Good afternoon, and thank you for joining us at this year's Canaccord Genuity Growth Conference. My name is Caitlin Cronin, and I'm one of the medical device analysts here at Canaccord Genuity. Joining us this afternoon is InMode, a leading player in the global energy-based aesthetics treatments market. With me today is Yair Malka, CFO. Before we begin, I want to remind everyone of any relevant disclosures which can be found on our conference and our firm website. We'll begin with a brief presentation by InMode, followed by a fireside chat, and I'll try to leave a couple minutes for questions. With that, pass it over to Yair.
Thank you, Caitlin. Thanks for having me. It's a pleasure. That's our corporate presentation. I'll try to go through it fairly quickly for some of you that are new to the story. I would love to leave some time for the fireside chat and Q&A at the end if time allows. My name is Yair Malka. I'm the CFO for InMode. InMode is the leading aesthetic medical device company right now in the space, specialized in energy-based device. Our main focus is in radiofrequency energy, and also at a minimally invasive area of the aesthetic procedures. In the past several years, we start expanding outside of the aesthetic space into what we call wellness.
We are going into the OBGYN markets, as well as ophthalmologists, ENTs later on, urologists, and, and etcetera. We have strong regulatory protections, strong IP, strong patents around radiofrequency specifically, and again, minimally invasive radiofrequency. And I think that's what sets us apart from... One of the things that sets us apart from the competition. In terms of Q2 numbers, generated $86.4 million GAAP revenue. In Q1 and Q2, we also showed pro forma revenue, where we're significantly higher, and we can touch on it later in the fireside chat. We are very profitable, around 82, over 82% gross margin. And this year, we expect to be at around 35% operating margin.
Again, very profitable company, even during those tough, challenging times. The InMode team is very experienced, has been around for many years. Two of the co-founders has been around for several decades, actually, co-founded some of the most successful companies in the industry. They started with what we call the laser companies and decide to move to radiofrequency-based company because they realized that's a better way to go, and we can touch about it in a second, later on in the presentation. We are a global organization. We started with focusing in the U.S., expanding our business into the international markets only in the last few years.
And then COVID hit, and it took us even more time than what we wanted to grow the international business. But finally, we start seeing the results of the international investments, and we see that Europe and Asia is doing very well for us. Again, not as well as US. US is still by far our biggest market. But slowly, the international side of the market start catching up. We add almost one subsidiary, sometimes two subsidiaries, every year. We've been doing it constantly in the last several years. Our headquarters and manufacturing facility are in Israel, and we can touch about it later also during the fireside chat.
So the main thing that I wanted to say about what differentiate us from all the rest is before we came along, there were many laser companies offering their procedures. And the other options, if someone wanted something more substantial with more significant results than laser, usually the options was the other side, the plastic surgery. And I think what our two co-founders came up with is a new solution using a different type of energy, radiofrequency energy, and specifically bipolar radiofrequency energy, together with a minimally invasive procedure. We up until then, most of the procedure were non-invasive.
So we say, "Okay, we are not afraid of going deeper into the fat layer." If you want to get a substantial body shaping effect or face shaping effect, you need to go directly to the deeper tissues, directly to the fat tissues and treat them right there. I think this is where we identify the treatment gap. There's a lot of patients that want something more substantial done in terms of the aggressiveness of the treatment, but their skin condition is not bad enough to justify doing a full surgery... So that's the paradigm shift that we created. These are some of the other competitors that used to be in the market until we came along and started growing our business. We're going after traditionally the plastic and derm.
You see there are 17,000 of them in the US in terms of opportunity, but slowly, as I mentioned, we are expanding into what we call wellness. So we're expanding into the ophthalmology and into the OBGYN and into the ENTs, and that's actually can increase our TAM significantly. You see, some of those communities are bigger even than the TAM of the traditional aesthetic that most of aesthetic companies are going after. I'll go really quickly over the some of our solution. This is the flagship technology, RFAL device. As you can see, the cannula at the bottom is an invasive cannula. With an incision, you do small incision, and it go directly into the fat layer, treating the fat layer directly.
