Q2 2022 Inmode Ltd Earnings Call
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Good morning.
And welcome to the second quarter 2022 earnings results Conference call.
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I would now like to turn the conference over to Mary. Thank all C. O N S. I R. Please go ahead.
Thank you operator, thank you everyone for joining us today.
In the second quarter 2022.
Before we begin I would like to remind our listener.
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The information provided on this call may contain forward looking statements.
Safe Harbor statement outlined in todays earnings release.
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Today's call. If you have not received a copy of the release please.
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Company's websites.
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Competitive technological regulatory and other factors could cause actual results to differ materially from those expressed.
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First our results are not necessarily indicative of future performance.
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We can give no assurance as to the accuracy.
Our forward looking statements and assume no obligation to update them.
As required by law.
With that I'd like to turn the call over to Mohammed Rafi Chairman and CEO .
Please go ahead.
Thank you Mary and thanks to everyone joining us for our second quarter 2022, earning quarter.
With me today Doctor Microcline, then our cofounder and Chief Technology Officer.
Yeah, Youre Malka, our Chief Financial Officer, Shaquille, a county, our President in North America Doctors Pure Bureau, our Chief Medical Officer, Andrew <unk>, our VP of finance following our prepared remarks, we will be all be available for 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 go off across the U S and the key region globally underscore the strong demand for our technologies and our product portfolio.
Our growth engine include the launch of two new modality every year grew up in the United States geographical expansion outside the U S and high volume sales of consumable as a result of more frequent use of all platforms.
All of 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.
The Buddy face and also for women has.
We have highly efficient sales team of more than 200 works worldwide with their excellent work sales of capital equipment represents 87% of our total revenue in the second quarter.
While sales of consumables and services.
<unk> for the remaining 13% we're excited to see the numbers of consumable set is growing quarter after quarter and consistently eating new highs.
Our installed base 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 accumulated accounted for $41 2 million or 36% of sales.
It's 33% increase compared to Q2 last year.
<unk> operates in a total of 78 countries are newly opened subsidiary in Italy is up and running smoothly and contributing to our positive we saw into paid marketing, we see demand from Europe Asia, and Latin America continuing to be.
Strong.
In addition important markets, such as China, Korea, Brazil, and Mexico gain traction thanks to the efforts of our local presence.
On the macro level supply change issue 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.
Now I would like to turn the call over to Shaquille, Our president is all of them in North America Shaquille.
Thanks, Michelle and thanks to everyone for joining us we're 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.
As we look ahead at the upcoming quarters, the North American market is positioned to remain the biggest revenue contributor and growth driver for end mode.
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 <unk> business total sales were originally projected at $20 million for the year, but what's 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 your for a review of the financial results in more detail.
Thanks for your team and they know everyone. Thank you for joining.
Total revenue emo generated $113 5 million donuts in the second quarter of 2022, and 30% year over year increase using gross margin of 83% on a GAAP basis breaking.
Breaking this down we see sense of minimally invasive and some dermal ablative technologies in the second quarter grew 48% year over year to 80% of our quarterly revenues.
Well the total sales in Q2, 64% came from the U S and 36% came from the rest of the world.
Bill to 65% and 35% respectively for the same quarter in 2021.
For our international contributors, Canada, Asia, and Latin America, where the major markets driving our growth rate.
Q2, non-GAAP gross margin remained strong at 84% despite the global supply chain challenges.
Moving on capital equipment in the second quarter and represented 87% of the total revenue while consumer business service revenues accounted for the remaining 13%.
GAAP operating expenses in the second quarter were $45 4 million.
37% increase compared to Q2 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 most kids are presented to us 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 daus 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 $34 million in the same quarter of 2021, representing a 30% increase.
GAAP operating margin was 43% in Q2 of 'twenty, two and non-GAAP operating margin for the second quarter of 2022 was 14, 9% compared to the operating margin of 451% in the same period last year.
Looking at the 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% compared to 51 cents per diluted share in the second quarter 2021.
