Q3 2020 Inmode Ltd Earnings Call
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Please note. This event is being recorded I would now like to turn the conference over to Miri Segal of as IR. Please go ahead.
Thank you operator and good day.
Hi to everybody I would like to welcome all of you to in most third quarter 2020 financial results Conference call.
Just on the line today are Mr. must Shimmies Rafi chairman of the board and CEO Dr., Michael Kreindler co founder and CEO Mr., yet your mouth cost yes.
Oh no.
Dr Spirit, they'll Dora the ammo and Mr. Shaquille Connie President in Mount North America.
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 out.
And in today's earnings release also pertains. This call. If you have not received a copy of the release. Please view it in 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.
Sorry, sorry go 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 assumes no obligation.
Update them, except as required by law.
The show will begin the call with a business update and pass it over to Suky Mccartney most president of North America to discuss our North American operations.
Followed by a year mouska in most CFO with an overview of the financials.
We will then open the call for the question and answer session I'll.
Ill now hand over the call to Mr. machetes Rafi in most CEO Shane. Please go ahead.
Thank you Mary and thanks to all of you for joining our third quarter 2025.
I'm sure that we've got it's gone from score.
In this call we will discuss our third quarter financial results in the context of COVID-19, pandemic, Oh scripted you're going during the crisis and our outlook going forward as well.
Oh and the International company would.
With me on the line today, you know Malka, our CFO for California.
So clearly a minute I'll president of North America in Houston.
Michael Kwanzaa, Oh, CEO and co founder in Toronto.
Doctors feel to do Oh, chief marketing.
<unk> Chief Medical Officer from New York.
The third quarter was 2020, even more generated record revenue of $59.7 million and 49% increase from third quarter of 2019.
A record of 20.
$3.9 million of net income on a GAAP basis, and $26.6 million of net income on a non-GAAP basis.
In Q3, 2020, we derived approximately 58% of our worldwide revenue.
<unk> form how surgical platforms engage in minimally invasive and some don't <unk> ablative treatment.
35% from our recently introduced ballpark jewelry hand, free Glasforms and 7% from all traditional laser and noninvasive I'll ask Russell.
Yeah.
The record revenue in the third quarter was driven by demand for our minimally invasive in hands free proprietary electrosurgical bipolar RF platforms.
Which are becoming the standard of care for variety of surgical procedure.
We have proven our organisation adaptability and innovative leadership during the quarter as we successfully accelerated demand for all differentiated product in the U.S. Once COVID-19 was friction east into.
Internationally, we grew out we grew our says weaponry.
More than doubling the revenue on a year over year basis. This growth was driven by our marketing and selling activity in China, Brazil, Mexico, Korea, and through our subsidiaries in Europe and Asia.
The COVID-19 pounds.
Dynamic has shifted our society into a new normal.
We're social distancing, then health and safety concerns are here to stay.
We believe that in mode Clinic based technology provides superior alternative to invasive hospital procedures and.
Continued to attract consumer and physician in this environment.
This quarter, while we continue to succeed in capturing market share and creating awareness to our technologies and platforms. We also continued to invest in our organization.
We're advancing our research and development capability, diversifying our product pipeline, expanding our sales and marketing team and progressing our regulatory processes and.
Additionally, we introduced the groundbreaking Morphew state body thing Sergey and more few state.
By platforms, which use our innovative our fractional technology to treat the entire body at many depth.
In addition, we were recently granted patent covering our fractional RF technology, we intend to protect our IP vis-a-vis anyone.
Poor infringe our patents.
Currently our R&D pipeline is designed to bring the most innovative products to the static surgical industry and broaden the market we serve with our technology to address Jan ecology in tea and ophthalmology market.
Going forward, we plan to introduce two platforms into those markets in 2021 and beyond.
As we roll out to this new innovative technology, we will continue to build our brand and salesforce to build interest and demand.
Looking back.
We are extremely pleased with our decision not to downsize our seller network due to the pandemic crisis.
But instead continue supporting and growing our organization for the future.
Although the market uncertainties due to COVID-19 are not yet.
Beyond us we will remain committed to investing in emerging future success.
We are confident that we can continue to build out our organization to even the most difficult times.
