Good morning, everyone. Suraj Kalia, Senior Medical Device Analyst at Oppenheimer. Pleased to have you guys listening to this fireside chat. We have this morning with us, Moshe Mizrahy, Chairman and CEO of InMode. I've known Moshe for, what would it maybe, Moshe, more than a decade? Probably almost 15 years.
Long time, yeah.
Pleased to have you here. Pleased to have you.
Long time. Thank you.
So Moshe, you know, you guys have, at least in the aesthetic space, you guys have done a phenomenal job. You know, just a few years ago to now almost $500 million annualized revenue run rate. Let's start, Moshe, what do you think is the one main thing that, you know, you would characterize... And you've been in the aesthetic space for long, what would you say is the key differentiator for InMode?
Well, you know, the medical aesthetic industry started long ago, at the early '80s, late '70s, when everybody developed laser equipment. They used to be called a laser industry. I believe that the only differentiator that we brought to the market is we said that we want to do something different. We want to take this industry from a topical treatment to a surgical treatment. That mean that instead of doing, what I call, two-dimensional treatment, like acne, hair removal, pigmentation, to do body and face reshaping without the need of a full surgical procedure. That's the way we started exactly 15 years ago.
We developed a technology which is based on bipolar RF energy, that you can do with one incision point to change your face, to change your body, to reshape your face and reshape your body, without the need for hospitalization, full anesthesia, long downtime, et cetera. From that point, once we introduced that technology, we continue with different other technologies, most of them are minimally invasive, although we do some non-invasive as well. That's one differentiator, that I believe we brought the industry into the main clinic of plastic surgeon, not just dermatologists and cosmeticians and others. We expanded the population or the medical community that can use medical aesthetic in their clinics, and that was the beauty of it.
I mean, of course, after that, we decided to do it with Morpheus, which is a fractional RF that can go up to 7 mm to the subdermal fat. And in addition to that, we expanded the business into other medical community, which I call aesthetic, but they are mostly wellness, women's health. Now we're doing ophthalmology. We're going to be on ENT for sleep apnea and snoring. So we decided that aesthetic is not just something in the appearance of the human being, aesthetic is that, the well-being of the human being, and that's what we developed, and this is why we're growing almost every year. 2023 was a tough year because of the macroeconomics, but we managed to grow 8%, although we planned to do better.
But we were the only aesthetic company who made money and show some growth in 2023. We have 10 project in our R&D pipeline, in different indication, all the way from erectile dysfunction to overactive bladder. Again, by expanding the type of population, medical communities that can use our technology. And we're growing, we're growing. We're not stuck in the laser business. We expand that into a surgical type of operation.
Moshe, I know, again, when you and I last talked, it's a pretty fascinating approach you'll have taken, which certainly seems to have set yourself, you guys, apart from the, you know, the traditional laser crowd, so to speak.
Yeah. Yeah.
So, Moshe, set the stage for us in terms of, you know, in aesthetic lasers, right? We always talk about traditional derms, non-traditional derms, right? Set the stage. You guys have so many different target buckets, ophthalmology, OBGYNs. Just kind of set the stage, how do you see, let's say, sales in different pockets or opportunity in different pockets? Just kind of set the stage for us.
Okay. Okay. First, I want to say that although we develop product to women health and ophthalmologists and ENTs doctors, at the end of the day, we're an aesthetic company. Although we're not a typical aesthetic company because, you know, we're doing surgical indications and not just topical indications, but at the end of the day, we are an aesthetic company. So every product that we will develop will include aesthetics as well as something unique for this medical community. For example, you know, you have gynecologists. Usually, they don't. They all rely on reimbursement money... and all of a sudden, we're coming to them and telling them, "Hey, you can buy this system.
You can do urine incontinence, you can do overactive bladder, or you can do vaginal contraction, but you can also do full-face rejuvenation with the Morpheus. So you can see that you can make money both way, private money, and those doctors are starving for private money because, you know, reimbursements are going down and down and down, and although they have each one of those gynecologists probably has 1,000 or 2,000 of client women, and they can offer them aesthetic procedure as well with the same system. So the return on investment for them is less than one year, and that was the success, how we approach those type of customers. The same we're doing now with ophthalmologists.
Ophthalmologists are basically trained to be surgeons, so they can do periorbital wrinkles, they can do full-face rejuvenation, they can do upper and lower lid operation without the need to go to the hospital, but they can also do dry eye, which is something special for ophthalmologists. And we'll do the same with ENTs and others. At the end of the day, we are an aesthetic company, where in every platform that we develop, we combine aesthetic indication for particular doctor-
Mm-hmm
... plus something special for his community, for his specialty, and that this is the reason why now we, we launched the Empower, which is the women health first product that we brought to the market in 2022, and in between 2022 and 2023, we did close to $90 million, nine-oh million dollars, and that was the first time we approached this medical community. We never, we never sold to gynecology. And the same thing now we're doing with ophthalmologists. In addition to all the pure aesthetic doctor, plastic surgeon, aesthetic doctor, dermatologists, where we sell typical equipment, but more surgical type, we approach other communities to expand the business. So this is the position that we're taking in the full scale of the market.
