InMode, a leading provider of innovative energy-based, minimally invasive surgical, aesthetic, and medical treatment solutions. With us today from InMode, we're happy to have Chief Financial Officer, Yair Malca and Chief Medical Officer, Spero Theodorou. Yair Malca, I'll turn it over to you if you have a few minutes of anything prepared, or we can just go straight into Q&A.
First of all, thanks for having us. I really appreciate it, and I think we can jump straight to-
Yeah
... the Q&A.
Great! Well, let me just start with the question a lot of my companies are getting, and I think it's one of the biggest talking points here, just on GLP-1s and the potentially bending of the obesity curve here over the next five or 10 years or so. So I guess, Spero Theodorou, for you, you know, what is the average BMI for patients having an InMode procedure? My sense is BMIs in the 35, 40, that's not conducive to the targeted therapy that InMode brings. So you're not gonna necessarily lose a lot of patients if they come down from that BMI, but-
Right
... I'll let you answer.
That's a great question. We're getting that everywhere, Jeff Johnson. So the bottom line is, ideal patient for liposuction is about 28. 28-29, 27-29 is where you wanna be. So in this respect, yeah, everyone who's 35-40 usually gets turned down for liposuction-
Yeah
... 'cause for health reasons. So you're looking at this whole group, they bring their BMI down, and now they're candidates for what we do. And the truth of the matter, it's almost a human psychology too, right? You look better, and you wanna look even better, 'cause then now you have an option to get to the where you need to get to. That's number one. Number two, we're the skin tightening company. These patients are gonna have loose skin, so they'll fall right into where we need to do to take care of them. The third thing is, the ones that, you know, if you stop it, you go right back up again. So you're back on the obesity curve, and we're sucking that fat out. So anything related is gonna be positive for us.
Unfortunately, it's still early to know the impact of that, which is certainly reasonable, but I can tell you right now, the majority of the plastic surgery practices out there are incorporating this into their treatment plans. Lastly, and the one thing which I haven't heard yet been asked is, the cost. These patients are paying $1,500 a month for these treatments, $10,000 a year. That's a lot of money for your average, you know, person to spend on a, drug like this. So if you've made that investment, you spend that kind of money, right? And now you, you look better, and you look hopeful, and now you're a candidate to look improvement, there's no reason why you're not gonna continue to get to that point of spending more money.
You've already made the first real investment, cash investment, because a lot of these are not covered, of course.
Yeah.
So all those elements, I believe, will be very conducive, and we're positioning perfectly for it. I just don't know the impact yet. What I can tell you for sure is it's not negative.
Yeah.
So everyone's thinking, "Okay, you're not gonna do this, therefore, you're not gonna do that." Absolutely not. You've always wanted to jump into that, you know, great suit or great dress. You drop the weight, doesn't mean you're gonna stop buying suits. It's the same thing. You're gonna buy better, and better, and better ones. The same thing with plastic surgery, so we're quite optimistic about it.
Yeah, and I think you alluded to this, but it seems to me that patient who does go from a BMI of, let's say, 32 or 33 or something down to 27, 26, they're gonna be even more motivated now for two reasons: One, they look better, so now they wanna take care of those targeted areas to really, you know, tighten up even more.
Right.
But two, we've all heard of Ozempic face, things like that. I mean, and just like you guys say all the time, "If you lose the fat, you don't lose the wrinkles.
Correct.
And so-
Yeah
... there's the skin tightening procedure, the bipolar RF or maybe the RFAL-
That's right
... whatever that is, is a treatment on top of that.
Ozempic face was a term coined by one of our own KOLs.
Is that right?
It's pretty smart here in New York City. So-
Interesting
... so we're very attuned to it. Remember also the psychology. The person who's gonna take an injection or a pill for a weight loss is not the same person who's getting a treadmill every day.
Yep.
It's the same person who's gonna like we have plastic surgery, it's a quick, quick fix. These are quick fixers, so why not? All of it sort of is feeding into what we do.
Yeah, from your KOL comment, I would assume the answer to this is yes, then, but do you have colleagues and customers that you're seeing actively treating these post GLP-1 patients today? So they're already coming in the door and you're truly seeing-
Absolutely. Already started.
Yeah.