While with lasers and other light-based procedures, you try to go through the dermis, through a lot of layer of skin until you get to the fat layer. Here, we just go to it directly. Yes, it's a little bit more invasive, but it provides great results as almost as close as you can get to full surgery without the full surgery. And that's one of the things that unique about us. You can see we treated her double chin. You can see an amazing results there. Also there, some before and after. This is. So the first one was our most invasive technology. This is our, the most popular technology, the Morpheus8, that's our strongest brand name that we have. It's basically a array of needles that go deep into...
through the skin, can go all the way up to seven millimeter deep. So, we can definitely get to the fat layer by using the Morpheus as well. Very popular treatment, you can see some of the before and after. I did this treatment myself a couple of time, six times to be exact. Great results. In the last couple of years, we also added some other technologies that are not invasive. These are non-invasive offering, because we see that there is a market there. It's not a big market, but there's still a market for non-invasive solution, and we wanted to try to capture as much market share as we can, so we start introducing a non-invasive solution, hence very non-invasive.
Doctors like it because they can hook up the patients to the device. The device can run through the treatment, and the doctor is free to go and do some other procedure, either on different patient or on the same patient. I did the Evolve one time while on my abdomen while my face was being treated for Morpheus. So you can actually do that as well. This one uses RF and EMS technology. That's the hands-free, non-invasive device for the face. The previous one was for the body. That's for the face. I'm going to run through some of them. That's our latest platforms that we launched last year. In Canada, it's approved for dry eye indication.
In the US, not yet, but we expect great success with the ophthalmology space with this device. One of the things that's unique about us is how robust our product portfolio is, and that's something that can create a competitive advantage. We don't see a single competitor out there in the field that can compete with us head-to-head on the entire product line.
We see one or two competitors compete with one or two of the products. Some of them are one-product company, and it's extremely hard to be a one-product company in our space and compete with a company like us, where we have this huge offering and basically we can provide almost all the doctors' or the customer needs by using our product portfolio. We have been growing significantly since 2016, 2017, up until last year. This year, there is some slowdown in the market. We are not gonna grow this year, unfortunately, probably going to be around $430 million-$440 million in revenue.
But still, under the circumstances, I think it's a very nice revenue target, and we are gonna probably deliver a 35% operating margin, non-GAAP profit, so I think that's still very nice. Again, less than last year. Last year it was 45%, but 35% in this kind of year, I think we'd be very happy to see that. These are our manufacturing lines in Israel. We have two of them, not too far away from our headquarters in the northern part of Israel. Some of the key opinion leaders we work with, you don't see the typical KOLs here. I think we are very selective with who we go with, and we try to stay as scientific as possible.
We spend a lot on clinical studies. We believe that focusing on science and clinical studies would help more than any other, you know, marketing project or program that goes towards marketing to doctors. We believe that the best way to do marketing to doctors is by other doctors writing about us, doing studies about us, and publish them in some of the professional magazines. We also go after the consumer. We try to create some consumer awareness around our procedures and products. We want the doctors to understand that we are their partner, and we try to do whatever we can in order to help drive demand and patients to their practice. That's it. With that, we can go to some of the fireside chat.
Great. Thanks, Yair. I think maybe let's start with the Q2, given you released Q2 results a couple weeks ago. So let's touch on the 30% fall in, U.S. consumables. What has really changed versus prior quarters, and how do you see consumable demand continuing to trend in the Q3 so far?
Thank you. I would like to take this opportunity maybe to clarify something. I know we mentioned on the call 30%, but we meant to say 30,000. It's actually 25, 24%. So we did see a 24% drop in the US in disposable sales. That's obviously a warning sign. It's the first time we see a decline in the disposable sales in the US. We are still trying to monitor and trying to understand exactly what might causes that, but obviously, there is a problem with the demand in the underlying market. Patients are spending less, and they opt to spend on a lower cost procedure rather than a higher cost procedure, such as the Morpheus8 or the BodyTite, FaceTite, RFAL-based procedure.
And you've also cut guidance pretty significantly over the course of the year. What gives you confidence in the current guidance range for the year?
I think we came out with a fairly realistic guidance based on the first half of the year. I think especially if we look at the pro forma number, I think it's reasonable to assume that the second half will be stronger from the first half. That's again assuming things are not going to stay the same in terms of the macro. I think that's what traditionally you see, that Q3 might be a soft quarter, but Q4 is always the strongest quarter of the year. With the new product that we launched in this first half of the year, we'll be able to deliver to customers and present them to in several conferences and trade shows.
