InMode Ltd. (INMD) Earnings Call Transcript & Summary

Good day, and welcome to the InMode Third Quarter 2022 Earnings Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Miri Segal, CEO of MS-IR. Please go ahead.

Thank you, operator, and everyone, for joining us today. Before we begin, I'd like to remind our listeners that certain information provided on this call may contain forward-looking statements and that 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. 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 Mizrahy, Chairman and CEO. Moshe, please go ahead.

Thank you, Miri, and to everyone joining us for Q3 2022 earnings call. With me today are Dr. Michael Kreindel, our Co-Founder and Chief Technology Officer; Yair Malca, our CFO; Shakil Lakhani, our President in North America; Dr. Spero Theodorou, our Chief Medical Officer; and Rafael Lickerman, our VP of Finance. Following our prepared remarks, we will all be available for Q&A session. We are pleased to report another record quarter with revenue of $121.2 million, an increase of 29% compared to the same period last year. Additionally, we are happy to be back to gross margin of 85%. Despite our expectation that Q3 should represent summer slow quarter, demand for our innovative platforms remain strong around the world in Q3. and we expect this momentum to continue into next year. Although physician and patients return to pre-COVID travel levels, people still visited clinics for treatment with our platform. Our Empower platforms for women health and wellness was especially successful in the third quarter, and we expect to continue to capture market share in this market going forward. A primary goal for InMode is to expand our presence in women health and in wellness space in general. And we are encouraged by our early success in this market. We believe InMode has proven and a steady company that's relying on strong technological offering can successfully evolve and expand into new and important markets such as wellness and quality of life improvement. We intend to continue this trend in the area of ophthalmology, A&T and others. Our revenue continued to grow. The [indiscernible] is becoming the most popular minimally invasive device in the static category. We're driving this growth through brand awareness strategies and more direct focus on the consumer. Our highly efficient sales team of more than 200 direct rep and 70-plus distributors worldwide continued to excellent execution with sales of capital equipment to represent 88% of our total revenue in the third quarter, while sales of consumable and services accounted for the remaining 12%. As our installed base grows and we expand our market share, consumable and service will contribute a more significant portion to the revenue mix going forward. Hand-free devices represent 11% of total revenue, while noninvasive RF and laser platforms accounted for 7%. These figures represent normal level in our revenue mix. Moving to our international operations. Third quarter sales outside the U.S. accounted for $39.8 million or 32% of sales, a 26% increase compared to Q3 last year. InMode now operate in total of 80 countries. Our recently open subsidiary in Italy is already very successful, and we are planning to establish an additional subsidiary in Europe and one in Asia in 2023. During the third quarter, InMode successfully launched EvolveX and Empower in Asia as we continue to see growing demand from Europe, Asia and Latin America. In addition to our active pipeline of new technology, we are also exploring potential acquisitions that could complement our presence in the wellness market. This could be companies with an established track record in an existing customer base in the U.S. and globally. In summary, we are proud to deliver another record quarter, and we believe this position -- this positive momentum will continue. Now I would like to turn the call over to Shakil, our President in North America. Shakil, please?

Thanks, Moshe, and everyone, for joining us. Once again, we are pleased to report another record quarter with continued momentum bolstered by a growing demand as well as more frequent use of our technology. Sales from consumables and services remained at high levels due to the growing use of InMode's platforms. Sales in North America continued to be the main contributor to our total revenue across all platforms. Total revenue generated this quarter amounted to $91.9 million. As we look forward, this market is positioned to remain the leading growth driver for InMode. As Moshe mentioned, we have seen great success and extensive market acceptance of our Empower RF platform in the third quarter. In fact, we previously projected total sales from this platform to be $30 million for the year. However, we've already surpassed that number. When it comes to the Morpheus8 technology, we are seeing that it is becoming one of the most popular aesthetic procedures in the market. As part of our efforts to invest resources and raising in modes brand awareness among patients and physicians, we announced that Eva Longoria, the award-winning actress director and producer, will be InMode's global brand ambassador. Our ongoing commitment to investing in brand awareness by engaging with select brand ambassadors and gaining recognition by world renowned celebrities is something we plan to continue to do in the future. 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 our financial results in more detail. Yair?