Once again, we ended the quarter with a strong balance sheet.
As of June 30th 2022, the company had cash and cash equivalents marketable securities and because it's a $443 6 million donuts.
This quarter <unk> generated $47 million from operating activities.
Before I turn the call back to Michelle 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 290 million go out.
non-GAAP earnings per diluted share between two going out many different things and to go down in 16 cents.
I'll now turn over the call back to Moshe.
Thank you <unk> and thank you <unk> operator, we're ready for Q&A session.
Yeah.
Thank you well now begin the question and answer session.
Ask a question you May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys, Chile, Australia question. Please press Star then two.
It's kind of a pause momentarily to assemble our roster.
Our first question.
It comes from Kai your routes lease Canaccord Genuity. Please go ahead.
Great. This is Brian on for Kyle. Thank you so much for taking the questions and congrats on another strong quarter, maybe just start just wanted to dig in a bit on China. How is that fared into Q2 as 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.
Any update there would be helpful. And then any other update on the <unk> approvals as well.
Okay. Thank you.
Well the situation in China has not changed since Q1.
The country still close a I mean, the same situation. If you travel to China, you have to be locked down for two weeks in hotel you cannot travel from city to city.
But even with that with all the limitation, we did better with it twice as much as in Q1 and 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 are from Beijing to Shanghai and some other to other cities. So they can they can operate freely within the cities without the need to travel from from city to city, but the main.
And the issue is since the country's close we cannot send any training doctors to train.
Due semi now in China, especially not on the new devices that we're now developing a DC.
VA is walking very slow Oh, we filed another two applications for two more product the last the last months.
But yes, we did not receive any new approval in the last quarter.
No it's not like the FDA when you file youll get the non so when you get that.
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 long time, the same situation with the Hong Kong, which is now part of China. So overall, we managed to do twice as much better than last quarter, but yet not not the way that that we want to be.
Understood. Thank you Moshe and then on empower maybe through the first half our revenues are tracking versus your expectation is 20 million still a fair assumption for the full year. This year and then maybe given your execution. Thus far are some of the kols groundwork you've laid in some of the data readouts that we are.
Expecting.
How can empower sort of scale in year to next year in 2023, how should we start to think about the commercial scaling next year. Thank you for the guidance 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 month, and a half ago, we managed to lounge them power in Europe during the <unk> conference in Paris.
And now they are walking 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 west to train some Mexico luminary doctors.
We're planning to launch them power in Asia during the <unk> 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 the guidance. But this is very early stage to judge what is what is going to be in 2023, I believe that if everything is okay.
We're going to do well in 2023 above the guidance that we gave in 2022.
We don't want to we don't want to give more detail on that because you know its a six months in a row that that were working with empower.
We have some luminary doctors, who liked the system and get good results.
We started the process.
To clear the system for other indications with the FDA, we're investing very heavily heavily on the empower since we believe that we want to be the leader in the women health or the wellness, we might have in the market.
Yeah.
Understood. Thanks, Moshe and if I could just squeeze in one quick question on gross margin just any updated thoughts given sort of a sustained inflationary pressures. We're seeing is 83% to 85% still a reasonable sort of <unk>.
<unk> one <unk>.
I want to tell you that the fact that we went up from 83% to eight before 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 as you probably.
No it's better than me prices of components and sub assemblies of electronics are going up every day.
The factoring cost labor cost transportation and logistic costs in the last six months everything went up but by an average of at least 10%. Some component in some sub assemblies are more than that but you know we're fighting.
Opening more suppliers.
On every component every sub assembly right now we have at least three suppliers and three vendors in order to in order to make sure that we'll get everything on time. The most important right now it's not just the price is the most important right now is to keep all the lines working we know that some of our competitors.
<unk> 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 thanks, all the logistic and supply chain and manufacturing team here in Israel and all around the world for doing a good job so our to keep the 84.
Percent or even 83% becomes very difficult and very challenging but as you see we're doing the best.
