InMode Ltd.

Good day and welcome to the End Mode Third Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. 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 hand the call to Mary Segal, CEO of MSIR. Please go ahead.

Thank you, operator and everyone, for joining us today. Welcome to End Mode Third Quarter 2024 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 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 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 Mizrahi, CEO. Moshe, please go ahead.

Thank you, Mary, and to everyone for joining us. With me today, Dr. Michael Kreindl, our Co-Founder and Chief Technology Officer, Yair Yomalka, our CFO, our Medical Director and VP of Medical Affairs, Dr. Eran Krieger, and Rafael Liekerman, our VP of Finance. Following our prepared remarks, we will be available for Q&A. During the third quarter, microeconomics headwinds continue to impact our performance as reflected in our financial results. A decrease in minimally invasive treatment and a slowdown in platform sales led to less than expected sales in consumables and platforms in Q3, which in turn led us to revise our full-year guidance. We are optimistic about the early endorsement of our two new platforms, Ignite RF and Optimus Max. We hope that as macroeconomics environment improves, particularly in easing interest rates and faster financial approval from leasing companies, more physicians will recognize the benefit and efficacy of these new platforms. I would like to elaborate on our decision this quarter to reorganize some aspects of our corporate structure. As part of these management changes, we had to release some members of the management of the US and replace certain management in the UK, Spain and France. We believe these management changes are essential for aligning our target market with the right company structure. Additionally, we are segmenting the North American market into separate roles for US and Canada, allowing us to focus on specific needs in each geographic area. We are making additional changes in our W that will better reflect our activities. Finally, regarding the situation in Israel, we want to assure everyone that our top priority remains the safety of our employees. We have overcome challenges relating to production, and we take pride in our employees' dedication in working longer shifts to upload customers' commitment. Now I would like to turn the call to Yair Malka, our CFO, to review the financial results in more detail. Yair?

Thank you, Moshe, and hello, everyone. Thank you for joining us. Starting with total revenue, Inmo generated $130.2 million in the third quarter of 2024, out of which $31.9 million was generated from preorders received in the first half of 2024. This leaves us with $98.3 million of net sales received in Q3. Gap and non-gap gross margins in Q3 was 82%. Moving to our international operations, third quarter sales outside of the US accounted for $36.4 million, representing 28% of total sales, a 19% decrease compared to Q3 last year. To support our operations and to ensure future growth, we currently have a sales team of more than 250 direct reps and 83 distributors worldwide. Gap operating expenses in the third quarter were $57.9 million, a 2% increase -over-year Decent marketing expenses increased to $51.9 million in the third quarter compared to $50.8 million in the same period last year. This increase was primarily driven by our recent management change costs, higher commissions, as well as additional spending on paychecks and workshops activities in Q3 of 2024. Next, we look at sharebase compensation, which decreased to $4 million in the third quarter. Gap operating margin for Q3 was 37%, compared to an operating margin of 38% in the third quarter of 2023. Non-gap operating margin for the third quarter was 40%, compared to a non-gap operating margin of 43% in the third quarter of 2023. Gap diluted -in-special for the third quarter was $0.65, compared to $0.54 per diluted share in Q3. Non-gap diluted -in-special for this quarter was $0.70, compared to $0.61 per diluted share in the third quarter of 2023. Once again, we ended the quarter with a strong balance sheet. As of September 30, 2024, the company had cash and cash equivalents, marketable securities, and deposits of $684.9 million. This quarter, Inmo generated $34 million from operating activities. Regarding our second share repurchase program for 2024, as of today, we have acquired 3.2 million shares at an average price of $15.86 per share. As for future capital allocation plans, we continue to carefully review and evaluate all options and we will provide updates as soon as we have news to report. Before I turn the call back to Moshe, I'd like to share with you our guidance for 2024. Full year 2024 revenue to be between $410 to $420 million, compared to prior guidance of $430 to $440 million. NANDGAP gross margin between 81% and 82%, compared to prior guidance of 82% to 84%. NANDGAP income from operations to be between $140 and $145 million, compared to prior guidance of $150 to $155 million. NANDGAP earnings per diluted share remains the same as in previous guidance. 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 start button. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question will come from Matt Miskek of Barclays. Please go ahead.

Hi, thanks so much. Can you hear me okay?

Yes, we do.

Great. I just have one question on the full-year EPS guidance and understanding the impact of the buybacks. You've talked to Alton in the past about investing through this cycle. And yet, obviously, we're able to kind of offset some of the reduction in sales with some element of cost control. So, you can maybe talk a little bit about where some of those cost controls are coming through. And then I have one follow-up.

