InMode Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 27, 2023

There are 11 speakers on the call.

Operator

Good morning, and welcome to the Inmac Second Quarter 2023 Earnings Results Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the call over to Miri Saigal of MSIR.

Operator

Please go ahead.

Speaker 1

Thank you, operator, and to everyone for joining us today. Welcome to the InMode's 2nd Quarter 2023 Earnings Call. Before we begin, I would like to remind our listeners 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 go to the Investor Relations section of the company's website. Changes in business, Competitive technological, regulatory and other factors could cause actual results to differ materially from those expressed By the forward looking statements made today, our historical results are not necessarily indicative of future performance.

Speaker 1

As such, we can give no assurance as to the accuracy of our forward looking statements and assume no obligation to update them, except as required by law. With that, I'd like to pass the call over to Moshe Mizrahi, Chairman and CEO. Moshe, please go ahead.

Speaker 2

Thank you, Miri, and to everyone for joining us. With me today are Doctor. Michael Kreindel, our Co Founder and Chief Technology Officer Yair Malka, our Chief Financial Officer Shakila Khani, our President in North America Doctor. Spiro Tadduro, our Chief Medical Officer and Rafael Likerman, our VP of Finance. Following the prepared remarks, We will be available to answer your questions.

Speaker 2

We're happy to report a record quarter on all front. We announced record revenue of $136,100,000 an increase of 20% Compared to the Q2 of 2022, sales from our platforms reach over 1600 units And the numbers of disposable sold totaled over 270,000, the most in our company history. As part of our ongoing global expansion, during the Q2, we established 2 new subsidiaries, 1 in Japan and 1 in Germany, establishing subsidiaries in countries where we believe we should be selling directly And not through distributor is our philosophy and strategy. Currently, InMode is one of the only companies in the space where its founder are still actively involved in the management And the ownership and I believe that our strong involvement and commitment is part of InMode DNA. InMode innovation support our growth and lead to a solid brand recognition within highly competitive aesthetic industry To further secure our competitive advantage in the next 12 months, we intend to invest heavily On product development and to launch a new minimal invasive technology and platform, Upgraded Morpheus 8 technology with new features, a new hand free family of platforms for face and body and a new multi application applicator platforms with new technologies.

Speaker 2

In addition, We plan to secure additional indication cleared by the FDA. There are currently 8 FDA studies in process. Within the next 12 months, InMode portfolio of platforms and indication will be completely new and upgraded. And we will continue aggressively enhance and protect our IP and patent. Lastly, we are happy to report that just last month Inwood become part of the Russell 2,000 Index.

Speaker 2

This index is most widely quoted measure of the overall performance of small cap and mid cap stock. Now, I would like to turn the call to Shakil, our President in North America. Shakil?

Speaker 3

Thanks, Moshe and everyone for joining us. We are happy to report a record second quarter while also seeing significant growth in consumable sales. Revenue from consumables and service reached nearly 44% year over year This is a strong indication that our platforms are being used more frequently, signifying continued demand and increased brand recognition. Envision, our non surgical ophthalmic platform is gaining significant traction in North America. We plan to continue hiring product Specific sales reps to expand penetration into the ophthalmology market.

Speaker 3

Morpheus8 continues to be our leading technology. Overall, the branding, patient demand and excellent results puts this product in a class of its own. Lastly, I'd like to thank our entire North American team for their continued hard work. I will now hand over the call to Yair for a review of the financial results in more detail. Yair?

Speaker 4

Thanks, Sakil, and hello, everyone. Thanks again for joining us. Inmoo generated a record revenue of $136,100,000 In the Q2 of 2023, representing a 20% year over year increase with a gross margin of 84% on a GAAP basis. 2nd quarter sales outside of the U. S.

Speaker 4

Accounted for $49,500,000 compared to $41,200,000 In Q2 last year, we continue to see growth coming from different regions around the world. And in Q2, Sales from Asia hit a new record. To support our operations and growth, InMode now operates in a total of 92 countries With a sales team of more than 264 direct sales reps and 81 distributors worldwide, Capital equipment in the 2nd quarter represented 84% of total revenue, while consumables and service revenues accounted for the remaining 16%. Sales and marketing expenses increased to $51,100,000 in the 2nd quarter compared to $39,700,000 in the same period last year. This increase is attributed to the addition of new sales representatives As well as investment in direct to consumer advertising campaigns and hosting in person events to support the company growth projection.