Look, you have your massive weight loss patients who lose a lot of weight, a lot of skin, which are traditional candidates for excisional procedures, but that's not the majority of the patients. The majority fall right into our treatment gap.
Yeah. Right.
So remember, when you lose weight, your skin sags, you look older. So automatically now it's like: "Okay, now I look older. Now what?
Some of us look older just 'cause we look older, but yes.
I feel like, I feel older being public for four years already-
Yeah
... so, yes.
Try doing this job for 21. All right. Yair Malca, let's move over to some numbers now. So H2 guide, you're calling for 15% growth at the midpoint, I think 17% at the upper- end. You did 20% in the H1 of the year. You guys like to be conservative, but, you know, we've heard summer has been a lot of travel. Obviously, swimsuit season is like in the spring before, you know, spending the time at the beach and hopefully having your work already done at that point, and that. So just, you know, talk to me about kind of that H2 guidance, maybe implying a bit of a slowdown and maybe kind of what you've been seeing with some of that summer seasonality.
Yeah, I think a couple of things. First of all, the guidance that we provide is always, always an annual guidance. So overall, we need to look at how much we will grow this year compared to-
Yeah
... the previous year. What's gonna be, gonna be unique in 2023 is that, that's gonna be the first year where InMode is gonna experience what used to be the traditional seasonality in the space. Which means Q1 is the slowest quarter of the year, Q2 is a strong quarter, Q3 is flattish, sometimes even down-
... sequentially, we're talking?
Sequentially, yeah.
Yeah, right.
Q4 is the strongest of them all.
Yep.
We didn't experience that up until now is because in the last three years, we had impact of COVID. So most of the industry did not feel the traditional seasonality because COVID and COVID-related phenomena skewed up seasonality in the space for everybody. And before that, we were in a very high growth phase, so we kind of overcame the traditional seasonality. But this is a well-known seasonality in the space-
Yep
... and we are at a level that we can no longer avert it or avoid it.
Yep.
Okay? So this year is gonna be the first year we're gonna experience that. Overall, looking at the guidance that we put out for the year, I think we are gonna have a respectable growth compared to 2022.
Sure.
I think that's the right way to look at it.
Yeah, and you know, I posed my question kind of talking about swimsuit season and demand trends, and looking at it from the patient perspective. You answered kind of the same seasonality, you know, vacations and what have you. But I think, what? 85% of your revenue is system sales-
Yes
... as opposed to consumables, which are really consumables or what drives that or procedures drive the consumables. But do capital sales follow-
Yes
... the consumables trends?
Absolutely. During summertime, what you typically see is even our customer, the doctors, are going on longer vacation. In the last three years, they did not-
Yep
... because of COVID, and even last year, they probably went on some kind of a local vacation. Now, what you see is everybody is going abroad, shutting down their practices for a couple of months, and usually, July, August is not a period for them to make large purchasing decision.
Yep.
That's how it used to be, and now we are seeing that phenomena back, especially when you talk about capital equipment.
Yeah, fair enough. All right, and then anything we should be thinking about there on maybe your international business being even more seasonally impacted, more vacations in Europe? Is there anything from a distributor standpoint with higher interest rates or anything that we should think about on the international side?
That's a very good question. Typically, yes, in the past, you see that seasonality affected the European countries more than the U.S.
Mm.
However, this year, we definitely see a lot of U.S. physicians shutting down their practices, going on longer vacations to Europe and other-
Yep
... countries outside of the U.S. So we definitely see the impact on both Europe and the U.S., which we think it's normal.
Yeah. Yeah, and I guess that was gonna be my follow-up.
In terms of interest rate, to answer the second part of the question, the interest rate environment is not helping us, not in the U.S. and not Internationally. Obviously, a big part of our revenue is being financed by third-party leasing companies when the customer purchase our devices, and higher interest rate and also, some of the banks and local leasing companies here in the U.S. became more strict when they you know-
Yep
... do their credit review. I think this is not helping either.
Yep.
Uh, but-
Do you think that's mainly a maybe lengthening of the sales cycle, as opposed to any kind of longer-term deferral, things like that? I mean, I just think of the paybacks on these systems are so fantastically fast-
Correct
... that I can't imagine doctors are dropping their interest or dropping their purchase intent as much as maybe paperwork's just taking longer to get through the system.
