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spk03: Good morning and welcome to the InMode Limited Second Quarter 2022 Earnings Results Conference Call. All participants will be in the listen-only mode. Should you need assistance, please sign up a conference specialist by pressing the Start key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Start and 1 on your telephone keypad. To withdraw your questions, please press star then two. Please know this event is being recorded. I would now like to turn the conference over to Mary Segal, CEO of MSIR. Please go ahead.
spk00: Thank you, operator, and to everyone for joining us today. Welcome to INMO's second quarter 2022 earnings call. Before we begin, I would like to remind our listeners that certain information provided on this call may contain false booking statements, and the fake Harvard 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 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 performance our forward-looking statements and assume no obligation to update them, except as required by law. With that, I'd like to turn the call over to Moshe Misrafi, Chairman and CEO. Moshe, please go ahead.
spk02: Thank you, Miri, and thanks to everyone joining us for our second quarter 2022 earning call. With me today, Dr. Michael Quindle, our Co-Founder and Chief Technology Officer, Yair Malka, our Chief Financial Officer, Shaquille Occhiani, our President in North America, Dr. Spiro Teodoro, our Chief Medical Officer, and Raphael Liekerman, our VP of Finance. Following our prepared remarks, we will all be available for a Q&A session. We are pleased to report another record quarter, with revenue of $113.5 million, an increase of 30% compared to the same period last year. Clearly, growth across the U.S. and the key regions globally underscore the strong demand for our technologies and our product portfolios. Our growth engine includes the launch of two new modalities every year, growth in the United States, geographical expansion outside the U.S., and high volume sales of consumables as a result of more frequent use of our platforms. All these factors remain on track and support continued successful execution in the second half of 2022 and beyond. Our focus remains on our bipolar RF technology, offering minimally invasive surgical platforms for the body, face, and also for women health. We have highly efficient sales team of more than 200 reps worldwide. With their excellent work, sales of capital equipment represent 87% of our total revenue in the second quarter. While sales of consumable and services accounted for the remaining 13%. We're excited to see the numbers of consumable sales growing quarter after quarter and consistently hitting new highs. As our install rates grow and we expand our market share, consumable and services will contribute a bigger portion to our revenue mix. Moving to our international operation, second quarter sales outside the U.S., accounted for $41.2 million, or 36% of sales, a 33% increase compared to Q2 last year. InMode denials operate in a total of 78 countries. Our newly opened subsidiary in Italy is up and running smoothly and contributing to our positive results in the European market. We see demand from Europe, Asia, and Latin America continuing to be strong. In addition, important markets such as China, Korea, Brazil, and Mexico gained traction thanks to the effort of our local presence. On the macro level, supply chain issues during the quarter were under control and closely managed as we continue to prioritize maintaining sufficient inventory levels. placing order ahead of time and making exceptional effort to hold delivery time around the 10 days mark. Now, I would like to turn the call over to Shaquille, our president in North America. Shaquille.
spk04: Thanks, Moshe, and thanks to everyone for joining us. We are happy to report another record quarter, establishing a strong pace for the remainder of the year. North America continues to be the main contributor to our total revenue across all segments, Total revenue generated from North America this quarter was 82.7 million. As we look ahead at the upcoming quarters, the North American market is positioned to remain the biggest revenue contributor and growth driver for InMode. Our Empower platform has received positive feedback from physicians and patients. Our expansion into the women's health and wellness space is becoming a vital part of InMode's business. Total sales were originally projected at 20 million for the year, but with the current market, along with Health Canada's approval, We are now aiming to reach over $30 million in revenue by the end of the year. We continue to see our marketing events increasing in attendance. As we continue to invest in resources, our goal has been to attract new talent while retaining the top salespeople in the nation. I'd like to thank the entire North American team for their continued hard work. I will now hand over the call to Yair for a review of the financial results and more details. Yair?
