InMode Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 2, 2023

There are 12 speakers on the call.

Operator

Good day and welcome to the Enmode Third Quarter 2023 Earnings Results Conference Call.

Speaker 1

All participants will

Operator

be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note today's event is being recorded. I'd now like to turn the conference over to Miri Segal of MSIR. Please go ahead.

Speaker 2

Thank you, operator, and everyone for joining us Good day. Welcome to InMode's 3rd quarter 2023 earnings call. Before we begin, I would like to remind our That certain information provided on this call may contain forward looking statements and the Safe Harbor statement outlined in today's Earnings release also pertains to this call. If you have not received a copy of the release, please visit the Investor Relations Section of the company's website. Changes in business, competitive, technological, regulatory and other factors could Our historical results are not necessarily indicative of future performance.

Speaker 2

As such, we can give no assurance as to the With that, I'd like to pass the call over to Moshe Mizrahi, Chairman and CEO. Moshe, please go ahead.

Speaker 1

Thank you, Mary, and thanks to everyone for joining us. With me today are Doctor. Michael Quandl, our Co Founder and Chief Technology Officer Yair Marka, our Chief Financial Officer Shakil Akiane, our President in North America Doctor. Spirota Aduro, our Chief Medical Officer and Rafael Lickermann, our VP of Finance. Following the prepared remarks, we will all be available to answer your questions.

Speaker 1

The 3rd quarter was First time that we saw a slowdown and experienced normal seasonality that is common in the medical device In general and specifically in the aesthetic space, we ended Q3 with revenue of 123 $100,000 a slight increase of 2% compared to the Q3 of 2022. Until the Q3, InMode has been in an accelerated growth rate As we establish our presence in the U. S. And globally, furthermore, the last three years of the COVID pandemic led To abnormal environment in the aesthetic space resulting in pent up demand and different aesthetic treatment patterns. Pre pandemic summertime hasn't been a popular time for aesthetic treatment Due to travel and the requirement to avoid sun post treatment, this summer, patients and physicians in the U.

Speaker 1

S. And in Europe We turn to normal seasonality cycle and this trend was reflected in our Q3 financial results. In addition, record interest rate impacted the financing environment of new leasing agreement In our industry, salespeople often say time kill deals and as the credit clearance process takes longer, Less platforms were sold in the United States. However, despite these macro challenges, We were pleased to see that demand for in mode treatment has not been slowed down and remain high. Pennant and Gold Standard Technology and Innovation are InMode's key differentiator.

Speaker 1

We constantly improve and upgrade our technology. We remain committed to developing new minimally invasive technology And platforms as well as upgrading our existing platforms. In addition, we will aggressively enhance our And protect our IP and patent. This will ensure our long term position as leader in the industry and will enable us To benefit and become stronger following the current challenges in the market. Before I turn the call over to Shakil, I would like to reiterate our message regarding the conflict in Israel.

Speaker 1

As we said in our press release, our employees are safe And together with our management team in Israel and in the United States, we are all as committed As we have always been to the success of this company, Inwood is committed to supporting all customers, distributors, employees And salespeople worldwide. We prioritize the safety and the well-being of our employees and will Continue to do so as we execute our strategy. We don't anticipate any interruption to production. Our inventory levels globally and in Israel are sufficient and include component and sub assembly For the next three quarters, as a result, we expect all platforms and consumables will be delivered on time and We'll meet the highest standard. In addition, Inmotec all required measures to ensure continuous customer support An exceptional service.

Speaker 1

We are all as committed as we have ever been to the company's success. Now, I would like to turn the call over to Shakil, our President in North America. Shakil?

Speaker 3

Thanks, Moshe, and everyone for joining us. InMode's Q3 was challenging for North America. Despite the headwinds of lower platform sales in North America in the Q3, We are encouraged by the strength in consumable sales and view this year over year increase as an indication of continued demand for InMode's treatments. Revenue from consumables and service accounted for 15% of total Q3 revenues and grew 28% year over year. We are pleased with the successful launch of Envision, our non surgical ophthalmic platform in Q3.

Speaker 3

It is progressing well in North America and is gaining traction among leading optometrists and ophthalmologists. Additionally, at the very end of Q3, We successfully launched Define, the new and improved version of our hands free technology for the face. We expect early revenues to be in Q4. As always, I'd like to thank our entire North American team and all employees everywhere for their continued hard work during these challenging times. I will now turn the call over to Yair for a review of the financial results in more detail.