So a couple of things. One, yes, the fact that the interest rate is going up means that the monthly payment is a little bit higher. It can be $700 higher.
Mm-hmm.
This is still a very strong ROI. So instead of one patient a month that they need in order to cover the monthly leasing payment-
Yep
... now they need 1.1 patient. It will not change drastically their purchasing decision, but there are some customers that we call our rate-sensitive, and they will feel that this is not a good time to buy a device because the rate is so high. But most of them, we are able to show them that the ROI is very strong. Instead of returning the investment in 8 months, you return it in nine or 10 months. This is a very strong ROI proposition. So I think we are able to overcome it. The fact that some of the leasing companies, the process to get some people approved is taking longer, it helps in a way. We've seen this trend from the beginning of the year.
Time kills deals in our space, so even if it's on average takes three more days for them to get back to us with an approval, within those 3 three days some of the physicians can, you know, get some second thoughts-
Yep
... or a competitor can come in and try to steal the deal. So obviously, this is not helping us.
Yep.
But we are managing.
Yeah, fair enough. With that context, still comfortable with the guidance you've put out there?
For the year? Yes.
For the year.
Yes.
Yeah, yeah. Okay, fair enough. China, I mean, it seems like China could be a big market opportunity over time. I know it's been slow, obviously, with COVID to really scale. Just what are you seeing in China? I think, you know, Moshe Mizrahy has talked in the past about sales reps not being able to move between cities. That has improved. How big or how fast could China get to be a bigger part of your revenue, which I think right now it's less than 5%?
... Correct, it's less than 3%.
Less than 3%.
I think no, no other countries outside of the U.S. of North America account for more than 3% of our revenue. So we're pretty spread out. China has a huge potential. We are still waiting for a regulatory approval in China for the rest of the portfolio. We are. We have only for part of the portfolio.
Yeah.
We are waiting for the rest. That takes time. But Q2 was a very strong quarter, was a record quarter for us-
Right
... in China because of what you mentioned. All the COVID restriction has been lifted, so that was good. We hear some mixed messages from the macro economy there, but so far, we haven't seen anything yet. China can definitely become big once we get the approval for the rest of the portfolio. We are now going indirectly in China through a distributor, but we also have a direct operation there.
Yeah.
So once we move to more direct and get more regulatory approvals for more products, I think definitely we can double it and maybe at some point even triple what we do in China. When? That's a good question. It's not only depends on us, you know, regulatory bodies in China work in a little bit different from what they work, the way they work in the Western world.
So, so what would be the biggest inflection point in China? Is it getting Morpheus? Is it getting the AccuTite, BodyTite, FaceTite family?
I think-
Of the bipolar, just what would be the bigger inflection?
I think getting some of the women's health approval-
Okay
... can help as well. Going direct there.
Yeah.
I think a combination of getting more, even seven more products approved together. It doesn't even matter which one. Together with going direct, I think can definitely create a huge impact there.
Okay. And outside of China, you know, there's a few companies like yourself that, you know, have a good size U.S. business, but it seems like there's so much opportunity outside the U.S. in markets, Brazil, Southern Europe.
Yeah, all over the international market.
It is, but I think of some of those big markets.
I wanna be the first to admit that we started investing pretty late in the game-
Yeah
... in the international markets. Only in the last couple of years, we started heavily investing in the international markets, and now we are start slowly seeing the fruits. We, in the last several years, we, opened a subsidiary, means a direct operation, almost one every year. So we did it in France, even during COVID, Italy, Japan. We are looking at Germany.
Yeah.
Latin America is not in the cards yet, but we work with very good distributors. At some point, maybe, but, the distributors, they are doing very well.
Can you maintain the margins? You know, obviously, if you go through distributors, we're not gonna see those 85% gross margins, but, you know, in those high growth markets, can you sustain, you know, the 40-ish% operating margin?
Yes, yes. Even in the countries where we work with, through distributors, so the gross margins is lower-
Yeah
... but the operating margin is the same.
Yeah.
Because in our space, you need to spend a lot on sales and marketing. So we work with the distributors. They do all the heavy lifting when it comes to the sales and marketing investment. So yes, we get a hit on the gross margins, but it's actually coming back to normal on the operating margin.
and in the countries where you push in more direct
Mm-hmm.
Can you maintain those 85% capital margins? Does the selling structure change a little bit?