So Moshe, following up on that strain of thought, within these different buckets, is it primarily... What drives adoption in your view? Is it the ability to do multifaceted treatments, you know, whether surgical or aesthetic, if I can separate it that way? Is it ROI? Help us understand the competitive environment, and what does InMode do so differently versus, let's say, a Candela or, or Cynosure, or, or whomever else?
Okay. Okay. Well, let's let me try to answer your question from economic justification point of view, okay? On the laser business, you have many companies offering different type of laser, 810, 1064, all kinds, combinations, but the market, the capacity of the market for lasers is well saturated, so prices of the system are going down. So doctor can buy today the best laser system for $70,000-$75,000. Now, let's assume he's selling a package of six treatments for full skin rejuvenation, pigmentation, and vascular lesion on the face. Six treatments, the price for that could be $3,000. He will never be able to justify buying a new laser or even replace his old laser because the payback will be, I don't know, less than maybe, maybe more than three years.
When we come to the same doctor and we tell him, "Listen, you can use FaceTite or BodyTite on one of our minimally invasive RF system," we don't have competition because we control the market, the technology, the patents, and everything. We can sell piece of equipment for $130,000. So if a doctor buy for $130,000, lease for five years, the monthly payment is $3,000, and probably he need another $2,000 for disposable to do five treatment per month, and he charge $4,000 per treatment, one time in his clinic. Local anesthesia, no need of a hospital, no need of a staff. So overall, I mean, he can make whatever, $20,000 - 3 + 2, he make $15,000-$20,000 a month. The payback is seven months.
So I mean... And it's all private money, so doctor love it. I mean, everybody know today the brand name called Morpheus. You know how many Morpheus treatment are being made in the world every year? 2 million treatment. 2 million. That's a lot for surgical procedure. That's a huge number. That's like all the plastic surgery operation worldwide in one year. So we came to the market with something which changed the economic justification of buying the system, and therefore this is what we're teaching the doctor, and we're helping them. Because every doctor who buy a system, we basically arrange a workshop for all of his client, and we explain to them. And, you know, some doctors are having a backlog of customers after this, let's say, workshop, to cover half of the system in one night.
I mean, we try to get out of the box in the way we do business, in the way we treat technology, and the way we design the system.
Fair point. So Moshe, let's say InMode is seven months ROI. Let's assume that for a second. Where are other players competitively speaking, 12 months-24 months, 36 months? Or how should we think about the relative ROI advantage for InMode versus, let's say, the industry at large?
I can tell you from within, 90% of our business are surgical or surgical-oriented, but we also do lasers. We do lasers. We do simple lasers. We're coming from the laser business, and the reason why we do that is because we want to be one-stop shop for the doctor. If the doctor need a laser, we want him to buy from us if he's happy with us. So on a typical laser that we're selling, which is very competitive on the market, we cannot sell it for $200,000. We can sell it on $70,000-$75,000, laser that can do hair removal and skin rejuvenation. The payback is about three years to the doctor. We know exactly how much he can charge per treatment, not more than $500, and you need six treatment to get the result.
So if you multiply that, and you see how many patient he has, that's about 2.5-3 years payment, payment, payback. I'm, I'm not saying it's wrong. Doctor make money. In the aesthetic business, doctors make money. They make a lot of money. Some of them are doing only aesthetic, some of them are doing aesthetic and regular medical, but most of them Most of the doctors today are starving, wants to get some private money indication, and, and that's what we bring to them.
Moshe, you know, obviously in the U.S. at least, the macroeconomic environment is a key issue, right? Whichever side, however you look at it. So interest rates, for any capital equipment-
Yeah
... interest rates are a very key topic of conversation, right?
Yes.
With the, I mean, I can understand one of the answers if you would have is just given the payback, maybe there is lack of sensitivity to interest rates. But just help us understand where we are today in terms of the cycle, the sales cycle. How long does it take to close a sale? How should we think primarily because of the interest rate environment?
Yeah. Let's start with the interest rate. You are absolutely right. The interest rate for leasing, financing was went up to 14%-15% in 2023. It's still very high. It's starting to get down, but it's still very high. So basically, I'm sure that you will not take a mortgage for your house with 14% interest rate for five years.
Yeah.
