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spk05: Hello and welcome to the InMode Limited first quarter 2022 earnings results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Miri Segal, CEO of MSIR. Please go ahead.
spk00: Thank you operator and everyone for joining us today. Welcome to InMode's first quarter 2022 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 InMode'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 Mizrachi, Chairman and CEO. Moshe, please go ahead.
spk02: Thank you, Miri, and thank to all of you for joining our first quarter 2022 earning call. With me today are Dr. Michael Kreindel, our co-founder and chief technology officer, Yair Malka, our chief financial officer, Shaquille Akiani, our president in North America, Dr. Spiro Teodoro, our chief medical officer, and Raphael Dickerman, our VP of Finance. We will all be available for Q&A session after our prepared remark. We are pleased to report first quarter revenue of $85.9 million, an increase of 31.1% compared to the same period last year. We continue to achieve strong, profitable growth despite the continued uncertainty in the global markets. Net income for the quarter on a gap basis was $31 million and $34.1 million on the non-gap basis, reflecting year-over-year growth of 16%. As a result of our strategy of focusing on selling more systems on the global market, sales of capital equipment were strong, representing 84% of our total revenue in the first quarter. Sales of consumable and services accounted for 16% of the total revenue in the first quarter. By launching new platforms and innovative modalities, and by expanding our install base in the US and around the globe, we continue to look forward to consistent growth in revenue from consumable, which will over time become a more significant portion of our revenue mix. Once again, our growth engines are minimally invasive and ablative technologies. These platforms are the core competitive advantage and the main differentiator between InMode and other aesthetic companies. Our technology enables patients to benefit from long-lasting results similar to the one achieved in plastic surgery, but with minimal downtime, local anesthesia, and minimally invasive procedures. Minimally invasive and ablative platforms accounted for 80% of our Q1 revenue, compared to 69% in Q1 of last year. We achieved this trend in the strong indication of the growing demand and our increasing brand recognition in the US and globally. Hair-free devices generated 10% of our total revenue, and non-invasive RF and laser platforms represent the remaining 10%. Looking at the international side of the business, first quarter sales outside the US accounted for $32.3 million, or 38% of total sales, a 50.6% increase compared to the same quarter last year. InMode currently operated operate in 77 countries. In the first quarter, we opened subsidiary in Italy, and we are very happy with the level of demand in this territory. We see most of the growth coming from region where we have already established our presence. Yet, there remain opportunity in new territories, and we will expect to keep expanding our presence outside the U.S. in the coming quarters. While we face operational challenges, due to global supply chain issue in the quarter and increased shipment prices. We were successfully in mitigating the impact of these challenges and we were able to meet the demand and ensure each platforms was delivered within 10 days. Our high commitment to each physician or clinic that all their platforms is stronger than ever. And we have developed different methodologies and mechanisms to cope with the current supply chain challenges. We anticipated that the supply chain challenges will continue, but we are monitoring the situation very closely and continue to proactively manage the process on a daily basis. As Yair will emphasize, We're maintaining our 2022 guidance, expecting total revenue to be between $415 million to $425 million. We will continue to update you as the year progresses. Now I would like to turn the call over to Shaquille, our president in North America. Shaquille, please.
spk07: Thanks, Moshe, and everyone for joining us. As Moshe indicated, InMode reported another strong quarter, especially for a quarter that is traditionally a slower one in terms of revenue industry-wide. We posted a record number for consumable revenue, which is a good indicator of our growing utilization rate, increased demand for our platforms, and consistently growing install base. We are happy to report another strong growth indicator. Over 30% of our customers in the US have purchased a second device. The US remains the leading market for InMode, and was the biggest contributor to our top line with total first quarter sales amounting to 53.6 million compared to 44.1 million in the same quarter of 2021. We are optimistic about the overall demand for our platforms and unique technology. We anticipate that North American business will continue to grow and be the main revenue contributor for InMode. We're encouraged by the positive response to our EmpowerRF platform, and we believe that InMode's credibility and strong performance will support our expansion into the women's health space. During the quarter, we noted marketing events and workshops attracting growing audiences. More and more patients have shown they're eager to improve their wellbeing, and InMode continues to be the leader in providing a wide array of aesthetic and wellness applications to help patients achieve their goals. We will continue hiring new sales personnel for the North American market, which we believe will boost top-line growth, just as in previous years. We are grateful to our team and their continued commitment to our consistent growth. I will now hand over the call to Yair for a review of our financial results in more detail. Yair?
