Q4 2022 Inmode Ltd Earnings Call
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Speaker 2: Good morning and welcome to in mode fourth quarter and four year financial results conference call.
Speaker 2: All participants will be in listen only mode. If you need assistance please signal conference specialists by pressing this star key followed by zero.
Speaker 2: After today's presentation, there will be an opportunity to ask questions.
Speaker 2: Please note that this event is being recorded.
Speaker 2: I'm not like to turn the conference over to Mary C. Gold, but MSIR, please go ahead.
Speaker 3: Thank you operator and everyone for joining us today. Welcome to our conference call.
Speaker 3: Before we begin, I would like to remind our listeners that certain information provided on this call may contain forward-looking statements.
Speaker 3: and that the Safe Harbor statement outlined in today's earnings release also pertains to this call. If you have not received a copy of the release, please go to the investor relations section of the company's website.
Speaker 3: 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.
Speaker 3: as to the accuracy of our forward-looking statements and assume no obligation to update them except as required by law.
Speaker 3: With that, I'd like to pass the call over to Moshe Miswachi, Chairman and CEO . Moshe, please go ahead.
Speaker 4: Thank you, Mary, and to everybody who joining us. With me today are Dr. Michael Kwindel, our co-founder and chief technology officer, E.R. Malca, our chief financial officer, Shakila Kani, our president in North America.
Speaker 4: Dr. Spiro Taduro, our chief medical officer, and Rafael Dicaman, our VP of Finance.
Speaker 4: Following our prepared remark, we will all be available to answer your question.
Speaker 4: We are pleased to report another record quarter with Q4 revenue of 133.6 million and 453.3 million for the full year. An increase of 21% as compared to Q4 of 2021.
Speaker 4: and an increase of 27% compared to the full year 2021.
Speaker 4: This is the record level of revenue for an aesthetic medical company, and we especially and especially remarkable and exciting since we are achieving this milestone during challenging global time.
Speaker 4: We believe our unique technology strong dedication to the highest industry standard, our employee commitment, focus growth, strategy in the US and globally, and our diversified portfolio all contribute to our leadership position in the market.
Speaker 4: we value the trust of physician and patient as we experience a growing demand across the board.
Speaker 4: The success of the Empower-RF platforms in 2022 continue to exceed our expectation. In fact, revenue from these platforms exceeding $45 million in 2022. Well above our regional guidance of 20 million.
Speaker 4: As we mentioned last quarter, the Mofu State device is becoming the gold standard in the Stereocardagore. And we believe that it will continue to be one of our biggest growth drivers going forward.
Speaker 4: This play a measure role in major platforms that we launch in 2022 We announced an exciting new addition to our portfolio and the envisioned platform for dry eye treatment Which receives certification in Canada last November in more than vision is an innovative technology that deliver
Speaker 4: targeted bipolar radio frequency energy to small dedicated orchular area. We plan to launch the envision platforms in the United States in the first half of this year to focus on ophthalmology markets and we are encouraged from the positive feedback.
Speaker 4: that we have received from Canadian market. Additionally, the next generation of Yvok, our hand free platforms for face treatment, is planned to be launched in the second half of 2023.
Speaker 4: As part of our world's strategy, we continue to innovate as we launch new platforms or modality every year and we continue to explore potential acquisition that could complement our presence in the aesthetic and wellness market.
Speaker 4: Now, I would like to turn the call over to Shakil, our President in North America. Shakil, go ahead.
Speaker 2: Thanks, Masha and everyone for joining us. Once again, we're pleased to report on their record quarter.
Speaker 2: with continued positive momentum, Utah diverse by portfolio, growing market demand, and more frequent use of our platforms.
Speaker 5: in modes growing install base.
Speaker 5: and the increase in the number of treatments performed led to the increase in consumable sales that reached 230,000 units in the fourth quarter, more than 749,000 in 2022.
Speaker 5: To support increased market demand, we continue to grow our sales team in North America and globally.
Speaker 5: In 2022, we enhanced our initiative to strengthen in modes brand recognition.
Speaker 5: We sponsored several well-attended marketing events throughout the year and made a concentrated effort in expanding consumer awareness.
