InMode Ltd. (INMD) Earnings Call Transcript & Summary

Good day, and welcome to the InMode First Quarter 2023 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Miri Segal, CEO of MS-IR. Please go ahead.

Thank you, operator, and to everyone for joining us today. Welcome to InMode's First 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. 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 for joining us. With me today are Dr. Michael Kreindel, our Co-Founder and Chief Technology Officer; Yair Malca, our Chief Financial Officer; 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 to answer your questions. We reported revenue of $106.1 million in the first quarter, an increase of 23.5% compared to the first quarter of 2022. Sales from consumables and service continued to grow in the first quarter, and Shakil will go over that in more detail shortly. I would like to take the moment to recognize that 15 years ago, we started this company with a small investment of just $3.5 million and an idea that with bipolar RF technology, our expertise and knowledge of the aesthetic industry, we can disrupt the industry and help close the treatment gap. We have been accomplishing this by providing patients remarkable and lasting results. We are working closely with leading plastic surgeons that have endorsed our safe FDA-approved technology. Today, we can say that InMode is the leading global provider of innovative, minimally invasive aesthetic and wellness solution, operating in 92 countries with 7 patented technology across 10 product family and an installed base of over 8,400 platforms in the United States and over 18,300 systems globally. We are proud to recognize these 15 years anniversary as we announced a strong start to the year. We would not reach these solid consistent results without the dedication and hard work of our employees. And I would like to take the opportunity to thank them for their commitment and care. Last year, we successfully introduced the Envision platforms in Canada. Envision has an innovative technology targeted for ophthalmology and optometrist market, and we expect to launch these platforms in the U.S. in the coming months. As we mentioned last quarter, the next generation Evoke, our hand-free platforms for face treatment is planned to launch in the second half of this year, and we look forward to updating you all on this progress. 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. We are happy to report a strong first quarter with significant growth coming from consumable sales. Revenue from consumables and service grew nearly 43% year-over-year. This is a strong indication that the platforms we sell are being used more frequently signifying continued positive demand and momentum. Our Morpheus8 platform continues to gain traction and benefit from our brand ambassadors, strong market awareness and positive patient results. As Moshe mentioned, we will continue our strategy to expand into new areas of wellness such as ophthalmology, optometry markets with our Envision platform. We've begun to hire focused sales reps for Envision, and we gradually expect to establish a dedicated sales team for this market and for women's health and wellness market in the future. Lastly, I'd like to thank our entire North American team for their continued hard work. I'll now hand over the call to Yair for a review of the financial results in more detail. Yair?

Thanks, Shakil, and hello, everyone. Thank you for joining us. Starting with total revenue. InMode generated $106.1 million in the first quarter of 2023, representing a 23.5% year-over-year increase with a gross margin of 83% on a GAAP basis. Traditionally, based on past seasonality, our first quarter is the slowest quarter in the year. We expect 2023 to behave in a similar way to last year. First quarter sales outside of the U.S. accounted for $43.8 million or 41% of sales compared to 38% in Q1 of last year. We see growth coming from different regions with sales in Europe hit a new record in Q1. And we are planning to establish at least one additional subsidiary in Europe or Asia later this year. To support our operations and growth, InMode now operates in total of over 90 countries with a sales team of more than 236 direct reps and over 81 distributors worldwide. Capital equipment in the first quarter represented 81% of total revenue, while consumables and service revenues accounted for the remaining 19%. GAAP operating expenses in the first quarter were $46.8 million, a 30% increase year-over-year. Sales and marketing expenses increased to $41.7 million in the first quarter compared to $30.8 million 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's growth projections. Share-based compensation accounted for $4.2 million in the first quarter of 2023, an increase compared to $3.1 million in the first quarter of 2022. On a non-GAAP basis, operating expenses were $43 million in the quarter compared to a total of $33.4 million in the same quarter of 2022, representing a 29% increase. GAAP operating margin for Q1 was 39% compared to an operating margin of 41% in the first quarter of 2022. Non-GAAP operating margin for the first quarter of 2023 was 43%, a slight decrease from 44% in the first quarter of 2022. GAAP diluted earnings per share for the first quarter were $0.47 compared to $0.36 per diluted share in Q1 of 2022. Non-GAAP diluted earnings per share for this quarter were $0.52 compared to $0.40 per diluted share in the first quarter of 2022. Once again, we ended the quarter with a strong balance sheet. As of March 31, 2023, the company had cash and cash equivalents, marketable securities and deposits of $574.5 million. This quarter, excluding a onetime tax payment of $15 million, InMode generated $36.1 million from operating activities. Before I turn the call back to Moshe to take your questions, I'd like to reiterate our guidance for 2023. Revenues between USD525 million and USD530 million, non-GAAP gross margin between 83% to 85%, non-GAAP income from operation between USD236 million and USD238 million, non-GAAP earnings per diluted share between $2.58 and $2.60. I will now turn over the call back to Moshe.

Thank you, Yair. Thank you, Shakil. Operator, we are ready for Q&A.

[Operator Instructions] Our first question comes from Michael Sarcone with Jefferies.

This is Mike on for Matt this morning. So just the first question on guidance. You had a really strong start to the year, nearly 24% growth in the first quarter, and that was on the toughest comp of the year. Can you just talk about how you think about guidance and some of the key assumptions there? I know you've got Envision launching in the U.S. soon and the next gen Evoke in 2H. So again, just some key assumptions around guide. And is it fair to characterize the guide as conservative?