Thanks, Shakil, and hello, everyone. Thank you for joining. Starting with total revenue, InMode generated $121.2 million in the third quarter of 2022, a 29% year-over-year increase with a gross margin of 85% on a GAAP basis. Breaking this down, we see sales of the minimally invasive and subdermal ablative technologies in the third quarter grew 43% year-over-year to 82% of our quarterly revenues. Of the total sales in Q3, 67% came from the U.S. and 33% came from the rest of the world compared to 66% and 34%, respectively, for the same quarter in 2021. Of our international contributors, Canada, Europe and Latin America were the biggest markets driving our growth rate. Our Q3 non-GAAP gross margin remained strong at 85%. We are holding to our long-term gross margin target of 83% to 85%. However, as global supply chain challenges persist, we may see a potential short-term implication for our gross margins. Moving on, capital equipment in the third quarter represented 88% of total revenue, while consumers and service revenues accounted for the remaining 12%. The GAAP operating expenses in the third quarter were $48.7 million, a 38% increase compared to Q3 in 2021. Sales and marketing expenses increased to $43.1 million in the third quarter compared to $30.8 million in the same period last year. This increase is attributed to hiring more sales representatives, increasing our presence in the U.S. and emphasizing our penetration strategy for new products. Next, we look at share-based compensation, which increased to $7.9 million in the third quarter of 2022 compared to $3.2 million in the third quarter of 2021. On an non-GAAP basis, operating expenses reached $41.4 million in this quarter compared to a total of $32.3 million in the same quarter of 2021, representing a 28.1% increase. GAAP operating margin was 44% in Q3 of 2022. Non-GAAP operating margin for the third quarter of 2022 was 51%, similar to the same period last year. Looking at GAAP diluted earnings per share for the third quarter, we saw an increase to $0.58 compared to $0.52 per diluted share in Q3 of 2021. Non-GAAP diluted earnings per share for this quarter was $0.66 compared to $0.55 per diluted share in the third quarter of 2021. Once again, we ended the quarter with a strong balance sheet. As of September 30, 2022, the company had cash and cash equivalents, marketable securities and deposits of $486.4 million. This quarter, InMode generated $45.6 million from operating activities. Before I turn the call back to Moshe, I'd like to reiterate our guidance for 2022: Revenues between $445 million and $450 million, non-GAAP gross margin between 83% to 85%, non-GAAP income from operations between $214 million and $217 million, non-GAAP earnings per diluted share between $2.28 and $2.30. I will now turn over the call back to Moshe.

Thank you Yair. Thank you, Shakil. Operator, I believe we're ready for Q&A.

[Operator Instructions] Our first question comes from Kyle Rose with Canaccord Genuity.

Congrats on another strong quarter. The biggest thing I wanted to start on was just overall health of the consumer and what you're seeing on a procedural basis. I mean I think there's a lot of worry out there just with the impacts of inflation and macroeconomic volatility on just maybe not what's happening right now, but what's going to happen over the course of the next 6 to 9 months from a potential recessionary impact? What are you seeing to your customers, both on the capital side as well as underlying demand for procedures?

Kyle, it's Moshe. I will answer it, and then I'll let Shakil to add. Basically, in the last quarter, we did not feel there was any recession or not even a slowdown. It was a very strong quarter, especially if you take into consideration that this is a summer quarter. And as you know, summer quarter in aesthetic is not the best one, not just because doctors and patients are taking vacation and they are not available for treatment, but also because people don't want to get a static treatment during the summertime, especially not in Europe and also Latin America. This quarter, we were surprised it was very strong even compared to the third quarter of 2021 or the second quarter of 2022. So far, we don't see any recession, and we don't see a slowdown. We see the momentum continue. But I'll let Shakil to complement my answer and maybe tell you a little bit about what's going on in North America.

Yes, absolutely. Thanks, Moshe. Yes, same thing, Kyle. So we haven't seen anything on the capital side affecting the business or being detrimental to us in any which ways. As Moshe mentioned, Q3 is typically a little slower than most quarters, at least historically speaking, we definitely did not experience that, which is very encouraging. From the consumer standpoint, I'll actually pass that over to Spero. I think you might be able to shed some color there for you. Spero?

Sure. Great questions. Obviously, we talk to our offices every day across the country, and we have not seen any dip in customer demand. It's important to point out that what initially was thought as a COVID bump is not really just a COVID bump. 1/3 of new patients coming into practices 1/3 of new patients are actually never had plastic surgery before. So this is a paradigm shift. And we're seeing those types of patients coming to the offices that have finally considered to do what they wanted to do. And in the past, we're not part of that group. So we feel confident for the time being and as far as the future is concerned, I don't see the demand slowing anytime soon.

Great. And then Moshe, I think historically, you've always kind of messaged absolute growth year-over-year as kind of being in the $50 million range. I think that range might have increased a bit when you recently moved into women's health. So I'm just kind of levels out our expectations moving forward. Should we still think about this as an absolute floor on a revenue growth perspective, it's $50 million to $75 million a year? Or how should we think about that moving forward?