spk01: Thanks, Shaquille. And hello, everyone. Thank you for joining me. Starting with total revenue, InMode generated $113.5 million in the second quarter of 2022, a 30% year-over-year increase with a gross margin of 83% on a gap basis. Breaking this down, we see sales of minimally invasive and subdermal ablative technologies in the second quarter grew 48% year-over-year to 80% of our quarterly revenues. Of the total sales, In Q2, 64% came from the U.S., and 36% came from the rest of the world, compared to 65% and 35%, respectively, for the same quarter in 2021. Of our international contributors, Canada, Asia, and Latin America were the major markets driving our growth rate. Our Q2 non-GAAP growth margin remained strong at 84%, despite the global supply chain challenges. Moving on, capital equipment in the second quarter represented 87% of the total revenue, while consumables and service revenues accounted for the remaining 13%. GAAP operating expenses in the second quarter were $45.4 million, a 37% increase compared to Q2 of 2021. Sales and marketing expenses increased to $39.7 million in the second quarter compared to $28.7 million in the same period last year. This increase is primarily due to hiring more sales representatives, expanding our presence in the U.S., and attending additional in-person marketing activities and trade shows. Next, we look at share-based compensation. which increased to $6.4 million in the second quarter of 2022 compared to $2.9 million in the second quarter of 2021. On a non-GAAP basis, operating expenses reached $39.5 million this quarter compared to a total of $30.4 million in the same quarter of 2021, representing a 30% increase. GAAP operating margin was 43%, in Q2 of 2022 and non-GAAP operating margin for the second quarter of 2022 was 49% compared to the operating margin of 51% in the same period last year. Looking at GAAP diluted earnings per share for the second quarter, we see an increase to 52 cents compared to 48 cents per diluted share in Q2 of 2021. Non-GAAP diluted earnings per share for this quarter was 59 cents compared to 51 cents per diluted share in the second quarter of 2021. Once again, we ended the quarter with a strong balance sheet. As of June 30th, 2022, the company had cash and cash equivalent marketable securities and deposits of $443.6 million. This quarter Inmo generated $47 million from operating activities. Before I turn the call back to Moshe, I'd like to reiterate our guidance for 2022. Revenues between $425 million and $435 million. Non-GAAP gross margin between 83% and 85%. Non-GAAP income from operations between $204 million and $209 million. NAMGAP earnings per diluted share between $2.11 and $2.16. I will now turn over the call back to Moshe.
spk02: Thank you, Yair, and thank you, Shaquille. Operator, we are ready for Q&A session.
spk03: Thank you. 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. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Kyle Rhodes with Canaccord Genity. Please go ahead. Great.
spk05: This is Gibran on for Kyle. Thank you so much for taking the questions and congrats on another strong quarter. Maybe to start, I just wanted to dig in a bit on China. How has that fared in the Q2? Has that situation improved at all? I think you had mentioned on the Q1 call that you had sold less than 50% of sort of expectations. So any update there would be helpful. And then any other update on the CFDA approvals as well?
spk02: Okay, thank you. Well, the situation in China has not changed since Q1. The country is still closed. I'm in the same situation. If you travel to China, you have to be locked down for two weeks in a hotel. You cannot travel from city to city. But even with that, with all the limitations, we did better. We did twice as much as in Q1, in Q2. And this is due to the fact that we did some kind of changes in our operation there. we moved some of the people from Beijing to Shanghai and some other to other cities so they can operate freely within the cities without the need to travel from city to city. But the main issue is Since the country is closed, we cannot send any training doctors to train or do seminar in China, especially not on the new devices that we are now developing. The CFDA is working very slow. We filed another two applications for two more products the last month, but yet we did not receive any new approval in the last quarter. You know, it's not like the FDA. When you file, you get an answer. When you get a question or the approval. In China, the only thing you need to do is wait and see what will happen. Hopefully, hopefully, and these are the rumors, that starting October, November, the Chinese government will open the country a little bit more. Some people will be able to travel within China and into China. without the need to be locked down for a long time. The same situation with Hong Kong, which is now part of China. So overall, we managed to do twice as much better than last quarter, but yet not the way that we want to be.
spk05: Understood. Thank you, Moshe. And then on Empower, maybe through the first half, how are revenues tracking versus your expectations? Is 20 million still a fair assumption for the full year this year? And then maybe given your execution thus far, some of the KOL groundwork you laid and some of the data readouts that we're expecting, how can Empower sort of scale in year two, next year in 2023? How should we start to think about the commercial scaling next year?