spk01: Thanks, Akhil, and good day, everyone. Now I'd like to review our quarterly financial results in greater detail. Total revenue in the first quarter of 2022 increased 31.1% year-over-year to $85.9 million, with a gross margin of 83% on a gap basis. Sales of minimally invasive and subdermal ablative technologies in the first quarter grew 50% year-over-year to 80% of our quarterly revenues. The geographical revenue mix in Q1 was 62% in the U.S. and 38% internationally. compared to 67% and 33% for the same quarter in 2021. Revenues outside the U.S. represented 38%, with Canada, Europe, and Latin America being major contributors to the company's growth. Our Q1 non-GAAP gross margin remained strong at 83%. We reiterate our long-term gross margin model of 84% to 86%, but assume that in the short term, global supply chain challenges may continue to impact our gross margins. Capital equipment in the first quarter accounted for 84% of our revenue, while consumables and service revenues represented the remaining 16%. Gap operating expenses in the first quarter were $36.1 million, a 26% increase year-over-year. Sales and marketing expenses increased at a similar rate of 26% in Q1 of 2022 compared to the first quarter of 2021. This is a result of an increase in incels-related expenses, as well as improvement in the COVID status in most countries and regions around the world, especially in the U.S., where we saw a significant increase in in-person marketing events, as Shaquille mentioned. Share-based compensation increased to $3.1 million in the first quarter of 2022, compared to $2.7 million in the first quarter of 2021. On an handgap basis, operating expenses total approximately $33.4 million in Q1 of 2022, compared to operating expenses of $26.2 million in the same quarter of 2021, an increase of 27%. GAAP operating margin was 41% in the first quarter of 2022, the same as the first quarter of 2021. Non-GAAP operating margin for the first quarter of 2022 was 44% compared to operating margin of 45% in the first quarter of 2021. The decrease in non-GAAP operating margin is primarily attributable to the change in gross margin. GAAP diluted earnings per share for Q1 2022 were 36 cents compared to 31 cents per diluted share in the first quarter of 2021. Non-GAAP diluted earnings per share for Q1 2022 were $0.40 compared to $0.34 per diluted share in the first quarter of 2021. We ended the first quarter with a very strong balance sheet. As of March 31, 2022, the company had cash and cash equivalents, marketable securities, and deposits of $399.5 million. On the cash flow front, the company generated $31.9 million from operating activities in the first quarter of 2022. We are pleased to have announced another share repurchase program during the first quarter of this year of up to 1 million shares. We continue to evaluate different venues to use our cash and create shareholder value. Before I turn the call back to Moshe, I'd like to reiterate our guidance for 2022. Revenues between $415 million and $425 million. Non-GAAP gross margin between 84% and 86%. Non-GAAP income from operations between $199 million to $204 million. Non-GAAP earnings per diluted share between $2.06. and $2.11. I will now turn over the call back to Moshe.
spk02: Thank you, Yair. Thank you, Shaquille. Operator, we're ready for Q&A session.
spk05: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Kyle Rose with Canaccord. Please go ahead.
spk06: Great. Good morning. This is Gibran on for Kyle and congrats on a strong quarter. Maybe to start, could you talk a little bit more about your China business, how that's being affected by the current resurgence of COVID and some of the scaling lockdowns in the major population centers? Maybe what are your thoughts for the remainder of 2022? And secondarily, do you think that the timeline for approval of your two platforms in China has maybe been pushed out?
spk02: Yeah, okay. I will answer that. It's Moshe. Well, we're monitoring on a daily basis the situation in China. In China right now, we cannot send people to do training because anybody who went to China need to go to a lockdown of three weeks in the hotel. So no one from Israel and no one from other territories that usually we send to China to do training to doctors will not accept such restrictions. A certain area in China are in the lockdown. Shanghai was until this week, and now they started to lock down Beijing as well. The area of Shenzhen is also locked down. Our company, our distributors in Beijing is trying to do as much as they can. They don't allow salespeople to travel from city to city. And as we go to the CFDA and regulation, the CFDA is now almost 100% occupied with the COVID and solution for the COVID. And as everybody knows, they do not have good vaccination. And this is the reason why they continue to lock down their cities and citizens. We sold less than 50% of what was in the budget in China in Q1. We don't know where the lockdown and the situation will get better. We're getting surprised every day. Hopefully, toward the end of the second quarter, we will have a better, I would say, view and better clearance on what's going on in the market there. In addition to China, also Hong Kong, which is today part of China, has the same restriction. And other countries in Asia, Korea and Japan, are getting better. but are not fully open yet. For example, to Japan, you need to get what they call a COVID visa in order to enter, and they are making a lot of difficulties on people to come into the country. Yeah, I mean, in the other part of the world, things are getting better, but as I described, Asia is the worst case.
spk06: Understood. That's helpful. Thank you, Moshe. And then if I could just follow up on Empower, maybe, you know, when could we see some data for Empower RF in terms of efficacy for SUI? And then in terms of expectations, I know you had previously mentioned 20 million for 2022. Is that still relatively in line? Thanks again for taking the question.