Speaker 4

Service compensation accounted for $6,500,000 in the Q2 of 2023, a slight increase compared to $4,000,000 in the Q2 of 2022. GAAP operating expenses in the Q2 were $57,000,000 A 26% increase year over year. On a non GAAP basis, operating expenses were $51,100,000 in the 2nd quarter Compared to a total of $39,500,000 in the same quarter of 2022, representing A 29% increase. GAAP operating margin for the Q2 of 2023 was 42% compared to an operating margin of 43% in the Q2 of 2022, non GAAP operating margin for the Q2 of 2023 was 47% compared to 49% for the Q2 of 2022. GAAP diluted earnings per share for the Q2 were $0.65 compared to $0.52 per diluted share In Q2 of 2022, non GAAP diluted earnings per share for this quarter were a record $0.72 compared to $0.59 per diluted share in the Q2 of 2022.

Speaker 4

Once again, we ended the quarter with a strong balance sheet. As of June 30, 2023, the company had cash and cash equivalents, marketable securities and deposits of $629,400,000 Before I turn the call back to Moshe to take your questions, I'd like to reiterate our increased Guidance for 2023. Revenue between $530,000,000 $540,000,000 Non GAAP gross margin between 83% 85 percent non GAAP income from operations between $238,000,000 $243,000,000 non GAAP earnings per diluted share of between $2.62 and $2.66 I will now turn over the call back to Moshe.

Speaker 2

Thank you. Thank you, Yair. Thank you, Shakil, and thanks to all of our employees around the world. I'm sure that most of them and some of them are listening to us Today it's important. Operator, we're ready for Q and A session.

Operator

We will now begin the question and answer session. The first question is from Matt Taylor with Jefferies. Please go ahead.

Speaker 5

Good morning. This is Mike Sarcone on for Matt. Thanks for taking my questions and congrats on

Speaker 6

a nice quarter. Just

Speaker 5

first wanted to start with, you continue to have very strong growth

Speaker 2

in consumables. Can you just

Speaker 5

talk about how you view the sustainability of that demand, particularly in the event of any macroeconomic headwinds? And maybe comment on what you're seeing so far through July?

Speaker 2

Well, hi Matt, this is Moshe. As far as consumable and the use of consumable, the beginning of this quarter looks strong. Although I have to say that we have seasonality in our business and people sometimes do not like to do aesthetic procedure in the summertime. They do it before the summertime and this is why Q2 was very strong as far as usage of Which means more procedure was done. But as of now almost the end of the month of July, we don't see a Slow down, we see it's continued to grow.

Speaker 2

That means that the doctors are still promoting The minimally invasive and the ablative, the Morpheus are very strongly. And it also depend on the numbers of Morpheus and minimally invasive system that we said, which is going as well. So we might have a nice number in Q3, but I can assure you that Q4 Would be much higher than what we see today.

Speaker 5

Got it. Thank you. That's really helpful. Talking about the number of systems you sell, I was hoping you can also give us an update on how the capital equipment environment is holding up. Maybe just comment on what you're seeing in terms of trends in demand.

Speaker 5

And do you see any changes on the margins in terms of Doctor's ability to finance these systems, particularly as rates continue to increase.

Speaker 2

Okay. I will ask Chuck to answer for North America and then I will add some on ROW. Chuck, please.

Speaker 3

Yes. Hey, good morning, Mike. So we've definitely seen industry wide that rates obviously have They've increased. We haven't seen much of an impact on demand, which is good. But we've gotten a little creative in terms of getting a couple of other sources.

Speaker 3

We try to get ahead of the game. We've seen this happen every 4 or 5 years. Something tends to come up like this, But it's how do we navigate around it. So we definitely have looked at some other sources, which has not slowed things down dramatically. But things are a little A lot of the financing companies are looking for a little more information, things that we wouldn't have done in the past, but we've already implemented a process so that we could kind of Keep the ship safely sailing.