Yeah, it might be a little bit less than $85 in some of the international markets, because prices there are a little bit lower because of all the competition-
Yeah
... that you don't have here.
Right.
There's a lot of competition that you have from Asia, and they tend to drag pricing down. But again, also the sales and marketing spend on the international market is not as high as in the U.S. So it's oh, even things out at the end of the day.
Yeah, fair enough. I wanna talk a little bit, I know you haven't guided yet to 2024, so I don't expect that you'll talk a whole lot, but I think you were at a conference recently, you talked about kinda $70 million-$90 million kind of being the absolute revenue increase-
Yeah
... that you'd think about on an annual basis. You know, Street's hanging out closer to $80-$84 million, I think, increase next year. You guys like to guide conservatively. You know, is there anything you see in the Street number that concerns you at this point for 2024, knowing you haven't guided yet?
Again, I'm in no position to provide guidance-
Yeah
... for 2024 yet.
Yeah.
Right? We need to see how Q3 ends up, and more importantly, we know Q3 is gonna be seasonally slow, so we are going to see how Q4 gonna end up like.
Yeah.
Then we'll be in a better position to guide for 2024, okay? Even this year, we are, based on the guidance, we're gonna add $80 million-$84 million to the top line.
Yeah.
So knowing us and the way that we usually try to be conservative with guidance, I would not be surprised if we come up with a $70 million-$75 million guidance for next year. Again, this is capital equipment still.
Yeah.
Organically, I think that will be the responsible thing to do. Of course, if we can do better, we'll do better. In Q2, this last quarter, we did better, and we increased the guidance.
Yeah. And how directly controllable is that top line by the sales reps adds? I think you've added almost 140 reps over the past six quarters. In the past, you've talked about adding 30 reps-40 reps in a year. So you've taken that rep hiring up higher over the past six quarters, and maybe that's a little COVID catch-up or something, but is that a lever that you need to lean more heavily into to keep that kind of, you know, top-line growth at those kind of levels? And how sustainable is it, I guess? Where are you getting to where the returns aren't there to split territories even more, things like that?
Yeah. So in order to continue to grow, we need to do two things, and we need to do both. One, increase the number of sales rep at least by 30 reps-40 reps a year.
Mm.
Yes, we had some COVID catch up, as you mentioned.
Yep.
But overall, we need to add 30 sales reps-40 sales reps every year, at least, together with bringing new products to the market. These are two important things. We cannot just increase sales reps and expect to grow sales. It has to be done together. Bring in new products, innovate, and then increase the number of sales reps. This can definitely help us with bringing, at least this formula, we know can help us with bringing those $70 million that I, I've mentioned.
Yeah.
Again, sometimes we can do more, and of course, if we can, we will.
How should we think about rep productivity? I think back a few years ago, even pre-IPO, it was about $2.5 million. Obviously, you've carved up some territories. I think the last six months, as I look at it, rep productivity, closer to $1.6 million-$1.7 million.
Yeah
... $1.7 million. Is that a sustainable base in that 1.6 million- 1.7 million, when we think about how many sales reps you will add in a given year in that?
So, the average in the industry was between $1.1 million-$1.4 million per-
Yeah
... rep per year. And we did better than the average. Again, we did around $2 million at some-
Yep
At some point. That was not sustainable, obviously, and we are sliding down, sliding down a little bit, which is normal. We are still above anyone else in this space, and we expect to stay there.
Okay. All right, let's move on to maybe a couple other higher-level topics. We'll be about 10 minutes left here. I want to start on wellness. Obviously, that's been a big success here on the women's health side recently. Has the bigger driver of that success been selling Empower systems into the GYNs for SUI indications, or for other vaginal rejuvenation procedures? I don't know if I can even call them that nowadays with the FTC, but-
Yeah
... you know, how do you balance-
Mm.
Yeah, how do you balance, I guess, wellness versus SUI in your women's healthcare business?
Let's Spero Theodorou take this question.
There's 45,000 gynecologists. It's a great question. We're not going to penetrate that group, obviously, right? So, and the reason is, that group needs hardcore indications, regular med tech to get to that point, insurance reimbursement, as you know already. Plus, the fact is, the majority of these groups are locked institutions.
Yeah.