Speaker 5: We can say with confidence that our strong brand recognition, especially in North America, leads to a new situation where platforms are being sought after and bought rather than sold. We expect this paradigm shift to continue and support our future growth. As mentioned by Moshe, the Empower RF platform is once again outperformed our projections. In addition,
Speaker 5: As we continue our strategy and expand into new areas of wellness, we plan on launching the Invision platform for the ophthalmology and optometry market during the first half of 2023, followed by the second generation of our hands-free platform for facial treatments during the latter half of the year.
Speaker 5: We believe that in most success in 2022 demonstrated our ability to expand into new categories and solidify and solidify our leadership position in the aesthetic and wellness market.
Speaker 5: Lastly, I'd like to thank our entire North American team for their continued hard work.
Speaker 5: I will now hand over the call to you for a review of the financial results and more detail. There.
Speaker 6: Thanks, Raquel and hello everyone. Thank you for joining us.
Speaker 6: Starting with total revenue, Inmo generated a record $133.6 million in the fourth quarter of 2022, representing a 21% year-over-year increase, with a gross margin of 84% on a gap basis.
Speaker 6: For the full year of 2022, revenue total 454.3 million dollars.
Speaker 6: an increase of 27% compared to 2021.
Speaker 6: First quarter of the year.
Speaker 6: sales outside the US accounted for 42.3 million dollars or 32% of sales compared to 33% in Q4 last year.
Speaker 6: For the full year of 2022, sales outside the US accounted for $155.7 million or 34% of sales.
Speaker 6: Same as 2021.
Speaker 6: we are seeing growth coming from many different countries and we are planning to establish at least one additional subsidiary later this year.
Speaker 6: To support our operations and growth, InMode now operates in total of 80 countries with a sales team of more than 220 direct reps and over 69 distributors worldwide. Moving on, capital equipment in the fourth quarter represented 87% of total revenue.
Speaker 6: year and 33% and 34% increase year-over-year respectively.
Speaker 6: Saisen marketing expenses increased slightly to $47 million in the fourth quarter compared to $35.3 million in the same period last year.
Speaker 6: Seisen marketing expenses for the full year of 2022 were $160.6 million compared to $110.4 million for 2021.
Speaker 6: This increase is attributed to hiring more sales representatives, increasing a presence in the US and globally.
Speaker 6: Next, we look at Sherbet's compensation, which increased to $7.1 million in the fourth quarter of 2022 and $24.5 million in the full year of 2022. On an AMGA basis, operating expenses were $46.1 million in this quarter compared to total of $37.5 million.
Speaker 6: in the same quarter of 2021, representing a 23% increase. For 2022, NANGAB operating expenses were $160.4 million, compared to $126.4 million for 2021.
Speaker 6: Gap operating margin for Q4 was 45% and 44% for the full year of 2022.
Speaker 6: NANGAP operating margin for the fourth quarter of 2022 was 50% and 49% for the full year 2022.
Speaker 6: Gap diluted an inspiration for the first quarter where 44 cents compared to 61 cents per diluted chair in Q4 of 2021 and $1.89 in 2022 compared to $1.92 in 2021.
Speaker 6: NANGAF diluted earnings per share for this quarter were a record 78 cents compared to 64 cents per diluted share in the fourth quarter of 2021.
Speaker 6: and $2.42 for 2022 compared to $2.5 for 2021.
Speaker 6: Once again, we ended the quarter with a strong balance sheet. As of December 31, 2022, the company has cash and cash equivalent, marketable securities and deposits of $547.4 million.
Speaker 6: This quarter in more generated $57.2 million from operating activities.
Speaker 6: I would like to mention the discordr it is more important than ever to focus on our non-GAP results since in our GAP P&L we have recorded a couple of one-time tax entries that were adjusted for non-GAP purposes.
Speaker 6: With regard to taxes, Inmo deployed the provisions of their amendment to the investment law to its exempt profits accrued prior to 2020 and made a one-time payment of $12 million to the Israeli tax authority.
Speaker 6: In addition, the company reached an agreement with the Israel tax authority and the which the company paid you in January approximately $14.3 million on its undistributed exempt income for the year and December 31, 2021. As a result, we expect to save.