Speaker 3

So with that being said, I'll hand it over to Moshe. But from our In North America, we've definitely seen some things, but we've been able to adapt to the environment.

Speaker 2

Okay. In our W, the numbers of Doctor. Subai System with the lease package is not as high as in the United States. But what we managed to do from the beginning of the year, We have one bank in Europe who is now working with country by country In order to put together a lease plan lease package plan for each country, we started with Spain and we're going to Italy and to all of our subsidiaries and we might have some of our distributors as well. So, the intent the OOW grew this quarter 21% compared to the

Operator

The next question is from Matt Miksic with Barclays. Please go ahead.

Speaker 7

Great. Thanks for taking the question. Can you hear me okay?

Speaker 2

Yes.

Speaker 7

Terrific. So a couple of questions, if I could. So first, in the image, just a follow-up on sort of the current Tone of the market and but more specifically kind of the seasonal cadence for the back half in terms of In terms of system sales, if you can maybe give us any sense of whether the strength in Q2 Eases here in Q3 and rallies in Q4 or any color either regionally across your different systems that you could provide as well as on Some of the spending and investments that you're making in ophthalmology, for example, and sort of Entering new specialty areas, is that a we're not talking about 2024 in detail, I'm sure, but should we expect Those spending levels to continue through year end and into 2024 or any color you can provide on that? And then I have one quick follow-up if I could.

Speaker 2

Well, the medical aesthetic and aesthetic surgical industry It has some seasonality. Although in 2021 2020 just because the COVID We did not see the same seasonality. For example, in 2020, the Q2 was a very tough quarter because of the COVID and we didn't do well. But everything when we start when the market opened in Q3, which is relatively should be a summer time, which is slower, We saw a big jump and the same in 2020, 2022 just because of the COVID, We did not experience the same seasonality and that's something we need to say. But overall in 2023, I believe the seasonality will come back and the seasonality in Medical Aesthetics is Q1 is usually softer Soft Q, Q2 is relatively strong.

Speaker 2

Q3 because of the summer Europe and also the United States, Europe and the United Exactly the same seasonality for them, Q3 is relatively strong and Q4 is a strong quarter for everywhere, I mean all the territories. In 2020 2021 We experienced increase compared to Q2 in the revenue. We don't have enough information to judge right now what will happen in Q3 2023 worldwide. From what we see we started very nicely with all the territories. What will happen in the months of August which is usually the tougher months It's yet to see.

Speaker 2

Now, Shakir, do you want to add something on North America?

Speaker 3

Yes, sure. So as Moshe was saying, Q3 typically once we clear out our funnels, The 1st couple of weeks of July and the first basically the 1st 2 to 4 weeks of July are spent starting to build back up the pipeline. So With that being said, as Moshe mentioned, it's a little hard for us to give you any indication of how things are going. This is what we Many of us on the management team have experienced for over 15, 20 years in the industry. So we're kind of used to it, but you just like as Moshe said with COVID, we didn't know what's We feel like the demand overall, At least in North America, it's stronger than ever, as I mentioned before.

Speaker 3

The product and brand awareness is definitely helping. And you'd asked a question in terms of Envision and continuing to spend. Moshe doesn't like using the word spend. He likes using the word investing. It makes him feel better.

Speaker 3

But with that being said, we're definitely going to invest In that market and as I mentioned earlier, in hiring new talent as well, but also Penetrating more of those specific to that vertical itself. Does that make sense?

Speaker 7

Yes. No, that's helpful. And just it sounds like we should expect those things to kind of continue behind those businesses into 2020 For understanding that you are not giving anything.

Speaker 2

Absolutely. Absolutely.

Speaker 7

Okay, great.

Speaker 2

So don't forget The ophthalmology platforms were introduced in Canada and now soft launch in the U. S. But we have not Started in ROW, not in the other territories. We're waiting.

Speaker 7

Got it. Super helpful. Now the follow-up just is You've talked before about the competitive environment. Would love to get your an update as to sort of what you're seeing, what you Expect to see if there's demand, are you having to sort of fight for any more or less than you did a year or 2 ago? Any color you share there would be helpful.

