InMode Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 1, 2024

There are 8 speakers on the call.

Operator

Good day, and welcome to InMode's 2nd Quarter 2024 Earnings Results Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Miri Saigle, CEO of MSIR. Please go ahead.

Speaker 1

Thank you, operator, and everyone for joining us today. Welcome to InMode's conference 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 visit the Investor Relations section of the company's IR 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.

Speaker 1

Our historical results are not necessarily indicative of future performance. As such, we can give no assurance as to the accuracy of our forward 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, InMode's CEO. Moshe, please go ahead.

Speaker 2

Thank you, Miri, and to everyone for joining us. With me today are Doctor. Michael Kleindler, our Co Founder and Chief Technology Officer Yair Malka, our CFO Shakila Khani, our President in North America, our Medical Director and VP of Medical Affairs, Doctor. Eran Kruger and Wafael Likerman, our VP of Finance. Following our prepared remarks, we will all be available for question and answer.

Speaker 2

I would like to highlight the development of the Q2. As we previously mentioned in Q1, we launched our 2 new advanced platforms Ignite RF and Optimus Max. We are happy to report that we have began deliveries of both platforms and we believe we are on track to complete deliveries of pre orders before the end of the year. We're happy to see strong demand and we believe that these innovative platforms that offer several technologies and handpieces will be solid contributor in the coming year. Once again Ignite RF is the next generation of our legacy RFAL technology, a minimally invasive platforms with a new Morpheus 8 burst handpiece and the all new Quantum RF, a new version, minimally invasive aesthetic surgical procedure in a box.

Speaker 2

The Quantum RF handpiece has been recently cleared by the FDA. With the Ignite physician may adjust the depth of the power allowing for more effective treatment in less time. These features are highly valued by physicians that aspire to shorten treatment time while achieving good results. The OPTIMA Smux is a multi application platforms with more FUS8, non invasive RF handpieces, IPL and laser based treatment. It is most complicated device we have ever manufactured and it has many features that doctors and patients desire, such as ability to deliver different energy levels at various depths allowing for stronger results and less time and with less discomfort.

Speaker 2

The macroeconomic strength that we discussed on our last call impacted the market demand as well as our financial results. The Q2 was challenging one for us and for the aesthetic doctors. We have seen a major decrease in demand for treatment, mainly in the U. S. Our Israeli team working longer shift to ensure we maintain our commitment to timely delivery.

Speaker 2

Their dedication and hard work are crucial to our success while maintaining our leadership position in the market. Earlier this month we were happy to update that the FDA cleared Morpheus8 for contraction soft tissue, the first and only of its kind. Our Morpheus8 treatment has become the gold standard in aesthetic treatment and our most popular technology. Additionally, the new indication enable petitioner to expand their patient base. We continue to invest in R and D to provide medical professional with the advancement they need to deliver the highest quality of care to achieve best results.

Speaker 2

On the corporate level, I am pleased to introduce Doctor. Ron Krueger as our Medical Director and VP of Medical Affair. Doctor. Kriegel joined the company, joined InMode 4 years ago. He has 30 years of experience in medical aesthetic and has worked for several Italian and Israeli companies in the field.

Speaker 2

I would like to thank Doctor. Spiroto Adores for his time with Inmod and wish him best of luck in his future. Now I would like to turn the call over to Yair Malka, our CFO. Yair?

Speaker 3

Thank you, Moshe, and hello everyone. Thank you for joining us. As Moshe mentioned, we launched 2 new platforms back in Q1 and started selling them on a pre order basis. Once again, the sales that have not yet been delivered could not be recognized as revenue. Therefore, we continue to provide pro form a results, which adds to the non GAAP results, the pre order sales and related expenses.

Speaker 3

We believe that the pro form a results better reflect our business activity during the quarter. Starting with total revenue, InMode generated $86,400,000 in the Q2 of 2024. However, pro form a revenue was $102,600,000 which includes preorders of new platforms not yet delivered. GAAP gross margin in Q2 was 80% and non GAAP gross margin was 81%, while pro form a gross margin was 82% compared to 84% in Q2 of 2023. In Q2, our minimally invasive technology platforms accounted for 87% of total revenues.

Speaker 3

Moving to our international operations. 2nd quarter sales outside the U. S. Accounted for $40,900,000 representing 47 percent of total sales, a 17% decrease compared to Q2 last year. In Q2, Europe was the largest revenue contributor from outside the U.