spk02: Thank you for the question. Well, the guidance that we gave for 2022 was $20 million. The only thing that I can tell you that so far we did better than the guidance based on six months. In last month, a month and a half ago, we managed to launch the Empower in Europe during the IMCAS conference in Paris. And now they are working country by country and sending trainers to train some doctors in order to establish luminary base in every country in Europe. We're doing the same in Mexico right now. and we're going to send some doctors from the U.S. to train some Mexican luminary doctors. We are planning to launch the Empower in Asia program, during the IMCA show in Bangkok at the end of September. So overall, the situation is good. I believe we will do better than the $20 million that we gave as a guidance. But this is very early stage to judge what is going to be in 2023. I believe that if everything is okay, we are going to do well in 2023 above the guidance that we gave in 2022. I mean, we don't want to give more detail on that because, you know, it's six months in a row that we're working with the Empower. We have some luminary doctors who like the system and get good results. We started the process to clear the system for other indication with the FDA. We're investing very heavily on the Empower since we believe that We want to be the leader in the women health or the wellness women health in the market.
spk05: Understood. Thanks, Moshe. And if I could just squeeze in one quick question. On gross margin, just any updated thoughts given sort of the sustained inflationary pressures we're seeing? Is 83% to 85% still a reasonable sort of goalpost long term?
spk02: I want to tell you that the fact that we went up from 83 to 84 this quarter was a big, big challenge. And, you know, to keep the gross margin on 84 or in between 83 to 85, it's a very difficult task. Because, you know, as you probably know better than me, prices of components and sub-assemblies of electronics are going up every day. manufacturing costs, labor costs, transportation and logistic costs. In the last six months, everything went up by an average of at least 10%. Some components and some sub-assemblies are more than that. But, you know, we're fighting. We're opening more suppliers on every component at every sub-assembly. Right now, we have at least three suppliers and three vendors. in order to make sure that we'll get everything on time. The most important right now, it's not just the prices. The most important right now is to keep all the lines working. We know that some of our competitors are giving delivery time of six to eight months on platforms. We are delivering every system within 10 days, not more than 10 days. This is a challenge. And I want to thank all the logistics and supply chain and manufacturing team here in Israel and all around the world for doing a good job. So to keep the 84% or even 83% become very difficult and very challenging. But as you see, we're doing the best. Do you hear me?
spk03: Our next question comes from Joseph Conway with Needham. Please go ahead.
spk06: Hello. Quick question on, I guess, the Envision launch. Obviously, Empower is exceeding your guys' expectations so far and another record for consumable revenue in the quarter. Does this kind of change your guys' thinking on the launch firm vision? And I guess maybe could you just solidify that timeline?
spk02: Well, the timeline stays the same. We did a soft launch in Canada, and I believe Shaquille can elaborate on that more than me. We are now finalizing a study with the four sites that we did, and we are going to submit for publication peer-reviewed articles. We are working with the FDA on the indication. I believe that if not the end of this year, sometime in the beginning of next year, the InVision will be launched in the United States and after that in Europe and Asia. Shaquille, you want to say something on Canada, please?
spk04: Yeah, Joseph. So we've actually had a pretty successful soft launch in Canada recently. As you know, before we do anything, we want to make sure that we have the appropriate KOLs on board. We want to ensure that we have the proper logistics in place, inventory, so on and so forth. So, you know, as Moshe said, you know, we're hoping sometime in early 2023, hopefully. But at this point, we've gotten some really good traction, as I mentioned, in Canada. And again, as I said, we want to make sure that we have the correct things in place, including the clinical side of things and the KOL side of things as well. So with that being said, you know, I think we feel pretty comfortable and confident with it, but you'll hear more about that towards the start of next year.
spk06: Okay, great. Thank you. And then maybe just moving towards consumables. Can you maybe dissect a little bit of that growth? Obviously, there was very strong growth in the installed base. So maybe, yeah, dissect a little bit between increased physician utilization and just purely from the growth of the installed base.
