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Eargo, Inc. (EAR) Q2 2021 Earnings Call Transcript

By Motley Fool Transcribing – Aug 12, 2021 at 10:30PM

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EAR earnings call for the period ending June 30, 2021.

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Eargo, Inc. (EAR 11.60%)
Q2 2021 Earnings Call
Aug 12, 2021, 4:30 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Thank you for standing by, and welcome to the Eargo second-quarter 2021 earnings conference call. [Operator instructions] As a reminder, today's conference call is being recorded. I will now turn the conference over to your host, Mr. Nicholas Laudico, vice president, investor relations.

Please go ahead.

Nicholas Laudico -- Vice President, Investor Relations

Good afternoon, everyone, and welcome to the Eargo second-quarter 2021 earnings conference call. The press release and slides to accompany this call are available on our Investor Relations website at 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 Gormsen, president and chief executive officer; and Adam Laponis, 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.

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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 reconciliations. With that said, I will now turn the call over to Christian.

Christian Gormsen -- President and Chief Executive Officer

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 5, 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-systems shipped 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 6 and 7. 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 13. 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 HiFi.

Most notably, Eargo 5, introduces a key feature that we're very excited about, our all-new sound match technology. Through our proprietary in-situ hearing screen and profile adjustment capabilities, sound match 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 tiering 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 the Eargo 5. Moving to Slide 8. 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 and physical settings. Clementine's online hearing screen is currently integrated on the Eargo website and 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 this acquisition, we're also adding Clementine's high-quality R&D and software engineering talent to the Eargo 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, Eargo 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.

Adam Laponis -- Chief Financial Officer

Thanks, Christian. Given Christian's discussion of revenue drivers, I will start with gross systems shipped. As a reminder, we define a system as two hearing aids, a charging case, and starter accessories shipped as a single unit. Second-quarter 2021 gross systems shipped were 12,548, up 39% year over year.

The year-over-year change was driven by strong performance of our data-driven approach to demand generation, national advertising, and increased penetration of the insurance market. Second-quarter 2021 return accrual rate was 24.1%, compared to 27% in the second quarter of 2020 and 23.2% in the first quarter of 2021. Moving to non-GAAP gross margin and non-GAAP operating expenses. Our discussion of financial metrics, the gross margin line and below, will be on a non-GAAP basis, which excludes stock-based compensation expense.

Please refer to our GAAP to non-GAAP reconciliation included in today's earnings release. Second-quarter non-GAAP gross margin was 72.3%, compared to 67.3% in the second quarter of 2020. The year-over-year gross margin expansion was primarily due to a decrease in sales returns as a percentage of gross systems shipped and lower cost of goods sold per unit. Second-quarter non-GAAP sales and marketing expenses were $20.0 million or 87.4% of net revenues, compared to $10.7 million or 67.2% of net revenues in the second quarter of 2020.

The increase was driven by expanded investments in demand generation against the backdrop of a significantly lower media viewership and planned launch costs associated with the Eargo 5. Non-GAAP research and development expenses were $4.1 million or 17.7% of net revenues, compared to $2.1 million or 13.3% of net revenues in the second quarter of 2020. Non-GAAP general and administrative expenses were $6.3 million or 27.5% of net revenues, compared to $3.0 million or 18.9% of net revenues in the second quarter of 2020. On a GAAP basis, we also experienced an increase in G&A due to higher costs associated with operating as a public company.

Non-GAAP net operating losses for the second quarter of 2021 was $13.8 million, compared to a non-GAAP net loss of $5.1 million in the second quarter of 2020. Moving to the balance sheet. We had cash and cash equivalents of $179.4 million at June 30, 2021. I'd now like to turn to the audit in process by our largest third-party payer referenced in today's press release.

The payer accounted for approximately 80% of our gross accounts receivable as of June 30, 2021. As a result of the audit, claims submitted to the payer since March 1, 2021, have not been paid, increasing our net accounts receivable balance to approximately $15.4 million as of June 30, 2021. Approximately $10 million or roughly half of our total cash from this quarter is due to the claims that had not been processed. We are in active discussions with the payer and continue to work toward conclusion of the audit.

We wanted to provide this level of transparency given the increase in accounts receivable. Now turning to guidance. Due to the continued momentum in our business and confidence in Eargo 5 driving consumer demand, we are raising full-year 2021 net revenue guidance to $93 million to $96 million, up from $89 million to $93 million. We expect revenue growth in the second half of the year to be primarily volume-driven.