Speaker 6: up to $28.5 million in potential future tax payments.
Speaker 6: And our entire cache balance is now free and clear of any additional copo effects requirement.
Speaker 6: Before I turn the call back to Moshe, I'd like to reiterate our guidance for 2023.
Speaker 6: Revenues between $525 million and $530 million, NANGAP goes margin between 83% and 85%. NANGAP income corporations between $236 million and $238 million, NANGAP earnings per delusage share between $2.58.
Speaker 6: and $2.60. I will now turn over the call back to Mosheh. Thank you, A.U. Thank you, Shaqil. Operator, we're ready for Q&A session.
Speaker 6: and 60 cents. I will now turn over the call back to Mosheh. Thank you, A.U. Thank you, Shaqil, Operator. We are ready for Q&A session.
Speaker 6: I will now turn over the call back to Moshe. Thank you, Eiyou. Thank you, Shaquille. Operator, we are ready for Q&A session.
Speaker 7: Hello?
Speaker 7: Hello. Operator?
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Speaker 2: This time will pause momentarily, we'll assemble the roster.
Speaker 2: First class you will be from that net pitch of our plays. Please go ahead sir.
Speaker 2: Hi, thanks so much for taking the question and hear me okay.
Speaker 2: Hi, thanks for taking the question. Can you hear me okay? Yes, we're here. You okay?
Speaker 2: Great. So I have one question on the upcoming launches and then a follow-up on the tone and flow of your current business in the US. On Envision, I'm curious, what sort of of uptake?
Speaker 2: How should we think about the pace of that launch and what sort of investment you're making behind it in terms of your field force or training? That might be notable for you as you laid out your 2023 guide, then I have one follow-up. Well, and Vision was starting to launch it in the US, so I rushed to kill.
Speaker 5: that are going to be specifically focused on envision. And obviously with the size of the market, the TAM for it is huge in terms of the ophthalmology and optometry world. So we do see.
Speaker 5: a large potential in terms of what we can kind of maximize out of this, but like anything else that we do, we're going to roll it out slowly. So we're doing a soft launch to start. And then as we start seeing proof of concept, in terms of efficacy, in terms of marketing success for the...
Speaker 5: practitioners, so on and so forth, we'll slowly start to invest for their funds and resources into it.
Speaker 2: Great. And I mean, if there was one element of the guide, it seemed like there was a little bit of a lift in some of the op-x lines compared to expectations for the coming year. And I'm assuming that that's a factor in that dynamic. Is that fair?
Speaker 2: Oh, it's pretty much accurate. Great. And then just on the tone and the flow of business in the US, if you could, you've gotten a couple of questions around sort of the mix of your, I think everyone's curious about the.
Speaker 2: sort of health and sustainability of what's been a pretty strong US business in light of what might have been a spend ahead environment a couple of years ago and what you know on the horizon could be something happening.
Speaker 2: I say that's consistent with any capital equipment market that we cover is there's a nagging concern about you know what if sending starts to ease here or we have to do some sort of demand catch up. Can you talk a little bit about the flow of that and in particular some of the dynamics around the percent of those businesses?
Speaker 2: of those capital-culted sales that are being financed. And how that has shifted over the past year or two.
Speaker 5: Sure, so we actually haven't seen, you know, it's actually gotten better. Funds have become a little easier. I mean, if you look at some of the stats, even for the Super Bowl and the average spending per family, for people making, you know, a certain amount of income per year, it all went up by like 20 or 30%.
Speaker 5: So, hopefully with that they'll keep eating and hopefully we'll be able to help them with some of their weight loss goals in things of that nature. But, you know, we've seen the US market just as strong as it's ever been from our perspective and the way we finished it was extremely...
Speaker 5: Extremely good. We've had a good start to Q1 so far. So we don't anticipate anything changing there in terms of you know the funding environment of the financing environment.
We haven't seen much of a slow down. We've got some really great partners and we have some really good programs that are put together to help some of the physicians kind of get through. But in terms of spending, we haven't seen anything that down. If everyone's talking about a potential recession, if we haven't already been in one per se.
But as of now we haven't seen anything, things change, we'll obviously keep you guys posted on that.