So although the justification is there, even with the high interest rate, 2023 was... Some doctors were reluctant to commit to buy equipment and commit five years leasing package for 14%-15%. This is why 2023 was a little bit slower than what we thought. Again, as I said, we're still growing in 2023, I mean, from $450 million to close to $500 million in one year, and we did not reduce prices. We did not reduce prices. We kept the GP around 84... 84%, and the EBITDA around 45%-48%. So we did not, we did not combat the market and say, "Okay, we will reduce the prices to make it easier to the doctor." We always show the doctors that even with the new higher way, high interest rate, then maybe the justification and the payback would be nine months, a year.
But yet, it's important for him to buy now and not to wait. On the second issue, I mean, when you look on our competitors, and if they have to sell a system for $70,000, and the payback with the same interest rate, a high interest rate, and the doctors now is instead of 2.5 years, need to pay it in 3.5 years, that's the main obstacle for them. This is why you see the results of Cutera, for example, and Venus, and I'm sure Candela and Cynosure are suffering as well because of that. We suffered as well, but much less than all the others.
Got it. Got it. Interesting. So, and Moshe, this is gonna be a very, convoluted question. Just bear with me. So you have $500 million in revenues, you know, your system placements worldwide are, like, 23,000, somewhere in that ballpark, half in the U.S. You've trained, you know, how many ever? Tens of thousands of physicians. How do you all... And also consumables is, like, 15% of your overall business. So tie all of this together and help us understand, how should we think about utilization... you know, a typical metric we look at is utilization per system or whatever. Once you'll do a capital sale, is it done, you know, or is the grand plan now to start moving towards more and more disposables? Which is why I asked the question about utilization. Sorry, long question. Hopefully, you get the gist of it.
Yeah. Okay. Okay. You are right. I mean, selling an equipment without pushing and training to doctor and renew the indication every year would be a mistake. We have a group of customer service, account manager people, who are working with the doctors and and teach them different indication, and we try to expand the indication. For example, for Morpheus, now we are developing two new indication for hyperhidrosis and acne in order, in order to enlarge the numbers of disposable that they are using or they, that they will use. For example, we're coming to the market with new minimally invasive technology for BodyTite and FaceTite, using single cannula and instead of two cannulas, in order to make it easier for them and more user-friendly to increase the use of disposable.
At the end of the day, we started with 7%-8% disposable, and we're growing at least 1% or 2% every half a year. Although the install base is growing, and that's helped a lot, but also the use of the doctors are growing with the disposable. Well, what can I tell you? Today, there are a lot of copies. People try to copy, for example, the Morpheus, and they use the same brand name, and they copy one to one, and, and we try to fight it because we've seen several adverse effects using fake product claimed to be Morpheus, for example, and that's, that's happened just because of the success of the product, not because of the... Yeah.
But we're spending a lot of time and money in training and retraining, developing new indication for existing platforms, adding more type of disposable for different type of body parts in order, at the end of the day, and that's the goal, to be 75%-
Consumable
... platforms and 25% disposable. But it will come. Well, then, I would say that 2025, it will probably reach the 20% disposable and after that, higher than that.
Got it. Moshe, remind us, what is Morpheus as current percent of current revenue, and where do you think Morpheus can... Just given its multifunctionality, where can it be, let's say, in 24, 36 months?
Well, first of all, I want to say Morpheus is not... Morpheus is a technology.
Mm-hmm. Mm-hmm.
It's not the platforms, and it's not the handles. Morpheus is a technology. It's a bipolar radiofrequency, microneedling. Bipolar radiofrequency microneedling. Now, you can do it on the face, you can do it on the body. You can do it on 2 mm, you can do it on 7 mm.
Mm-hmm.
You can do it with seven, seven, five, three, like burst. You can do it on treatment of vagina. You can treat, I mean, if you want the circumferential reduction, you can do the same. Look, what that mean? And the technology of Morpheus, we're adding this technology almost to every platform.
Got it.
Yeah, Moshe, for example, if we sell something which is totally minimally invasive, we add one handpiece for body, one handpiece for face. If we sell a system to ophthalmologists who want to do in addition to dry eye and special indication for his profession, we add the Morpheus to do full-face rejuvenation or wrinkles, periorbital wrinkles. Morpheus is something that can be added almost to every type of platforms that we manufacture and we develop.
Yeah.
So the numbers are growing. I mean, as I told you, 2 million... In 2023, we counted 2 million procedures.
Got it. Moshe, another thing within the, if I can put it, just, compared to the aesthetic laser, not the surgical part, obviously in aesthetic laser, you know, feet on the ground and relationships are very important, right? You guys have over 250 sales reps. Help us understand, what do you think is an optimized sales structure for InMode, whether it is in terms of feet on the ground, annual productivity, how should we think about you are here and you want to go there?
