Q1 2023 InMode Ltd Earnings Call
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The end node first quarter 2023 financial results conference call, all participants will be in listen only mode.
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I would now like to turn the conference over to Mary CFO CEO of M. S. IR. Please go ahead.
Thank you operator and to everyone for joining us today welcome to email, it's first quarter 2023 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 Ouch.
And in today's earnings release.
So 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 changes in business competitive technological regulatory and other factors could cause actual results to differ materially from those expressed by the <unk>.
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.
I'd like to pass the call over to Marcia Mizrahi, Chairman and field Boucher. Please go ahead.
Thank you and to everyone for joining US with me today are Dr. Microcline del <unk>, cofounder, and Chief Technology Officer, <unk>, Malka, our Chief Financial Officer.
He'll Academy, our President in North America, doctors still kind of a dual our chief Medical officer, and Rafael <unk>, Our VP of finance following our prepared remarks, we will all be available to answer your question.
Can we pull the revenue of $106 $1 million in the first quarter, an increase of 23, 5% compared to the first quarter of 2022 status from consumable and service continued to grow in the first quarter and shocking.
We'll go over that the more detail shortly I would like to take the moment to recognize that 15 years ago. We started this company with a small investment of just $3 $5 million.
And then an idea that's with bipolar RF technology.
So P J knowledge of the aesthetic industry, we can disrupt the industry and help close the treatment gap, we have been accomplishing this by providing patients remarkable and last thing was that we are working closely with leading plastic surgeons that have been dosed.
So safe F D a approved technology.
Today, we can say that in Mod is the leading global provider of innovative minimally invasive aesthetic and wellness solution operating in 92 countries with seven patent that technology across 10 product family.
And then install base.
Of the 8400 platforms in the United States and over 18300 system globally.
I'm proud to recognize these 15 years anniversary as we announce a strong start to the year, we would not reach these solid consistent results without the dedication and hard work of all employees and I would like to take the opportunity to thank them for their commit.
Men and care.
Last year, we successfully introduced envision platform seemed kind of.
Envision is the name of thank you.
Knowledge is targeted for ophthalmology and optometry small kit and we expect lounge. These platforms in the U S in the coming months.
As we mentioned last quarter. The next generation evoke Oh Haynes sleep labs, most full phase III men.
Thanks, Christian and everyone for joining us we're happy to report a strong first quarter with significant growth coming from consumable sales revenue from consumables and service grew nearly 43% year over year.
It is a strong indication that the platforms. We sell are being used more frequently signifying continued positive demand momentum.
Our Morpheus <unk> platform continues to gain traction and benefit from our brand ambassadors strong market awareness and positive patient results as Moshe mentioned, we will continue our strategy to expand into new areas of wellness such as ophthalmology commentary.
Markets with our envision platform.
We've begun to hire focused sales reps for envision and we gradually expect to establish a dedicated sales team for this market and for women's health and wellness market and the future lastly, I'd like to thank our entire North American team for their continued hard work.
I'll now hand over the call to Europe for a review of our financial results in more detail.
Thanks, Ken and Hello, everyone. Thank you for joining us.
We saw some revenue Emil generally that the Honda and $6 $1 million in the first quarter of 2023, representing a 23, 5% year over year increase was the gross margin of 83% on a GAAP basis.
Additionally, based on past seasonality, our first quarter is the slowest quarter in the year, we expect 2023 to behave in a similar way to last year.
First quarter sales outside of the U S accounted for $43 8 million or 41% compared to 38% in Q1 of last year.
We see growth coming from different regions, we sell in Europe hit a new record in Q1.
And we are planning to establish at least one additional subsidiary in Europe or Asia later this year.
To support our operations and growth in mode. Now operates in total of over 90 countries with a sales team of more than 236 direct reps and over 81 distributors worldwide.
Capital equipment in the first quarter, we presented 81% of total revenue, while consumables and service revenues accounted for the remaining 19%.
Operating expenses in the first quarter were $46 8 million daus.