Yeah.
Yeah.
Can you hear me.
Hello, Yeah. Thank you.
Sure.
Our next question comes from Joseph Conway with Needham. Please go ahead.
Hello.
Quick question on I guess, the envision launch.
Obviously empowers exceeding your guesses.
Expectation, so far and another record for.
Consumable revenue in the quarter.
Does this kind of change you guys are thinking on the launch firm vision.
And I guess, maybe could you just solidify that timeline.
When.
The timeline stay 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 full side that we did and we are going to submit for publication and peer review articles.
We are walking with that with the FDA on the indication I believe that the if not the end of this year sometime in the beginning of next year, the envision will be lounge in the in the in the United States and after that in Europe and Asia.
<unk> you want to know if you want to say something on Canada. Please.
Yes, Joseph So we've actually had a pretty successful soft launch in Canada.
As you know before we do anything we want to make sure that we have the appropriate kols onboard and we want to be sure that we have the proper logistics in place inventory so on and so forth. So as Moshe said, 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 there.
Things in place, including the clinical side of things.
The coal side of things as well so with that being said I think we feel pretty comfortable and confident with it.
You'll hear more about that.
Towards the start of next year.
Okay, great. Thank you and then maybe just moving towards.
Consumables.
Can you, maybe dissect a little bit of that growth.
There was very strong.
Both in the installed base.
So maybe yes it does.
A little bit between.
Increased physician utilization and.
Just purely from the growth of the installed base.
Sure. So we've actually started to expand our post sales support team I'll, Let me discuss the international side of things, but at least in North America, We've expanded our post sales support team.
<unk> almost doubled the size of what we were last year, we're still working on putting 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 in to 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 turnaround and ask you is morpheus. The device. So you guys make which happens quite frequently now so.
We are building the brands.
As I mentioned, the same thing as envisioned and empower.
We'd like to crawl walk run rather than the other way around so in doing that.
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 some continual growth on that side of things hopefully that answers your question Joseph.
Yes, yes. It does thank you.
Okay.
Thank you Dan if you have a question. Please press Star then one.
Our next question comes from Jeff Johnson with Baird.
Please go ahead.
Thank you guys. Good morning, Moshe just on system placements.
You mentioned, China still the lockdown issues, there, but I think this was your biggest quarter ever of global placements.
Couple of questions I guess, one what's been the tenor of demand even over the last couple of months. It seems like financing rates are probably going up theres, a little bit of competitive noise out there that we continue to hear in the channel.
You seem to be powering through very well so 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.
Kind of a second question on placements can you help us understand again, it's a number we asked about quite frequently but wanted to penetration in the U S now or.
In the surgical derm and plastic surgery segment of the market, where do you see penetration at right now how much room is there anything on those topics would be helpful. Thank you.
Well, if our if we want if we want to take it to the worldwide.
Altogether, we have about 14000 system installed.
Okay. The total available market, if you want to count dermatologists plastic surgeon aesthetic surgeon.
Obgyn in the future ophthalmology is a worldwide is more than 200 dose and im talking about doctors with clinics.
And you know our portfolio is really 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 next type.
Brody type a we started with women have to do all kind of indication so with the wide portfolio like that I believe that worldwide. One of very very early stage very early stage and we have room to grow.
And Westwood and we're doing it we have room to grow in almost every country. In addition to that we have.
Have several product, which not yet approved not in Europe , not in Asia, and probably not in Asia, and North and South America, and we continue to invest heavily on regulation in 27 countries simultaneously in 27 countries.
And it takes time it takes studies to take money and not always we get.
To overcome the bureaucracy on every state, but eventually all the product would be approved and this is another growth engine widening the portfolio that you can sell in every country out of the 87 countries that were selling in North America, we have the wide wide range of regulation from the FDA because we started in deal.
And we started in <unk> and later on we start in Canada.
But for example, right now in Europe , when the C moved from the MTV direction.
If regulation from the MDI, which become much more difficult.