Speaker 2

Skiro, I believe you should answer that.

Speaker 4

Moshe, I'm

Speaker 3

not sure, Spiro's. I think he has a connection problem. So I'll handle that. In terms of competition, yes, in terms of competition, Yes. I wouldn't say it was ever easy or I don't think it will ever be easy.

Speaker 3

And if that ever happens, I'm sure we'll all be pretty happy about that. But we've definitely, as I mentioned, in terms of us investing in brand awareness, things like that, it's made it a little easier, I would say, and a lot of the competitors, they're going to have different strategies and everyone's going to continue to sell. Competition breeds awareness. So we're of the philosophy that if everyone's doing well in our business, it's better for everybody rather than taking a different approach trying To take down a giant, which a lot of the competitors try to do, but that's just that's not how we approach things. So from our perspective, The better the industry does, the better it is.

Speaker 3

And we feel like consumer demand, but also coupled with physician demand for The need to actually incorporate some of these technologies into their practices for additional revenue income, so on

Speaker 8

and so forth, It's going

Speaker 3

to continue driving this business and it's on us to continue innovating and providing them with the appropriate tools and technology So that they're able to do that. And that's going to differentiate things. We have a user meeting coming up in August in Chicago. And I think we have over 600 practice Signed up every year, it's great. We try to give them the ammunition that they need as part of their practices along with our post sale Support team who've done an incredible job.

Speaker 3

So our goal is we try to equip our people with what they our customers with What they need from a technology perspective, but also from a marketing perspective and how to help them be successful, we try our best at it, at least we can't guarantee anything. But as far as the competitive landscape goes, I think it's pretty strong right now demand wise. I don't know if some of our competitors have made Some of the changes that they may have needed to in terms of financing and how to handle that, but we're a few steps ahead, I believe.

Speaker 4

Okay. Thank you.

Operator

The next question is from Caitlin Cronin with Canaccord Genuity. Please go ahead.

Speaker 9

Hi, everyone. This is Caitlin on for Kyle Rose And congrats on a great quarter. Just a couple of questions. Starting with Empower, how's the continued launch going and any updates To expectations and have you begun hiring any Empower specific reps? Where are we from like an OUS launch and approval standpoint

Speaker 2

Okay, well I believe the Power is growing. The Empower sales is growing. We will not release numbers exactly because it's now we're not yet ready to do it. But we see some growth on the Empower platform as well. Regarding the indication For SUI, we have a discussion with the FDA on the protocol, they asked us to do some additional proof of concept study, which we're doing right now in Colombia.

Speaker 2

We will come back to them with the results to finalize the protocol hopefully before the end of the year And then we will file an IRB to do the study in the United States with of course approval of the FDA We will conduct a study. So I believe we should not see we will not see any clearance before Sometime toward the end of 2024. But we do have clearance on the VTON for all kind of Women's health indication on the platforms and currently we're marketing the platforms with those indication. In addition, We're developing additional handpiece for the Empower, which again now We're doing some proof of concept study. After that, we will do a real study approved by the FDA.

Speaker 2

This is a little bit longer process with Women Health, but we are spending a lot of money and investing in this technology.

Speaker 3

And Caitlin, just to add to that to what Moshe was saying, the one thing that we have noticed is that a lot of the competitors And we've talked about this in the past, but they've kind of drawn out of the market. And so we do see this as a nice little opening where We're trying to capitalize on that, but again, doing it the right way, as Moshe had mentioned.

Speaker 9

Awesome. And then just a quick question on Evoque, have you launched the next generation of the product yet? Thank you.

Speaker 2

Yes, yes, we develop the next generation with additional power and additional, I would say energy, Different Energy, it's not yet on the market. We are now finalizing the last, I would say fine tune of the product. Hopefully, it will go to production this quarter and we probably will launch it sometime toward the end of the year.

Operator

The next question is from Jeff Johnson with Baird. Please go ahead.

Speaker 10

Thank you. Good morning, guys. Just maybe if I could tick through 2 or 3 quick ones here. The international unit sales, that 966 It was definitely a strong number. Anything in there one time in nature?