Sales and marketing expenses increased to $41 7 million daus in the first quarter compared to 30.8 million daus in the same period last year.
This increase is attributed to the addition of new sales representatives as well as investment in direct to consumer advertising campaigns and hosting in person events to support the company's growth projections.
Share based compensation accounted for $4 2 million in the first quarter of 2023, an increase compared to $3 1 million in the first quarter of 2022.
On a non-GAAP basis operating expenses were $43 million in the quarter compared to a total of $33.4 million in the same quarter of 2022 representing a 29% increase.
Operating margin for Q1 was 39% compared to an operating margin of 41% in the first quarter of 2022.
non-GAAP operating margin for the first quarter of 2023 was 43% a slight decrease from 44% in the first quarter of 2022.
GAAP diluted earnings per share for the first quarter were 47 cents compared to 36 cents per diluted share in Q1 of 2022 none.
non-GAAP diluted earnings per share for this quarter were 52 cents compared to 40 cents.
Diluted share in the first quarter of 2022.
Once again, we ended the quarter with a strong balance sheet.
As of March 31st 2023, the company had cash and cash equivalents marketable securities and deposits of $574 $5 million.
This quarter, excluding the one time tax payment of $15 million in will generated $36 1 million from operating activities.
Before I turn the call back to Michelle to take your questions I'd like to reiterate our guidance for 'twenty or 'twenty three.
Revenues between 525 million daus and $530 million.
non-GAAP gross margin between 83% to 85% non-GAAP income from operation between $236 million and $238 million non-GAAP earnings per diluted share between $2.58 and $2.60.
I will now turn over the call back to Michelle.
Thank you. Thank you Shaquille O point, though we're ready for Q&A.
Thank you we will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
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At this time, we will pause momentarily to assemble our roster.
Our first question comes from Michael Sarcone with Jefferies. Please go ahead.
Thanks, and good morning, this is Mike on for Matt.
This morning I was just the first question on guidance you had a really strong start to the year nearly 24% growth in the first quarter and that was on the toughest comp of the year can you just talk about how you think about guidance and in some of the key assumptions. There I know you've got envision launching in the U S. Soon and Nextgen evoke.
And in two age so again, just some key assumptions around guide and is it fair to characterize the guide is conservative.
Yeah, I would say as always we claim we tried to be very conservative with guidance.
Well, we did a little bit better than the consensus some Q1 2023 we decided to keep the guidance until the end of 'twenty Q2 to see how Q2 will that will it will be.
You know there was some seasonality in this business. The first quote there is that is a is the slowest one second quarter must be much stronger than the first quarter, if were able to successfully and the second quarter would the expectation that AR and AR and above the consensus of Oh, that's them at all.
Donnelley stuff than we are we will consider our you know increasing the guidance, but on the first quarter. I mean, we did 106 comparable with the 110 to 101, a consensus estimates are we felt like it would it be better and more conservative to stay with this.
Guidance and not wait another quarter to see what will be a the situation in the U S and in the rest of the world as far as slowdown recession are you know <unk> increased our interest rate and then we'll feel much better to increase the guidance sometime at the end of Q2.
Two.
Okay. Thanks, Moshe that that makes sense and then you know are you seeing any changes in your customers' ability to finance system.
No. We don't we don't although it's stuck a little bit longer, especially in the U S and shakil will elaborate on that.
But but are in Europe . For example, we signed an agreement with our with the bank debt.
That is helping us to finance customers in Europe , something that we didn't have in the last I would say three years, which will make it easier for customers in Europe are to finance to finance our the system in the United States you can't do you want to say a few of them that.
Yeah sure. So you know like most of you said, where we're not seeing too much on that and where we are seeing and it's taking a little bit longer than we're used to I'm just kind of looking at risk so on and so forth, but right now we haven't we haven't seen that as a prohibitive factor.
Got it and when you say a little bit longer that's just kind of the selling cycle. It's just yeah, well not necessarily the selling cycle, they're just requiring different documents from the.