Yes. I would say, as always, we claim, we try to be very conservative with guidance. Although we did a little bit better than the consensus on Q1 2023, we decided to keep the guidance until the end of Q2 to see how Q2 will be. As you know, there is some seasonality in this business. The first quarter is the slowest one. Second quarter must be much stronger than the first quarter. If we will successfully end the second quarter with the expectation that -- and above the consensus of the estimate of the analysts, then we will consider increasing the guidance. But on the first quarter, I mean, we did $106 million compared with $102 million, $101 million consensus estimate. We felt like it will be better and more conservative to stay with this guidance and wait another quarter to see what will be the situation in the U.S. and in the rest of the world. As far as slowdown, recession increase interest rate and then we'll feel much better to increase the guidance some time at the end of Q2.

Moshe, that makes sense. And then are you seeing any changes in your customers' ability to finance the system?

No, we don't. We don't. Although it take a little bit longer, especially in the U.S., and Shakil will elaborate on that. But in Europe, for example, we signed an agreement with the bank that is helping us to finance customers in Europe, something that we didn't have in the last, I would say, 3 years, which will make it easier for customers in Europe to finance the system. In the United States, Shakil, do you want to say a few words on that?

Yes, sure. So like Moshe said, we're not seeing too much on that end. We are seeing it taking a little bit longer than we're used to. I'm just kind of looking at risk, so on and so forth. But right now, we haven't seen that as a prohibitive factor.

Got it. And when you say a little bit longer, that's just kind of the selling cycle?

It's just -- well, not necessarily the selling cycle, they're just requiring different documents from the buyer just to again ensure that basically, it's like -- I wouldn't say it's to the degree of what happened back in 2008, 2009, not even close to that, but they're just banks are just being a little pickier with who they're giving their money to. So they just want to ensure that they get the appropriate information. So previously, you'd be able to get ex amount of dollars approved with just a credit application, now they might need to provide some further documentation along with it. So it might add 12 to 24 hours to the process.

Got it. And I'll just sneak one more in there. Interesting disclosure in the press release just about the impact of popular weight loss drugs. It was going to be one of my questions. You're seeing an influx of loose skin patients. Is there any offset there like when you factor that in, the weight loss drugs, do you expect to see lower demand for liposuction and kind of what's the net impact on demand for InMode procedures that you're expecting?

Spero, could you please answer that?

Sure. That's a great question. Look, on the contrary, the weight loss is -- actually helps us because, first of all, we're the skin tightening company, right? So when the patients have loose skin, they've already lost a wait. They come to us to be able to tie in that. So what it actually does, it increases the number of patients you can do with liposuction, right? So they still have some fat pockets or fat areas, that areas that need removed. But if you have a loose skin that kind of limits them in the aesthetic result. So adding a tiding procedure, in addition to the life assessing capabilities we have, increases the size of that market. What the drugs have done is increased awareness. I mean they use this marketing thing like [indiscernible], right? That's a cool name. But at the end of the day, it's just weight loss. And we deal with that in our plastic surgeons and our doctors across the board are always dealing with loose skin. I remind you that the holy grail of plastic surgery is the ability to tie in skin without scars. And even though a lot of these patients might end up leaving the excisional procedure perhaps depending on the mono weight loss, we are perfectly positioned to take advantage of this. And our clinics have seen a large influx of patients since this has taken over like wildfire. So net-net benefit. Does that answer your question?

It does. Very helpful.

Our next question comes from Matt Miksic with Barclays.

This is [ Sarah ] on for Matt. I guess just to clarify on the guide, is it fair to say then that you don't see any specific concerns related to the rest of the year, and it is just general conservative thing.

I didn't understand the question. Do you ask if we see any concern in the market?

Yes. Just based on the answer you provided earlier, I just want to clarify, is it fair to say that you don't see any specific concerns or -- and it's just general conservatism into your current guide?

Well, I believe we said that very clear, we don't see any sign of slowdown, any sign of recession on the market that we operate. Maybe now the market is different. But just because our technology today is in the very embryonic stage. I mean we have less than 20,000 systems installed and the potential is a few hundred if you take into account only doctors who are doing medical aesthetic using laser and others, all of them in the future will need bipolar RF because with laser, they do only topical treatment. And if they do -- if they want to do body and face reshaping, they will need us. So we don't see any slowdown. On the contrary, I have to say that we sell more disposable this quarter than in the fourth quarter of 2022. And usually, the fourth quarter is the strongest one. So we don't see any slowdown. The reason why we did not change the guidance is because we wanted to wait another quarter before we change. We just gave the guidance a quarter ago. And if everything will look according to our expectation on the second quarter, then the guidance will be raised.

Understood. That's helpful. And then I guess shifting gears gear to Empower. Just curious on how has this been tracking. And if the 20% growth in 2023 is still the right way to think about this? Or do you expect a bit more acceleration in this year?

Well, we didn't give any guidance on Empower this quarter, but I can tell you that we sold in the first quarter, we sold more than the first quarter of 2022.

Our next question comes from Danielle Antalffy with UBS.

Just a question, Moshe, on capital allocation. You guys have talked in the past about how to think about potential M&A here. Any update there on how you're thinking about capital allocation and potential for a deal to happen sometime this year?

Well, that's the $64,000 question, I would say. Yes, we are exploring opportunities, more than one. And some of them are -- we even spend money to check, to due diligence, et cetera. One thing I want to say, very difficult to find a company that will now be with the same profitability structure of InMode. So any company that we will acquire should not dilute the shareholders. It should be accretive and not dilutive. And it's not easy. It's not easy because of the profitability structure of InMode. So we're very careful in the analysis that we're doing on companies that we would like or that we're exploring a possibility to do M&A. I cannot announce anything special today. The only thing I can say that we spend on the time, money, management attention and we're looking for acquisition.

Okay. Got it. That's helpful. And then just a question on indication expansion. So Empower is obviously doing well. Beyond that, as we think about stress urinary incontinence, et cetera, any updates or next steps we should be looking for to measure InMode against making progress there?

InMode against what? Against whom? I don't think we have any...