InMode Ltd. (INMD) Earnings Call Transcript & Summary

All right. Good morning, and thanks for joining us this morning. Very pleased to have with us again this year InMode and the Chief Financial Officer, Yair Malca. My name is Matt Miksic, I cover medical devices here at Barclays.

So one of the things that I want to start with if it's a good sort of baseline place to start is, I think, the cycle or the consumer trends and demand that have kind of softened, slowed, maybe bottomed in the last year or so and try to get your sense here at this point, what are you seeing? And how are you thinking about the next 3, 6, 9 months in terms of like let's call it, the consumer cycle in aesthetics?

Great question. Matt, thanks for having me. The best way for InMode to track consumer demand is by our disposable sales. And looking at our disposable sales in the U.S., which is our main market, we don't see things getting worse in the first 2 months of the year compared, let's say, to Q4 to November, December, so January, February, tracking pretty much the same. Things are not improving, but they don't get any better. And that's the overall trend, I think, that we've seen so far. Things are not improving, but we don't see them getting worse. And that's why, again, I'm sure we'll touch about it later on when we put the guidance for the year together, we assume it's going to be flat. Things are going to be similar, very similar to 2024. The headwinds are still there. There is a lot of uncertainty, as you can see in the market. We don't know what's going to happen or even Q1 will look like for us, let alone the entire year. It's very difficult to forecast in our space. And especially in our industry where you have a majority of the revenue is going to close from now until the end of the quarter. In the last 2, or 3 weeks of each quarter, we generate the majority of the business. So in terms of the consumer demand, we don't see that improving. But as I said, it's pretty flat. We don't see that getting worse. In terms of doctors, our providers, placing orders for capital equipment, basically buying devices. That's a trickier question, and we need to look and see because consumer confidence has a lot to do also with the doctors themselves when they make the decision whether to invest in their practice or not. If they see that the economy is unstable, they might decide to wait a little bit before making the investment. So we need to see how the quarter is going to look like. But so far, things look pretty much the same, the same headwinds that we experienced in 2024 continue into 2025.

Right. Yes. So if we kind of think back to how the beginnings of the slowdown in systems, I think was first felt like seemed to be related to delays in financing and then it kind of settled into something as you sort of took some steps to resolve that, eliminate those delays, it really became this kind of, call it, sluggish, slow consumer that was then kind of influencing centers. If you think about it.

There are still some of the financing headwinds that we see mainly on the interest side, the interest rate side, the interest is fairly high still, and that makes the monthly payment of our doctors more expensive. So there's still that. But compared to consumer confidence or slow consumer demand, I think that has a much bigger impact than the financing impact.

Right. And I think you've said that, yes, the financing, if we could snap your fingers and solve the financing problem now or eliminate that as a concern, you'd -- still with these clinicians maybe wanting to see a little bit more of...

Absolutely, if doctors see that they are not as busy as they used to be in prior years, that's a problem, even if we didn't have their financing issues.

Yes. So maybe many of the med device markets that we cover are a little less tied to consumer cycles. There are discretionary elements to them, but not as much as aesthetics. And so in the past, when you've seen having sort of followed these cycles in your business for a while, what have been the things that have kind of been leading indicators of consumer demand picking up? Like what else can we look to? Or what have been indicators of confidence among clinicians that have continued to kind of hold things back in the past?

That's a good question because looking back, each recession has its own characteristics. So it's very hard to tell. But personally, I would expect to see demand start growing for the providers, for our doctors, probably with the less expensive procedures, they will come back first in terms of how we position our procedures. So they are somewhere in the middle. At the top, you have the most expensive procedures of the full plastic surgery [indiscernible] facelift. Then you have our minimally invasive procedure. These are in the thousands of dollars. And then you have the procedures that are in the hundreds of dollars. And I think this would come back first, injectables and some fairly low energy-based devices. So we probably will start seeing them improving first because everybody had a terrible year in 2024. So even the injectables, fillers, toxins, et cetera, as a whole as a group. So probably they will come back first, and then we will follow and then this would give some confidence to the doctor to start reinvesting in their practice and buying more capital equipment. In my mind, that's how I foresee that happening. When that's going to start that's a completely different question. It's a very good question. It's hard to tell. But one thing I know InMode is a very strong and stable company, unlike some other companies in the space. One of them even filed Chapter 11 last week. InMode is a very strong and stable company. We will be able to get through that and be ready to take over the market as soon as things start improving and some companies that will not survive these headwinds might create more opportunities for us.

Sure. Right, from an acquisition standpoint?

Is an acquisition or just planning to take the market share.

Yes. So, just a leading indicator might be if some of the aesthetic injectable filler kind of volumes start picking up, that might be a sign that your category procedures might be next.

That's a good sign. I know some analysts are following discretionary spending on luxury items because, for many consumers, that's considered to be a luxury procedure. So overall, I think we need consumer confidence to improve to see consumers start spending again, especially at high-price ticket items. I think that should give us a good momentum.