Only three states we have independent gynecologists that actually can actually purchase their machines faster and quicker. The majority of our sales are not just gynecologists. Believe it or not, plastic surgeons are buying a lot of them. Why? Because they understand that it's a cash-based procedure, and they only have the woman in their office. However, the whole theory is: come in with a medical indication, stress urinary incontinence, overactive bladder. The majority of the results that we're seeing are in mixed urinary incontinence. So seven times a night getting up, now it's one. That's huge, and that's the impact we're getting like, the feedback we're getting back from our machines already placed out there the last two years. So that has given us the confidence to go after OAB, doing all the research, do all those wonderful things, but more importantly, increasing our TAM.
So this was the theory. We had to see, how do we increase the TAM? How do we go against all the naysayers here? We can't get over $500 million, right? So we looked at our vaginal Morpheus device, and we saw the tips, how many tips we're selling, versus those same GYN practices, how many of those tips are cosmetic Morpheus, because it's the same platform.
Yep.
We found that our top 10 practices, for every Morpheus vaginal tip being used, 10 Morpheus cosmetic tips are being bought. Then we looked across the board, it's one to 2.5. So for every vaginal Morpheus tip, 2.5 cosmetic tips are being bought. So our device goes in, it's almost Trojan horsing it in a way, but the truth of the matter is, we're an aesthetics company. Helping the gynecologist say: Look, you have these patients in your practice. Guess what? You know, it's not scary. You can still buy the machine, market to the existing population, and we'll teach you aesthetics. It's coming out, you know, considering our Morpheus, how fast it's growing, those tips are growing, that's proof of not just adoption, but also that this theory is working.
The same concept is going to be carried into ophthalmology with dry eye. So, so that is sort of a way of increasing TAM and introducing... Considering the insurance reimbursement problems that all these healthcare groups are getting, they're dying to find something that they can do, which is cash-based. We're helping them get there with an existing population of their patients and then doubling down on aesthetics.
Okay, and I just want to make sure, when you started that part of the conversation, I thought I heard you say you're not going to penetrate the GYN?
We're not.
Uh-
Not yet. Until we have indications, insurance reimbursement, all the things that you need for a traditional med tech to get into that group-
Yep
... we will not get there. However, we do have the luxury of selling cash-based devices and platforms while we do that in parallel.
Okay.
As a company, we are investing in that sector. It's gonna take time. It's gonna take time to get there, but we have the luxury of the cash-based stuff we're doing.
Yep.
The reason I bring that up is, it shows we have a real commitment to women's health.
Yep.
There's a $5 billion overactive bladder market. We think we can actually create a big difference there. And the reason is, one-three procurements in the office is fixing OAB. We don't know why that's happening, but we're looking at it seriously, and that's why we bought Viveve's patents, University of Southern California patents, to help buttress all those things that we're going after. So we're looking at it seriously, but we're not losing focus at the same time, because we know that we're an aesthetics company at the end of the day. But we're optimistic. It's just gonna take time.
Okay. Any update on the pilot? I think you were running in... It was OAB or SUI.
Yes, yes. I'm glad you asked that question, Jeff Johnson. Someone's paying attention. So, the pilot's actually surprisingly, we picked refractory OAB patients.
Yep.
We're doing it down in Colombia and South America, and we're following this group every week. We found, they're about almost three months out now— tremendous difference. We're basing the treatments going down to 7 mm, and we have all the patents we've offered in University of California. Also tell us what those afferent nerves are coming in. So we're targeting specifically those nerves, and we're seeing a huge improvement. So we're very excited about it. Obviously, that's just a pilot.
Right.
But it's gonna give us enough confidence to double down and go big on it within the next year.
Okay. And without me asking R&D spend on that, 'cause I don't want Moshe to-
Well
somehow dial in and, and dress me down again. But, but that, what,
Colombia.
Yes.
There's your answer.
What would be the FDA pathway?
So we're yeah.
If you move that into-
We're running in parallel right now. We're also doing a study for FDA, just traditionally, to get our SUI indication.
Yeah.
The pathway would go after overactive bladder.
Yeah.
mixed urinary incontinence.
Sorry, how long will it take, do you think, if all goes well?
If for the stress urinary incontinence approval, I'd say, you know, 48 months, 24 months-48 months-
Yeah
... which is reasonable.
Yeah.