That answer questions. Yes, thank you. Thank you. Next question will be from Matt Taylor. Jeffries, please go ahead.
Hey guys, this is Delany and from Matt. Thanks for taking our questions. Maybe we wanted to hear a little bit more on the guidance, just the level of conservatism that's built in, many color on quarter decadent. We should expect.
Can you talk about empower growth or the dollars embedded within the guidance? Well, you know, as always, as every year, we try to be very conservative in the guidance.
For example last year the guidance was to we started with 220 and we went all the way up to 455 420 that The guidance we are the guidance that we gave for 2023 is Is conservative is built bottom up territory by territory
I believe that the final will be better than that, but it all depends how 2023 will be as far as demand and other countries like the international market. What will happen between Russia and Ukraine? How the market in China will evolve?
with all the COVID issues there, what will be the supply chain. I believe we are prepared, but the guidance that we gave this year is similar to other various. Very conservative and we believe that eventually hopefully we will do better.
Regarding the power, the embedded numbers is 20% higher than 2022.
Okay, great. Anything on quarterly cadence? We should be aware of. Usually we don't give quarterly guidance, but basically you can take the same seasonality like kind 2022 and apply the quality guidance. By the way, every quarter we will update the total guidance as we did in 2020.
was wondering if you can give us an update there. Now there have been a little bit more public on what you're looking for. How's the evaluation, how's the conversation as targets been? Well, currently we're exploring several opportunities. We're not yet in the stage of doing official...
table to the process but we're actually searching right now and we're doing it very seriously.
Thank you so much.
Thank you. Next question will be from Cal World. It's a can of cord unity. Please go ahead.
Great. Good morning everybody and thank you for taking the question. So I just wanted to push back a little bit or just dig a little bit deeper into guidance for 2023. And particularly, you know, the prior comment about, you know, empowering a 20% grower year over year. I mean, look, you came into the year 22 looking for that to be 20 million. You finished over 45 million. I guess that Germany Pred??????. We are
I understand you're being conservative, but this seems to imply a slowdown in year two when I would think that it would accelerate in year two just given the focus you've had on rebuilding that market. So can you maybe just help us understand how you're thinking about specifically Empower in the women's health market as we move into 2023? Well, yes. We actually launched the Empower...
quarter and we applied to regulation in Brazil, Mexico, Argentina and also in Colombia. Hopefully it will not take longer to get it. So I assume that sometimes toward the second half of this year of 2023 we will start seeing some results.
in these two markets. I want to remind everybody that this is something that relatively new to us and we need to be very careful in the way we progress in this product. Make sure that the doctors will be well trained and it's entitled to build training centers in every country. Have a luminary doctor, one or two or two.
that we will achieve in 2023 will be higher than 20% growth. But again, we try to be conservative and to see what will happen during the year.
Yeah, I'll add further to that. You know, with any product launch, you're going to have some low-enging fruit to start. And so we tried to factor that and still be conservative. I think we'll have a better idea, you know, midway through the year of how we're looking. But we feel good about the market. We've seen some good stuff. We're going to penetrate the core specialties of that market a little further and continue to actually add on very similar to what I mentioned within Vision.
add on some specialty reps to that. So, we do think that there's a bright future there, but again, the factory and some low hanging fruit that from new buyers are excited about new technology. And then obviously, like we talked about with body tide for years, where we wanna build longevity with the product. And as we've seen with...
you know, even more fused, it's become a brand and it's it's been growing like we didn't ever expect and we're hoping to get the same year, but we're still always cautious with how we kind of forecast
No, I can actually appreciate that. And then it's kind of, it turns like that to the envision product. I mean, it sounds like you've got some early positivity or positive signals coming out of Canada. It's going to be the first year of that product, you know, sometime in the first half. Is it fair to think about that as, you know, half of the initial guidance of what you thought empower was to like attend to 20 minutes?
the optimologies and the optimatories are making decision what kind of financing they can get. I mean as we grow in this new category we will be able to give a better guidance and a better view of the market with just in the starting point.
We sold some systems in Canada as soft clowns. We have decided not to give guidance on the invasion at that point.