I think that will create some boost to sell, and we think it's a reasonable assumption to assume that the second half will be stronger than the first half.
Your CMO, Dr. Spero Theodorou, recently departed. Do you have any more color on the reason for his departure?
Yeah. After so many years with InMode, we decided to make some changes to the structure. Instead of having one medical officer that oversee all the categories, we are taking a different approach now and a more focused approach. So we have a plastic surgeon that will oversee the aesthetic side of the business. We'll have a urogynecologist that will oversee the women health side of the business. We'll have an ophthalmology optometrist that oversee the ophthalmology. Once we get into the ENT, we'll get someone from the ENT space to oversee that side of the business. And I think that that's a more focused and welcome change.
And then let's just turn to the system upgrades that you've launched this year. I believe it's your first wave of next-gen devices. Can you talk a little bit about those, too, and you know, maybe some of the manufacturing challenges that you've had and where you stand on them today?
Right. So the OptimasMAX is one of the most or the most complicated device we built so far. It combine into its three type of energies: radiofrequency, IPL, and laser. It's a very complex device, so it took some time to build it. And again, the supply chain issues that we had in Israel didn't help much with that as well. The situation right now is that we are up and running. We start delivering those OptimasMAX product. We also completed almost up to speed with the delivering of the Ignite product. However, with the Ignite, with the Quantum handpiece, it just got FDA clearance two weeks ago. So with the exception of that, we deliver everything on the Ignite.
We are in the process of delivering the Quantum as well as the OptimasMAX . I think by October, by early Q4, we should be able to be fully caught up with all the deliveries.
And then just jumping off of that, can you describe what your pro forma revenues really entail and your expectations for pro forma revenues, you know, continuing into the back half of the year?
Got it. Great. So what happened in Q1 and Q2, we were able to close transaction, but we could not recognize them in revenue. That's why we show the pro forma number, so investors understand what was the real business that we generated in the quarter. So in Q1 and Q2 together, we generated $32 million more than what we were able to recognize. This $32 million dollars would be recognized in Q3, most of it in Q3, and some in Q4, based on the delivery timing, the timing of delivery. What that means is that while in Q1 and Q2, the pro forma numbers were higher than the GAAP revenue, in Q3, and for sure, and potentially in Q4, the pro forma numbers will be actually lower.
I encourage investors just this year to look at the pro forma numbers if they want to learn really about the business. We expect Q3 to be a soft quarter. Traditionally, according to the seasonality trend, Q3 tends to be a soft quarter. However, GAAP revenue, it will be a strong quarter because we are going to deliver many of the devices in Q3. But it doesn't really mean much about the business. If you really want to learn about the business, only this year, follow the pro forma revenue numbers that we provide.
Makes sense. You know, we talked about U.S. consumable demand. Are you seeing a similar, you know, decrease in consumer demand OUS, or how is that?
No, OUS, actually, we see an increase in demand. But please keep in mind that in the international markets, we are not as big as we are in the US because we started, as I mentioned, focusing in growth in going in the US market at the beginning of our penetration to the markets. And we start expanding to the international markets only in the last couple of years. So we are still a fairly smaller player, and we are keep adding sales reps internationally, going direct in many countries. So it's easier to grow when you are a smaller player. I don't want to say that there are no challenges or headwinds or macro issues in the international markets. There are.
We are just able to bypass them and grow despite them, while in the U.S., we are the biggest player by far out of everyone else, and when you are the biggest player, you cannot avoid the macro headwinds.
Yeah. You know, and despite the difficult macro environment, in terms of capital allocation, you know, you said you won't cut sales marketing and R&D, unlike competitors that maybe don't have the balance sheet to, you know, maintain this level of spending. Are you seeing any early share gains, momentum, any kind of competitive conversions, just given your ability to continue to invest in these areas?