Meyer just to again ensure that basically it's like it's I wouldn't say, it's still a degree of what happened back in 2008 2009, not even close to that but theyre, just banks and just being a little little pickier with who theyre, giving their money too. So they just want to ensure that they are they have the appropriate information. So you know.
Previously you'd be able to get X amount of dollars through with just a credit application now they might need to provide some further documentation along with it so.
Might add 12 to 24 hours to the process.
Got it thank you and I'll just sneak one more in there you know an interesting disclosure in the press release, just about the impact of popular weight loss drugs. It wasn't going to be one of my questions Youre seeing an influx of loose skin patients.
Is there any offset there like you know when you factor that in the weight loss drugs do you expect to see lower demand for liposuction and kind of you know what's the net impact on demand for N mode procedures that you're expecting.
Spiro could you. Please answer that sure. That's a great question look it's on the on the contrary the weight loss is actually helps us because first of all where the skin tightening company right, so where the patients have lose skin.
You've already lost the way they come to us to be able to tie in that so what it actually does it increases the number of patients you can do with liposuction right. So they still have some fat pockets or fat areas fatty areas that need removed, but if you have lose skin that kind of limits than India. Static result, so adding a tightening procedure. In addition to the law.
Especially capabilities, we have increased the size of that market are what the what the drugs have done is increased awareness I mean, they use this marketing thing like Oh is that big space right. That's that's a cool name, but at the end of the day. It just weight loss and we deal with that and our plastic surgeons and their doctors across the border always dealing with Lou.
Again, I'll remind you that the Holy Grail of plastic surgeries, the ability to tie in skin without scars.
And even though a lot of these patients might end up needing excision of procedure, perhaps if the depending on the amount of weight loss. We are perfectly positioned to take advantage of this in our clinics have seen a large influx of patients.
Since this since taking over it like wildfire so net.
Net net benefit does that answer your question.
It does very helpful. Thank you.
Youre welcome.
Our next question comes from Madness sick with Barclays. Please go ahead.
Oh yeah.
Thanks for taking my question I.
I guess just to clarify on the guide is it fair to say then that you don't see any specific concerns related to the back of the year and it is just general conservatism.
I didn't understand the question did you ask if we see any concern in the market.
Yeah, just based on the answer you provided earlier.
I need to clarify is.
Is it fair to say that we don't see any specific concerns or just general conservatism. Thank you.
I believe we said that very clearly we don't see any any signed off or slow down any sign off recession on the market that we operate maybe neither market is different.
But are you know just because our technology.
<unk> today is in the valley embryonic stage I mean, we have less than 20000 system installed.
Potentially there's few hundred if you take into account all the doctors, who are doing medical aesthetic using laser in out of all of them in the future will need bipolar RF because with laser they do only topical treatment and if they do if they want to do body and face reshaping they will need us.
So we don't see any slowdown on the consequently, I ask you to say that we sell more disposable this quarter than in the fourth quarter of 2022, and usually the fourth quarter is the strongest one so we don't see any any any slowdown do we didnt why we did not change the guidance he was bigger.
We wanted to wait another quarter before we change we just gave the guidance a quarter ago and if everything will look according to our expectation on the second quarter than the guidance will be raised.
Understood that's helpful.
I guess shifting gears here too.
Empower just curious on how has that been tracking.
And about 20% growth in 'twenty to 'twenty three is still the right way to think about the floor.
It's a bit more acceleration yeah.
Well, we didn't give any guidance on empower them this quarter, but I can tell you that we saw in the first quarter, we sold more than the first quarter of 2022.
Okay, great. Thank you.
Our next question comes from Danielle and tells me with UBS. Please go ahead.
Paul Good morning, everyone. Thanks, so much for taking the question just a question mostly on capital allocation you guys would talk in the past about how to think about potential M&A here any updates there on how you're thinking about capital allocation.
So for a deal to happen sometime this year.
[laughter] well, that's the $64000 question I would say, yes, we are exploring opportunities.
More than one.
And and and some of them are are we even you know spend money to chat to due diligence since Ed one thing I want to say.
