Q3 2024 InMode Ltd Earnings Call
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Speaker Change: Good day and welcome to the in-mode 3rd quarter 2020-24 earnings conference call. All participants will be in listen only mode.
Speaker Change: Thank you operator, and everyone for joining us today welcome to the third quarter 'twenty 'twenty four earnings call.
Speaker Change: Before we begin I would like to remind our listeners that certain information provided on this call may contain forward looking statements and the safe Harbor statement outlined in today's earnings release also pertains to this call. If you have not received a copy of the release. Please visit the Investor Relations section.
Speaker Change: The company's website.
Speaker Change: 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 to date, our historical results are not necessarily indicative of future performance.
Speaker Change: 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.
Speaker Change: With that I'd like to pass the call over to MS. Shimmies Basi C O. Okay. Please go ahead.
Thank you Mary and to everyone for joining US with me today are Michael clientele, our cofounder and Chief Technology Officer Malcolm.
Speaker Change: Oh CFO, our medical director N V P of medical affair Doctor, Iran. We go and well and become an Oh VP of finance following our prepared remarks, we will be available for Q&A.
Speaker Change: During the third quarter microeconomic headwinds continued to impact our performance as reflected in our financial results.
Speaker Change: Greece in minimally invasive treatment and a slowdown in the plot in platform says.
Speaker Change: Led to less than expected.
Speaker Change: Expected status in <unk>.
Speaker Change: Consumable and platforms in Q3, which in turn led us to revise our full year guidance.
Speaker Change: We are optimistic about the early endorsement of our two new platforms ignite arrest and Optimus Max we hope that that is macroeconomic environment improve particularly in easing interest rate and faster financial approval from leasing company more physics.
Speaker Change: <unk> will recognize the benefit and the efficacy of these new platforms I would like to elaborate on our decision this quarter to reorganize.
Speaker Change: Some aspects of our corporate structure as part of this management changes we had to release some members of the management of the U S and we place certain management in the UK, Spain, and France. We believe these management changes always.
Speaker Change: Essentially for aligning our target market with the right company structure.
Speaker Change: Additionally, we're segmenting out the north American market into simpler tools for U S and Canada, allowing us to focus on specific need each geographic area, well, making additional changes that went into.
Oh in I O W that would better reflect our activities.
Speaker Change: Finally regarding the situation is what we want to assure everyone that our top priority remains the safety of our employees. We are overcome we have overcome challenges relating to production and we take pride in our employees dedication in walking longer shift to upload.
Customer commitment now I would like to turn the call.
Speaker Change: Malka, our CFO to review the financial results in more detail.
Malka: Thank you Ms. Shang Hello, everyone. Thank you for joining us.
Speaker Change: But I think it was total revenue emo generated 832 million daus in the third quarter of 'twenty 'twenty four.
Speaker Change: Out of which we think you $1 9 million daus were generated from B O data received in the first half of 2024.
Speaker Change: This leaves us with $98 $3 million of mezzanine received in Q3.
Speaker Change: GAAP and non-GAAP gross margins in Q3 was 82%.
Speaker Change: Moving to our international operations third quarter sales outside of the U S accounted for $36 $4 million, representing 28% will still doing things.
Speaker Change: A 19% decrease compared to Q3 last year.
Speaker Change: To support operations and to ensure future growth. We currently have a team of more than 250 direct reps and.
Speaker Change: And 83 distributors worldwide.
Speaker Change: GAAP operating expenses in the third quarter were $57 9, million% to 2% increase year over year.
Speaker Change: Theres been marketing expenses increased to $51 9 million dogs in the third quarter compared to $58 million in the same period last year.
Speaker Change: This increase was mainly driven by a recent management change course how're.
Speaker Change: Higher commissions as well as additional spending on trade shows and workshops activities in Q3.
Speaker Change: 2024.
Speaker Change: Next we look at share based compensation.
Speaker Change: Which decreased two 4 million daus in the third quarter of 'twenty 'twenty four.
Speaker Change: GAAP operating margin for Q3 was 37% compared to an operating margin of 38% in the third quarter was 23.
Speaker Change: non-GAAP operating margin for the third quarter was 40% compared to a non-GAAP operating margin of 43% in the third quarter of 2023.
Speaker Change: GAAP diluted earnings per share for the third quarter was 65 cents compared to 54 cents per diluted share in Q3 of 'twenty to 'twenty three.