Speaker 3

Yair?

Speaker 4

Thanks, Shaquille, and hello, everyone. Thanks again for joining us. InMode generated revenue of 100 $23,100,000 in the Q3 of 2023, representing a 2% year over year increase With a gross margin of 84% on a GAAP basis, within the company model of 83% to 85%. 3rd quarter sales outside of the U. S.

Speaker 4

Accounted for $44,900,000 or 36 percent of sales Compared to $39,800,000 or 33 percent in Q3 of last year, we continue to see growth coming from different regions And in Q3, sales from Asia hit a new record. To support our operations and growth, InMode now operates in a total of 93 countries with a sales team of more than 2 67 direct reps and 82 distributors worldwide. Capital equipment in the 3rd quarter represented 85 percent of total revenue, while consumer business service revenues accounted for the remaining 15%. Present marketing expenses increased to $50,800,000 in the 3rd quarter compared to $43,100,000 in the same period last year. This increase is attributed to the addition of new sales representatives as well as investment in direct to advertising campaigns and hosting in person events.

Speaker 4

Service compensation accounted for $6,600,000 in the Q3 of 20 23, a decrease compared to $7,900,000 in the Q3 of 2022. GAAP operating expenses in the 3rd quarter We're $56,600,000 a 16% increase year over year. On a non GAAP basis, Operating expenses were $50,600,000 in this quarter compared to a total of $41,400,000 in the same quarter of 2022, Representing a 22% increase. GAAP operating margin for the Q3 of 2023 was 38% Compared to operating margin of 44% in the Q3 of 2022, non GAAP operating margin the Q3, we're $0.54 compared to $0.58 per diluted share in Q3 of 2022. Non GAAP diluted earnings per share for this quarter We're $0.61 compared to $0.66 per diluted share in the Q3 of 2022.

Speaker 4

Once again, we ended the quarter with a strong balance sheet. As of September 30, 2023, the company had cash and cash equivalents, marketable securities Deposits of $675,800,000 Before I turn the call back to Moshe to take your questions, I'd like to reiterate our revised guidance for 2023. Revenue between $500,000,000 $510,000,000 Non GAAP gross margin between 83% 85 percent non GAAP income from operations between $220,000,000 $225,000,000 non GAAP earnings per diluted share between $2.53 $2.57 I will now turn over the call back to Moshe.

Speaker 1

Thank you, Eyal. Thank you, Shaquille. Operator, we now can get Q and A.

Operator

Thank Today's first question comes from Matt Miksic with Barclays. Please go ahead.

Speaker 5

Thanks so much for taking the questions And for the color around the results. Wondering if we could start with some of the things that Cause the shortfall to the Q3 relative to Street estimates, even though I think directionally it was in line with Your increased seasonality and I'm speaking of the pressure around financing and leasing costs And how that affected Q3. On that topic, just wondering if you have any additional color to share as we progressed into Q4 And any thoughts across the management team as to how what InMode can do to potentially alleviate Some of the delays or pressures that caused a little bit of a slowdown there in Q3. And then I have one follow-up.

Speaker 1

Okay. Hi, this is Moshe. I would want to answer and I believe my colleagues will compliment me. I believe we specified the 3 main reasons why we're a little bit short on what the market expect. First, I believe the seasonality, which is now normal in the medical aesthetic.

Speaker 1

As you probably know in 2021 2022 were COVID year and the COVID was in the beginning of the year And therefore, Q3 was much stronger than expected and sometimes stronger than Q2. But that's not normal in the Medical Aesthetic. Have been in the Medical Aesthetics for 25 years, all the way from ESE, Luminess, Syneron and now InMode. And it's always the case that the Q3 because summertime, because people don't want to get treatment during the summer And exposed to the sun on vacation, it's a slower quarter and the Q4 usually is the strongest one. So this is one of the reasons And I mean we cannot avoid it.

Speaker 1

2nd, as far as financing, what we said Is that today a leasing cost is 14% to 15% annually. That's the interest rate Of leasing company charging customers. So I'm sure that you will not take a mortgage with 14% to 15% Interest rate. Although this is a working machine that generate money, but the return on investment with this kind of Interest rate will take longer. And of course, doctors are afraid what will happen.