Well, in Q3, we did not have a lot of – we didn't do any cost cutting or cost control. Actually, we continue business as usual in R&D, marketing, etc., and we did not lay out any employees. In addition, we spend a little bit more on the manufacturing due to the war in Israel. So, we need to work overtime, and that cost us a little bit more money. I don't think we did any cost control or cost sharing or cost cutting in Q3. This is the structure of our profitability. And although it went a little bit down the gross margin and the EBIT, but that's natural because of the slowdown and the war in Israel.

Well, it's impressive. And congrats on managing through that at the end of the year. Maybe just as a follow-up, any color or comments you can provide or thoughts on the turn, the potential turn, the timing of a kind of improvement in some of the end markets, particularly in the US in this cycle that we're kind of managing through right now. Thanks.

Well, in the beginning of this year, we thought that in the third quarter, we will start seeing some relief on the slowdown. But, you know, to be honest, unfortunately, we don't see any change in the slowdown, especially not in the interest rate on lease packages. And we don't see that on the fourth quarter as well. So, I hope that it will start sometime next year. I don't think it will be on the first and maybe the second quarter. We don't know. And we don't want to say anything on that because, you know, in the last two quarters' earning calls, we said we believe it will start on the third quarter. But as I said, we don't see it yet.

Thanks so much for the color.

The next question comes from Mike Mattson of Needham & Company. Please go ahead.

Hi, guys. This is Joseph from Mike. Maybe you could give us a little color on how maybe the last rate cuts helped leasing in your business. And, you know, looking forward into, you know, 2025, can you kind of frame us how another rate cut maybe of similar size would help customers financing? Or do you think maybe the financing problem is going to be alleviated by, you know, multiple rate cuts from here, not just one?

Well, the rate cuts or the interest cuts, the general one, did not affect yet the lease interest rate, the lease package that doctors buying our equipment with. It's still very high. And the process takes much longer because leasing companies want to make sure that they are giving money to the right people. As we said last quarter, we helped with doing some pool and sharing some of the risk with the leasing company. But as you can see the results on the fourth on the third quarter, we did less than one hundred million dollars when the expectation was to go to 104, 105 or whatever. And we did only 98 million, which is less than what we expected. So I don't want to guess and tell you that it will start slowing down or the interest rate will start coming down sometime in the beginning of next year. We really don't know.

Okay, yeah, that's helpful. And then I guess maybe around gross margin, you know, how can you guys guess what is your expectation around, you know, returning to the mid 80s gross margin is, you know, at the current revenue level is a lot of this being driven by overtime and what have you in the manufacturing facilities. Do you need, you know, considerable to really return to growth to get back to the mid 80s?

I don't think we will go to the mid 80s, which what, 85 or 86. It would be very difficult. I still believe that 80 to 82. It's a nice gross margin for a company like us being the size of Inmo today. Cost of transportation goes up. The war in Israel, which lasts too long, does not help us with costs, does not help us with the manufacturing process. So going back to 85 percent, maybe in the future, but we don't see 85 percent in the in the fourth quarter and not in 2025. Okay, thank you very much.

The next question comes from Caitlin Cronin of Canaccord Genuity. Please go ahead.

Hi, thank you for taking the questions. Just a quick one. I'm not sure if I heard if you guys said, but if you could just give us the US consumables growth for the quarter, that would be great.

No, on the contrary, we know the consumer in the US went down, not up. And the total was again less what expected. And I said that in my speech because less minimally invasive treatment are being made right now. Now, the reason for that is that our treatment with Inmo equipment, it's relatively expensive treatment. It's on thousands of dollars and not hundreds of dollars. So we believe the macroeconomics also reflect in that and also did not help doctors to do more treatment. And therefore, I have we have we have realized that doctors in North America are making 40 percent less treatment than last year.

Okay, makes sense. And then I think you mentioned in your pronouncement press release about moving some operations away from Israel. Can you provide a little more color on what that means, the timing where when?

Currently, we're manifesting only in Israel. We have two major facility and three smaller one, which makes up components. But the two main ones are assembling the product. We have all to remember that in order to manufacture medical platforms or medical device, which has to be regulated by twenty seven different regulatory bodies around the world, it's not so easy to find the facility that can that can handle it. We try to explore several opportunities with with with some companies in Europe, mainly in Europe. So it will be close to us. If we go to China, it's almost impossible to control. But unfortunately, we have no facility that can handle our product with the right regulatory approval from those regulatory bodies. And therefore, even with the war in Israel, we believe we can manage from Israel, although it's difficult and there's uncertainty. I agree. But no, we have no other alternative.

Thanks so much.