Speaker 10

You went direct and it sounds like Japan and I think you said one other market that I wrote down that I forget now. But was that did that have any stocking orders to it? Were there any new distributors that had stocking or is that 9.66 a clean number? And if it is, we tend to think of 4th quarter being the peak every year. Should we think that you could still sell more than 966 units as we get into the Q4 of this Again a strong number here in the Q2.

Speaker 10

Thanks.

Speaker 2

Well, the international is not one market. On the international market, there are 27 languages and more than 27 regulatory bodies That we need to deal with. And some claim on one country are not applicable to another country. And some products need to do some modification because of regulatory issue. So the dealing with the international Market is country by country, territory by territory.

Speaker 2

We are currently heavily investing in Asia With a lot of marketing activity and a lot of training and this is the reason why we opened Subsidiary in Japan, because we believe Japan should be a good market for us. It's usually a good market for medical aesthetic And our distributor in Japan, they did well, but not according to our expectation. So Japan would be another country. In addition, China, China is opening up again. And as you know, we have in China in Guangzhou, which we have established before the COVID, but we did not operate it because of the COVID.

Speaker 2

Nobody could have gone And visited China. So now we are considering to see how we can go direct in addition to what we do with distributors. Because in China, you cannot use only one way of distribution. It's a very complicated country, Depends on the territory, even in China, you need to know 5 different languages and 5 different operator manuals. So but we're going closely.

Speaker 2

Latin America, again, we are investing in all the countries. This year we will have the 1st user meeting in Latin America in Sao Paulo in October, 500 doctors, Which is very important. We're covering all the country right now, 9 countries in Latin America. We signed the last contract a month ago and we're working on regulation again country by country because the regulation in Brazil which is a Visa is not the Same regulation in Colombia and you have to deal with each regulatory organization or regulatory body by itself. In Europe, as I said in my speech, we just Subsidiary in Germany and we intend to start operating the subsidiary sometime in Q4.

Speaker 2

We hired a Managing Director there and hopefully we will start interviewing some direct Salespeople, by the way when I go when we go direct, sometimes we don't sell more system, but we recognize Twice as much dollars because when you go direct you recognize the full value and not the transfer price and that's important. And also important when you go direct you feel the market, you talk with the doctor, you know what they want, what are their unmet needs And it's easier. So I'm not suggesting that we will go we are selling in 92 countries, we will go direct in 92 countries. In certain countries, we have a distributor that is doing a good job. In the future, we might offer them to become partner of 51%, So we can work together, but slowly and gradually we are improving our position in Latin America, Europe and Asia.

Speaker 4

I would like to add that it usually takes some time from the moment we open a subsidiary until the moment we start to see a So to answer your question, Jeff, there was no one timer in the international market or at all in In Q2, it was all normal course of business. Of course.

Speaker 10

Good. Yes. No, that's helpful. Both of you. Thank you.

Speaker 10

And again, a very And then I don't know if Spiro was able to reconnect or Doctor. Kreindel maybe this for you, I'm not sure. But I just want to make sure I'm understanding the women's healthcare strategy here. I feel like my understanding has gone back and forth a couple of different times on this. I thought when we spoke in Miami just a month or 2 ago, the focus was going to remain primarily on kind of cash pay, Women's Healthcare on the non reimbursed side, I know you've got now this proof of concept study going on SUI, you obviously Acquired the VIBE patent.

Speaker 10

1, I guess, Yair for you, can we stay sub 3% R and D as a Percentage of revenue, if we go into these more formalized, maybe bigger clinical trials, is that $3,500,000 $4,000,000 a quarter still the right run rate For R and D spend as we get into 2024, but more importantly, are you going to pursue some of these maybe Costlier, I don't know if they're higher risk, but at least more reimbursed side of women's healthcare indications or is Focus primarily going to stay on kind of that rejuvenation, wellness, the non reimbursed cash pay side of women's healthcare. Thanks.

Speaker 2

Well, I will answer that. I will answer that. This is Moshe. Definitely, we want to go to some indication that we can use reimbursement, But it's a process. The reason why we're doing we're trying to do, but it's a long process To get FDA approval for you and incontinence, when all the companies until now failed, including Viveve, After $250,000,000 of spending, they bankrupt and we are buying we just bought their IP.