Looking at revenue cadence for the remainder of the year, we expect modest sequential growth in Q3 with the majority of our sequential growth in Q4. Moving to gross margin guidance. We are reiterating GAAP gross margin guidance between 68% and 71%. We are also reiterating non-GAAP gross margin guidance between 70% and 72%.

I would now like to turn it back to Christian for summary closing remarks.

Christian Gormsen -- President and Chief Executive Officer

Thanks, Adam. To reiterate, we're pleased with our performance in the second quarter, particularly against the backdrop of a very challenging media viewership environment and feel confident in the momentum of our business into the second half of the year. Key revenue growth drivers in the back half of the year include the full commercial launch of Eargo 5, the continued scale-up of TV and other national advertising and the potential for continued growth of insurance customers. When you take a step back and look at what is going on in the hearing industry, we feel the winds of change are blowing in our direction as a company that is revolutionizing an industry.

Eargo is the only sizable B2C hearing aid company with true national visibility. So we have a unique opportunity to educate the payer, consumer and regulatory communities about how the hearing aid industry actually works, including the challenges consumers face in accessing and paying for quality hearing aids. We believe the pending OTC draft language as well as the stated desire of the current administration and U.S. legislature to broaden Medicare coverage of hearing aids could not have come at a better time.

Additionally, telecare has permanently become a fixture in the way healthcare is delivered, giving us another competitive advantage. Eargo is reducing the barriers for consumers to access FDA registered class one and two hearing aid in a regulatory-compliant way, and we feel better than ever about our competitive position to help more people hear better. That concludes my prepared remarks. And I would like to turn the call back to the operator for Q&A.

Questions & Answers:


Thank you. [Operator instructions] Our first question comes from the line of Bob Hopkins with Bank of America. Your line is open.

Bob Hopkins -- Bank of America Merrill Lynch -- Analyst

Thank you, and good afternoon. Appreciate all the detail there. I guess two questions. One is about this quarter.

Since it was kind of the quarter before the launch, the big launch of the Eargo 5, did you guys sort of tone down promotion this quarter? Or could you just talk about the promotion you had this quarter versus last? And the reason I ask the question is that just the magnitude of the beat you guys had this quarter was a little less than you've had in previous quarters. So I just want to understand the dynamic from you guys given the launch timing?

Christian Gormsen -- President and Chief Executive Officer

Bob, Thank you. It's Christian here. So we did not tone down our media, right? We saw, as we also mentioned, right, a change in media behavior. We knew that we were going into an important launch here with Eargo 5, and we also know that we're sort of trailblazing in terms of creating a real position in the market.

So we kept our media, and that's also reflected in our investment in sales and marketing throughout the quarter, and it is through back to promotions. We were running -- leading into the summer, Mother's Day, the Father's Day promotions as we also did last year. So we were running sort of a similar promotional schedule along with a continued investment into the media to continue to drive the business. And as we stated, we're pretty proud to deliver about 44% growth on a pretty tough comparative form.

And the final point is we didn't have the benefit in this quarter, either of any kind of repeat orders, right? So on that backdrop, that was sort of the logic.

Bob Hopkins -- Bank of America Merrill Lynch -- Analyst

OK. OK. Got it. And then the follow-up, I did want to ask maybe a little bit more about the accounts receivables.

Just to understand how much -- when did that resolve, what needs to happen and how -- and do you feel comfortable on the amount of cash you have coming in as a result, just wanted a little more color on that?

Christian Gormsen -- President and Chief Executive Officer

No. Absolutely. I'll hand this one off to Adam. But I think one thing that's really clear here is we're in the process of really changing how you deliver hearing aids.

So we see the audit in that life and I actually also applaud the efforts here to really understand how we can continue to deliver a better experience ultimately for members. But Adam, more specifically here.

Adam Laponis -- Chief Financial Officer

Yes. And, Bob, look, these kind of audits and claims are pretty common, particularly given the growth in our business. We believe all the claims we submitted are valid reimbursable, and we have had a very productive call even this week with the payer, and we're confident we're able to provide them all the requested documentation. Of course, I can't speculate on to where the claims will -- whether they will absolutely be processed or not.

But ultimately, our expectation and guidance is based on a positive outcome and we'll keep everybody posted as we learn more.

Bob Hopkins -- Bank of America Merrill Lynch -- Analyst

OK. Thank you.

Christian Gormsen -- President and Chief Executive Officer

Operator? Do we have any further questions?

Bob Hopkins -- Bank of America Merrill Lynch -- Analyst

I'm happy to keep going.

Christian Gormsen -- President and Chief Executive Officer

I know you are, Bob. I guess you can sneak in another one if you have one.