Okay. Well, we have some multiples. An average, average salesperson in the U.S., let's start with the U.S., can do about $1.5 million-$1.6 million a year with our equipment. In the laser business is around less than $1 million or around $1 million, $1 million, let's say they sell the same amount of systems. So every year, when we do the budget and we know what products are coming, what new products are coming to the market, then we said, "Okay, if we want to sell that much, and on average is $1.5, $1.6, we need to hire this year another 20 sales people." Now, not all the sales people are the same...
There are entry level, and there are people who are doing the training, and there are closers, people who know doctors and, you know, reps who know to go to the doctor's office and close the deal. Different levels, and they work as a team per territory. Now, recently, what we started to do, we started to separate between reps who are doing pure aesthetic and reps who are doing aesthetic and, for example, Empower women's health, which is a specialty. Eventually, once we will grow in those new medical communities, you know, gynecology, ophthalmology, et cetera, we would like to have a special team for a special type of product. But that's not in 2024. We'll see if we are starting right now, you know, but in 2025 and 2026, we'll start the separation.
So Moshe, let's move on to your FY24 guide. You know, I think, so the midpoint is about $500 million. Walk us through, you know, how you think about U.S. versus OUS growth. Within OUS, you know, where do you think are the key pockets of growth? And also, if I may touch on a sensitive topic, you know, in your backyard, there's a lot of turmoil right now. How is that impacting, if at all, InMode and its operations?
Okay. First, I want everybody to understand that North America, which includes Canada and the U.S., it's around 65% of our business dollar-wise, dollar-wise. And our ROW, excluding Canada, Canada is North America for us, is about 35% of our business dollar-wise. But system-wise, it's about 55% ROW and 45% North America. Why is that? In North America, we sell direct, so we recognize the full value of the system. In ROW, when we sell to distributors, then we recognize only maybe 40% of their end user price, because the distributors give the service, and they sell it all, okay? So I mean, the ROW is 50%-55% of our business today, and eventually, what I want to achieve is that North America and ROW dollar-wise will be 60/40, and system-wise, 60% ROW and 40% North America.
That will be the end, sometime in 2026. That's my plan. Now, regarding Israel and the war situation in Israel today, we're taking it seriously. We have two manufacturing facilities in Israel, and the office, which is in the north, Yokneam, but the manufacturing is also more on the north side of Israel and not on the south side of Israel, that so far we were not affected. But in order to be on the safe side, we build a huge inventories platform, and we ship them to Canada, to USA, to Italy, to Spain, to UK, all of our subsidiary, we fill them. All of the warehouses are full. We expanded into a two-shift manufacturing in order to create this inventory, and the reason for that, to be on the safe side.
You know, when you have 85% gross margin, I mean, you don't feel it. So you spend another $10 million on inventory, $20 million on inventory. You know that we have close to $800 million in cash. So basically, if something will happen and the war in Israel will be expanded to the north as well, we will have at least six months, even if we will not work full capacity, to service the market without any interruption.
Got it. Moshe, we are coming up on time. I guess two quick questions. You guys have, like, almost $750 million of cash on the, on the balance sheet, right? I cannot imagine, knowing you for so many years, you're sitting idle. You're probably looking at complementary technologies, assets. What to the extent that you can share, how should we think about what, you know, what InMode is looking to fit into its jigsaw puzzle to make it complete? And also, you know, any, any other key things that we probably haven't touched base that you could quickly highlight for, for us, in the-
Yeah
... minute or so that we have left?
I was waiting for this question. Yeah. You know, yeah, I mean, to have $800 million in cash, it's become a liability. It's not an asset unless you know what to do with it. I have to tell you that we're looking around to see if there is something that we can acquire, to buy. And the two companies that we tried are both in the business of injectables, which is a complementary stuff for aesthetic fillers and Botox side. But the prices that we offered were not that great, so we were turned down. We were turned down, and we did not... We are still looking for companies.
If we will not be able to find something, and the money belong to the shareholders, we will give it back to the shareholders.
Yeah.
One thing we don't want to do is a buyback. We prefer to do dividend, if that will be the work that I would say the solution, so everybody will enjoy with some money. Yes, we have a great cash flow. We make more than $220 million cash every year.
Yeah
... in a typical year. I don't know if 2024, we'll need to see what, what will happen in the year. But in the end of the day, we don't want to spend the money just because people are pushing us to buy something.
Mm-hmm.
You know, to find something that will be 85% gross margin, it's difficult to find something like that. So the only criteria by which we will judge and explore alternative is that it will be accretive to our EPS. If it's not accretive to our EPS within a year or two, we will not touch.
Got it. Got it. Perfect. Moshe, as always, a pleasure, connecting with you, learning more about InMode. Congrats on all the progress, and we look forward to continued conversation. Thank you so much for taking the time this morning, sir.
Thank you very much. Thank you. Bye-bye.
Stay safe.