Okay, and then last question and I'll hop back in queue is how should we be thinking about the China business moving forward? I think historically you framed that somewhere 2 to 3 million which can go to 4 million a quarter but obviously COVID has had a major impact there.
How do we think about those trends as we move into hopefully more of a reopening or less of a COVID headwind from China?
Well, although China opened the doors and everybody can go to China and travel, but there are some restrictions in China for the local people. And we have difficulties to find doctors and trainers to go there because of the COVID situation now in China. And I'm sure that everybody in this state in situation.
But right now, until we will understand what is the situation, we're not claiming any marketing activity in China, bringing people and trainers from overseas to do some workshops and conferences because we know that the local private clinics are closed because of the COVID.
Although China is open, this is something that I don't understand what is what kind of philosophy and strategy is as we go out from the government of China. But hopefully it will be cleared within the first quarter or the second quarter and will be smarter to answer this question. Thank you very much.
Thank you. Next question, please. For my maximum need of my company, please go ahead. Yeah, thanks. I just want to go back to the guidance for your.
or operating income, I guess maybe it's better way to put it. So, it sort of implies about a 400 basis point to climb from around 49% operating margin in 2022 to 45% in 2023. So can you maybe just talk about why that's declining as much as it is and kind of where you're investing in 23 to cause that?
Yeah, I mean the gross margin basically will stay the same. The guidance for the gross margin will be between 83% to 85%, so an average it will be 84. And I believe it's a great achievement taking into consideration the cost of electronic component and the supply chain which is still broken.
It's not yet back to normal. But we have decided to spend more on marketing from 31% of revenue to 35% or 34% and a half% of revenue. We have decided to increase R&D and clinical work.
especially in the women's health and also in other elements. And basically, we have decided to hire more people. And therefore, the EBIT will go down by 4.5%, almost for 49 to 44.5.
But we see that as an investment. We will invest heavily in 2023 on the Empower and also on the Envision, which are new territories for us. It's not like a steric. And therefore we have decided, we have the resources and we need to develop it.
Although it's an expense, but we consider it as an investment. Okay, got it. I mean, this will be at least based on your guidance the second year where your EPS growth has lagged your revenue growth. So just stepping back and looking a little longer term, I mean, can you get back to driving …
operating leverage or at least growing your earnings in line with revenue or is this going to be a continual theme where we see earnings grow slower than revenue growth because of these investments. You know I'm talking in like 24 and beyond. Well I believe 24 and beyond once the power and the ambition will position themselves as leaders in the market, leader of products in the market like.
like all of our static portfolio, we will continue to bring the product to the wellness. In the E&T, you already have a direction dysfunction and others. And therefore, I believe 2024 might be the same because with new products, a new category, a new territory, new territory.
will require additional investment in marketing, R&D, etc. I don't think the numbers that were investing on R&D on marketing are higher than anyone of our competitors, so any other company in the medical devices, I believe, were below the average.
As far as GNA, we're in between 1% and 2% We're still keeping that, trying to be lean and mean Gross margin, I believe, will continue to be in the same range of 83 to 85 But if you ask me about 2024
It probably will be similar to 2023. Okay, thank you. And then just on envision. So I think...
When I spoke to you guys at our growth conference earlier this year, you mentioned that the timing on the dry eye clearance was expected to be in the FDA clearance, sorry, was expected to be in the third quarter. So it sounds like you're going to be launching the product before you have dry eye cleared. Is that right? And then, you know, how big of a deal is that for the kind of initial quarter or two, you know,
selling it without that, it seems like it's sort of a key feature on the product, but maybe the ophthalmologists or understand that, hey if I buy this thing, I'll get this feature in a couple months or whatever.
Well, you're right. We're in a process to get indication from the FDA for the II, but I have to say that the two handpieces involved with the envision, the former I and the Lumeka, the IPL, they are cleared for other indications.
and also for around the eyes. So we have the right to lounge the product. In addition, we already have a study which was published. So we are showing some results to the doctor and to the optometwist. And hopefully in the third quarter.
Once we will get the second half of the year, once we get the indication from the FDR, it will increase the momentum.