Well, in 2021 compared to 2020, I think the growth was above $150 million. We went up from $206 million to $258 million. So it's about -- more than $150 million. This year, with the new target that we gave with a new target for a full year, which is around $450 million, then we hope to do a little bit more, hopefully, the growth will be around $100 million. So basically, when we gave a target or a guidance of $50 million growth a year, that was when the company was $150 million or $100 million or maybe $200 million during the COVID time. Right now, we are now $400 million this year. If we will end up above $450 million, it's not the same company. It's double the size. So -- and we have a better portfolio. We're entering new categories, which very successfully. If you recall, we gave a target for Empower for the women health at the beginning of the year, we said it will be $20 million. And then we raised it to $30 million. And now we are raising it to $40 million. So we are doing our best, and I believe that the success in the women's health, which is a totally different category, it's also aesthetic, but it's a totally different medical community, and we're very encouraged. So I would say that growing with 20% a year from now on is a good target for you to put in your model.

And the last question, and I'll hop back in queue. Just obviously, everyone has seen the impact of Hurricane Ian at the end of the Q3 and to start the Q4. Obviously, that's concentrated in one region of the country. But I just wanted to think how should we think about that as an impact to the Q4? I mean does it have -- is it a headwind because you're losing days and you've got machines down? Or does it potentially pull forward some capital placements given you've got new locations that might need to upgrade or replace?

Shakil, can you answer it?

Yes, sure. No, Kyle, we don't see any effect...

Our next question comes from Matt Taylor with Jefferies.

Can you hear me okay?

Yes.

Great. All right. So I had a couple. I guess I wanted to ask you, women's helped us really done well this year in the first year of launch. I know you're really careful about how you're launching it. I was hoping to get your thoughts on how that franchise could evolve over the next couple of years? I know you probably won't give numeric targets, but if you could or could just plain the size of the opportunity, I think that would be really helpful for investors.

Matt, I didn't understand the question. Opportunities of what? Empower...

Yes.

Okay. Spero, I believe that's a question that you should answer regarding who do we sell now and who do we sell in the future?

Sure, Matt, excellent question. Here's how we look at Empower. When we enter these practices, for example, gynecologists, right, they're not used to marketing. They don't know how to do cash-based procedures. So going to these practices with a solution that's within their scope of practice, such as stress urinary incontinence and mixed urinary incontinence and so forth, is very, very important because at that point, we're able to tell oncologists, look, you already have these patients in your office. They're already coming in. The solutions out there are not great. So we have a solution for these patients that you don't have to go out there and market is your existing patient population. And that alleviates a lot of the anxiety for them purchasing capital equipment. However, we're still an aesthetics company. So on the same platform once we go in, we're able to introduce aesthetics to this group, and that's a big winner for us because it increases our TAM in this respect. As far as the future is concerned, we have a lot of confidence right now because we have a lot of data that we're getting back over the year and thousands of patients being treated. And what we're seeing is consistently across the board, we're seeing that the overactive bladder or mixed urinary incontinence segment, we're getting really, really good results and surprisingly so because it's a very tough segment, as you know. So the ability to disrupt that segment for the future is a big deal. As you know, it's a large market opportunity, and we're investing a lot of time and effort and research into trying to figure out the details and the cost for this. But on the clinical level and the experiences the gynecologists and urogynecologists and family practitioners out there are aesthetic. So we're very, very optimistic for the future. We're taking it very seriously. But at the same time, we're not forgetting that we're still an aesthetics company. So that's important to balance that aspect. Does that answer your question, Matt?

It does. I guess I just had one follow-up on the. So it's interesting to see kind of the pull-through strategy there. Could you frame how much pull-through you're getting? So how much is that resonating with the OB/GYNs to do more, what's the attach rate of getting actual aesthetics beyond the women's how?

It's surprising. No, we've engaged with some of the larger institutions or a lot of the research we're doing. And your typical gynecologists, having experienced so many different types of treatments for stress urinary incontinence and mix is not necessarily receptive off the bat, right? They'll say, okay, well, let's just see how this works. But interestingly so, because of the market pressures on these groups with the insurance reimbursement, they're dying to see how they can get cash-based procedures in their office. So the switch to aesthetics is seamless. And I'm talking about this is happening at research institutions and academic institutions. So you can imagine what happened on nonaffiliated groups out there. So that's even the pressure is even higher. So they're demanding that we teaching these things immediately. They're not waiting to see results on the stress urinary incontinence the medical aspects. So yes, we have a long runway. GYNs are 40,000 GYN across the country. So we have a long way to go, but we're very encouraged at this point. Does that answer your question, Matt? Did I understand it correctly?

Yes.

That's great.