Bob Hopkins -- Bank of America Merrill Lynch -- Analyst

Yes. No. Absolutely. I mean, in terms of the launch, can you just talk about the guidance increase? And was that based on just base business trends or early signs from the launch? Just what drove you to raise the guidance there.

And just maybe if you could quantify any of the initial reception into the launch, that would be helpful?

Christian Gormsen -- President and Chief Executive Officer

Yes. No. Thank you. That was the question we were hoping for.

We've always been really excited about Eargo 5 because we do think it's a transformational opportunity, not just from a product point of view but also how we deliver our telecare. I think what we've seen post launch has been -- and remember, this was sort of in the middle of July that we came out. We are seeing, as expected, an increase in repeat customers. And we're -- and I think more excitingly, the feedback we're getting from repeat customers is overwhelmingly positive around the sound quality, the experience.

The fact that we've removed some of these challenges with prior products, so that feels great. The other piece of feedback that we're getting is really around now it's not just an Eargo product anymore, it's actually a system. The fact that we have now much more mobile app integrations and basically providing more user controls which was the whole plan. But obviously, that also gives us the confidence to go out and increase our guidance for the full year.

Again, we have not rolled out Eargo 5 to all segments of our business. It's focused on repeat and cash pay. And that's where we're sort of focusing the attention. This is a platform that we want to continue to roll out, and that's why we see the real acceleration as we also see in prior years in Q4, where we have the opportunity of the holiday buying and so on.

And by then, we want to be fully rolled out. But it's a very strong beginning, and that's, of course, also giving us the confidence to increase our guidance.

Bob Hopkins -- Bank of America Merrill Lynch -- Analyst

Thank you.

Christian Gormsen -- President and Chief Executive Officer

Thank you, Bob.


Thank you. Our next question comes from the line of Robbie Marcus with JPMorgan. Your line is open.

Robbie Marcus -- JPMorgan Chase & Co. -- Analyst

Great. Thanks for taking the questions. So it's been about -- with a little sequential growth in third quarter, it will be about four quarters in the $22 million to $23 million range. So maybe just walk through some of the drivers that start accelerating sales, whether it's more repeat customers or how to think about the impact of the Eargo 5 on sales or a pickup in insurance sales? How do we think about some of the drivers moving forward? And is this really the pattern we should think about in future years? Or is this a little different because of the significant Eargo 5 launch?

Christian Gormsen -- President and Chief Executive Officer

No. Well said. I think we saw a step-change in our business happen already in Q2 of last year, right, Q3 and then a very strong Q4 of 2020. And you're right, since then, you now also have Q1 and Q2 more in line with Q4, which is probably the seasonality that we've seen in the business also historically.

Clearly, the drivers that are sort of taking another sequential step-up from where we were in Q2 is the Eargo 5 launch really focused on the repeat customers, right? And that's what we're leaning into in Q3. On the insurance, on the general cash pay, we're sort of keeping our media investments roughly in line with where we've been. And then with Q4, we're having the promotional activities. Also please note that this is something we're really proud of.

First of all, we launched Eargo 5 at the same price as prior generation. We're not running any introductory offers or anything to sort of -- to artificially push demand. So where we were running a lot of promotions in Q3, Q4 last year, Q1, Q2, we're running no promotions right now because we believe that's where we want to take the company. That's, of course, also building up more powder.

We've seen historically Q4 come in very strong from a consumer behavior point of view that benefits our business model. So those are really the drivers, and that's how we're sort of looking and I think we should -- you should also be looking at it. So we feel really good leaning into that, especially given where we are running the business right now in Q3.

Robbie Marcus -- JPMorgan Chase & Co. -- Analyst

Great. I appreciate that, Christian. And maybe another financial question. Another great quarter of low to improving return rates.

How do we think about what Eargo 5 can do both on the return rate and also on the cost of goods as it should help use some parts and I believe has a lower bill of goods in it? Appreciate that.

Christian Gormsen -- President and Chief Executive Officer

So I would say -- I'll have Adam run through the details here, but this has clearly been part of the whole design process. This is a product that's designed to be easier to use for the customer and benefit more people. right? We have not factored any of those things into return rates, just to be clear, and into our guidance either, right? So we want to see it work out. Needless to say, we feel good about the beginning.

Typically, what we've seen in the past is when we launch a new product, we always have a lot of -- we typically see a small spike in returns, repairs because of how to work and support our new product. We're definitely seeing that better than we have historically. I think we're also a more mature organization driving better support. But please remember, and I know Adam is going to mention this now, one of the things, effects we will see short term is given that we don't have our refurbishment program up and running, we don't have inventory of return products, right, that's going to artificially -- that's going to drive more cost, right? And again, we are also working through sort of initial buys of components and so on that were bought at a higher price.