spk02: Yeah, I would say yes, that the guidance that we gave for $20 million in 2022 is still valid. Spiro, would you like to answer the question regarding the SUI results?
spk04: Sure, Gibran. We're already in the process of a couple of our studies are already in press, so I'm happy to share those with you, or most you can, to show you some preliminary results of our SUI. So they're As I said in previous calls, they're very, very encouraging. And the feedback we're getting from the field, more importantly, is giving us a huge base of data set where our doctors can push off of. So we're collecting data not just from our studies alone that we've been conducting. We've engaged with a couple of universities to start doing some prospective big trials, which is great also, based on these proof of concepts that we already established. So we can share with you, I think we have in the past, but we can share with you these couple publications that are in press. We're hoping it comes out in the next two or three months, but we're happy to show that to you.
spk05: Okay, the next question comes from Mike Madsen with Needham and Company. Please go ahead.
spk08: Yeah, good morning or good afternoon. Thanks for taking my questions. I guess I want to ask first about gross margin. So You're maintaining the 84% to 86% guidance for the year. You did 83% in the first quarter. You mentioned kind of near-term pressure. So just from a modeling perspective, you know, I assume we should kind of have it gradually ramp up through the year and probably end up more sort of at the lower end of that range. Is that a reasonable assumption?
spk02: This is Moshe. He was here with me. I would say yes. We lost 1.5% in the first quarter, mainly due to the supply chain challenges as I described. I'm sure everybody knows that right now electronic component prices went up dramatically, dramatically, and sometimes we are struggling to get them. As we said before, we managed to develop a supply chain which we have at least three suppliers on every component. So we managed to get what we need, but sometimes we need to use a replacement component and change the printed circuit board and do all kind of maneuvering in order to be able not to shut down the production line. And we managed to achieve that. As I said before, we don't see the light at the end of the tunnel as regard to supply chain. And, of course, as we go to shipping costs, I can tell you that the 40-foot containers from Israel to the U.S. used to cost $3,500. Now it's $13,000. So this is also something. But eventually, I believe the market will get back to stabilization again. and things will be better. We believe that in the second quarter and the third quarter we will do better, and therefore we have maintained the guidance of 84 to 86. If you want to be on the safe side, to use 84 is better than 86 for your model.
spk08: Okay, that's helpful. Thank you. And then I want to ask, Shaquille mentioned that, you know, you've seen 30% of your, I guess it was maybe U.S. customers buying a second device. Can you maybe talk about, are they buying, you know, is it the same type of device that they already had? Is it a different system? And then, you know, to what degree are these sort of replacements where they're not using the other one or are they, you know, continuing to use both devices?
spk07: Sure, Mike. So actually, no, they're completely different devices. So it's not because of anything other than the fact that they're actually successful with their first device, which is a big feather in our cap here. In order to get them a first device, have them successful with it, create the return on investment that we had promised them, kind of shows that they do well with one device. Just like any other investment, you do well with one thing, then you want to go in and invest in something else. So because of our broad product portfolio and offering, if we can get in there with one device, help them succeed and do well, um, you know, then they come back in and do that. So, you know, a big part of that is also, uh, our post sales support team, um, which has been, which have been very helpful for our customers, but also, um, they're in there kind of talking and they work alongside with our reps on the field level, um, in order to, uh, to, to get them, um, you know, generating these leads.
spk08: Okay, thanks. And just as far as the surgical or, I guess, the minimally invasive systems go, is there any reason that one of the surgeon customers would want to have, you know, multiple systems? Or is it just not feasible to need, you know, multiple, you know, the same type of system, I guess, you know, for efficiency reasons or something like that?
spk07: Yeah, no, good question. So essentially, for the products that we do have, body type, for example, the surgeon has to obviously use that. For some of our hands-free technology or some of our other aesthetic applications, we're actually able to have them delegate some of these things depending on which state they're in or which province they're in in Canada. So essentially, they want to have their one device that they're using and that they can actually use the applications on and then at the same time have something else that they can delegate. So they're generating, you know, double the revenue in that period of time. Does that make sense?
spk08: Yeah, it does. Thank you.
spk05: Was there a follow-up, Mr. Mattson?
spk08: No, no, that's it. Thank you.
spk05: Thank you. Again, if you'd like to ask a question, please press star then 1. The next question comes from Jeff Johnson with Baird. Please go ahead.
spk03: Hey, guys. Good morning. Good afternoon. Thanks for taking the questions. So, Moshe, I just wanted to start, you know, Asia, China, obviously, as you mentioned, a lot of headwinds still in that market. What was maybe any way to quantify kind of the year-over-year impact of those markets? You know, did it drag growth down by X number of points or even for the full year kind of what were you anticipating China and Asia might contribute and how much has come out of that even as you're still maintaining the full-year guidance? Any insight there would be helpful.
