Good morning and welcome to the InMode Ltd. Second Quarter 2022 Earnings Result Conference Call. All participants will be in a listen-only mode. [Operator instructions]. Please note this event is being recorded. I would now like to turn the conference over to Miri Segal, CEO of MS-IR. Please go ahead..

Thank you, operator, and to everyone for joining us today. Welcome to InMode's second quarter 2022 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 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 of the company's website. Changes in business, competitive, technological, regulatory, and other factors could cause actual results to differ materially from those expressed by the forward-looking statements made today.

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. With that, I'd like to turn the call over to Moshe Mizrahy, Chairman and CEO. Moshe please go ahead..

Thank you, Miri. And thanks to everyone joining us for our second quarter 2022 earnings call. With me today Dr. Michael Kreindel, our Co-Founder and Chief Technology Officer; Yair Malca, our Chief Financial Officer; Shakil Lakhani, our President in North America; Dr. Spero Theodorou, our Chief Medical Officer; and Rafael Lickerman our VP of Finance.

Following our prepared remarks, we will be all be available for a 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, growth across the U.S. and the key region globally underscored the strong demand for our technologies and our product portfolio.

Our growth engine include the launch of two new modality every year growth in the United States, geographical expansion outside the U.S. and high volume sales of consumable as a result of more frequent use of our platforms. All these factors remain on track and support continued successful execution in the second half of 2022 and beyond.

Our focus remain on our bipolar RF technology, offering minimally invasive surgical platforms for the body, face and also for women health. We have highly efficient sales team of more than 200 reps worldwide. With their excellent work, sales of capital equipment represent 87% of our total revenue in the second quarter.

While sales of consumable and services accounted for the remaining 13%. We're excited to see the numbers of consumable sales growing quarter-after-quarter and consistently eating new highs. As 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, a 33% increase compared to Q2 last year. InMode [indiscernible] operate in the total of 78 countries.

Our newly opened subsidiary in Italy is up and running smoothly and contributing to our positive results in the European market. 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 effort of our local presence.

On the macro level, supply chains issue during the second -- quarter were under control and closely managed. As we continue to prioritize maintaining sufficient inventory level. Placing order ahead of time and making exceptional effort to hold delivery time around the 10 days mark.

Now I would like to turn the call over to Shakil, our President in North America.

Shakil?.

Thanks, Moshe, and thanks everyone for joining us. We are 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 we look ahead at the upcoming quarters, the North American market is positioned to remain the biggest revenue contributor and growth driver for InMode. 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 InMode's business.

Total sales were originally projected at $20 million for the year but with 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 Yair for review of the financial results in more details, Yair?.

Thanks, Shakil and hello everyone. Thank you for joining. Starting with total revenue, InMode generated $113.5 million in the second quarter of 2022, a 30% year-over-year increase with a gross margin of 83% on a GAAP basis.

Breaking this down, we see sales of minimally invasive and subdermal ablative technologies in the second quarter grow 48% year-over-year to 80% of our quarterly revenues. Of the total sale in Q2, 64% came from the U.S. and 36% came from the Rest of the World compared to 65% and 35% respectively, for the same quarter in 2021.

Of our international contributors, Canada, Asia and Latin America were the major markets driving a growth rate. Our Q2 non-GAAP gross margins remain strong at 84% despite the global supply chain challenges.

Moving on capital equipment in the second quarter 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, a 37% increase compared to Q2 of 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 more sales representatives 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 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 total of $30.4 million in the same quarter of 2021 representing a 30% increase.

GAAP operating margin was 43% in Q2 of 2022 and non-GAAP operating margin for the second quarter of 2022 was 49% compared to the operating margin of 51% in the same period last year. Looking at GAAP diluted earnings per share for the second quarter, we see an increase to $0.52, compared to $0.48 per diluted share in Q2 of 2021.

Non-GAAP diluted earnings per share for this quarter was $0.59, compared to $0.51 per diluted share in the second quarter of 2021. Once again, we ended the quarter with a strong balance sheet. As of June 30 2022, the company had cash and cash equivalents, marketable securities and deposits of $443.6 million.

This quarter, InMode generated $47 million from operating activities. Before I turn the call back to Moshe, I'd like to reiterate our guidance for 2022. Revenues between $425 million and $435 million. Non-GAAP gross margin is between 83% and 85%.

Non-GAAP income from operations between $204 million and $209 million, non-GAAP earnings per diluted share between $2.11 and $2.16. I will now turn over the call back to Moshe..

Thank you, Yair and thank you, Shakil. Operator, we're ready for Q&A session..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Kyle Rose with Canaccord Genuity. Please go ahead..