As the mark that for their commitment and a strong belief in our.
In our value, we announced a share repurchase program of up to 1 million in most shows in Q3.
Considering our successful performance in the third quarter of 2020, and the visibility we have into the west of 2020 well.
Increasing our full year 2020 revenue guidance range to $192 million to $195 million.
And we intend to maintain and non-GAAP gross margin of 84% to 86%.
Lastly, we continue to protect our employees worldwide.
And as far as local and regional guidelines to prioritize the health and welfare of our employees and customers.
Now I would like to turn the call over to Mr. Shaquille Academy, who will go into more detail on our activities in North America market share.
Right.
Thank you Moshe and Hello, everyone.
Reported a record quarter in North America would surging demand for minimally invasive in hands free devices confirming our previous stops the fact that our minimally invasive an entry technologies could be done in office and adhere to social distancing guideline to Gordon to positions.
Consumers as restrictions east due to the investment in our sales team along with the dedication of our employees, we were able to keep physicians engaged and excited during from quarantine and ultimately translate growing interest for our technology into record sales in the third quarter.
Building on this growth, we continue to expand our sales and marketing efforts.
And we believe that we have the right team in place to finish this year strong and strengthen our leading position.
As we turn to 2021.
During the quarter, we were excited to launch the Morphosys platform and more for same body, followed by Morphis first technology announced last month.
The Morphosys platform.
The state of the art workstation complete with your hand pieces for fractional tips and different micro needle configurations. This provides physicians with a standalone solution for full body fractional RF treatments.
We're also able to go deeper than any other competing technology.
Clearly shows in most commitment.
True innovation.
We're following the successful formula we've developed for other minimally invasive solutions and applying that to more PC.
Expect morphis eight to be a significant sales contributor in 2021.
Looking to 2021, we'll be preparing our team to the launch of two new additional technologies.
We continue to be optimistic despite the uncertainties of COVID-19 that still exist, we're very proud of our team's ability to navigate dependent so far.
We remain focused on the future future and further establishing ourselves as leaders and true innovators in the market.
Now, let me hand over the call to your to review our financial results in detail.
Yes sure.
Thanks, Kim Good day, everyone.
That's on the revenue in the third quarter of 2020 increased 49% to $59.7 million with a gross margin of 84% on a GAAP basis.
The increase in revenue was driven primarily by the expense.
Finishing of inwards direct sales organization in the United States.
And the continued momentum in one's hands free technology as well as the recently introduced smokers aided by the fortunate technology.
And we'll continue to get great traction in international markets with international revenue growing having a 90 cents.
Spend year over year.
GAAP operating expenses in the third quarter of 2020 total approximately $27 million at 42.4% increase from the third quarter of 2019.
Sales and marketing expenses increased 42% in the third quarter of 2020.
Compared to the third quarter of 2017.
Oh, no no new stock options were granted during the first quarter stock based compensation increased to $2.4 million in the first quarter of 2020 compared to $1.2 million in the second quarter of 2020.
This increase.
Due to higher than previously estimated vesting of our performance based options as a result of our record revenue in the third quarter as well as our revised guidance for 2020.
On a non-GAAP basis operating expenses totaled approximately $24.8 million in the third quarter.
Total of 2020 compared to the operating expenses of $18.6 million in the third quarter of 2019, an increase of 33.1%.
GAAP operating margin was 39% in the third quarter of 2020 compared to 40%.
In the third quarter of 2018.
Non-GAAP operating margin in the third quarter of 2020 was 43% compared to 41% in the third quarter of 2019.
This increase in non-GAAP operating margin was primarily attributable to decreased marketing activities in the United States.
Such as events in conference participation due to restrictions caused by covenanted.
GAAP diluted earnings per share in the first quarter of 2020 were 57 cents compared to 42 cents per diluted share in the third quarter of 2018.
Non-GAAP diluted earnings per share.
In the third quarter of 2020 were 63 cents compared to 42 cents per diluted share in the third quarter of 2019.
We completed the third quarter with a strong balance sheet.
As of September 32020, the company had cash cash equivalents marketable securities and deposits.
There of $234.3 million.