spk02: Well, I believe China in 2021, we had the same situation with the COVID. In January until March, the country was totally closed. China right now in the first quarter, Of 2021, we did $1.9 million. And in the first quarter of 2022, we did $1.1 million. So we went down a little bit in China because of the situation on the first quarter. Your question whether or not we will maintain the budget for China for the rest of the year, we hope so. So far, Q2, the first month, we don't see a major change. I mean, they just changed, and instead of that, they released Shanghai, and now they are putting restrictions on Beijing. And therefore, I don't anticipate a big jump there. I would say that if we will do 50 to 60 percent of the original budget, it will be good. We did the original budget. The original budget for China on 2022 was between 12 to 13 million dollars. We're still waiting to get approval from the CFDA for the other three platforms that we applied for. We have not yet. Everything is slow because of the COVID. As we go to other countries in Asia, I believe that Korea is doing better than China, and we will do something similar to what we did last year, which was in the range of $10 million to $12 million. Japan, more difficult because of the COVID. Australia and India are open now. So we hope that these two subsidiaries will contribute. We were not changing the guidance for 2022 because of that. And we would like to, we hope that we will be able to sell more in other territories in order to cover the shortage in Asia.
spk03: Yeah, that makes sense. Thank you. And then just to follow up on the system sales themselves, you know, I think one thing that may be getting lost in your numbers today, the minimally invasive RF number was strong again. I think it was up over 50% year over year and improved on even a stacked comp basis. That growth rate did. It's the hands-free stuff that was down. And obviously hands-free was a fantastic product in the early days of COVID recovery. You know, at $8 million a quarter this quarter, you know, Is that kind of a new run rate for that hands-free? Does it still come down another few million dollars? But it seems like to me, you know, that hands-free, again, a great product for its time back when we were first recovering from COVID. But once we get through maybe some year-over-year headwinds on that, you know, does it start to stabilize here and the whole company number then can improve a little bit once we get through some of the headwinds of that year-over-year hands-free issue? Yeah.
spk02: Okay, okay. Let me explain what happened with the hand-free and why the hand-free went down a little bit. I mean, as you know, we came up with a new generation of the Evolve. We added a modality called Transform, which is a combination of EMS and RF, and we believe that that's going well. We're doing the same with the Evoke. We plan to launch a second-generation Evoke toward the end of this quarter or beginning of next quarter, the third quarter. And therefore, we decided not to continue to sell the Evoke on the first quarter, but mainly we sold only the Evoke. We sold only the Evolve. Hopefully, by launching the second generation Evoke within a few months, numbers will go back again to the same level it used to be in between 17% to 18% of the total revenue.
spk03: Okay. So you're not seeing necessarily a fundamental fall off in interest for the hands-free stuff. It's more just product timing at this point.
spk02: Exactly.
spk03: Okay, and last question I have, sorry for a few here. You know, I think when you and I spoke last, Moshe, you were not passing on some of those increased shipping costs, some of the increased subcomponent costs. You know, I think you could. It feels like to me in aesthetics there has been some pricing power for other companies. But just maybe talk about your rationale for not doing that. You know, has that improved your standing in the eyes of customers? Just your thoughts on why not passing through some of those added freight costs and or system costs.
spk02: Well, usually we don't raise prices in the middle of the year. And we're trying to fight the supply chain challenges. Not to fight, but try to overcome it in order to go back to the same gross margin. I don't think it's necessary to raise prices of the platforms and the disposables Just because we are having some, you know, I will call it temporarily, maybe it will take longer than that, you know, challenges with the supply chain. We all believe that it will come back to normal. You know, it cannot work like that forever. And therefore, we have decided that we do not raise prices of the platforms anymore. We will re-examine our decision sometime at the end of the year, toward 2023, and decide again whether we would like to do it or we would like to maintain the same price structure that we have today.
spk03: Okay. I think I remember you did not put even a freight surcharge in, though. Is that correct? Just remind me on that. So you've been absorbing pretty much of everything and not passing anything on?
spk01: Correct. We didn't pass anything to our customers.
spk03: Yes. Thank you.
spk05: This concludes our question and answer session. I would like to turn the conference back over to Moshe Mizrahi, CEO, for any closing remarks.
spk02: Thank you, operator. Thank you, Yair. Thank you, Shaquille. Thank you, Spiro. Thank you, Michael. and Miri, of course, for organizing this earning call. I would like to thanks again to all of InMod employees. We work very hard in the first quarter, overcoming all the challenges that we have described. We continue to work hard. We will continue to service our customers in the best way and come up with new technologies and new platforms uh uh every year again thank you all and looking forward to see you in the next earning call the conference has now concluded thank you for attending today's presentation you may now disconnect
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