Very difficult to find a company that will now be with the same with the same profitability structural feed mode.
So any company that we will acquire a should not to dilute the shareholders it should be accretive and not dilutive.
And it's not easy, it's not easy because of that profitability structural feed mode.
So we're very careful in the analysis that we're doing on companies that we would like or that we're exploring the possibility to do M&A I cannot announced anything special today. The only thing I can say that we spend on the time money management attention and why.
Looking for acquisition.
Okay got it that's helpful. And then just a question on indication expansion so.
<unk> empowers, obviously doing well beyond that you know I can think of.
Stress urinary incontinence et cetera, any update for next steps, we should be looking for to measure in Lord again.
Making progress there thanks, so much.
In Malta against what.
Against whom I don't think any of them.
No no no just weather like anything any milestones, we should be looking for Q.
Measure progress again.
Getting those indications or launching in North America.
I believe we said a quarter ago.
That would be happy and expect to do 20% more on empower than last year.
We're not changing this this guidance today.
Okay. Thanks.
Okay.
Okay.
Our next question comes from Dane Reinhardt with Baird. Please go ahead.
Okay.
Hey, good morning, guys. Thanks for the questions. Just wondering if you can maybe give any more color you know kind of on the U S placements just being up 10% I think that was a little bit lighter than we than what some other investors had kind of been expecting so I know you know seasonality definitely plays a factor or is there anything else there impact.
That thing and I know you have both a vulcan or vision launching kind of later this year, what might we be able to kind of expect for those to contributes to the U S. Placements later this year.
So Kim could you please elaborate on that.
Sure.
As far as placement so when it comes down to revenue, we still had a pretty significant amount of growth and youre looking at placements again I'm not sure what what model you guys have in place, but we don't see we don't see too many.
Economic.
Factors affecting things right now.
The growth path that we're on of course, we anticipate further growth as I mentioned in the script.
And building out and vision and a sales force dedicated to that we do have plans to.
Obviously see some pretty substantial growth cant give you a number really we're kind of feeling out the market and getting things ready, but we're we're extremely excited about it and we think there is a there's going to be a nice little runway for us.
Okay.
Okay.
Okay.
It was mainly due to society and Q1 tends to be the slowest in.
In the year, and especially we see this effect in the U S.
And so that's something that I would like to and it's not it's not something new it's been like that in the medical aesthetic category or industry or whatever so I don't think that the model can change that.
Yeah, I think spero here I think what's important to outline is that there is a discrepancy between the macro picture and what people are saying, what we're seeing on the ground from demand for patients and doctors, we don't see any slowdown of demand is very high.
Most of the physicians are booked still booked solidly two or three months in advance. So if there is something that people are concerned about we're not seeing it and.
That's sort of what's what we're seeing from all the offices we've talked to so.
Ops you at all.
Okay, Yeah. Thank you.
And then on the Morpheus, a new burst in three D modes, I know, we've been kind of seeing some more competition here in micro needling, just over the past year or two with some other competitive launches. So can you just maybe give us a little bit more color on how you believe these new kind of morpheus, a options and its bipolar designer help differentiating versus competition.
Okay.
First I wanted I wanted to say something about a comparison of our morpheus, which is a fractional RF the only fractional RF technology on the market because it's well protected than all the other micro needling.
Dan the fraction of our F a which we call Morpheus as a brand name is is basically a bipolar RF device, which basically deliver the energy from deep to damping delmas and by doing that create all level of the skin.
Like all the others micro needling Wow, you know delivering the energy honestly on the people the pin so the total debt that's what make the results much better now regarding the three D. The treaty is basically something that we have developed for body treatment and body three.
It meant we use 40, pmt's, which make it loud you'll spot size for treatment.
Just because we turned on the left or the second electrode of the bipolar is on the skin. We wanted to make sure that there are the distribution of energy in all four patients will be equal to eliminate any kind of a you know.
This technology.