Speaker 2

The reason why we're doing it is because this is the first stage toward getting a reimbursement code. In order to get a reimbursement code, you need to be FDA approved, you need to wait, you need to publish 5 studies, Five independent studies and you need to go and negotiate with the insurance companies. We are in the early stage of that, but that's one of our, I would say strategic goal long term.

Speaker 10

Moshe, just to follow-up there, the $250,000,000 that Vyviv spent, I mean, again, you're And Dean, I don't have your model in front of me, but like $15,000,000 a year on R and D. Is there a number that has to be a heck of a lot $15,000,000 even if it's not $250,000,000 to go after SG and A or can this be done somewhere in that low to mid single digit percentage of revenue for R and D spend over the next

Speaker 2

We do not save money on R and D. We do not save money on R and D. We spend as much as needed. I mean, hiring another 25 engineers will not give us more productivity. We have a great Engineering team in Israel covering electronic engineering, software engineering, clinical engineering, mechanical engineering, Regulation, etcetera, and you can judge by yourself.

Speaker 2

In the last 2 years, we have launched to the market more than the entire industry altogether. And we're coming with 2 platforms every year. And as I stated in my speech, in the next 12 months, we will come up with For new technologies on existing technologies, upgrade or some new and we will continue to do it. I'm not I do not understand why people measuring R and D by spending or percentage of sales. That's not the right measurement.

Speaker 2

The measurement of R and D should be on the productivity of the R and D and I think that IMOD proved itself In the last, I would say 4, 5 years coming to the market with the best product, we did not fail even with 1 of them in the market successfully with R and D that we have. So just say, hey, Please increase your R and D from 3% of revenue to 7% of revenue will not make a difference. It will create some kind of a mess. We know how to manage R and D. It's done in Israel.

Speaker 2

I believe we have the best R and D team in this industry Worldwide, worldwide and the proof is in the pudding. Look at the product that we're coming with every year, Look at the success of them, look how people are happy with them, for example, fractional RF, Morpheus, 4 years in the market, 270,000 disposable in the last quarter. I mean, It will not happen unless you have good R and D team, productive and the definition what do you want to develop is right. I mean, not just develop something. I'm looking on our competitors and I see that the new products that they came to the Some of them are buying products from Korea, just give us a new name and bring it to the United States And some of them are repackaging all technologies in a nice box as a new product.

Speaker 2

We are coming with new indication Year over year, either a platform, a handpiece, a combination, etcetera. And that's the competitive advantage of Inmune.

Speaker 10

Understood Moshe. I don't mean to get you on your soapbox and it wasn't meant as a critique. I'm trying to understand where R and D is going long term and then how you can continue To innovate at these levels. And so it's more understanding that and applauding that, not critiquing that. But thank you for that.

Speaker 3

Jeff, Yes,

Speaker 2

Jeff Moshe. One more thing I wanted to tell you and this is, I mean coming with new product To the market, you need to take into consideration your existing portfolio. You don't want to cannibalize it too fast. So it all depends what do you bring and what kind of new indication or new procedure, How it will be in the full portfolio system? There's a lot of issues to be discussed and decide before you Fine.

Speaker 2

What product you want to develop?

Speaker 3

Hey, Jeff. Just to add some color here. It's Chuck. Obviously, you could tell that Moshe has got a lot of passion for this. He's an engineer by trade.

Speaker 3

And so what he's saying essentially is that we'll do what we need to do in order to get what we need to get. However, The measure, as you mentioned, shouldn't be from how much we're going to spend. It's more about what are we going to do, what do we need to do. I think there's A lot of companies that get into this and there's a reason that we were able to scoop up some of the IP from Viveve, right, because they're no longer here. But I think for us, it's we've always been about staying power and longevity.

Speaker 3

And so our engineering team is obviously strong, but we're not going Multiply spending, I tried to warn you guys earlier that Moncte has a problem with the word spending versus investing. So mostly we'll wholeheartedly invest When something makes sense and

Speaker 4

that's what we plan on doing in

Speaker 3

the women's health and wellness market. Thanks guys.