Speaker 1

The economy is slowing down. Everybody can see that. It's not just in the medical aesthetic or in the medical field. And therefore, when the interest Rates are still going up or at least did not start to go down and the leasing financing will cost 13% 14% to 15%. I don't know for how long.

Speaker 1

We believe that Doctor will think twice if they want to do it. 3rd Reason is the fact that leasing company are tightening their procedure and their screening. They are afraid doctors will go bankrupt and they will not see the money. And therefore, before they issue a purchase order to us To actually take the order, they do a very long, I would say, A very long processing time, sometimes it takes 2 to 3 weeks. And when you have 2 to 3 weeks, Some of our competitors are coming.

Speaker 1

Doctors think twice. He already think maybe I need to wait a little bit. All this Process is taking place now. How we overcome it? I mean, you know we have a lot of resources, especially we have a lot of money And therefore we are working with the leasing company to come up with some solution.

Speaker 1

1st, to optimize the processing, So it will not take 3 weeks. It might take few days as it used to. We might do some other activity of in house financing And other program to ease the financing to certain doctors. The main project is to work with the leasing company to find solution. We have some ideas.

Speaker 1

We already discussed it with them. We're in the process to implement that. Hopefully in Q4, it will ease a little bit, not ease the rate. The rates will stay 14% to 15%, But at least ease the process and work better. That's the only thing that we can do.

Speaker 1

In addition to continue R and D, continue marketing, continue development, you know on the 3rd quarter, This Q3 with the slowdown, we had 1,000 doctors We used a meeting in Chicago in August. We have 400 Doctors Summit in Cyprus for 40 countries ROW. We actually continue to invest in IP and continue to invest Marketing, we participated in 12 medical conferences around the world. So we're not basically we're doubling down. We're doubling down on any marketing, any sales promotion, R and D, we hired 3 more people in R and D in order to expedite coming with the new product to the market.

Speaker 1

We are not sitting down and cutting costs. That's the last thing that we will do. Although it's a challenging time, but the company DNA is different. We will not fire people. We will not lay off people.

Speaker 1

We will keep everybody. On the contrary, we are hiring people This quarter and we will continue to invest in marketing, in sales, in R and D, in regulation, in product development. We received 2 FDA approval this quarter, which will enhance our position in the Q4 and next year. So overall, although we are taking the slowdown and the situation seriously, But we're not sitting down and wait to see what will happen in the market.

Speaker 5

That's super helpful color. Just one follow-up, if I could, on Some of the events that have unfolded unfortunately in the past months in Israel and you issued Some comments around the time that this conflict began about your ability to supply and your supply chains, Risk of disruption, ability to deliver product and so on, if you could maybe walk us through And any updates that you have on that? And how far into 'twenty four do you feel confident that you're positioned to deliver, given the current Status, of course. Thanks.

Speaker 1

Yes. Okay. Thank you for your question. Yes, it's a very difficult time in Israel, But we try to run the company business as usual. We have 2 production facilities, Both of them on the north part of Israel, which they are not affected currently they are not affected with the war, That it's mainly on the south part of Israel.

Speaker 1

All the team in Israel is safe. We are located in the northern part of Israel in a city called Yoknam, Which is relatively not close to the war area. All the team in Israel is Saif and their families were taking care of them. We have accumulated inventory in the U. S.

Speaker 1

And in Israel and in some countries in Europe, in order to take care of the supply for at least 2 quarters of finished goods And 3 quarters of component and sub assembly, so we will cover everything. I'm optimistic, But I cannot I am not a prophet. I am not I don't tell you that everything is 100%. Hopefully, the war will not extend to the northern part of Israel where we are located. And as far as that if that will not happen and we will continue to have the situation is right now as it is right now, everything will be okay.

Speaker 1

Also in the Q4 and the beginning of 2024. We have some employees on their Army reserve duty, Especially in the manufacturing side, but we took care of that by switching to walk to shift. We hired more people And these that are not going to the reserve duty on the Army and we're working to shift in order To keep the capacity the same as we planned. It's a 24 hours a day challenge, 24 hours a day working, I mean, it's although it's not easy, but we're managing.