Yeah, it, it's too early to see those kind of things. We, we definitely don't see our sales reps leaving to competitors, or, or we don't see competitors trying to poach our sales reps, which is, you know, a good start. It's a matter of couple of more quarters until we see what happen to some of the competitors. Again, I, I expect that not all of them will be able to survive longer than expected slowdown. By the way, we did the same thing during COVID. If you remember, we didn't lay off people, didn't cut cost, and then several quarters after, once the market start opening up, we were there ready to take over the market while the, all the other competitors were struggling to rebuild their teams.
You know, and with the cash you have on your balance sheet, you've noted that M&A is a first priority. You know, but in absence of some of those opportunities, you've, you know, jumped on share buybacks. But you've already... You executed pretty quickly on the share buyback that you announced last quarter. Any plans for further share buybacks or, you know, how does your M&A strategy stand?
So, M&A is still our first priority in terms of cash allocation. I think we completed the buyback, 10% of our outstanding share. It's a good size buyback program. Any additional buyback in the short term might be viewed by the Israeli tax authorities as dividend and will tax as such. So there is no different now between from tax perspective between dividend distribution or share buyback. Will be both subject to between 15%-20% tax withholding requirement. Again, not the end of the world. It is still doable, but there is no advantage for buyback right now over dividend. However, that being said, all options are on the table.
First priority is M&A, but still dividend, and or buyback or both, we can definitely continue to consider.
Any questions from the audience?... Okay, Yair, just in the last few seconds we have, maybe you could just wrap up, you know, what you want to leave investors with about Inode and the trajectory going forward.
So, aesthetic space tends to be cyclical in nature, unfortunately. We are going through a down cycle right now. InMode is a very strong company, in terms of profitability and in terms of the offering, and in terms of the innovation. We are the only company in the space that is bringing to the market two new platforms every year. Innovation is key in this market. So again, it's gonna be a rough ride in the next several quarters, but the aesthetic market in the US is very strong. It will come back, and we will be here ready to take over the market when it happens.
Good afternoon, and thank you for this year's Canaccord Genuity Growth Conference. My name is Caitlin Cronin, and I'm one of the medical device analysts here at Canaccord Genuity. Joining us this afternoon is InMode, a leading player in the global energy-based aesthetics treatments market. With me today is Yair Malka, CFO. Before we begin, I want to remind everyone of any relevant disclosures which can be found on our conference and our firm website. We'll begin with a brief presentation by InMode, followed by a fireside chat, and I'll try to leave a couple minutes for questions. With that, pass it over to Yair.
Thank you, Caitlin. Thanks for having me. It's a pleasure. That's our corporate presentation. I'll try to go through it fairly quickly for some of you that are new to the story. And I would love to leave some time for the fireside chat and Q&A at the end if time allows. So my name is Yair Malka. I'm the CFO of InMode. InMode is the leading aesthetic medical device company right now in the space, specialized in energy-based device. Our main focus is in radiofrequency energy and also at a minimally invasive area of the aesthetic procedures. In the past several years, we start expanding outside of the aesthetic space into what we call wellness.
We are going into the OBGYN markets, as well as ophthalmologists, ENTs later on, urologists, and et cetera. We have strong regulatory protections, strong IP, strong patents around radiofrequency specifically, and again, minimally invasive radiofrequency. And I think that's what sets us apart from... One of the things that sets us apart from the competition. In terms of Q2 numbers, generated $86.4 million GAAP revenue. In Q1 and Q2, we also showed pro forma revenue, where we're significantly higher, and we can touch on it later in the fireside chat. We are very profitable, around 82, over 82% gross margin. And this year, we expect to be at around 35% operating margin.
Again, very profitable company, even during those tough, challenging times. The InMode team is very experienced, has been around for many years. Two of the co-founders has been around for several decades, actually, co-founded some of the most successful companies in the industry. They started with what we call the laser companies, and decided to move to radiofrequency-based company because they realized that's a better way to go, and we can touch about it in a second, later on in the presentation. We are a global organization. We started with focusing in the U.S., expanding our business into the international markets only in the last few years.
Then COVID hit, and it took us even more time than what we wanted to grow the international business, but finally, we start seeing the results of the international investments, and we see that Europe and Asia is doing very well for us. Again, not as well as U.S. U.S. is still by far our biggest market, but slowly the international side of the market start catching up. We add almost one subsidiary, sometimes two subsidiaries, every year. We've been doing it constantly in the last several years. Our headquarters and manufacturing facility are in Israel, and we can talk about it later also during the fireside chat.