We are well, it's a challenging but we are working on it and we will overcome it.
The good news is is that.
<unk> to entry to competitors with all this regulation, so I believe that as far as penetration where 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 to 50000 plays off.
Installed.
Every one of these doctors who are using laser eventually will use one of our system. So if we sold in the U S 65, or 6600 system, we still have way to grow and and and and as you'll see we are growing quarter over quarter. So the penetration is getting wider and wider did I answer you.
Hey, JJ, maybe just comment Jeff Dishner, Yeah, sorry, Geoff just to chime in to answer some of your other questions. You had asked so in regards to financing.
I know thats, something that everyone's kind of keeping an eye on here.
We've talked to our brokers and a number of the leasing companies.
We haven't seen rate hikes as of yet.
Going to start to kick in slowly the nice thing about it is 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 our industry. So I think people are going to be accepting of it.
The key thing is as long as we can continue to ensure that our customers are successful with their devices.
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.
Hopefully that answers that question there, but in terms of competition I know you've kind of talked about that.
As a company.
We don't really.
We don't worry too much about competition, we actually look at competition is a good thing. It brings awareness I think a lot of times. When you do have work getting out there just keep in mind, you know as much as it sounds like we've had a season laser industry or excuse me. The RF industry. We're still we're still relatively new players into the market and we've carved out kind of a unique market and some of the devices.
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, but which we can penetrate so long as the health care system.
<unk> to be the way. It is in terms of managed care. There's always physicians that are going to look at continuing to add certain revenue or separate revenue streams to their practice when it comes down to the specialties as you mentioned with plastic surgery dermatology, so on and so forth.
Again, the derm World, we're very very early on the plastic surgery World don't forget.
The goal with them and with all of our doctors for that matter is to get in their offices to make them successful and because of the wide array of products that we carry.
We're able to go in there are successful there first one we're going to help them benefit and hopefully they will reinvest for the second one so that's part of the business model as well hopefully that answers the other part of your question.
Yes, that's helpful from both of you. Thank you and then I guess my only other question really is just.
Moshe we only see it in the proxy once a year, but stock has been lost here.
Pretty meaningfully this year has there been any level or interest from an insider buying standpoint as anybody that's got the buying at these levels internally.
Maybe a question for Guy here I think there is over $400 million of cash and marketable securities on the balance sheet at this point any thoughts on a buyback again valuation walks.
Pretty compelling I would argue.
So just any thoughts on both the tire buying <unk>.
Thanks.
Well, let me answer the first question of the first part of your question and <unk> will answer the second part.
As far as as far as the executive team and the inside of.
They are fully committed and they're here to stay.
Some of them sold some shares.
Because and I can tell you that in 2021, we plan to do a secondary.
When the banks Oshkosh.
To sell some of the executive and some of the insiders through the secondary but unfortunately did not happened. So it was done on the market I can tell you. So some of this insiders and the executive 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 are not going anywhere. This is the company that we have established this is the company that we built a successful company quarter over quarter, and we're not going to leave.
Because some of US have sold some of the sales of some of the stories exercised some of the option and sold and sold some shares this is something a very common.
And a public company, especially for 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 are exploring opportunities I can tell you that we are exploring opportunities almost every months, we're exploring opportunity and when that when the opportunity will present itself. We will do it and therefore the money is still on the balance sheet, but we have and we have the intention to use it.
Thank you.
Yeah.
This concludes our question and answer session I would like to turn the conference back over to motion Israhi, Chairman and CEO for any closing remarks.
Okay. Thank you operator, thank you Mary Thank you Shaquille year ear, Spiro Mischka and Raffi well with me here today I want to extend thanks to all the in mall team salespeople logistic paper manufacturing people R&D people engineering every.
Body, who is working very hard to $24 seven to make sure that we will deliver what we promised to deliver and we're doing it quarter over quarter. This is a family oriented company everybody here is it 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 is some macro issue in 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 earnings call. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
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