Speaker 5

Well, I appreciate the update and wish you and all the teams there the best. Thanks for taking the questions.

Speaker 1

Thank you.

Operator

And our next question today comes from Young Lee with Jefferies. Please go ahead.

Speaker 6

Hey, guys. It's Matt on for Yung. How are you doing? I just wanted to ask a couple of questions about your forecast. Maybe you could talk To us about how you arrived at the 4Q forecast after seeing the seasonality and low growth in Q3.

Speaker 6

What are some of the key assumptions You looked at in developing that and as an extension, can you talk about your confidence in growing in 2024?

Speaker 1

When you said the focus, you meant the guidance that we gave for last time?

Speaker 6

Well, for Q4 inclined by the full year guidance.

Speaker 1

Okay. Well, in order to meet the $500,000,000 target. To be above the $500,000,000 target, as we stated, We need to do $140,000,000 revenue in the 4th quarter, okay? I can tell you that I have worked with all the territories North America, Europe, Asia, Latin America And currently, I believe we are going to meet this target of $140,000,000 in the 4th quarter In order to be above the $500,000,000 2023 target that we gave, as far as Israel, We have all the capacity to supply everybody in the territories with the $140,000,000 of Platforms, handpieces, disposable, it's all in inventory. So from that size, we are not going to have a problem.

Speaker 1

From a sales point of view, I can tell you that October is always the 1st quarter of the quarter and therefore it does not reflect what's going on. As you know more than 50% of the quarter Revenue are being generated in the last month, which is December. But I am very optimistic that we will do the 100 and $40,000,000 If it will not happen, we will notify everybody. Now regarding 2024, we do not have a target yet. We want to see what will happen on the market in Q4 as far as the slowdown and the Slow down in the economy and mainly on the medical aesthetic.

Speaker 1

Toward the end of the year we will do some kind of analysis of all the territories. We're working on preparing a budget for 2024 and based on that we will give a guidance.

Speaker 6

Got it. Maybe just one follow-up, ask a question in a different way on Q4. The implied growth rate Per your guidance at the midpoint is about 7% or so. So I guess why is that the right number? Why wouldn't it be 2% or 12 How did you arrive at 7?

Speaker 6

What are some of the key inputs that are informing that level of growth versus something lower or higher?

Speaker 1

Cael, do you want to answer that?

Speaker 4

Sure. I think what we did is we looked at the We obviously see the slowdown impact more significantly Some of the territories there than others, so some of them would not grow year over year, some would and offset The ones that would not, looking taking all this into the mix, we arrived to this slight single digit growth year over year. That's in terms of the revenue, in terms of profitability, we assume slightly decline in profitability, but not that much operating margin. In Q4, we expect it to be around 44%, which is a very healthy and respectable margin.

Speaker 1

I want to add something here as far as Yair talks about Territories growth, yes, Yairu is right. For example, on although it's relatively smaller than North America, but the market in Asia is not slowing down yet. Although we start seeing something on the Q4 and therefore we had to do some weighted average between the territories to come up with the guidance. As we go to profitability, I'm sure you noticed that our gross margin is still very high, 84%. Even with the inflation and the cost of component, which is going higher and higher every quarter Because of inflation, we still maintain 84% Without raising the prices of our equipment on the market, we did not raise price in any territory yet.

Speaker 1

We might, but not yet. And therefore, on keeping the 84% gross margin on the 3rd quarter, even in the slowdown time, It was a challenge and I want to complement all the operation team, The engineering, the design, everybody that's working, I would say, Alaudero regular work on new product development, working on how to improve Gross margin. It's not easy, okay? That's something that everybody need to remember. Our marketing and sales Cost this quarter was a little bit higher than usual because we have several one time event, User meeting in the U.

Speaker 1

S. For 1,000 doctors, summit meeting in Cyprus, we bought a patent which also Costs that go to marketing. We also terminated one of our distributors in Germany In order to establish some subsidiary there, our own fully owned subsidiary and that cost us a little bit money. So we have some event in the Q3 that affect the marketing and sales expense by at least $3,500,000 Which are not general and not regular. So and therefore the Earning at the operating but operating earning went a little bit down due to these expenses.

Speaker 1

But overall, even with the slowdown and even with all the challenging time that we're having in Israel And on the market, we managed to make a nice net profit and nice gross margin.