Accounts receivables increased to $16.2 million as of September 30 is driven by higher international sales volume and particularly from Asia, where payment cycles for our distributors are longer compared to being.
States.
During the quarter, we announced a share repurchase program of up to 1 million of in much ordinary shares.
Our share repurchase program illustrates the confidence we have in in modes future. Following the continued success of our new product introductions and growing.
And cash position.
Even in the face of global uncertainty.
On the cash flow formed the company generated $30.2 million from operating activities.
For the third quarter of 2020, driven by record sales volume.
With that I will turn the call back.
So moshe.
Thank you. Thank you. Thank you.
I believe now we need to go to that to the Q and a.
We will now begin the question and answer session to ask it.
Question You May Press Star then one on your Touchtone phone if.
If you are using a speakerphone please pick up your handset before pressing the keys.
Let's try your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
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The first question today comes from Matt Taylor of U.B.S. Please go ahead.
Hi, good.
Good morning, Thanks for taking the question.
Congrats on a good quarter.
Hi, I wanted to ask you about a couple of things. So the first one is.
You mentioned this decision that you made to continue.
Investing in it seems like it's paid off for you I was wondering if you could talk about.
The commercial organization, how you how you've added to that how you plan to add to that overtime. Given you continue to have this really strong growth.
Well, Matt Hi, This is will share how are you.
We continue I believe we'll continue to invest in all the discipline.
We continue to invest in R&D, and we have something like five.
Five up our main project in the R&D pipeline right now.
We continue to invest in sales force as you know we still.
Started subsidiary in France back.
Back in April a day.
They stayed idle for three months and now we're adding more salespeople they're doing.
To increase our momentum in France, and other countries in Europe.
We are.
Investing more in China.
And we see progress nice progress since we got deferred.
The first see if the approval.
We're investing in marketing activity.
All over although we're doing it on zoom, but for example, we had two conferences in in South America.
In in Brazil.
We did two in China.
We also we also invest in that distributor meeting also will do virtual.
In Asia on the third of for our December So for US Matt business as usual, although we have the restriction what we can do.
Now what we cannot do.
You know compared to a normal time.
But from an R&D point of view, we increased manufacturing capacity by at least 25%. We have produced more than emit more than 1000 platforms in the last quarter in the third quarter. So we.
We see no snow signed off of.
Of.
You know slowing down in any of our.
Business activity.
So and it's also started in the fourth quarter, we see the same trend. So we don't see although the coverage is still there and as you know.
In Europe. They are extremely thing now the second wave in countries like Italy, UK now is there.
Locked down.
For our four weeks, Spain, the same but we do as much as we can in order to maintain activity.
Of course within the restriction and the local regulator.
Ration.
Okay. Thanks Moshe.
The other thing I wanted to ask about was was the buyback that you announced you now have.
Over 200 million in cash and Securities and I was wondering how you plan to use that do you see yourself as buying shares steadily isn't something that.
More opportunistic about what are your thoughts on capital allocation is in general.
Well, we have announced we have announced a program, which we have approved on the board of directors or two.
To to repurchase 1 million share.
As of today.
Hey, we did very limited we have not yet used all the money to do that.
We are not that we're not going to buy.
To repurchase so for all the $234 million.
But.
But maybe maybe we'll do.
First the 1 million and later on maybe to add more within the limitations that we have from a tax point of view and being an Israeli company. These are not the same rules apply to us as apply for American company.
But to tell you today, if we have planned.
Two idle Kato invest the $230 million down so is now.
Okay, and then maybe last one for me I'll just ask about you had a few recent studies.
That were published peer reviewed studies looking at the safety and efficacy of some of your.
Yes treatments and then there was this plume study that came out right.
Recently looking at the difference between lasers, and RF and the importance of that until that I guess I was wondering if you could just speak to the importance of those studies and how that can help you with marketing how they could help shift behavior.
Just.
Yes.
Spiro could you please answer that.
Okay sure sure Moshe Thank you Matt I appreciate the question.
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The way the system also see between behind organization as to most of our marketing quote unquote marketing spend is actually in backing up.
Salesforce with proper studies peer reviewed studies in good journals that the doctors can read and adopt the technology. So this has been probably the biggest differentiator between us and other competitors. So we make a very very large effort with Moshe support.