That's the consumer side. Now on the doctor side, the clinician side and the centers, I guess things have obviously changed fast in the last 50 days in the U.S., a lot of uncertainty. We hear often that you like just regular business coverage; everyone is kind of aware of the fact that it's hard for companies to plan hard for companies to commit capital, not knowing sort of how things are going to shake out on a geopolitical scale. But on a sort of microeconomic scale at the clinician level. We ask this question about hospitals all the time. There's uncertainty. If there's a risk to budgets, what's going to happen? At the clinician level, do you think that, that same kind of calculus is starting to work its way into doctor and center behavior? And, like, do we want to close this deal now? Or do we want to wait another month or 2 to see what happens? Is that something you're hearing bubbling back through your channels?

Uncertainty is not good for business, any business. So we don't hear that yet. But as I said, most of the business is going to close in the next few weeks or what happened in the market might have an impact. And again, doctors that see that there is some stability in the market they are talk about recession. Again, they might take the time to think making a $140,000 investment into their practice is a lot of money. If they don't have this confidence and they hear all this news about recession and uncertainty, they might sit on the sideline for another quarter or 2. We don't know. We don't hear that yet, but that's definitely a possibility. We will know more after the quarter ends. But uncertainty is not good for any business.

Yes. No, that's fair. So, on the cash flow and sort of ability to sort of endure this kind of slowdown as you have that has positioned you to do a couple of things. One is repurchase shares, which we continue to do in the absence of finding an M&A opportunity that you think is a good fit or would make sense. It's also enabled you to kind of do that in the context of preserving your operations and remaining kind of whole and ready for the cycle to turn. Is that still the strategy as you head into this year?

Yes, absolutely. I think, despite all the headwinds, we plan to continue basically business as usual. We continue to launch the products that we plan to launch. We continue with all the R&D projects that we have in the pipeline. We didn't cut on marketing initiatives. We didn't cut on the sales force. In fact, we actually increased the sales force a little bit both in the U.S. and outside of the U.S. We established new subsidiaries last year, and we are looking to do the same this year. In the past several years, we opened 1 to 2 new subsidiaries every year as part of our growth model. And we plan to continue to do all of this. And we understand that might result in a hit in the margins as happened in 2024. But I think we look at this as an investment. And we believe that it will be paid off eventually. We did the same thing during COVID. It paid off big time as soon as the market starts recovering. Unlike many other companies in the space where they downsized, terminate some of their sales force and then struggle to rehire and rebuild their companies once the market reopened, we were there ready for the market, and we plan to do the same right now.

Okay. So we talked about some of the risks and the headwinds the last year, despite those same kinds of risks and headwinds, consumer demand, centers waiting, financing being at a higher cost and still some delays. You did get a fair amount of traction with some of the new products that you launched, a little bit complicated as you sort of grew your supply to meet that demand. But maybe if you could talk about what some of those products are, where you're seeing the demand for them and kind of what's driving that? Some of that's efficiency, some of the sort of new technology. Maybe walk through some of the things on the positive side that are sort of offsetting some of the concerns that we talked about.

Great question. So in 2024, the beginning of 2024, we launched 2 new products, which were basically the next generation of 2 of our legacy products or the products that we used to sell the most in prior years. The OptimasMAX, which is the next generation of the Optimas and the IgniteRF, which is the next generation of the BodyTite FaceTite technology. Both of them are very exciting, especially the IgniteRF has the new QuantumRF handpiece on it, which is a breakthrough technology as far as we're concerned because we were able to put 2 electrodes and keep the bipolar feature of our procedures. We put it in one probe, one camera, instead of 2 in the past, one internally and one externally. So we still have those. Those, we actually made stronger in terms of energy delivery, almost 50% stronger. This might save time for the doctors when they come to treat their patients. And time is the most expensive resource for the doctor. So if you are able to come up with procedures that will make his work more efficient and save him time, that's a big win for them. And there's a lot of appeal there. So we have that. And we also have the QuantumRF, which is also a rigid cannula unlike the flexible cannula with the BodyTite and FaceTite. So now the doctor has more option to choose from. And it took us some time to get the FDA approval and start delivering the QuantumRF. So it's only towards the end of 2024. But the initial response, it's very promising. And on the OptimasMAX, we also have the new Morpheus8 handpieces, which are able to distribute the energy better and more efficiently in between the needles. And that results, again, faster treatment, but more uniform heat distribution. We also have an IPL handpiece on the platform that is much more powerful than the old one. And we plan to bring additional applicators to this device in the future, and we'll talk about it once we introduce those. This year, we are looking to add 2 more platforms. We disclosed only the first one, which is the CO2 laser. And the reason we are doing that is we've seen this trend in the market that many users are combining Morpheus8 with something else. There is this trend out there that doctors start bundling procedures, whether injectables with Morpheus8 or some topicals with Morpheus8 or we start seeing a lot of CO2 laser with Morpheus8. They send the bundled package to their patient. So you get a fractional effect in addition to the Morpheus8. And we wanted to take advantage of this trend and decided to launch our own CO2. Again, CO2 laser is not a new technology in the market. There are several companies that have offered that over the years. However, we wanted to become a one-stop shop for our customers. And we know that they offer those bundled packages to the patients. So we want them to buy everything from us. And that's something that we will continue to monitor these kind of trends in the future and see when it makes sense to combine them with our technology.