Okay. Thank you and then if I can just sneak one last one and I think you know every quarter you kind of have given the absolute number of consumables sold I think last quarter was like 230, K and 180 K. The two quarters prior to that I was just wondering if you could update that.
For the first quarter.
Okay. Thank you I appreciate the questions.
Yeah.
Our next question comes from Mike Matson with Needham and company. Please go ahead.
Starting with empower I'm wondering if you could give us an update on where you're at kind of watching that product outside the U S, which markets. Its been launched in and then I guess similar question for envision.
When you do launch that product I guess it'll be first in the U S and I mean is that going to fall at kind of a similar pattern.
Power outside the us.
Okay. They empower right now is approved only in certain countries.
It's approved in a in Mexico and.
And well now walking Argentina, not yet in Brazil, which is a big market and not in other countries in Latin America, we have to deal with these platforms and individual.
Our regular regulatory body in Europe Ah, it's out already approved in several countries, but due to the fact that in Europe . The regulation system is changing from what they call a M. D. D. Two M D R and I will not try to explain the difference because it's complicated.
We have to grow again and do some re approval in certain countries and we're doing it right now but in most countries in a new world in Europe . We're in the process of introducing it this quarter it wouldn't be introduced by some luminary doctors that would bring from the U S.
In three main countries, Spain, UK, and Spain, UK and in France.
Following that we will introduce that in Italy in Italy, especially regulation, we don't have the clearance yet in Asia are we clear the system only in one country, which is Australia also and in India, We're starting now China.
Korea, and Japan, the system is not clear yet a form of regulatory but it's in the process takes time. So that's the situation outside the U S. In Canada, it's already cleared in the U S. As you know, we're selling there as far as envision outside the U S.
Ah as you know we did a soft launch in Canada before we starting in the U S. A and the other part of the World we have not started yet.
Okay got it. Thank you and then just within the minimally invasive category.
I mean, I know you don't break out kind of detailed cells by the product lines, but.
You have by type stays tight morpheus, they probably some other things in there.
It is are they kind of all contributing equally to the growth or morpheus. It does seem to be generating quite a bit of buzz on social media and other places I mean is that is morpheus eight the primary driver there or is it just everything.
What would you say.
Is that is the style buys.
But but it's not the only one.
You know we are we continue to sell either optimize.
With all the other hand pieces.
We have a good results in Asia with the body effects, mainly effects are we're doing very well with the minimal invasive body types face tight in Europe , Yes, Morpheus is not a platform Morpheus is a technology, which basically the handpiece that can go in different.
Type of platforms, and we try to incorporate morpheus in the platforms that we're developing in order to make everything more attractive. In addition, we're developing combination treatment of morpheus and former bawdy effects and former.
But body many effects and class. So how are we continue to develop and growing more in a growing market with the existing portfolio by combining and by synergize, even between the technologies and the hand pieces.
Mike. This is Mike. This is spero just to give you a little color primarily awareness Fedex company right and we have by increasing our Tam. This is really important and that's why we went into the obgyn gynecology business, we're going off homology business and what we looked at is our narrative is look we're in a T cheese doctors do esthetics when we looked.
Empower we go in with something the already know right to have these patients in their office. They have stress urinary incontinence. This is a captive audience, which they're not used to start charging for it and then we come in with all the other technologies teach them aesthetics. So that was your theory, we looked at our morpheus tips across the board in United States, and North America, and we saw that.
The top accounts for every intra vaginal morpheus tips sold or used there is six morpheus tips used for aesthetics reasons I'm not empower platform. So that just justifies sort of proves our narrative.
Yes, so we go in with something that they're comfortable with it have that existing patient population and the sort of the morpheus tips show that when we looked across the board and we saw okay. How about all the accounts that we saw for every intra vaginal morpheus chip.
2.5, Morpheus tips cosmetic ones being used the rest of the body. So let's not forget that we are in aesthetics company in Morpheus is a technology like Moshe said, but the fact that the consumables are rising shortage adoption.
And our narrative is actually playing through and we and we plan on doing the same with envision that makes sense, maybe a little color right. Yeah. It does and I guess, it's a good point I mean, because it's a plot your son platforms offer multiple capabilities. So it's a little hard to.