So the total BOM cost is going to come down over time. But of course, we'll be seeing a short-term negative impact. Sorry, Adam, for taking all your thunder here. I know you have a little bit more to add.

Adam Laponis -- Chief Financial Officer

No. I think we'll say -- Christian, Robbie, I'd just add more color to that. We are very proud of the mid-20s on our RFC rates and 24% in Q2. We haven't modeled in our guidance, that improving in the back half of the year.

Obviously, we are encouraged by the early signs of the Eargo 5 launch, but we won't have a strong signal. So that probably is won't be returning even as we close Q3, but we'll keep you guys posted as we learn more. I think for the COGS side of things, we definitely see a path to COGS improvement as well as a -- and gross margin improvement, obviously, with that. But it's going to take a bit of time in terms of Q3 will be, as Christian mentioned, the prototype part flushed through, and we won't really see the benefit from refurbishment until we get into Q4 and fully into Q1 of next year.

But we're on track or maybe running slightly ahead of where I was thinking we'd be in terms of refurbishment capability. So feeling really good about it. It just takes a couple of quarters to activate.

Robbie Marcus -- JPMorgan Chase & Co. -- Analyst

Great. Appreciate it. Thanks a lot.

Christian Gormsen -- President and Chief Executive Officer

Thank you, Robbie.

Adam Laponis -- Chief Financial Officer

Thanks, Robbie.


Thank you. Our next question comes from the line of Larry Biegelsen with Wells Fargo. Your line is open.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Hey, guys. Thanks for taking the question. Can you hear me OK?

Christian Gormsen -- President and Chief Executive Officer

Loud and clear, Larry.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Good. Great. Christian, maybe just one follow-up on the audit. The insurance channel is obviously important for you.

Are you willing to disclose who the insurance company is? I assume this is government. Can you disclose any more on why they're not paying or you're in this negotiation and do you think you can resolve this in 2021? And I had a follow-up.

Christian Gormsen -- President and Chief Executive Officer

No. Thank you on that one, Larry. Obviously, we're in discussions. We're not in negotiation.

So this is more, as I see it, an education of our business model and how our business model works differently from the classic way of distributing hearing aids. Given that we're in an active discussion and it's a very constructive discussion, we're not disclosing the name, but it is a large payer that's basically administrating on behalf of the federal government. So I think you probably know what I'm talking about on that front. So it's really -- right now, it's a discussion around -- and of course, what they're seeing is -- remember, other people basically claiming benefits are typically independent providers.

So it's a lot of very small and a low number of volume we're providing all over America, right? So we're one single provider with a high volume and hence a lot of dollars flowing through. So we see this more as -- they're actually doing their diligence by auditing everything we do because we do it in a different way than it's been -- we don't do it through a clinic, right? We do it through telecare, online experiences, and phone experiences. So it's really this process of seeing how that fits into the sort of the traditional way of providing documentation and so on for benefits. So that's the discussion.

You asked about '21. Again, we can't speculate on what the timing is going to be, but that's clearly what we see an opportunity for. And we see this more as an educational process that gives us the opportunity to further broaden our insurance coverage.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Got it. And for my follow-up, Christian, I know you have a lot going on with the launch of Eargo 5, but I'd love to hear about how you're thinking about opportunities outside of the DTC model such as the omnichannel opportunity that you've talked about, if we could see anything this year or next year?

Christian Gormsen -- President and Chief Executive Officer

Yes. No. This is something we've been laser-focused on and then we continue to push. And it's also a big part of the rationale for the acquisition of the hearing screening capability and, more importantly, acquiring engineers who are really specialized in this field through Clementine.

So that's a thing we're excited about that will actually support our ability to work with partners because, again, hearing is not just a product. It's also understanding what is my hearing, and we're gaining a whole new capability to do that. So we are running a lot of tests, experiments on the sort of physical retail side. So that's something we're looking into.

In addition to education of our current payer, we are actively working across the insurance segment to understand how we can build it out. Nothing has really fundamentally changed in terms of timing on the insurance side, Larry, because, again, there are certain windows, and '22 is essentially very much locked in, in terms of health plan designs, right? But we are seeing -- we are continuing to see a lot of long-term opportunity on that front. On the retail, that's changing essentially on a day-by-day basis in terms of opening and so on, what's going to be happening here, so when is something going to happen. We don't think anything major is going to be changing in terms of actual distribution in '21, but OTC is being discussed, right? So this is clear.