Okay, all right, got it. Thank you. I guess you have a question. Please press star then one. Next question will be from Jeff Yosin. The author of the bedroom please go ahead.
Thank you for the afternoon, guys. Good morning. Just a couple questions here for me. One more. I just want to go back and clarify if you were talking about 2024 operating margin or even margin. You said kind of the same, but then you also talked about incremental investments. So do you feel like this 45% level that we're going to be at in 2023, 44 and a half to 45?
That should stay consistent from here. When you say the same as that kind of moving into 2024 can hold that mid 40% range, I just want to make sure that's what you were meaning there.
I believe for your financial model, if you use 45% EBIT for 2023 and 2024, that will be correct. I don't want to give any guidance to 2025 because this is too far away, this is too far away.
We'll see how these three years will develop and will give a guidance sometime in 2024.
Yeah, understood. That's helpful. Thank you. And then yeah, you're just, you know, now that the profit and all the cash on the balance sheet is unencumbered from a tax perspective and that, you know, just how to think about use of free cash flow. Obviously, I think you guys have talked here a little bit about some early stage looking at some M&A opportunities.
any other uses of cash there on buyback or anything else we should be thinking about. So now all the options are absolutely on the tables. We removed any restrictions or any tax, additional tax requirement whatsoever. The main thing we're looking right now is, no more chance to mention the..
some of the main opportunities, but buybacks, dividend, or combination of buybacks with M&A's are also always an option.
But we don't have any approved plan by the board right now to do any of the buyback or dividend. This is just ideas that in case we will not find any compliment.
complement our acquisition, we will consider it. But it's not on the table right now for 2023. Understood. Last question, I think I ask you guys this every year on the fourth quarter call. Historically, we've tried to track your penetration rates in the US plastics and derm markets.
things like that. With the success you've had on end power, that's getting harder to do. I think as the company has matured here, I don't know yet if you're in the stage of replacing some systems. But when I look at that, almost 8,000 placements, to me, will it be that you have in the US now? Any way to help us out on where you are, penetration in kind of your core, plastic, and girm offices, how much penetration room do you think is left in those markets over the next several years?
Yeah, certainly. So, you know, we again, we've talked about this before, but we still have a very large runway in terms of what we're looking at because we have so many different platforms, not every platform has been put into each office, but as we continue to help our practitioners implement some of these devices into their practices.
and basically become successful with them. You know, we have a lot of great traction in terms of return customers, buying their second, third, fourth units, so on and so forth. So I still think in terms of penetration, we have a long ways to go, a lot of physicians out there. And then again, with empower, I think we...
We're going to start seeing some more traction in the core markets as we put more focus on it and you know with the soft launch of envision You know transitioning from the soft launch to the full launch. I will start seeing some good upside there
Hey, Shaq, can I push you on that? I mean, just sorry, I hear it, but just a very Shaq here on the call. Just, would you put your penetration in core plastic and Durham offices? Does it have one handle on it, a two handle, a three handle, you know, 10, 15%, 20, 25%, are we pushing 30% yet? Just, of the offices, you could go into there.
you know, just help us ballpark kind of where you are.
Yeah, it's tough to say it and it's not that I'm trying to dance around. Yeah, you're asking, but it's really hard to say. You know, each year, obviously there's newer doctors out there. We're in training programs with our technology, so they're very familiar with what we're offering. It's hard. I just don't want to give you a number and beat.
totally way off to mess with your model, but I do, as I said, I think we still have a really large runway for this. I would like to add to what Shaquille said, if just for comparison, right now there are more than 30, 35,000.
active laser equipment in the United States, or even more than that. So we're now in the range of 8,000. So just figure out that every doctor who are using laser for static, future, and eventually will use RF for static as well. So we have a long way to go.
Fair enough. Thanks, guys.
Thank you. This concludes our question and answer session. I'd like to turn the conference back over to Mr. Olsje, Mr. Rahe, Chairman and CEO .
Thank you everybody for joining us. I want to extend thanks to all employee of Inmod around the globe. I want to thank the management of Inmod for the great year. We have finalized all the plans for 2023 and
start working on another exciting year. I hope that 2023 will be another WECO DL for us. Thank you all and see you soon in the end of the third quarter. Thanks.
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