The next question comes from Tommy Hawn of Baird. Please go ahead.

Great. Can you guys hear me? Yes. Great. Thanks so much for taking the questions. Your US systems installation number this quarter jumped to six hundred ten versus three hundred fifty last quarter by our math. Does that third quarter systems place number include all of the pre orders delivered in the third quarter or were those pre orders booked in the first half of the year? And could you remind us how you counted the old system you placed in offices in anticipation of the delivery of the pre orders? Thanks.

I believe on the third quarter we delivered all the pre orders. We don't have more pre orders to deliver.

Yeah, we exclude them from the install base installation in the first half of the year and we include everything in Q3.

As you can see, the total gap number is one hundred and thirty point two million, out of which thirty two million are pre orders. The net sales of the fourth quarter, as I said before, was only ninety eight million dollars less than expected. But we managed to deliver all the rest.

Perfect. Thanks for clearing that up. System ASP also jumped up to one hundred forty thousand from one hundred fifteen thousand previously. Were there any one timers driving that or have you been able to take price with your new systems? Thanks for the questions.

I mean, the new system, the Ignite and the Optimus Max, just because this is some early bird, we can charge a little bit more. We raise the prices a little bit and that helps us with the price per platforms. But I believe looking forward, it will be difficult to maintain the same price per platforms. But we're raising prices a little bit on the new platforms. We cannot raise prices on the current portfolio.

The next question comes from Sam Iber of BTIG. Please go ahead.

Hi. Good morning, everyone. Thanks so much for taking the questions here. Maybe I can start on some of the changes to the commercial organization. It sounded more of a realignment and maybe splitting up some territories a little bit differently. But I guess any changes to the go to market strategy, is the selling approach any differently? Or is it really just a realignment in terms of territories?

Well, it depends. In Europe, we change management in Spain, UK and France. And the reason why we change management in these two countries, is because we basically were not happy with the results and the dedication of the management on those territories. And therefore, we have decided that we need to change them and we hire new management. And I believe that the new management are more dedicated and more eager to succeed. In the United States, it's a little bit different story. In the United States, we will leave two major VP cells, one earlier in the year and one right now. And the president and the chief medical officer, which was replaced with the VP clinical affair in Israel. The president of North America, Shaquille, was with us for almost seven years. He did a great job. And after seven years of doing the same in the same position, I thought it would be we need to make some changes in order to realign the organization. So right now, we don't have a president in North America. Canada reported directly to me. And the two new VPs for the East and for the West in the United States are also reporting to me. So actually, in the meantime, I'm also the president of North America. I intend to spend at least a week every month in Irvine, in our office, and visit doctors and the territories and work with them in order to realign the organization. In the meantime, I want to keep it that way. I'm not looking for president for the United States. Canada will continue to report to me until we found what exactly organizational changes we want to make with the new portfolio and with the current portfolio. It's take time, but we're in the process.

Okay, that makes a lot of sense. And maybe just following up on some of the newer products, we'd love to just hear any early feedback maybe you've heard from some of the early customers that have adopted Ignite and Optimus Max. I guess how many of these are upgrades versus new customers that are now excited about the new platforms? And I guess just the third part of the question, is that allowing you to maybe go beyond some of the core plastic surgeons that you've typically gone after. Thanks for taking the questions.

Well, the two platforms are different. The first one, the Ignite, it's minimally invasive and ablative platforms mainly for surgeons, plastic surgeons, aesthetic surgeons, dermatologists, any doctor who can perform surgical procedures. The second platform, the Optimus Max, it's more, I would say, platforms with different type of hand pieces all the way from laser, IPL, and also ablative with the Morpheus. We did not do any upgrade yet, or maybe very little. We sold most of them to new doctors or to doctors who wanted a second system. We will put together a promotion on the fourth quarter and maybe early next year to do some kind of an upgrade to doctors who are having the body type, which will be replaced with the Ignite, and the Optimus, which will be replaced with the Optimus Max.

Really helpful. Thanks for taking the questions.

This concludes our question and answer session. I would like to turn the call over to Moshe Mizrahi, InMode CEO, for any closing remarks.

Well, thank you everybody. Thank you to all the shareholders, to all of InMode employees in Israel and worldwide. Especially I want to thank the Israeli employees. As everybody knows, the headquarters and the two manufacturing facilities are, I don't want to call it this way, but they are close to the border, to the north border, and the war is here. They are still coming to work and everybody is dedicated so we can continue to serve our customers. I want to thank all InMode customers for the loyalty. I want to thank all the luminary doctors. I'm looking forward to seeing you in the next Earning Call. Hopefully in Israel it will be a better day.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.