That's our main channel. That's how we're driving it.

Our price point, our ASP, is around $2,300. Typically in a clinic-- if you would go to a clinic, you would actually be paying approximately $4,600. So you can argue we're half the price of what you would typically experience. We do believe that people have a benefit from really seeing and trying things, but it's also clear for us that currently, in the current environment, retail is not the path forward. But there are a lot of strong retail partners out there that we could absolutely see working together with to help more people get access to hearing aids.

BRIAN SOZZI: Christian, you count China as part of your supply chain for your products. How has the trade war impacted what you do?

CHRISTIAN GORMSEN: Well, all of our supplies, actually, they're coming out of Thailand. So we have had no impacts on this. And also, hearing aids are essential medical devices, so they have not been impacted by any of the trade wars or tariffs in general.

ALEXIS CHRISTOFOROUS: You know, you're looking at a market that's about $5 and 1/2 billion, the global hearing aid market. And I was looking at projections, and they seem pretty moderate for the next five to seven years. So where do you see growth in your industry, and how would you plan to innovate to capture some of that growth?

CHRISTIAN GORMSEN: Yeah, no-- again, great question. $5 and 1/2 billion? That's the value from a wholesale point of view. That's the value of the manufacturer selling into the channel. We see the market being more than $20 billion from a retail value point of view. The US alone is close to $8 billion in terms of retail value.

But the way we really want to capture [INAUDIBLE], you know, being like [INAUDIBLE] today, becoming a public company, elevating the awareness of hearing loss. You know, there's only a quarter of the people who could benefit from hearing aids who are actually doing anything about it, right. So that means we have more than 30 million Americans who would benefit from it. So how do we elevate their [INAUDIBLE] awareness? We do that through online media, we're active in TV, and it's really about getting the awareness for hearing loss out there.

So again, thank you for having me and allowing me to actually bring focus to this. This is very important for us.