To get this.
This body of work published out there and especially if we're the leader in radio frequency, it's almost something that we have to do as leaders in the space.
As.
As far as coded into plume study we did.
It's very simple it's out there now its basic comparing a radio frequency technology to our lasers and we know.
Lasers, it's a very well established Packers plume and there's virus in that plan now we don't know if co within the skin. However.
Using more fees micro needling. This thing does not exist the particles are not in the plan, we're very very little so from a safety purpose always have to consider large number of aesthetic procedures being done right now.
Now we also have to instruct to the doctors that not only are we accompany the innovates, but also a company that take safety very very very seriously and putting a body of work behind that safety and how we do it and providing this literature to our doctors is probably the best and strongest marketing tools. We have so to answer your question.
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Yeah. Thanks, very much appreciate that thanks.
Your next question comes from Kyle Rose of Canaccord Genuity. Please go ahead.
Great. Thank you for taking the question.
So I wanted to ask just a little bit more about what you're seeing.
In the marketplace, obviously, a very strong quarter here. So congrats on that given all of the the cobot tailwind or headwinds, but maybe help us understand what what your customers are seeing in the actual market. Obviously you are placing a lot of systems, maybe what what utilization for the systems looks like and then maybe you could just overall.
Market trends, you're seeing there I mean people are traveling less.
They're spending less on vacations, maybe the going out the lets dinners.
Is there increased interest in pursuing.
Aesthetic procedures are you seeing higher consumer demand just trying to understand what the recurring revenue.
Trends look like in the business.
Yes.
Okay.
Soften then I will.
Yes sure.
Hey, guys. Thanks for the question. So one of the things that Weve definitely seen and we've kind of called us and suspected but we looked at some type of pent up demand. So even if you look at overall, if you look at right.
Till sales.
For.
Certain types of things that people wouldn't normally spend on going back to what you said people arent traveling so I do think that people do have some excess disposable income and they're starting to reinvest in themselves. We thought maybe it might just be something short term that we possibly would've seen a spike in what we've actually seen that carry on.
Since things have kind of returned back to normalcy to a certain degree or the new normal as well she calls and so I do think that we've seen that a lot of our clinics have been busier than they've ever been right now I'm not going to say all of them, but it is something that we're seeing across across the board at least in North America, and I think Intel.
Turn it allows them to try and offer some of these new types of procedures, so our hands free technology or minimally invasive been really really strong.
And been very popular with some of the new kind of regulations in place that people are following Spiro did you want to talk a little bit about what you're seeing in the clinics.
Yes for the year.
Yes, Thank you shack.
Absolutely we're seeing a lot of demand we saw can you hear me.
Yes.
It's.
Yes, so we're actually seeing a lot of demand we saw the demand initially was compressed demand for back in the spring.
Let me kind of expected it to sort of taper off in the months of September October but these are unusual times and the ban has continued and exactly like Jack said, it's not necessarily everywhere. The same but the continued demand is an aberration because traditionally in the aesthetic world use.
Usually September.
Sure things typically drop off from more plastic surgery procedures. The mothers usually take the kids back to school, it's a large element of the practices.
We haven't seen that this is continuing demand I think it's it's because the people have been what Chuck said.
Definitely have more income than sitting around and not spending.
Other things, but we've continued to see this demand through this period of time, which is definitely unprecedented and we welcome and of course.
I agree I just wanted to add one thing this is more share here.
Which would give you some more color to your question.
The only way for us.
We measure that demand for post siege of east check and measure how many disposable with selling as you know in our surgical devices.
Minimally invasive ablative everything to penetrate the skin those one time this.
Closable pill treatment the last quarter, we had and wet cold status of disposable and that's continue in the fourth quarter. This isn't like a we have 6400 fist already installed the worldwide and we see increase ever.
We months, we see increased demand for disposables. So basically that's stella the adults who is using the system and the doctors make money on the system and they don't need much if they don't even even tool to tool treatment a week yeah.
Yeah paying back the system any less.
The seven eight months I believe I did the calculation once I will do it again, if necessary, but every month, we see continuation in the growth of disposable and this is the best measure to measure how the system are being used is that answer your question.