Speaker 6

Thanks for the color, Marcia.

Operator

Thank you. And our next question today comes from Danielle Antalffy

Speaker 7

This is Ryan Barokas on for Danielle today. So just on Q3, I just want to try to better understand the timing of some of these impacts within the quarter to reconcile with some of the intra quarter commentary you guys made. So When did you really begin to see the impacts from seasonality in interest rates? And how much of the slowdown in Q3 and I guess In Q4 comes from the impact on the financing side versus any potential real demand softening for your systems?

Speaker 1

Well, I think it's very difficult to calculate how much from the slowdown came from the economy, How come from the slowdown came from the interest rate? How much from the slowdown came from the time take to approve leasing Process, we never made this kind of calculation. For us, it's a cumulative of all those reasons, all those effect. I mean, the fact that it's slowing down on the full economy, the fact that the doctor think twice If they want to buy equipment with 14% leasing package annual interest rate, the fact that you now take longer To get the leasing and in the meantime Doctor. Fink again if he wanted the system.

Speaker 1

In addition to that, I'm sure you know that more than 50% of the revenue are being generated in the last months of the quarter. That's always. That's not typical to slowdown and not typical to anything. And especially that, If for example in the last days of the quarter, you close deal and you don't get finance, those deals stay on the table for the next quarter And usually they disappear. So you can put all those elements together in order to come up With what we have explained in the press release and now on the question, there is no quantitative calculation what will be the effect of each one of those factors.

Speaker 1

It's a combination of all.

Speaker 7

Got it. Thanks, Moshe. And then just on Capital allocation, just would love to get an update on your latest priorities there. So with cash now just over 40% of your market cap, Is there any additional urgency on your end to put money to work here? And with the meaningful drop in your share price, would you more consider any sort of share buyback or even a dividend program here?

Speaker 7

Thanks so much.

Speaker 1

Well, we thought about buyback. We thought about buyback for a long time, but I have to say 2 things. 1, our previous experience with buyback, Actually, we did buyback for $100,000,000 did not help, did not help at all. And the stock did not react to that. It was not now, but it is.

Speaker 1

2nd, I'm sure you know that one of our competitors, a company called Hydrofacial, Which market the product to the same market that we do, mainly to And less to doctors, but they sell also to doctors. They have announced 6 weeks ago That they are doing buyback of $100,000,000 official buyback $100,000,000 We all expected Tadeo stock to go up. The stock price when they announced it was $6.3 The stock price today is $4 So they lost 35% of their value in the last 6 weeks right after They announced the buyback. So it makes us to think twice if this is the best way to support the stock To do a buyback, usually we believe that buyback is something that will have few days and the market will forget that. And therefore, we're better off keeping the money and looking for M and A opportunity, business development opportunity, things that we can do with the money better Than just spending on buying stock.

Speaker 1

That's what I can say. We are exploring some opportunities for M and A. We have nothing to announce yet and nothing to show. We tried few things, but the prices were too high for us. We try to find something that has the right profitability, although I'm not sure we will find something with 84 gross margin, but something similar, something that complement our technology, something that will be synergy to our business, But we don't want to do it in a rush.

Speaker 1

We don't want to do it in a rush. Maybe right now in the slowdown situation, maybe there will be more opportunities, but that's something that We will explore.

Speaker 7

Understood. Thanks so much.

Operator

Thank you. And our next question today comes from Dane Rhinehart with Baird. Please go ahead.

Speaker 8

Hey, thanks guys. Maybe just a question for Shaq here kind of on the end consumer and if you can give any color on what I just want to see if there's any incremental color that you can give there and if you're seeing some patients maybe you know, defer, push out these procedures given the macro pressures right now?

Speaker 3

Yes, Dan, good question. I think it's kind of a combination of both. So number 1, what you just mentioned there, definitely There's definitely some macroeconomic impact here. There's no question people are getting a little tighter with their wallets. But at the same time, I do think that From what Moshe was even saying, seasonality for Q3, there's a lot of patients going back to traditional seasonality within our Patients are on vacation, they don't want to be in the sun, so on and so forth.

Speaker 3

So we did see a little bit of a slowdown. Obviously, we're still encouraged The demand for it hasn't dropped off significantly, I would say. But I do think it's a combination of both the macroeconomic environment and the seasonality of the business.