For mixed urinary incontinence, we're waiting for the pilot to finish, at that point we'll make a decision whether to go after both.
Okay.
We think that we'll be able to get mixed urinary incontinence probably faster than just pure stress, but that's a conjecture, right?
Okay.
I would say, 48 months is probably the most optimistic.
Yeah, okay. Then on the ophthalmology product, on the dry eye product-
Yes.
... you know, I think, when I met with you guys down in Miami back earlier this year-
Right
... there was some talk about going into maybe even some of the chains, the optometric clinics. Is that a strategy that you're moving forward on at all? Is that an opportunity, or is it going into the single ophthalmologist office?
No, we are going, I mean, optometrists by definition. If you look at the optometry group, it's 80,000 optometrists. 65% are female, they graduate, no debt, they have to spend around $250,000 to actually open up their practice with equipment that's not revenue generating, it's diagnostic.
Yeah.
So it's an easy sell for us. However, optometrists are a little more conservative because they're waiting for indications for dry eye to happen before they start, you know, going crazy with that. We are hoping to get indications for our dry eye, for IPL and Morpheus, probably Q2 next year, so we're actively pushing that hard. And once we do that, we know we can enter that group. And that group is pretty excited about it because it's not just dry eye. Dry eye. Is our dry eye way better than LipiFlow? It's better.
Yeah.
It's periorbital rejuvenation that will make the difference, which is Morpheus and IPL.
Yeah.
Now, instead of selling sunglasses, you could do $500,000-$1,000 to periorbital rejuvenation. Again, indication, pilot the aesthetics, same model as GYN.
Okay.
So yeah.
Yeah, and I'd have—I don't know the answer to this, but what would be the practice of medicine rules by state for which optometrists can treat or not treat?
Very, very good question. They usually refer to their board for that.
Yeah.
The truth is, that's why it's really a personal decision, but if they have an indication, they're pretty comfortable doing it.
Okay. Fair enough. All right, last couple here. Let's see. On your capital versus consumables, Yair Malca, maybe we'll come back to you on that 155-85% or 85%-15% split. We've been moving at least towards 15% for the last few quarters. A point or two a year, is that how we should think about it? Is there any strategy change, contemplated over the next few years of moving more, you know, raising price or, or coming up with a bigger set of consumables that you could charge more for?
Yeah. So if you look at the past few years, we added 2% every year.
Mm-hmm.
So, three years ago, we were at 9% of our revenue came from the recurring revenue, then we went up to 11%, last year it was 13%, and this year, probably, 15%. As you mentioned, yes, we are going to maybe look at increased pricing, but I just want to put things in perspective. We are not gonna become a razor and razor blade company-
Yeah
... all of a sudden. And we think that's the right way to go. We want our physicians to make as much money as possible from offering our procedures to their patients. By doing that, we know that they will come back and buy, purchase additional devices. And we've seen already 30% of them purchase more than one device, and we would like, we expect this trend to continue.
Okay.
We increased our Morpheus tip by 10%.
Yep.
No one blinked.
Yeah.
Yeah.
We have a lot of levers we can pull. We just haven't used them yet.
Okay, fair enough. And then the last one, just, I mean, the balance sheet, it's a good problem to have, but you've got a ton of cash. What do you do with it? You know, are there deals we could see? And, and should we be scared about that, just given the, you know, your gross margin and growth profile is not gonna be easy to acquire somebody who can match that, but that versus where are you with maybe repurchases or anything, other use of the cash?
Definitely repurchase or maybe dividend at some point-
Yeah
... is on the table. We are looking at it, but I'll be honest with you, the first priority is M&A.
Yeah.
You don't, no need to be scared. You know, I think we prove ourselves as a very conservative management. We didn't rush to make, or we don't rush to make, hasty M&A decisions. We take our time, evaluate, and make sure that we whatever we buy is gonna be a right fit for us to bring us to the next level. Again, we are less worried on margins, more worried that it will be accretive to EPS-
Yeah
... and that's important for us.
Fair enough. All right, well, we'll leave it there. So, thank you for a wonderful overview of InMode. And as a reminder, the next presentation is set to begin at 12:15 P.M. Eastern, include Apellis Pharmaceuticals, Inari Medical, Nurix Therapeutics, and MiNK Therapeutics. Thank you.