It absolutely does.
I appreciate the color from.
From everybody on that that's very helpful.
And then the other question. The last question I had and I'll hop back in the queue is just around.
The international markets and kind of the the entrance youve.
Had to China. So two part question one is how has the launch into China.
China progressed, what are your expectations I think or maybe now through the end of 2021, and then also you know weve seen rising case volumes and some pretty severe shutdowns of procedures in markets again in Europe, maybe just help us understand how we should think.
Think about the international markets as we move into the Q4.
Oh, Okay, Okay, well I didn't as we said the international market, what we call outside us double it said.
Year over year in Q3.
And this is because onto English.
Nation processes that we have completed during the last two quarters as you probably know in the second quarter, beginning we started to sell in China. After getting the approval for two out of the nine platforms that that that that that we have not everything is yet approved in China.
Now and we start to sell we have an office in Wanzhou I.
Subsidiary, we have distributor in Beijing, we're doing a good job and introduction of the product and the technology into the Chinese market and in the third quarter, we grew in China compared to the second quarter and I believe.
Leave on the fourth quarter, we continued the momentum.
Other countries that that we see some.
Some growth is Brazil, although Brazil is under.
Our difficult situation today because of the COVID-19, all of South America on a terrible shape today as everybody now because.
As the leaders in Brazil, do not do not accept that there was the pandemic.
But but we managed to do a big introduction and virtual conference too many plastic surgeon, especially for the surgical procedure and the surgical platforms and we start to sell.
They are in the second quarter, and we see momentum growth in the third quarter as well in Mexico as well in Korea.
In Asia.
India, Although we have a subsidiary there but.
But the situation is just now getting some improved.
And from the call with.
Europe are you're right, we're experiencing the second wave in Europe.
But but that third quarter was that was better than the second quarter and I believe the fourth quarter, although right now the situation is a little bit more difficult.
We have commitments from our subsidiary and distributors to do everything they can you know.
Taking into consideration of course, the situation and the restriction.
But that but we're not stopping there although.
Although the second wave this stuff in a in Europe right now.
And we follow it on a daily basis, but this is not the same as the first wave of point of the of the core of it because they managed to know how to control it a little bit better.
So.
In what I'm, saying is we're not stopping there.
The development and and.
And activity in any country.
Not even in this well aware of the situation is not the best.
In the fourth quarter I believe.
Will not be a slowdown on the contrary.
Great. Thank you very much for taking the questions.
The next question comes from Jeff Johnson of Baird. Please go ahead.
Thank you good morning, guys Moshe you mentioned the 6400 installed base.
A few minutes ago could you give us the split us versus O.U.S. on that and then maybe I'd be interested in hearing from you or or maybe shack.
And now that you've got the more PS eight platform, you've obviously got evolve and Evoque is doing so well you've got.
All the various.
Hi platforms things like that.
Is there an increase happening in the number of platforms per office. So is the average platforms per office going from one.
A two to 1.3 to 1.4, how do you expect that to trend over the next year or two as well.
Sure Kevin would you answer that.
Okay.
Yes sure.
So yeah. We you know your bank margin were actually processing right now to further enable that but we are seeing.
More to three system, what we call bundle deals that are going in.
Its increased but at the same time, what's nice about it is a lot of these technologies are technologies that they can delegate.
That physicians can delegate and so with that being said it allows them to generate passive income versus say the minimum wage.
In basin, where they have to be the ones you know.
Actually performing the procedure. So when you combine the two of those together and it's a nice one two punch, it's a nice return on investment for the physician.
The patients get the results that they are very very happy with what we've heard some great success on.
Morphy same body, so far obviously more proceeds for quite some time.
But we do see it overall there are different areas, depending on what specialties that we go after.
Same LBG land well they can start treating people with them about Cuba.
For women's health and wellness, but then at the same time there they might have certain patients that are going to be in a position where they want to have something.
John would skin tightening so you know the vocal evolve kind of come into play so.
Our team has been very well versed and prepared in terms of how to actually take it to a certain degree where we ensure that the actual physician themselves. It's a good fit for them, where they are going to be doing well in there as Moshe said utilization.