Speaker 3

S. To support our operations to ensure future growth, we currently have a sales team of more than 250 direct reps and 83 distributors worldwide. GAAP operating expenses in the Q2 were $51,000,000 an 11% decrease year over year. Sales and marketing expenses decreased to $45,100,000 in the 2nd quarter compared to $51,100,000 in the same period last year. This decrease is due to the revenue shortfall in Q2 of 2024.

Speaker 3

Next, we looked at share based compensation, which decreased to $5,200,000 in the Q2 of 2024. GAAP operating margin for Q2 was 21%, compared to an operating margin of 42% in the Q2 of 2023. Non GAAP operating margin for the Q2 was 27% and pro form a operating margin was 34% compared to a non GAAP operating margin of 47% in the Q2 of 2023. GAAP diluted earnings per share for the Q2 were $0.28 compared to $0.65 per diluted share in Q2 of 2023. Non GAAP diluted earnings per share for this quarter were $0.34 and pro form a diluted earnings per share for this quarter were $0.46 compared to $0.72 per diluted share in the Q2 of 2023 on a non GAAP basis.

Speaker 3

Once again, we ended the quarter with a strong balance sheet. As of June 30, 2024, the company had cash and cash equivalents, marketable securities and deposits of $729,200,000 This quarter, InMode generated $42,100,000 from operating activities. Regarding our latest share repurchase program, as of today, we successfully completed acquiring all 8,370,000 shares at an average price of $17.97 per share. As for future capital allocation plans, we continue to carefully evaluate all options and we will provide updates as soon as we have news to report. Before I turn the call back to Moshe, I'd like to share with you our guidance for 2024.

Speaker 3

Full year 2024 revenue to be $430,000,000 to $440,000,000 compared to previous guidance of $485,000,000 to $495,000,000 non GAAP gross margin between 82% 84%, which is the same as previous guidance non GAAP income from operations between $150,000,000 to $155,000,000 compared to previous guidance of $169,000,000 to $174,000,000 non GAAP earnings per diluted share between 1.92 dollars to $1.96 compared to previous guidance of $2.01 to $2.05 I will now turn over the call back to Moshe.

Speaker 2

Thank you, Yair. Operator, I believe we're ready for the Q and A session.

Operator

We will now begin the question and answer session. The first question comes from Danielle Antalffy with UBS. Please go ahead.

Speaker 4

Hey, good morning, guys. Thanks so much for taking the question. Congrats on the product launches. I guess, my question is, I appreciate the guidance you're giving for 2024, but looking ahead to 2025 and how we should be thinking about the evolution of the market here? I mean, it will be off easier comps.

Speaker 4

Obviously, you have these new product launches, which will start getting delivered in the back half of this year. So the double digit growth, the return to double digit growth in your mind is a feasible thing in 2025 even if the market doesn't turn around? Or do we really need to see that market turn around in order to get back there? Thanks so much.

Speaker 2

Hi, this is Moshe. How are you? I believe it will be very now it's very early to judge what will happen next year. We have 2 quarters ahead of us. The Q3 as you know in Medical Aesthetic is usually the toughest one and we believe that the Q4 probably will be a strong one following the election in the United States.

Speaker 2

We're still waiting to see the interest rate go down on lease packages on that will enable Doctor openly to buy more systems and not wait. Right now it's not happening yet. In addition to that, we need to see how the 2 platforms that we just launched will succeed in the market. We launched them only in the United States. We still have to launch them also in Europe and other territories.

Speaker 2

Usually that's what we do. We started in the U. S, we continue. We all hope that all the changes that we do on the organization and the territories, the 2 companies that we have established in Japan and Germany will pick up in the second half of twenty twenty four and will be ready in 2025. The plan, I can tell you, everything if everything will go well and the war in Israel will not escalate And this is a major issue right now for us as everybody knows.

Speaker 2

We track that on a daily basis, especially now. All of a sudden yesterday most of the airline discontinued flight to Israel. So hopefully we will not be short of supplies of all kind of component in the near future or in the near few weeks. So there are several elements that we cannot foresee and we need to wait and see what will happen in the Q3 before we can say something strongly about 2025.

Speaker 4

Okay, that's helpful. I appreciate that. And then just on the margin side of things, I mean, you guys have been pretty transparent about your willingness to continue to invest even in a tough environment. I guess just how do we think about the potential drivers of margin here going forward margin improvement, excuse me, going forward into 2025? Are these new platforms accretive to margin, dilutive to margin, in line, any color there?

Speaker 4

Thanks so much.