spk04: Sure. So we've actually started to expand our post-sales support team. I'll let Moshe discuss the international side of things, but at least in North America, We've expanded our post sales support team almost double the size of what we were last year. We're still working on filling a few spots, but that's definitely been a major contributor. We have two directors that have done a great job and they've helped us really grow that side of the business. Of course, some of the resources that we're investing into consumer marketing, we have a very good launch of some electronic billboards and things like that to raise consumer awareness. it's always nice when you have friends that turn around and ask you, you know, is Morpheus the device that you guys make, which happens quite frequently now. So, you know, we're building the brand. You know, as I mentioned, same thing as Envision and Empower. We like to crawl, walk, run rather than the other way around. So in doing that, I think it's been a successful approach for us as a company, and we plan to continue to do that. So I think we can expect some continual growth on that side of things. Hopefully that answers your question, Joseph.
spk06: Yes, yes, it does. Thank you.
spk03: Again, if you have a question, please press star, then one. Our next question comes from Jeff Johnson, Wave Third. Please go ahead.
spk07: Thank you, guys. Good morning. Moshe, just on system placements, I mean, you mentioned China still, the lockdown issues there, but I think this was your biggest quarter ever of global placements. So a couple of questions, I guess, you know, one, what's been the tenor of demand even over the last couple of months, it seems like, you know, financing rates are probably going up. There's a little bit of competitive noise out there that we continue to hear in the channel, but you seem to be powering through very well. So, you know, kind of what are your expectations maybe over the next six to 12 months in this macro and what are you seeing in the field? And then kind of the second question on placements, You help us understand, again, you know, it's a number we ask about quite frequently, but what is penetration in the U.S. now for, you know, in the surgical derm and plastic surgery segment of the market? Where do you see penetration at right now? How much room is left there? Anything on those topics would be helpful. Thank you.
spk02: Well, if we want to take it to the worldwide market, Altogether, we have about 14,000 systems installed. The total available market, if you want to count dermatologists, plastic surgeons, aesthetic surgeons, OBGYNs, in the future, ophthalmologists, worldwide is more than 200 doses. And I'm talking about doctors with clinics. So, and you know, our portfolio is very wide. We can service aesthetic doctors who want to do hair removal and skin rejuvenation because we have the best hair removal device and also the best IPL for skin rejuvenation, all the way to plastic surgery, face tight, neck tight, body tight. We started with Women Health to do all kind of indication. So with a wide portfolio like that, I believe that worldwide we're in a very, very early stage, very early stage. And we have room to grow, and we're doing it. We have room to grow in almost every country. In addition to that, we have several products which are not yet approved, not in Europe, not in Asia, and probably not in Asia, and not in South America. And we continue to invest heavily on regulation in 27 countries, simultaneously in 27 countries. And it takes time, it takes studies, it takes money, and not always we get to overcome the bureaucracy on every state, but eventually all the products will be approved And this is another growth engine, widening the portfolio that you can sell in every country out of the 87 countries that we're selling. In North America, we have the wide range of regulation from the FDA because we started in the U.S. And later on, we started in Canada. But, for example, right now in Europe, when the CE moved from the MDD direction of regulation to the MDR, which has become much more difficult, it's challenging. But we're working on it, and we will overcome it. The good news is a barrier to entry to competitors with all these regulations. So I believe that as far as penetration, we're in a very early stage, and we will continue to develop product and create wider portfolio. So I don't know what to say as far as penetration in the United States. In the U.S. alone, there are about, I would say, 40,000 to 50,000 lasers installed. Every one of these doctors who are using laser eventually will use one of our systems. So if we sold in the U.S. 65 or 6,600 system, we still have way to go. And as you see, we're growing quarter over quarter, so the penetration is getting wider and wider. Did I answer you?