Speaker Change: non-GAAP diluted earnings per share for this quarter with seven deep set.
Speaker Change: Compared to 61 thing diluted share in the third quarter was 2023.
Speaker Change: Once again, we ended the quarter with a strong balance sheet.
Speaker Change: At September 30th 2024, the company had cash and cash equivalence and marketable securities and deposits of $684 9 million daus.
Speaker Change: This quarter Emil generated $34 million from operating activities.
Speaker Change: Regarding our second share repurchase program for 2024.
Speaker Change: To date, we have acquired three 2 million shares.
Speaker Change: At an average price of $15.86 that's true.
Speaker Change: Actual future capital capital allocation plans.
We continue to carefully review.
Speaker Change: And evaluate all options.
Speaker Change: And we will provide updates as soon as we have news to report.
Speaker Change: Before I turn the call back to Moshe I'd like to share with you our guidance for 2020 full bore.
Speaker Change: 'twenty 'twenty four revenue to be between 410, and two for them in $20 million compared to prior guidance of 430 to 440 million below.
Speaker Change: non-GAAP gross margin between 81%, 92% compared to prior guidance of 82% to 84%.
Speaker Change: non-GAAP income from operations to be between.
Speaker Change: 40, <unk> hundred $45 million compared to prior guidance of $50 million to $155 million.
Speaker Change: non-GAAP earnings per diluted share remains the same as in previous guidance at $1 92, seven to $1 96, and I will now turn over the call back to Moshe.
Moshe: Thank you. Thank you very much operator, we're ready for Q&A.
Speaker Change: We will now begin question and answer session to ask a question you May Press Star then one on your telephone keypad.
Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: And our first question will come from that mistake of Barclays. Please go ahead.
Speaker Change: Hi, Thanks, so much can you hear me okay.
Speaker Change: Yes, we do.
Speaker Change: Great.
Speaker Change: And.
Speaker Change: A question on the our full year EPS guidance.
Speaker Change: Understanding the impact of the buyback.
Speaker Change:
Speaker Change: You know you you've talked about in the past.
Speaker Change: Vesting.
Speaker Change: Through the cycle.
Speaker Change: And yet.
Speaker Change: Obviously, we're able to kind of offset.
Speaker Change: Some of the reduction in sales with you know with some element of cost controls. If you can maybe talk a little bit about where some of those were some of those cost controls or are coming through.
Speaker Change: And and then I have one follow up.
Well.
Speaker Change: And in Q3, Oh, we did not have a lot of we didn't do any cost cutting oh cost control.
Speaker Change: We will continue business as usual in R&D marketing et cetera, and we did not we did not lay lay out any any employee.
Speaker Change: Oh in addition, we spend a little bit more on the manufacturing AR due to the war in Israel. So we need to work a little.
Speaker Change: Overtime, and that's cost us a little bit more money I don't think would need any any cost control or cost sharing of cost of cost cutting in Q3.
Speaker Change: This is this is that this is the structure of our profitability and although it went a little bit down the gross margin and the EBIT.
Speaker Change: But that's natural because of the slow down and the one is what.
Speaker Change: Well, it's impressive den congrats on managing through that at the end of the year.
Speaker Change: Maybe just as a follow up any color or comments, you can provide or thoughts on you know.
Speaker Change: The turn the potential turn the timing of the kind of improvement in some of the end markets, particularly in the U S are in this cycle that we're we're kind of where were managing through right now. Thanks.
Speaker Change: Well in the beginning of this year, we thought that in the third quarter, we will start seeing some relief on to slow down, but you know to be honest. Unfortunately.
Speaker Change: We don't see any any change in the slowdown are especially not in the interest rate on leases lease packages.
Speaker Change: And we don't see that on the fourth quarter as well.
Speaker Change: So I hope that it will start sometime next year I don't think it will be on the first and maybe the second quarter, we don't know and and and and and we don't want to say.
Speaker Change: Can you say anything on that because you know in the last two quarters earnings calls we said we believe it will start on the third quarter, but then as I said, we don't see it yet.
Speaker Change: Thanks, so much for the color.
Speaker Change: The next question comes from Mike Matson of Needham and company. Please go ahead.
Speaker Change: Hi, Hi, guys. This is Joseph on for Mike.