Speaker 2

Every product that we develop and every platform that we develop and every handpiece that we develop, we design it from the beginning and we calculate what will be the margin. We will never develop a product that on the drawing base it will show 60% or 65% gross margin. So everything that we do relates to margin. We design the product so the margin will be high. And as you can see, even when the sales go down because of many reasons, microeconomics, less demand for treatment, which we now see in the United States as I said, the war in Israel, everything relate everything in the design phase and we continue to invest in R and D, everything is planned to be on the high margin and that's the philosophy of the company.

Speaker 4

Understood. Thanks so much.

Operator

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

Speaker 5

Hey, everyone. Good morning. Thanks for taking the questions. I guess just maybe if you could provide some more color on why the environment was so much worse versus the prior quarters? Was it really just this deterioration in patient demand?

Speaker 5

And then on that point, if you noted earlier, if interest rates go down, but the patient demand remains lower, it would make sense that the providers would still not would still be headwind, though, buying systems. Do you think both of those really have to recover for demand to come back?

Speaker 2

Eventually it will come back, but I know that the regular interest rate, yes, you're right went down. But the interest rate on lease packages especially for 5 years, the doctors are using lease companies in order to finance the purchase, did not come down enough to enable us to enable sell more system. And eventually it will come, I don't know when, I believe that it will take some time. The second half of this year is crucial to see what will happen on the demand. Regarding procedures, the way we know that the procedures numbers are coming down is because we sell less disposable.

Speaker 2

In the United States, we sold 30% less disposable compared to Q2 2023. That's crucial and we're investigating the main reason for that. I believe people are saving money and doing less treatment in a time like that. Hopefully, it will go back because static people wants to continue to look nice and aesthetic eventually will go up again. And the special technology that we are selling will be on demand.

Speaker 2

If you want to judge by comparing us to some of our competitors like Ciotera, which is a public company or Venus and others, we're still selling, we're still making money, we still have a positive cash flow. Although it's a tough time, we keep all the employees. We don't lay down or fire people right now because this is the assets of the company. Hopefully that everything will get better and we will continue the momentum.

Speaker 5

Got it. That makes sense. And then just pushing a little further, you lowered guidance further than the Q2 miss. Is that really just to reflect conservatism into the back half of the year?

Speaker 2

Conservatism on what? I didn't understand the question.

Speaker 5

You lowered the guidance, which appeared further than the Q2 miss. So just wondering if you just expect you're just being more conservative with your guidance into the back half of

Speaker 2

the year? I understand the question. Thank you for repeating it. We're always conservative on the guidance, always. I mean, we changed the guidance because the revenue in Q2, which is usually a strong quarter, which usually was a strong quarter over the last few years, not just for InMode, for the entire industry was not good enough.

Speaker 2

And we were not satisfied from the numbers that we show. And in the 2 quarters on the pro form a base, we did something like $196,000,000 In order to meet the $230,000,000 or 240, we still have to make $240,000,000 in the next two quarters. As I said before, the Q3 is usually a slow one, because it's summer and people do less treatment during the summer. We all hope that we will do well in the Q3 compared to the regular numbers of the Q3. And if that will be the case, we are I don't want to say absolutely sure, but we are we will be encouraged to see that the Q4 will be strong.

Speaker 2

And then we will do this $240,000,000 to meet the $440,000,000 guidance.

Speaker 5

Understood. Thanks so much.

Operator

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

Speaker 6

Thank you. Good morning, guys. A couple of questions here, I guess. Moshe, you've got about 11,000, almost 11,000 systems now placed in the U. S, almost 25,000 globally.

Speaker 6

Remind me of any of those systems been upgraded over the years? And I think the answer is no on that. Are the new systems, Optimus Max and Ignite RF and those kind of systems, are those systems that should have upgrade demand in addition to new system demand? Are the feature sets different enough than the older technology in the field? Will you be offering kind of trade in programs in that?

Speaker 6

Is that a focus? Or is it really just focus on new system sales at this point? Thanks.

Speaker 2

At this point we're focusing on new system sales. But as we stated more than once, the Ignite is our 2nd technology for minimally invasive RF. It's a little bit different than the body type, face type and neck type. It is not exactly replacing them that because it's working with a different technology. So I believe the doctors who have the BodyTite, Face type, neck type platforms which we're happy with the system will buy the Ignite as well in order to have a comprehensive opportunity for different indication.

Speaker 2

Regarding the OPTIMUS MAX, as you remember we had the Optimus before the Optimus Max, but the Optimus Max has some different handpieces with a little bit different energy levels and more user friendly. So yes, in the future we will do some trade in, but not we will not do program to do trade in for everybody. But the plan is eventually to sell the Optimus Max to all the doctors who previously has the Optimus and they paid off and they already paid in full the original lease, which as you know between 3 to 5 years. So partially it will be trade in, mostly it will be new system.