Great, this is Gibran on for Kyle. Thank you so much for taking the questions and congrats on another strong quarter. Maybe to start, I just wanted to dig in a bit on China. How has that fared in the Q2, has that situation improved at all? I think you had mentioned on the Q1 call that you had sold less than 50% and have sort of expectations.

So any update there would be helpful.

And then any other update on the CFDA approvals as well?.

Okay, thank you. Well, the situation in China has not changed since Q1. The country is still closed, I mean the same situation. If you travel to China, you have to be in lock down for two weeks in hotel. You cannot travel from city to city. But even with that, with all the limitation, we did better, we did twice as much as in Q1 in Q2.

And this is due to the fact that we did some kind of changes in our operation there. We move some of the people from Beijing to Shanghai and some other to other cities, so they can operate freely within the cities without the need to travel from city to city.

But the main issue is, since the country is closed, we cannot send any training doctors to train or do seminar in China, especially not on the new devices that we're now developing. The CFDA is walking very slow. We filed another two applications for two more products the last month. But yet, we did not receive any new approval in the last quarter.

It's not like the FDA, when you file you get an answer 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 lock down for long time. The same situation with Hong Kong, which is now part of China. So overall, we managed to do twice as much better than last quarter, but yet not the way that we want to be..

Understood. Thank you, Moshe. And then on Empower, maybe through the first half how our revenues tracking versus your expectations is $20 million still a fair assumption for the full-year this year. And then maybe given your execution thus far, some of the KOL groundwork you laid and some of the data readouts that we're expecting.

How can Empower sort of scale in year two next year in 2023? How should we start to think about the commercial scaling next year? Thank you for the question..

Well, 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, a month and a half ago, we managed to lounge them power in Europe during the IMCAS Conference in Paris.

And now they're walking country by country and sending trainers to train some doctors in order to establish luminary based in every country in Europe. We're doing the same in Mexico, right now. And we're going to send some doctors from the U.S. to train the Mexican luminary doctors.

We were planning to launch them power in Asia, during the IMCAS 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 a guidance. But this is very early stage to judge 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. I mean, we don't want to give more detail on that. Because it's a six months in a row that that we're working with Empower. Well, we have some luminary doctors who likes the system and get good results.

We started the process to clear the system for other indication with the FDA. We're very -- investing very heavily on them Empower, since we believe that we want to be the leader in the women health or the wellness women health in the market..

Understood. Thanks, Moshe. And if I could just squeeze in one quick question. On gross margin, just any updated thoughts, given sort of the sustained inflationary pressures we're seeing is 83% to 85%.

Still a reasonable sort of goalposts long?.

Well, I want to tell you that the fact that we went up from 83% to 84% 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, as you probably knows better than me, prices of components and sub-assemblies of electronics are going up every day.

Manufacturing costs, labor costs, transportation, and logistic cost. In the last six months, everything went up but by an average of at least 10%. Some components and some sub-assemblies are more than that.

But we're fighting where we're opening more suppliers on every component at every sub assembly right now, we have at least three suppliers and three vendors. In order to make sure that we'll get everything on time. The most important right now, it's not just the prices, the most important right now is to keep all the lines working.

We know that some of our competitors are giving delivery time of six to eight months on platforms. We're delivering every system within 10 days, not more than 10 days. This is a challenge. And I want to thanks all the logistics and supply chain and manufacturing team here in Israel and all around the world for doing a good job.

So to keep the 84% or even 83% become very difficult and very challenging. But as you see, we're doing the best.

Do you hear me? Hello?.

Yes. Thank you. 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 guy's expectations so far and another record for consumable revenue in the quarter. Just kind of change, your guys is thinking on the launch firm vision.

And I guess maybe could you just solidify that timeline?.

Well, the timeline stay the same. We did a soft lounge in Canada, and I believe Shakil can elaborate on that more than me. We are now finalizing a study with full site that we did and we're going to submit for publication, a peer review articles. We are walking with the FDA on the indication.

I believe that if not the end of this year sometime in the beginning of next year they envision will be lounge in the United States and after that in Europe and Asia.

Shakil do you want to say something on Canada, please?.

Yes, Joseph. 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 on board. We want to ensure 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 the correct things in place, including the clinical side of things and the KOL offside of things as well.

So with that being said, I think we feel pretty comfortable and confident with it. But 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, obviously, there was very strong growth in the installed base.

So maybe, yes, dissect 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 supporting all that Moshe discussed the international side of things. But at least in North America, we've expanded our post-sales support team, almost double the size of what we were last year. We're still working on filling 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 in some electronic billboards and things like that to raise consumer awareness.

It's always nice when you have friends that turn around and ask you is Morpheus8, the device that you guys make, which happens quite frequently now. So we're building the brand. As I mentioned, same thing as envision and Empower. We'd like to crawl walk run, rather than the other way around.

So in doing that, I think 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..