Joseph: If maybe you could give us a little color on how maybe the last rate cut helped to leasing in your business and you know looking forward into.
Joseph: 2025 can you kind of frame frame us how another rate cut maybe a similar size would help.
Joseph: Customers financing.
Joseph: Or do you think maybe the financing problem.
Joseph: It's gonna be alleviated by multiple rate cuts from here not just one.
Joseph: What is the rate cuts or the interest Scott the Genoa one did.
Speaker Change: Did not affect you add to that the lease are the lease interest rate the lease package the soft close to buying with Oh equipment with a still very high.
Speaker Change: And and the process take much longer much longer.
Speaker Change: Cause leasing company wanted to make sure that Dow, giving money to the right people.
Speaker Change: As we said last quarter, we helped with doing some pool and sharing some of the risk with the leasing company, but as you can see the results on the fault on the third quarter, though we did less than $100 million. When the expectation was to go to one or 4105 or whatever.
Speaker Change: It would be the only $98 million, which is less than what we expected.
Speaker Change: So and I don't want I don't want to guess and tell you that it will start slowing down on the intrastate will start coming down some time in the in the beginning of next year, we really don't know.
Speaker Change: Okay. Yeah. That's that's that's helpful.
Speaker Change: And then I guess, maybe around gross margin.
Speaker Change: You know how.
Speaker Change: How can you guys I guess what is your expectation around returning to the mid eighties gross margin is at the current revenue level is a lot of this being driven by overtime and what have you in the manufacturing facilities.
Speaker Change: Do you need you know consumables, it really returned to growth to get back to the mid eighties.
Speaker Change: I don't think we will go to the mid eighties switch what the 85 or 86, it would be very difficult I still believe that the 80 to 82, it's a nice girl small gen for a company like us are being decided off in more today.
Speaker Change: Cost of transportation goes up the wall, I mean, its way and which last too.
Speaker Change: <unk> does not help us with the cost does not help us with the manufacturing process, so going back to 85% maybe in the future, but we don't see 85% in the in our in the fourth quarter and not in 2025.
Speaker Change: Yeah.
Speaker Change: Okay. Thank you very much.
Speaker Change: Okay.
Speaker Change: The next question comes from Caitlin Cronin of Canaccord Genuity. Please go ahead.
Hi, Thanks for taking the questions.
Caitlin Cronin: A quick one I'm not sure if I heard I think I said, but if you could just give us the U S. Our consumables growth for the quarter that would be great.
Speaker Change: No on the contrary, we know the consumer lending in.
Speaker Change: The U S went down not up.
Speaker Change: Oh and the talk on AR was up again, that's what I expected and I said that in my speech because less minimally invasive treatments are being made right. Now now the reason for that is that our treatment are within malls are equipment, it's a relatively expensive.
Speaker Change: Basement.
Speaker Change: It's a it's on thousands of dollars not hundreds of Doyle.
Speaker Change: So we believe with the macroeconomics also reflect in that then also did not help our doctors.
Speaker Change: Doctors to do more treatment and therefore I have oh, we have a we have a realized that that doctors in North America, all making 40% less treatment than last year.
Speaker Change: Okay.
Speaker Change: Makes sense.
Speaker Change: And I think he mentioned on in your pre announcement press release about moving some operations away from Israel can you provide a little more color on you know.
Speaker Change: What that means the timing where one.
Speaker Change: Currently with manufacturing only names, but we have two major facility and to me a smaller one.
Which makes up component, but the two main one are assembling the product.
Speaker Change: We have also remember our.
Speaker Change: That are in order to manufacture.
Speaker Change: I think on a platform a medical device.
Speaker Change: Which has to be regulated by 27 different regulatory bodies around the world are it's not so easy to find the facility that can that can handle it.
Speaker Change: We try to explore several opportunities are with that with that with some companies in Europe are mainly in Europe. So it would be close to us if we go to China, it's almost impossible to control, but unfortunately, we have no facility that can handle our product.
Speaker Change: With the right regulatory approval are from.
Speaker Change: From those regulatory bodies, and therefore, even with the war in Israel. We believe we can manage for me as well.
Speaker Change: Although it is difficult and there was uncertainty I agree, but no we have no other alternative.
Okay. Thanks, so much.
Speaker Change: The next question comes from Tommy Horn of Baird. Please go ahead.
Speaker Change: Great can you guys hear me.
Yeah.