Speaker 6

Okay, that's helpful and then 2 other follow-up questions I guess. One just on the procedural consumable sales down 30%. It sounds like you said year over year in the U. S. Obviously, we saw the global number in the press release.

Speaker 6

Do you believe that's all just macro driven? Any indication from the field the doctors are talking to about any kind of conversion to other technologies, share loss, anything there? So that's one question. And then 2, your placements this quarter did go up sequentially. And obviously, I know 2Q tends to be a seasonally stronger quarter than 1Q, but that sequential increase from 1Q to 2Q was almost a fairly normal increase like we've seen in some of the past years.

Speaker 6

Is there anything to read there that on the margin you're through the worst of it or am I being too optimistic there which I might be? Thanks.

Speaker 2

Okay. Let's start with the disposables. I said that we see a drop in the disposable in the U. S, but we have some increase in other countries. So we have some offsetting numbers on the total, which were totally less than the Q2 of 2023, but the main decline or the main drop came from the U.

Speaker 2

S. Market. Now the reason for that can be, we believe it's macroeconomics, people are saving money because our treatment are not $500 or $300 like regular cosmetic treatment, hair removal, vascular lesion, etcetera. Doctors are charging on minimally invasive treatment. They charge in between I would say $3,000 to $6,000 $7,000 per treatment.

Speaker 2

And therefore it seems relatively expensive to some people and therefore I believe that's drive the downtrend. In addition to that just because for example the Morpheus was very, very popular and become a gold standard. We start seeing some Chinese copies on the market with the same name, with the same logo, with the same label on the back. They claim that this is made by InMode or sometime even with the same part number. We don't know how they got into the market, especially Europe and some in Asia.

Speaker 2

And now we see some in Latin America and I'm sure that there are some in the United States as well. And doctor get confused and they make mistakes to buy a $10,000 system instead of buying $120,000 system from Hinmold, believing that is doing the same, but finally they realized that this is the fake. We try to fight it and we do a lot of legal activity against those companies, try to stop them for bringing them into their several territories. But it's just because of the success. Therefore, the Chinese said, okay, this is a good product, let's fake it or let's try to develop something similar.

Speaker 2

Sometimes it looks the same. It's just a pure Chinese copy. Did I answer your question or you had another one?

Speaker 6

Yes. I mean that raises about 5 other questions which maybe we'll handle offline in the callback. But on the sequential increase in placements, that was the question I asked. And again, I know 2Q tends to be seasonally stronger than 1Q, I get that. But the pattern, the increase.

Speaker 2

Jeff, I didn't say that. Yes.

Speaker 6

The sequential increase in the number of units you placed in the 2nd quarter was higher than the Q1. I don't want to over read that and say, oh, that means the market is getting better, but that sequential increase of units placed in 2Q did go up. It did follow a somewhat normal pattern. My question is just does that tell us that we're at kind of a little bit better place than we were maybe a quarter ago or is that too optimistic of a read? Thank you.

Speaker 2

I understand that. I mean, the answer relates to the difference between the regular recognition and the pro form a. The system sometime when a doctor order Optimus Max and the deal is closed and financed and we don't have the Optimus Max, we send them an Optimus regular, which is not the same system, but he can start working with an Optimus. And once the Optimus Max is available, we replace that. And therefore it creates some confusion on the total system delivered.

Speaker 2

I will suggest to look on the numbers of U. S. Dollars and not on the total. By the end of the year everything will be balanced.

Speaker 6

Understood. Thank

Operator

The next question comes from Joseph Conway with Needham and Company. Please go ahead.

Speaker 7

Hey, guys. I hope your day is going well. Maybe just one question on the Optimus. You had mentioned that this is the most complicated device you had manufactured at this date. I was just kind of curious your thoughts on the laser or the IPL market in general, if it's growing more than minimally invasive, if it's kind of an area you guys are going after more?

Speaker 7

And maybe just a little bit more color, if you could kind of describe what portion of your business, total business is that laser IPL technology?

Speaker 2

I assume you're talking about the Optimus Max and not the Optimus. Is that am I Yes. But okay. On the Optimus Max, for example, the IPL is much more powerful than the one on the Optimus, because we learn how to get more from the same energy level. The Optimus Max has more power in the system itself, So it can deliver more energy.