Speaker 8

Okay. Thank you very much for that. And then second question probably for Yair here, Maybe taking a different crack at the 2024 question, but I know previously you guys have kind of always talked about maybe doing 50,000,000 dollars incremental every year and obviously the past few years you've kind of surpassed that, potentially just with the COVID Pent up demand and tailwind effects there. But is that $50,000,000 maybe something that's still in question as you're kind of going into budget? Or is that maybe safe way to start.

Speaker 8

And then on the margin front, I mean, I know you guys have put in quite a few sales reps and other investments this year. So is this probably a better Starting point to think off of and we can work from here or might there still be pressures just potentially from growing consumables and more in person events still? Thanks.

Speaker 4

I would really prefer to wait to see how Q4 looks like Before we provide any additional color on 2024, as you know, in Q3, there were 2 impacts going on for us, the Slow down and the seasonality. Seasonality is going to be off the table in Q4 and then we'll get a better feeling of what we see In terms of the headwinds that directly related to the economy and only then we'll be in a better situation To discuss 24 guidance.

Speaker 8

All right. Sounds good. Thanks.

Operator

Thank you. And our next question comes from Mike Matson with Needham and Company. Please go ahead.

Speaker 9

Yes, thanks. Just given all the concerns out there about the GLP-one weight loss drugs, I mean, I'm not going to ask about what impact you're seeing or expecting, but A question that I've gotten quite a bit from investors, just trying to better understand kind of InMode's exposure there The mix of kind of body shaping procedures versus more of the Again tightening type procedures in your business and I don't know if you even have visibility into that, but Even if you could give us just some general sense of roughly the mix of those two types of procedures, at least that gets within the minimally invasive part of your If it's like a rough percentage or something like that.

Speaker 1

Shaquille, can you answer that for the U. S. And I will answer for the

Speaker 3

I think Spiro should also jump in here.

Speaker 10

So yes, I think

Speaker 3

When it comes down to it, we've never been a weight loss company, right? So going to what you were saying about body shaping and skin tightening, I believe that if there are those patients that are going to be going through weight loss and experiencing that, We actually serve as a complementary adjunct to those things there. But Spiro, did you want to talk about some of your practical experiences with this?

Speaker 11

Yes, I mean, we get this question quite often. It's starting to taper down though. I think it's a little too early to make a decision on how The overall sort of 30,000 foot view is going to look like in the future about this, but I can tell you one thing's for sure. Weight loss and loose skin is a Problem. And these patients are definitely going to come to us, right?

Speaker 11

And I'm not talking about the massive weight loss patients who have traditional plastic surgery done. That's definitely not going to change. I'm talking about the average weight loss of 10% that these drugs usually do or 15% depending on which one they use. Those patients all are going to need some sort of skin tightening procedure and they're going to want it in a minimally invasive way In the office, not surgery, not at the hospital, and we're the best company to provide that. So We're positioned in a really good place to take advantage of that.

Speaker 11

And as a practicing plastic surgeon, I can tell you my colleagues are starting to see more and more of it. So the trend is upwards. It's very positive. Morpheus has our leading commercial brand and what people are And the demand shows it right in the level of consumables and in the offices that we talked to. Now as far as body contouring is concerned, Liposuction has never been a weight loss procedure.

Speaker 11

So patients that are over 35 or 36 BMI are not really good candidates for liposuction. We definitely want them lower. So these drugs actually get these patients to a lower BMI where then they become candidates. So 28 to 30 ideal candidates even less start coming in for liposuction. So it puts them in the category where we can actually treat them.

Speaker 11

The fact that we can actually do liposuction and tighten their skin simultaneously with something like BodyTite, again puts us in a really good place because of differentiated technology Nobody else has. So overall, very optimistic. I know it sounds a little different than What people expect, well, if I lose my weight with the pill, I don't need plastic surgery. But that's on the contrary. Once you start losing weight, you become more optimistic, you want to look better.

Speaker 11

It's a vanity procedure that we're offering, of course, and we're right there to take advantage of it. So the trends so far are positive and keep on getting better and better and better. So I can't tell you long term, but I can tell you short term, we're seeing a positive impact in our surgeons across the country. Okay. Yes, that's helpful.