spk04: You did. Sorry, Jeff, just to chime in to answer some of your other questions you'd asked. So in regards to financing, I know that's something that everyone's kind of keeping an eye on here. You know, we've talked to our brokers and a number of the leasing companies. You know, we haven't seen rate hikes as of yet. I think they're going to start to kick in slowly. The nice thing about it is, you know, because of the macroeconomic environment right now, it's not going to come as a surprise or it's not just going to be niche to our industry. So I think people are going to be accepting of it. I think the key thing is as long as we can continue to ensure that our customers are successful, with their devices, you know, if it's going to be a small little delta on a monthly basis, we can try and help them make that up by driving more patients through their practice by investing in further resources as we do. You know, hopefully that answers that question there. But in terms of, you know, competition, I know you kind of talked about that. You know, as a company, you know, we don't really – we don't worry too much about competition. We actually look at competition as a good thing. It breeds awareness. I think a lot of times when you do have word getting out there, just keep in mind, you know, as much as it sounds like we've had a seasoned, you know, laser industry or seasoned RF industry, you know, we're still relatively new players into the market and we've carved out kind of a unique market in some of the devices that we have. So we've been pretty comfortable penetrating what we have. We still see a very long runway, but also don't forget that the non-core market is a huge market in which we can penetrate. So as long as the healthcare system is continues to be, you know, the way it is in terms of managed care, there's always physicians that are going to look at, you know, continuing to add certain revenue or separate revenue streams to their practice. When it comes down to, you know, the specialties, as you mentioned, with, you know, plastic surgery, dermatology, so on and so forth, you know, we, again, you know, in the Derm world, we're very, very early on. The plastic surgery world, don't forget, you know, the goal with them and with all of our doctors, for that matter, is to get in their offices to make them successful and And because of the wide array of products that we carry, we're able to go in, if they're successful with their first one, we're going to help them benefit, and hopefully they'll reinvest for the second one. So that's part of the business model as well. Hopefully that answers the other part of your question.
spk07: Yeah, it does. That's helpful from both of you. Thank you. And then I guess my only other question really is just, You know, Moshe, we only see it in the proxy once a year, but stock has been off here, you know, pretty meaningfully this year. Has there been any level or interest from an insider buying standpoint? Has anybody stepped up and been buying at these levels internally? And maybe same question for Yair. You know, I think there's over $400 million of cash and marketable securities on the balance sheet at this point. Any thoughts on a buyback? Again, valuation looks, you know, pretty compelling, I would argue, at these levels. So just any thoughts on both insider buying and or buybacks? Thanks.
spk02: Well, let me answer the first question or the first part of your question, and Yair will answer the second part. As far as the executive team and the insiders, they are fully committed and they are here to stay. Yes, some of them sold some shares because, and I can tell you that in 2021, we plan to do a secondary when the banks ask us to sell some of the executives and some of the insiders through the secondary, but unfortunately it did not happen, so it was done on the market. I can tell you some of the insiders and the executives started to buy shares when the stock went down because they believe in the company hardly. And therefore, again, the executive team is here to stay. We're not going anywhere. This is the company that we have established. This is the company that we built. It's a successful company, quarter over quarter, and we're not going to leave just because some of us have sold some of the shares or some of the employees exercised some of their options and sold some shares. This is something very common in a public company, especially four years after the IPO. In addition, we do have $450 million. And, you know, we don't have right now any candidate company to buy. But we're exploring opportunities. I can tell you that we're exploring opportunities. Almost every month we're exploring opportunity, and when the opportunity will present itself, we will do it. And therefore, the money is still in the balance sheet, and we have the intention to use it.
spk07: Thank you.
spk03: This concludes our question and answer session. I would like to turn the conference back over to Moshe Mizrahi, Chairman and CEO, for any closing remarks.
spk02: Okay, thank you, operator. Thank you, Miri. Thank you, Shaquille, Yair, Spiro, Mishka, and Rafi, who are with me here today. I want to extend thanks to all the IMO team, salespeople, logistic people, manufacturing people, R&D people, engineering, everybody who's working very hard 24-7 to make sure that we will deliver what we promise to deliver. And we're doing it quarter over quarter. This is a family-oriented company. Everybody here is some kind of a partner and an owner. I want to thank all the shareholders who are staying with us for a long time. I know that right now there's some macro issue and the stock market is not in the best shape and in the best position. I believe that if we will continue to deliver quarter over quarter another record, everything will be in place. So thank you all again, and hopefully we'll see you in the next earning call. Thank you.
spk03: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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