So the main thing that I wanted to say about what differentiate us from all the rest is before we came along, there were many laser companies offering their procedures. And the other options, if someone wanted something more substantial with more significant results than laser, usually the option was the other side, the plastic surgery. And I think what our two co-founders came up with is a new solution using a different type of energy, radiofrequency energy, and specifically bipolar radiofrequency energy, together with a minimally invasive procedure. Up until then, most of the procedure were non-invasive.
So we say, "Okay, we are not afraid of going deeper into the fat layer." If you want to get a substantial body-shaping effect or face-shaping effect, you need to go directly to the deeper tissues, directly to the fat tissues and treat them right there. And I think this is where we identify the treatment gap. There's a lot of patients that want something more substantial done in terms of the aggressiveness of the treatment, but their skin condition is not bad enough to justify do a full surgery. So that's the paradigm shift that we created. These are some of the other competitors that used to be in the market until we came along and started growing our business. We're going after traditionally the plastic and derm.
You see there are 17,000 of them in the US in terms of opportunity, but slowly, as I mentioned, we are expanding into what we call wellness. So we're expanding into the ophthalmology and into the OBGYN and into the ENTs, and that's actually can increase our TAM significantly. You see, some of those communities are bigger even than the TAM of the traditional aesthetic that most of aesthetic companies are going after. I'll go really quickly over some of our solution. This is the flagship technology, RFAL device. As you can see, the cannula at the bottom is an invasive cannula with an incision. You do small incision, and it go directly into the fat layer, treating the fat layer directly.
While with lasers and other light-based procedures, you try to go through the dermis, through a lot of layer of skin until you get to the fat layer. Here, we just go to it directly. Yes, it's a little bit more invasive, but it provides great results as almost as close as you can get to full surgery without a full surgery. And that's one of the things that's unique about us. You can see we treated her double chin. You can see amazing results there, also there, some before and after. This is... So the first one was our most invasive technology. This is our most popular technology, the Morpheus8, that's our strongest brand name that we have. It's basically an array of needles that go deep into...
through the skin, can go all the way up to 7 millimeter deep. So, we can definitely get to the fat layer by using the Morpheus as well. Very a popular treatment, you can see some of the before and after. I did this treatment myself a couple of times, 6 times, to be exact. Great results. In the last couple of years, we also added some other technologies that are not invasive. These are non-invasive offering because we see that there is a market there. It's not a big market, but there's still a market for non-invasive solution, and we wanted to try to capture as much market share as we can, so we start introducing a non-invasive solution, hands-free, non-invasive.
Doctors like it because they can hook up the patients to the device. The device can run through the treatment, and the doctor is free to go and do some other procedure, either on a different patient or on the same patient. I did the Evolve one time while on my abdomen, while my face has been treated for Morpheus. So you can actually do that as well. This one uses the RF and EMS technology. That's the hands-free, non-invasive device for the face. The previous one was for the body. That's for the face. I'm going to run through some of them. That's our latest platforms that we launched last year. In Canada, it's approved for dry eye indication.
In the US, not yet, but we expect a great success with the ophthalmology in the ophthalmology space with this device. One of the things that's unique about us is how robust our product portfolio is, and that's something that create a competitive advantage. We don't see a single competitor out there in the field that can compete with us head-to-head on the entire product line. We see one or two competitors compete with one or two of the products. Some of them are one-product company, and it's extremely hard to be a one-product company in our space and compete with a company like us, where we have this huge offering.
Basically, we can provide almost all the doctors' or the customer needs by using our product portfolio. We have been growing significantly since 2016, 2017, up until last year. This year, there is some slowdown in the market. We are not gonna grow this year, unfortunately. Probably going to be around $430 million-$440 million in revenue. But still, under the circumstances, I think it's a very nice revenue target, and we are gonna probably deliver a 35% operating margin, non-GAAP profit. So I think that's still very nice. Again, less than last year.