Speaker 9

Thank you. And then I wanted to ask one on just the disclosure about this patent suit against BT and Can you maybe just talk about kind of what products that or I guess technologies are involved there, The degree to which they sort of have a presence in the U. S. With their competing product?

Speaker 1

Are you talking about the patent infringement lawsuit that we filed against them?

Speaker 9

Yes.

Speaker 1

Okay. Okay. As you know, we were on the women health market for quite some time. We started with the Voetiva and then with the Empower. We have our own portfolio of patent on the women's health And recently we bought the full portfolio patent of women health from Viviv.

Speaker 1

Viveve used to be a NASDAQ based company that tried to develop monoclonal RF device for Treatment of ACY, finally they did a study and the study was not successful And the FDA rejected their submission. They went bankrupt and we bought for $500,000, 480 All of their patent portfolio. 1 of their patent, which is the 511 patent Specified in the press release that we issued as the prior date Even better than the patent of Inmod and based on this patent which is owned by us right now, We filed a lawsuit against them because what they do is exactly infringe this patent, exactly infringe this patent. It's a 1 polar device for vaginal Tightening and inside and outside, they are competing with us and there is no reason why we will not protect our Technology and know how, it's in the early stage of the litigation. We filed it Not far from not long ago, we're waiting for their Answer to that, but we're going to take them to court.

Speaker 4

Okay, got it. Thank you.

Operator

Thank you. And our next question today comes from Caitlin Cronin with Canaccord Genuity. Please go ahead.

Speaker 10

Hi, good morning and thanks for taking the questions. So I know you saw weakness this quarter in North American And just to touch further on what you're seeing in the rest of the world, what are you seeing in Q4 so far? And any signs of slowing there or plans in place to be proactive On the leasing front there?

Speaker 1

Well, the rest of the world is similar to what you In the United States, interest rate in Europe are even higher than interest rate in the U. S. And even before we had difficulties with leasing companies in Europe. We're finally working with the PRB Paribas, the French company And try to do leasing in some of our subsidiary in Europe. Some of our distributors also Have some sources of capital lending in order to help the customers.

Speaker 1

There was no difference in the interest rate and also in the leasing process in other part of the world. And therefore, I mean Europe is behaving the same as in the United States. What will happen in 2024? We don't know what will happen with the leasing company in 2024. We take into we anticipate that it will continue to be tough until interest rate will start to go down.

Speaker 10

Awesome. Thank you. And then just a quick question on the U. S. What capital systems and platforms really kind of saw the weakest uptake during the Q3?

Speaker 1

Shaquille, that's your question.

Speaker 3

Sure. So I think it was just overall, we As I mentioned before, we had some strong growth with Envision in doing the initial launch, which was successful so far with the defined launch towards the latter end of The quarter there. Hopefully, we'll see some of the rewards from that come into Q4. But overall, it was kind of pretty much level across the board as we normally see it. It's just, again, as Moshe had mentioned and kind of The common theme here, the financing side of things in the macroeconomic environment just kind of slowed things down.

Speaker 3

But for the products that we did see, we still have We've still been very strong in the minimally invasive side of things with Morpheus8, on and so forth, and we're also staying steady with our women's health and wellness platforms as well.

Speaker 10

Great. Thank you.

Operator

Thank you. And our next question is a follow-up from Yung Lee at Jefferies. Please go ahead.

Speaker 6

Hey, it's Matt Osterling in. I just had a follow-up question. I wanted to ask more about the GLP-1, I guess tailwinds that you started talking about. I wanted to ask Spiro, have you already seen this phenomenon Patients are losing weight on GLP-1s and then coming in to get surgery. And if there is much broader adoption of them, Do you think it could be a significant tailwind for Inmodiv in the future?

Speaker 11

So, it's a great question. I think the one thing I did not mention Is the price of these medications, right? I think a person that's spending $1500 a month, dollars 2,000 a month To lose weight has already crossed the line to say, you know what, I want to look better and healthier. And the healthier part is secondary. It's usually I want to look better Just the way human nature is.

Speaker 11

So you're looking at a patient spending $10,000 to $15,000 in a year On these medications and committed and now they definitely have lost the weight, but they've also look worse. So Once we've crossed that line, what we're seeing is for them to come in and have things done, to spend more money on a Morpheus treatment, For example, which is simple $3,500 to $4,000 it's not a big deal. So I don't want to say it's sort of like a gateway drug to us, but it Kind of is. So I do think it's going to have a positive impact for us. We're seeing these patients come in.