Operator

The next question is from Mike Matson with Needham and Company. Please go ahead.

Speaker 8

Yes, thanks. Just on Envision, I think you talked about the dry eye FDA clearance coming in the Q3, can you just give us an update on that? And then how important is that to driving sales of Envision?

Speaker 2

Well, you're right. We thought that we will start the study on the Q3. I hope it would be. We're in a very loud stage of the FDA approval of the protocol. We had we did the pre submission to the FDA with where we suggested that this is the protocol.

Speaker 2

We had a long Zoom call with all the team in the FDA ophthalmology department. We agreed on few things. They asked us to send a 2nd version of the protocol, which we are preparing right Now and hopefully by the end of this month it will be filed with them and then doing an IRB. So sometime in the middle of this quarter we already have the doctor that will do the study. Pilot study was done In Israel and other countries, we know that it is working and we'll take it from there.

Speaker 2

And once we finish the study, we would submit to the FDA hopefully before the end of the year.

Speaker 8

Okay, got it. And I mean, do you think that that's an important feature To the ophthalmologist when they're considering whether or not to buy the product and I mean are they willing to kind of buy it now with the Knowledge that that's going to happen at some point in the 6 to 12 month period or something. So what we've typically seen

Speaker 3

in the past With all of these technologies, not even just specific to the ophthalmology community, is that if you have physicians who are getting good results, They have happy patients and they're generating some good revenue from it. They do the selling for us and it's just simply because they believe in it. They're doing well. And as long as they're getting their results, which we are seeing 100%, they will Do the job for us. So seeing that it's a little earlier, we do anticipate continuing some of the revenue growth and Using it as a driver obviously here, but that's kind of the most important thing when you think about this is, okay, if we do launch something before a study like that, that we were talking about, We're in the process of working on getting going.

Speaker 3

Do we have those other check marks that we can put into place? And as of this point, when I only see it getting better, we do. One

Speaker 2

more thing I wanted to add here, which is important, At the end of the day, we are an aesthetic company. So every platform, including the Envision We'll have some handpieces to do aesthetic. So the ophthalmologist can do periorbital wrinkles with Morpheus. He can do skin tightening or full skin rejuvenation with the Rumeca, which are approved indication by the FDA. So for him, he has one modality to do dry eye and 2 or 3 more modalities on the same platform To get more money from the customers, private money on skin rejuvenation, full face rejuvenation, But we orbital increase, etcetera.

Speaker 2

At the end of the day, it's a money machine.

Speaker 8

Yes, okay, I understand. And then just one of the things you called out in terms of the increased Sales and marketing spending was DTC, you had a DTC campaign, I guess. So can you maybe just talk about that and kind of where you're spending? I mean, is it Hello, social media? Is it, I guess, celebrity endorsements?

Speaker 8

Is it I don't think you're doing any TV advertising, but maybe I missed

Speaker 2

Everywhere, everywhere, all the way from billboard to social media, Website, B2B, B2C, meetings with doctors, seminars, Conferences, doctor conferences, study publication, everything.

Speaker 4

Okay. Brandon, what's the rules? And no TV, no TV advertising?

Speaker 3

Yes. We typically We typically choose to diversify when we do these things and then we get a metrics based on where we try and attempt to track What's being successful and where money is not being spent the right way and then we double down in areas where we're seeing a good return.

Speaker 2

Okay. And we do have Brandon Bass of Ozawa.

Speaker 6

All right. Okay.

Operator

The next question is from Ryan Barocas with SVB Securities. Please go ahead.

Speaker 6

Hey, this is Ryan Barokis from UBS on for Danielle today. Thanks for taking our questions. So first one from us here is on capital allocation. So congrats on the recent acquisitions of IV Patents. Just wanted to get an update on your capital allocation priorities

Speaker 2

Well, I would say 2 things. 1, if the opportunity will present itself to buy more IP, which relates to our business And enhance our IP portfolio position, we will do it. We did one license with Our University of California on something which also relate to women health, we bought the entire Portfolio of Vivi, not for big money. So I mean it's not something that we need 10 of Tens of 1,000,000 of dollars, we will not spend that time. Now regarding capital allocation, we are Exploring all the time M and A opportunities, we are currently working with few banks, none of them exclusive.