Separate them I guess in terms of what's actually driving the growth at least on the terms of the platform itself got it. Thank you.
No problem.
Our next question comes from Kyle Rose with Canaccord. Please go ahead.
Great. Thank you for the commentary.
I wanted to ask just a little bit about the commentary around the weight loss drugs in patients there I guess.
I know, it's all gonna roll up in the minimally invasive but should we expect to see more utilization of morpheus body and body side or do you expect that that might drive more of the hands free given you have some new products that are coming there.
Hey, Kevin I think it's going to be I think it's actually going to be a mix of both frankly.
Spero mentioned earlier.
The Holy Grail of plastic surgery is being able to tighten skin.
Our our goal and our job here is to be able to provide the appropriate tools for each physician a surgeon in order to actually help treat those things that theyre looking to treat so if the absolute to be great like Spero said theres still going to be some some patient instead.
You don't have massive weight loss and they're going to they're going to need an exceptional procedure, we're not trying to trying to take away from that as well, but if there are some ways that we can get in whether it's with body types based side or with our hands free technology or even with Morpheus eight again, it's our job to basically provide the appropriate tools for each one.
You know Gpus.
Appropriate surgeon or provider, so that they can actually pick and choose what they need to use to optimize patient outcomes. So it makes sense.
Yes, it's helpful. And then on I think you've had some commentary as you go into some of the I.
I guess wellness or noncore markets, we'll call them.
You've talked about potentially building out.
Some additional sales and commercial teams there.
One I guess what is the status.
Those initiatives and then two how should we think about those investments taking place over the course of the year.
Relative to your your.
Operating expense guidance.
Sure. So you know.
In terms of from a distribution.
Crucian standpoint, where we're actually already in the process of.
Of hiring as I mentioned, so we've made several recent iron something competitors some from outside that will bring them in train.
The unload way.
We're obviously looking for that to materialize over the next few quarters again as you know <unk> been falling for quite a while we like to do things slow and steady to start we don't like Russian right out the gate. So we wanted to do it right. We want to do it in a way where it makes sense for reps to make sense for the company.
At the end of the day is going to contribute to the bottom line and top line. So from that standpoint, we look at it that way I don't see anything major in terms of anything extra ordinary from what we already do in terms of expanding distribution that is going to lead to any major cost.
Okay and then the last question I'll ask is just on the we'll call it the core business and the core commercial team, you're you've got a competitor out there.
<unk>.
A little bit of drama going on.
Is there any opportunity to peel off commercial or R&D talent, there and just.
Maybe kind of walk us through your thoughts on being a share taker via some of the commercial talent in the market share.
Sure.
I guess, we'll leave them as a secret.
[laughter].
No.
This is Kyle.
Yeah.
As we know when there is chaos is opportunity right. So.
We're again, we're very selective and picky with the people that we bring on.
But again, we also want to bring on people that are going to be able to do business. The way that we're used to doing business. So we're absolutely.
On the Hunt right now there's no question about it and we will be but again, we're only going to that Mike just exposed maybe 5%, 10% because we're only going to take the best and the best and bring them over and help them kind of.
And learn again do you think you can move away. So from that standpoint of course, you can probably imagine we were on it was probably about 30 to 60 minutes.
But.
Again, it's not it's not I wouldn't say it's something.
Extremely it's not something Super major.
If people are looking to.
To leave we're looking for a better opportunity, we're obviously going to bring on the right people and being able to provide them with a good likelihood. So so on and so forth, but again, we just want them to be able to to follow and move away.
And do business the right way.
Great. Thank you for taking the questions.
Awesome.
This concludes our question and answer session I would like to turn the conference back over to MS. Shameless Ray he for any closing remarks.
Oh, Thank you operator, I'll I want to thank everybody for joining us today, I will be happy and I'm sure that everybody will join US next time. Thank you for your time and thank you for all the question that you asked us.
See you next quarter. Thanks all.
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