Jason consumables has been increasing which is which is a very positive sign for us because they're using their devices and in our default rates on on leases have been minimal which is which is extremely good.
Thank you and I know you might not want to share numbers, but can you split that 6400 installed base.
Oh, you asked if you if you cook anyway, or shaq, any any kind of system for office and number.
I'll, let Moshe yes, yes, we can yes, we can in the presentation that the that we show with everybody on the IR section. We we gave this inflammation 6400 system.
Installed worldwide out of which 3500 in the way.
Thank you I guess I missed that I apologize and then Moshe and my last question is you know.
If I look now over the last three years each of the last three years, assuming guidance here is fairly accurate or 2020, you've increased revenue up.
About $40 million to $50 million per year on an absolute basis, I know, you're not providing 2021 guidance, but is that how we should think about kind of what the market can absorb each year and then kind of how.
How absolute revenue trends should maintain into 2021, just the typical 40 to 50 million increase each year.
Oh, well I, we have not yet gave that the guidance for 2021, we will give the guidance for 2021 in the next earning call, which will take place in February which will be on February next time next year.
But yes, you can follow the same got the same.
The same growth that we had in the last three years or even four years for 50 to 100 to 152 close to 200 this year.
And probably will be the same in the next year, yes, well introducing the same amount of new product every year on new platform.
And I believe I believe your estimate is like.
Okay. Thank you guys I appreciate it.
As a reminder, if you have a question. Please press Star then one the next question comes from Seth.
That's fair to knowledge of Oppenheimer. Please go ahead.
Hey, guys. So first of all again, congratulations on really an exceptional quarter and their strong full year guidance.
A couple of questions here most of them have been asked.
On the pipeline is there any further color you can give us on either the timing or maybe further color on the use cases for the 2021 launches.
And then the where we should be looking in terms of use cases for 2022 onwards.
Well, we cannot give the existing execs timing off the new product launch.
Because of regulatory issue not because it's how we.
I cannot say, it's because as you know we are not counting any product before we completed a full study to prove safety and efficacy before we file.
You know submission with the F.D.A. and to see in Europe in order to get clearance. This has a medical.
Second equipment, we can not market them without a poor weather for the specific medical indication that that we request.
Sometimes it stack a little bit longer than than what we are than what we estimate in the beginning because DAF D.A. might have more quest.
Russia or they ask us to do a little bit more clinical walk in order to ensure that this is safe and and efficacy a high efficacy for what we want to claim but.
But just it just as a guideline.
Usually when we bring one product.
Sometime.
In the first quarter, if everything goes well.
And the last and the second one is second platform before the end of the third quarter towards Christmas and the fourth quarter.
Okay, Great. That's helpful. And then just a couple of maybe more technical question.
And first on the tax rate should we continue to be thinking about the effective tax rate next year moving up somewhere towards 11%. So if there are any updates on that front.
Helpful. And then second on the accounts receivable, maybe it's a bit of a minor issue, but given the fact that.
International revenues are now a bigger part of the business and it is expected to be a bigger part of the business on a go forward basis because of the kind of the the higher growth levels should we be thinking about accounts receivables being closer to the current levels, which are up pretty you know maybe it's still an absolutely no no no.
Number but on a relative basis.
It's a little bit higher.
[laughter] undo onto that.
Yeah.
Yes, I think this question. So it's on the tax rate in 2021, we believe that that's going to stay pretty much superior to what can be seen in 2020.
His own talking Junkins expiring only at the end of 2021. So only studying 2022, we will go up to that and maybe 11 flip side that you mentioned.
Hey, we got into it accounts receivables and yes, it's probably now that international or end markets or.
Well doing much better than we probably go up it.
Might be reasonable to assume that degree remain in pretty much the same isn't.
Okay I'll head back into the queue. Thank you for Ah if nobody had of any other question definitely thank you.
Yeah.
This does conclude our question and answer session I would like to turn the conference back over to Moshe Mr. Rockies CEO for any closing remarks.
Okay. Thank you operator, thank you everybody for joining us up to the third quarter 2020 financially.
Just hope to see you in the next conference call to.
Stay healthy and be safe. Thank you on.
The conference has now concluded thank you.