Tommy Horn: Great. Thanks, so much for taking the questions.
Tommy Horn: Your U S systems installation number this quarter jumped to 610 versus 350 last quarter by our math does that third quarter systems placed number include all of the pre orders delivered in the third quarter or were those pre orders booked in the first half of the year and could you remind us how you counted the old systems you placed in offices in anticipation of that.
Tommy Horn: Delivery of the preorders.
Speaker Change: I believe on the third quarter, we delivered all of the preorder.
Speaker Change: We don't have more preorders to deliver.
Speaker Change: Yeah, we we exclude them from the installed base and installation in the first half of the year and we include everything in Q3.
As you can see the total GAAP number is 132 million out of which 32 million are pretty old of the nest status of the fourth quarter as I said before it was only $98 million less than expected, but we managed to deliver all the rest so that's cool.
Speaker Change: Yeah.
Speaker Change: Perfect. Thanks for clearing that up system S. P. Also jumped up to 140000 from 115000 previously were there any one timers driving that or have you been able to take price with your new systems. Thanks for the questions.
Speaker Change: I mean, the new system that the ignite and the Optimus Max just because this is some early bird we can charge a little bit more we waived the prices a little bit and that's help us oh the price for the platforms.
Speaker Change: But I believe looking forward.
Speaker Change: It would be difficult to maintain the same price per platforms, but what we're raising prices Elizabeth on the new platform, we cannot raise prices on the current portfolio.
Speaker Change: Uh huh.
Speaker Change: The next question comes from Sam <unk> of D. T. I G. Please go ahead.
Sam <unk>: Hi, good morning, everyone. Thanks, so much for taking the questions here, maybe I can start on some of the changes to that.
Sam <unk>: Marshall organization, it sounded more of a realignment and maybe it's putting up some territories a little bit differently, but I guess any changes to the go to market strategy.
The selling approach any differently or is it really just a realignment in terms of territories.
Oh what is depend.
Speaker Change: In Europe, we changed management in Spain, UK and France.
Speaker Change: And the reason why we changed management in these two countries. Because we are we are we basically are we're not happy with our with the results and the dedication of the management are on those territory and therefore, we have decided that we need that to change them and where.
Speaker Change: The new management.
Speaker Change: And I believe that the new management, a more dedicated and more eager to success to succeed in the United States. It's a it's a little bit different story Ah in the United States, We will leave a tool Maysville says VP says one earlier.
Speaker Change: And the year in one right now and the President and the Chief Medical Officer, which was replaced with a VP of clinical affairs.
Speaker Change: Rather than just North America, Shaquille was with us for almost seven years, he did a great job.
And you know after seven years of doing the same in the same position I thought it will be a need we need to make some changes in order to realign the organization. So right now we don't have a president in North America are kind of doubt it.
Speaker Change: Paul directly to me.
Speaker Change: And the two new Vps for the east and for the West in the United States are also reporting to me so actually pollute in the meantime, I'm also the president of North America, I intend to spend at least a week every month in our in Irvine and now office and visit.
Speaker Change: Doctors and the territories and work with them in order to realign the organization in the meantime, I want to keep it that way I'm not looking for credit and for the United States, Canada will continue to report to me until until we found a what was the exact.
Speaker Change: <unk> organizational changes, we want to make with the new portfolio and with the current portfolio. It takes time, but we are in the process.
Okay that makes a lot of sense and maybe just following up on some of the newer products.
Speaker Change: We will love to just hear any early feedback maybe you've heard from some of the early customers that have adopted ignite and Optimus Max.
Speaker Change: I guess, how many of these are upgrades versus new customers that are now excited about the new platforms and.
Speaker Change: Yeah.
Speaker Change: This concludes our question and answer session I would like to turn the call over to Moshe Mizrahi and mode CEO for any closing remarks.
Well. Thank you everybody. Thank you to all the shareholders to all of you and more employees in Israel and worldwide are especially I want to thank the Israeli employees.
Speaker Change: That as everybody know the headquarter and the two manufacturing facilities I I don't want to call. It this way, but they are close to the border to to the north border and the war is here.
And are they are still coming to work and everybody's dedicated so we can continue to serve our customers I want to thanks, all in more customers for the loyalty.
Speaker Change: I want to thanks, all the luminary doctors and and looking forward to see you in the next earning call hopefully in Israel, It will be a better days.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.