Speaker 2

We open it to every bank who can come up with something. We do a quick check and if something looks okay to us We will continue to search and explore and do some diligence. I cannot report on something that will happen in the next month or 2, But this is the plan.

Speaker 6

Great. Thanks Moshe. And then one last one for me on the capital environment and potential upgrades for new technology So we've heard from other capital intensive companies highlight a higher mix of leasing as a percent of their system placements. Just curious if you're seeing the same dynamic And then with the new technologies for your customers on these leasing arrangements, are there technology obsolescence clauses that would allow customers to upgrade To your new technology over the next 12 months or would this just be a simple software update on existing systems in the field for customers to access this new technology? Thanks so much.

Speaker 6

Sure.

Speaker 3

Sure. So we haven't as far as the environment goes, I touched on that earlier, from the leasing perspective, nothing's really changed in terms of what Financed or leasing companies versus cash deals, so on and so forth, it's pretty much status quo. So hopefully that handles that there for you. But When it comes down to the actual leasing side of things, your average lease is about 5 years on average. And so by that time, because As Moshe had mentioned earlier, we introduced we're trying to introduce at least 2 platforms or upgrades to the market every year.

Speaker 3

We're well ahead of that. In terms of devices that physicians currently own or currently leased, we've actually been the one company that, At least to my knowledge, that's gone in several times we provided certain upgrades for software at no cost, Things like that. If there's hardware, we might have a certain cost to it, but we're very fairly priced, I believe, based on the history of this market. So from that perspective, when you look at the leasing side of things, thankfully the way that Michka and his engineering team Design these things, they're pretty stable. So at least from a service standpoint, it's not an issue.

Speaker 3

But in terms of obsolescence, there's always a way for us to upgrade or add on. But as I mentioned, by the time a physician is done with their 5 year lease, They're ready to move on to another piece of technology and our goal is to obviously, as I mentioned earlier, provide them with the tools and new technologies and innovations that they can Actually add into their practice to better their treatment outcomes and revenue results from these devices. Does that make sense?

Speaker 6

Yes, great. Thanks so much.

Speaker 8

Sure.

Operator

This concludes the question and answer session. I would like to turn the conference back over to Moshe Mizrahi, Chairman and CEO, for any closing remarks.

Speaker 2

Thank you, operator. Thanks to all the team that were with me in this call. I want to thanks again to all of our employees and their families around the world. I want to take I got to thanks all of our shareholders. Some of them being with us for many years.

Speaker 2

We really appreciate that. I want to thank all of our suppliers, subcontractors, everybody that work with us that bring us to this success. Without them we cannot do it. Hopefully we'll see all of you in the next earning call. Thank you and goodbye.

Operator

The conference has now concluded And thank you for attending today's presentation. You may now disconnect

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Key Takeaways

  • InMode delivered a record Q2 with $136.1 million in revenue, up 20% YoY, selling over 1,600 platforms and a company‐high 270,000 disposables.
  • The company expanded its direct‐sales footprint by opening subsidiaries in Japan and Germany, aligning with its strategy to sell directly rather than through distributors.
  • InMode plans to invest heavily in R&D to launch a new minimally invasive platform, an upgraded Morpheus8 with enhanced features, hands‐free face/body devices, a multi‐application applicator, and complete its eight ongoing FDA studies—aiming for a fully refreshed portfolio within 12 months.
  • North American consumables and service revenue grew 44% YoY, driven by strong usage of existing platforms; Morpheus8 remains the flagship technology and the Envision ophthalmic system is gaining traction with dedicated sales hires planned.
  • Financially, InMode reported an 84% GAAP gross margin and 42% GAAP operating margin with EPS of $0.65 ($0.72 non‐GAAP), ended Q2 with $629.4 million in cash and securities, and raised its 2023 guidance to $530–540 million in revenue and $2.62–2.66 non‐GAAP EPS.
AI Generated. May Contain Errors.
Earnings Conference Call
InMode Q2 2023
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