There's a lot of people working. I think there will be experiments happening. I'm pretty certain there will be a lot of experiments through '21, but I think anything of material value and growth will not be until the new year. And that's also pretty much in sync with the OTC proposed language and so on.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Thanks, guys.

Christian Gormsen -- President and Chief Executive Officer

Thank you, Larry.


Thank you. Our next question comes from the line of Margaret Kaczor with William Blair. Your line is open.

Unknown speaker

Hey, guys. This is Maggie [Inaudible] on for Margaret today. I wanted to ask a question on the launch of Eargo 5. So Christian, you just spoke to running the price of the product without a promotion.

So I wanted to see if you could provide some color as to what the ASP for you guys looks like now? And then are you seeing more consumer demand for your Eargo 5, which could also drive your ASP up for the back half of the year?

Christian Gormsen -- President and Chief Executive Officer

Hey, Maggie. Good to have you here. No, that's a really good question. Again, it's really early days here in terms of where we are.

The list price is the same. You can argue. We're not putting in the same level of promotion, right? Again, this is how we're running the business right now. So it's early days, but we definitely feel confident.

And again, our guidance is still essentially on flat ASP, right? But we feel very confident around what that implies for our guidance. So I think that's really the first point. And I just lost your second point, while I was answering the question here. Apologies, Maggie.

Unknown speaker

Yes. No. I was just asking if you're seeing more consumer demand for your Eargo 5, which could also contribute to driving flat ASP up?

Christian Gormsen -- President and Chief Executive Officer

Yes. No. No. I don't think it's going to drive the ASP up per se, but we are definitely seeing a lot of interest, right? Again, our communication is obviously focused on repeat customers because that's something that we have been holding off for a while, and we're seeing record levels of interest, right? Within the actual cash pay part of it, we're seeing in terms of traffic and of course, we leaned into the launch, right, and hopefully, you had a chance to see some of that.

We had a great partner in NASDAQ, who we're also -- we were on Times Square, we were on all the billboards. So yes, we've seen a growth in traffic, online traffic, right, web visits. We've seen a growth in phone calls, right, as expected to be fair around the launch, and that's all factored into our guidance.

Unknown speaker

Great. Thank you. And while I know you guys just launched Eargo 5, I've always got a side wondering about the future. So you guys have talked about launching a next-generation device each year.

So what can we expect in 2022? Can it be something like a software update to a new device or given the software and hardware launch of Eargo 5? And how impactful can that next-gen product be to growth in 2022?

Christian Gormsen -- President and Chief Executive Officer

Yes. No. No. I kind of look at '21 as a, sort of, as a reset year based on a very tumultuous 2020, right, but also impacted our launch timing as we indicated as part of our IPO.

We will definitely have a '22 launch also in the first half. So we have built the ability to continue to deliver product innovation, which is core to our strategy. And one of the things that gets me really excited is exactly what you're tuning to. Remember that a core feature set of Eargo 5 is that we're bringing much more of the algorithm firmware capabilities in-house.

That's driving the strong performance of the current Eargo 5 product in terms of feedback cancellation. We have a lot of opportunities to continue to make real meaningful audibility improvements, and that's clearly the area that we'll see. We are, and I think you know our sort of road map strategy, always looking at what can we do from a design point of view, hardware, right; what can we do from an audio processing point of view, i.e. algorithm; and also what can we do sort of from a mobile app interaction.

And with Eargo 5, we're already seeing much more mobile app engagement than we've seen with the prior families. So we feel confident that what we can bring out in 2022 is going to be a meaningful and valuable upgrade to the product experience, right? And then that's what we constantly are striving to do.

Unknown speaker

Great. Thanks so much.

Christian Gormsen -- President and Chief Executive Officer

Thank you.


Thank you. And I'm showing no further questions in the queue. I will now turn the call back over to Nick for closing remarks.

Nicholas Laudico -- Vice President, Investor Relations

Thanks, operator, and thanks, everyone, for joining us today. That concludes the second-quarter Eargo conference call.

Christian Gormsen -- President and Chief Executive Officer

Thank you.


[Operator signoff]

Duration: 38 minutes

Call participants:

Nicholas Laudico -- Vice President, Investor Relations

Christian Gormsen -- President and Chief Executive Officer

Adam Laponis -- Chief Financial Officer

Bob Hopkins -- Bank of America Merrill Lynch -- Analyst

Robbie Marcus -- JPMorgan Chase & Co. -- Analyst

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Unknown speaker

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Eargo, Inc. Stock Quote
Eargo, Inc.
$0.56 (11.60%) $0.06

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