Speaker 2

The Optimus Max is a different type of software to enable all kinds of new procedures, which is not available or not possible on the Optimus. The Optimus Max can handle the 2 Morpheus 8 burst with the scale and the burst technologies, which again was not often on the regular Optimus. On the Optimus Max, eventually we will be able to upgrade to other laser system, which cannot be done on the regular Optimus. So overall, although it seems like the same name, it's a fully upgraded technology with a better I would say with a better way to set up energy depth, etcetera, is much more, as I said, powerful as new handpieces of Morpheus. The regular handpieces of non invasive RF like the former are the same like in the Optimus.

Speaker 2

But the outside design is a little bit different. The system is I said it's the most comprehensive system, but the most complicated system that we ever manufactured. Look on the Internet and you see the system itself and you realize for yourself. But we believe that there was nothing like that on the market for regular medical aesthetic treatment, not very, I would say, invasive and this system eventually will be a very successful one.

Speaker 7

Okay. Yes. Thanks for that color. And then I guess 2 more. I'll just ask them together.

Speaker 7

Consumable and service revenue declined this quarter. It was kind of the first time it declined in our model, obviously, a tough comp, and you laid out some of the reasons for that. I was curious though if the handpieces, are those supply constrained for in node or is that more focused to the capital equipment? And then just a separate question. In terms of the share repurchase program, the 8,700,000 shares, is that kind of a target or for a potential follow on or potential another share purchase program, would target that similar level or are you guys thinking kind of a higher level, lower level?

Speaker 2

I will start with your first question. Handpieces is part of the system and it's a capital equipment. Handpieces is not disposable. Disposable is what you put on the handpiece in order to do the treatment or connect to the system like the BodyTite, FaceTite or the Quantum, so you can do the procedures. So handpieces refer to laser handpieces, Morpheus handpiece, IPL handpiece, Lumeka, Forma, Body FX, Mini FX, it's part of the capital equipment.

Speaker 2

It is not disposable. On your second question, we did a buyback of 8,370,000 shares, which is exactly 10% of the total outstanding shares that we had. Why it's 10%? Because of some tax issues. If we do more than 10% we'll have to pay according to the Israeli IRS, we'll have to pay dividend tax.

Speaker 2

They allow us to do and hopefully they will allow us to continue, but we ask for a pre ruling from the Israeli IRS and they allow us to do 8,370,000 shares, which is about 10% of the total shares. And I mean, if we will decide in the future to continue with buyback, all the options are on the table right now. We will ask again and hopefully it will be approved so we can do some more in addition to the 8,370,000 shares.

Speaker 7

Okay. Thank you for taking our questions.

Operator

At this time, there are no further questions in the question queue. So this concludes our question and answer session. I would like to turn the conference back over to Moshe Mizrahi, CEO of InMode for any closing remarks.

Speaker 2

Thank you very much, operator. Thank you, Miri. Thanks to all the employees of InMode in Israel, Europe, North America, Latin America, Asia, in all of our subsidiaries. Thanks to all the distributors in the 96 countries that we operate. Thanks to the shareholders of InMode that are working with us for so many years.

Speaker 2

Special thanks for the Israeli team as I said before that work in spite of the war that is now escalating especially in the north side of Israel where we are located continue to come to work every day and if needed even 2 shifts a day in order to be able to supply everything, very dedication. I would like to thank them especially and we'll see you all in the next quarter. Thank you very much.

Operator

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

Powered by Quartr

Key Takeaways

  • Q2 revenue & guidance: Macroeconomic headwinds and a 30% drop in U.S. consumer demand led to GAAP revenue of $86.4 M ($102.6 M pro forma), prompting full-year guidance cut to $430–440 M from $485–495 M.
  • New platform launches: Ignite RF with a Morpheus 8 Burst handpiece and freshly FDA-cleared Quantum RF, and the multi-application Optimus Max combining RF, IPL, and laser, began deliveries and pre-orders are on track for year-end fulfillment.
  • Strong margins: Pro forma gross margin held at 82% and pro forma operating margin at 34%, underlining management’s commitment to designing new products to deliver high profitability despite revenue pressures.
  • Consumable sales trends: U.S. consumable unit sales fell ~30% year-over-year due to patient pullbacks on discretionary procedures and counterfeit competition, while international markets partially offset the decline.
  • Share buyback: InMode repurchased 8.37 M shares (~10% of floated stock) at an average price of $17.97 and is evaluating future buybacks subject to regulatory approval.
AI Generated. May Contain Errors.
Earnings Conference Call
InMode Q2 2024
00:00 / 00:00