[Operator Instructions] Our next question comes from Jeff Johnson with Baird. Please go ahead..

Thank you guys. Good morning. Moshe, just on system placements. I mean, you mentioned China still the lockdown issues there.

But I think this was your biggest quarter ever of global placements, so a couple of questions, I guess one what's been the tenor of demand even over the last couple months, it seems like financing rates are probably going up, there's a little bit of competitive noise out there that we continue to hear in the channel.

But 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 and then kind of a second question on placement, you help us understand again it's a number we asked about quite frequently but what is penetration in the U.S.

now for in the surgical derm and plastic surgery segment of the market, where do you see penetration at right now, how much room is left there? Anything on those topics would be helpful? Thank you..

Well, if we want to take it to the worldwide, all together we have about 14,000 system installed. Okay, the total available market if you want to count dermatologists, plastic surgeon, aesthetic surgeon, OBGYN in the future ophthalmologists worldwide is more than 200 of those and I'm talking about doctors with clinics.

So and you know our portfolio is very wide. We can serve as 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, FaceTite, NeckTite, BodyTite. We started with women helps to do all kinds of indication.

So with a wide portfolio like that, I believe that worldwide we're in a very, very early stage, very early stage, and we have room to grow and we're doing it. We have room to grow in almost every country.

In addition to that, we have several products which is not yet approved, not in Europe, not in Asia, and probably not in Asia -- and not in South America. And we continue to invest heavily on regulation in 27 countries, simultaneously in 27 countries and it's tech time, it's tech studies, tech money.

And not always, we get to overcome the bureaucracy on every state, but eventually all the products 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 we're selling.

In North America, we have the wide range of regulation from the FDA, because we started in the U.S. And we started and later on, we started in Canada.

But for example right now, in Europe, when the CE moved from the MDD direction of regulation from the MBR, which become much more difficult, we are -- it's a challenging, but we're working on it, and we will overcome it. The good news is that barrier to entry to competitors with all these regulations.

So I believe that this follows penetration when 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 40,000 to 50,000 lasers 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. 6,500 or 6,600 system, we still have way to grow. And as you see we're growing quarter-over-quarter, so the penetration is getting wider and wider.

Did I answer you?.

Yes..

Sorry, Jeff. Just to chime in to answer some of your other questions, you had asked. So in regards to financing, I know that's something that everyone's kind of keeping an eye on here. We've talked to our brokers and a number of leasing companies, we haven't seen rate hikes as of yet, I think they're 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 to our industry. So I think people are going to be accepting of it.

I think 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 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 as a good thing. It breeds awareness.

I think a lot of times when you do have work getting out there, just keep in mind as much as it sounds like we've had a seasoned laser industry or seasoned RF industry, we're still relatively new players into the market. And we've carved out kind of a unique market in some of the devices that 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 that which we can penetrate.

So as long as the healthcare system continues 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 for their practice, when it comes down to the specialties, as you mentioned, with plastic surgery, dermatology, so on and so forth.

Again, in the DERM world, we're very, very early on, in 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, if they're successful with their first one, we're going to help them benefit and hopefully they'll 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, it does. 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 proxies once a year, but stock has been off here pretty meaningfully this year, has there been any level or interest from an insider buying standpoint, has anybody stepped up into buying at these levels internally and maybe same question for Yair, I think there's over $400 million of cash and marketable securities on the balance sheet at this point.

Any thoughts on a buyback, again valuation looks pretty compelling, I would argue at these levels or just any thoughts on both insider buying and or buyback? Thanks..

Well, let me answer the first question or the first part of your question and Yair will answer the second part. As far as the executive team and the insiders, they are fully committed, and they are here to stay.

Yes, some of them sold some shares because and I can tell you that in 2021, we plan to do a secondary, when the banks ask us 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, some of this insiders and executives 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're not going anywhere.

This is the company that we have established, this is the company that we build, it's a successful company, quarter-over-quarter and we're not going to leave just because some of us have sold some of the shares of some of the employees exercise some of the option and sold some shares.

This is something very common in a public company, especially four 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're exploring opportunities, I can tell you that we're exploring opportunities, almost every month, we're exploring opportunity and when the opportunity will present itself, we will do it and therefore the money is still in the balance sheet, but we have -- and we have the intention to use it..

Thank you..

This concludes our question-and-answer session. I would like to turn the conference back over to Moshe Mizrahy, Chairman and CEO for any closing remarks..

Okay, thank you, operator. Thank you, Miri. Thank you, Shakil, Yair, Spero, Mishka and Rafi who are with me here today.

I want to extend thanks to all the InMode team, salespeople, logistics people, manufacturing people, R&D people, engineering, everybody who's working very hard 24/7 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 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 and 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 earning call. Thank you..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..