Speaker 11

The term Ozempic face It's a term that came out from a New York plastic surgeon that's one of our KOLs. So that goes to show you that we're very aware, Very engaged. Our doctors are definitely involved. You see the different names come up from Ozempic Butt, Ozempic Face. These are plastic surgeons Or aesthetic doctors coming up with this terminology.

Speaker 11

And the reason they're coming up with this terminology is they're creating an environment and educating patients For them to come to the practice and have these treatments done. So definitely, I think there's going to be a positive impact for us. And the trends so far are looking that way. Does that answer your question? I'm not quite sure.

Speaker 11

Is that what you were asking? Yes. That's

Speaker 6

right. I just wanted some confirmation of that. The other thing I want I noticed you're in the news recently talking about some of the dangers with fillers. And so I was hoping maybe you could just Touch on that and whether that might actually also lead folks to in mode treatments versus using any filler options.

Speaker 11

Yes, sure. I mean, that's sort of separate work. I am a practicing plastic surgeon, so it's not necessarily in mode Sponsored, the work they do is completely different. But as physicians and we have to be leaders in what we do and the concern with the fillers is real. We were the first to the group that I did the study with proved that fillers do block lymphatics and that study is coming out soon.

Speaker 11

But why did how does that impact? Well, we do have doctors that are using InMode technology, Morpheus combination with hyaluronidase. There's a doctor on LA. His name is Kamy Parsa. It's a 2 year waiting list.

Speaker 11

So overall, if we had to step back, I think that what's going to happen in the next 2, 3 years As patients and especially women because the majority of these patients are having fillers are going to look it was going to be a push towards biologics, whether that's fat, whether it's a That's not hyaluronic based with a lot of cross linking. Patients are going to be seeking more natural sort of those things. And Does are we looking at all these things as in what? Of course, we are. But that has to do specifically With the trends, and I think that if you look at any device in plastic surgery, it takes about 20 years for it to start having problems.

Speaker 11

The same thing happened with implants back in the past. So I personally feel strongly about it. This is not representing InMode's certain thoughts or This is something I've done independently, but I as my position in this company, it's important that we always take good care of patients, Find the best treatments for them and InMode does have that reputation that our equipment works. So in that line, Whatever we're looking for in the past in M and A has to usually go along those lines as well. So did that answer your question more or less?

Speaker 6

Yes, that's great. Thanks, Stuart.

Speaker 11

Thanks so much. Not all, not all. Welcome.

Operator

Thank you. And ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Moshe Amazrahy, Chairman and CEO for closing remarks.

Speaker 1

Thank you. Thank you, operator. Again, thanks to all of you who participated in this earning call. I would like Thank all InMode employee worldwide that worked hard on the Q3 facing the challenging that we have discussed today. Especially, I want to thanks all the InMode team in Israel under this kind of War situation, working every day, sometime 16 hours a day in order to make sure that we will comply With all the promises that we were that we make worldwide, deliver on time, We all hope that Q4 will get better as far as the market.

Speaker 1

Usually Q4 is stronger. We have some challenge to which the number for Q4 in order to be within the target that we gave, but we're doing everything we can As always, to meet that. Again, thank you all. Bye bye.

Operator

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

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Key Takeaways

  • Q3 revenue was $123.1 M, a 2% y/y increase, as the business returned to normal seasonality and U.S. platform sales were pressured by higher leasing rates and tightened credit approvals.
  • Consumables and service revenue grew 28% y/y to comprise 15% of total Q3 revenues, underscoring strong treatment demand despite macro headwinds.
  • The company maintained an 84% GAAP gross margin and a 44% non-GAAP operating margin in Q3, remaining within its 83–85% gross margin target range.
  • InMode launched the Envision non-surgical ophthalmic platform and the Define hands-free facial technology in Q3, with Define revenues expected to begin in Q4.
  • InMode reaffirmed its 2023 guidance with revenue of $500–510 M and non-GAAP diluted EPS of $2.53–2.57.
AI Generated. May Contain Errors.
Earnings Conference Call
InMode Q3 2023
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