Last year it was 45%, but 35% in this kind of year, I think, we'd be very happy to see that. These are our manufacturing lines in Israel. We have two of them, not too far away from our headquarters in the northern part of Israel. Some of the key opinion leaders we work with, you don't see the typical KOLs here. I think we are very selective with who we go with, and we try to stay as scientific as possible. We spend a lot on clinical studies. We believe that focusing on science and clinical studies would help more than any other, you know, marketing project or program that goes towards marketing to doctors.
We believe that the best way to market to do marketing to doctors is by other doctors writing about us, doing studies about us, and publish them in some of the professional magazines. We also go after the consumer. We try to create some consumer awareness around our procedures and products. We want the doctors to understand that we are their partner, and we try to do whatever we can in order to help drive demand and patients to their practice. And that's it. With that, we can go to some of the fireside chat.
Great. Thanks, Yair. I think maybe let's start with the Q2, given you released Q2 results a couple weeks ago. So let's touch on the 30% fall in US consumables. What has really changed versus prior quarters, and how do you see consumable demand continuing to trend in the Q3 so far?
Thank you. I would like to take this opportunity maybe to clarify something. I know we mentioned on the call 30%, but we meant to say 30,000. It's actually 25, 24%. So we did see a 24% drop in the US in disposable sales. That's obviously a warning sign. It's the first time we see a decline in the disposable sales in the US. We are still trying to monitor and trying to understand exactly what might causes that. But obviously there is a problem with the demand in the underlying market. Patients are spending less, and they opt to spend on a lower cost procedure rather than a higher cost procedure, such as the Morpheus8 or the BodyTite, FaceTite, RFAL-based procedure.
You've also cut guidance pretty significantly over the course of the year. What gives you confidence in the current guidance range for the year?
I think we came out with a fairly realistic guidance based on the first half of the year. I think especially if we look at the pro forma number, I think it's reasonable to assume that the second half will be stronger from the first half. That's again, assuming things are going to stay the same in terms of the macro. I think that's what traditionally you see, that Q3 might be a soft quarter, but Q4 is always the strongest quarter of the year. With the new product that we launched in the first half of the year, we'll be able to deliver to customers and present them in several conferences and trade shows.
I think that will create some boost to sell, and we think it's a reasonable assumption to assume that the second half will be stronger than the first half.
Your CMO, Dr. Spero Theodorou, recently departed. Do you have any more color on the reason for his departure?
Yeah. After so many years with InMode, we decided to make some changes to the structure. Instead of having one medical officer that oversee all the categories, we are taking a different approach now and a more focused approach, so we have a plastic surgeon that will oversee the aesthetic side of the business. We'll have a urogynecologist that will oversee the women health side of the business. We'll have an ophthalmology optometrist that oversee the ophthalmology. Once we get into the ENT, we'll get someone from an ENT space to oversee that side of the business. I think that that's a more focused and welcome change.
And then let's just turn to the system upgrades that you've launched this year. I believe it's your first wave of next gen devices. Can you talk a little bit about those, too, and, you know, maybe some of the manufacturing challenges that you've had and, where you stand on them today?
Right. So the Optimas Max is one of the most or the most complicated device we built so far. It combined into its three type of energies: radiofrequency, IPL, and laser. It's a very complex device, so it took some time to build it. And again, the supply chain issues that we had in Israel didn't help much with that as well. The situation right now is that we are up and running. We start delivering those Optimas Max product. We also completed almost up to speed with the delivering of the Ignite product. However, with the Ignite, with the Quantum handpiece, it just got FDA clearance two weeks ago. So with the exception of that, we deliver everything on the Ignite.
We are in the process of delivering the Quantum as well as the Optimas Max. I think by October, we should, by early Q4, we should be able to be fully caught up with all the deliveries.
And then just jumping off of that, can you describe what your pro forma revenues really entail and your expectations for pro forma revenues, you know, continuing into the back half of the year?
Got it. Right. So what happened in Q1 and Q2, we were able to close transaction, but we could not recognize them in revenue. That's why we show the pro forma number, so investors understand what was the real business that we generated in the quarter. So in Q1 and Q2 together, we generated $32 million more than what we were able to recognize. This $32 million would be recognized in Q3, most of it in Q3, and some in Q4, based on the delivery timing, the timing of delivery. What that means is that while in Q1 and Q2, the pro forma numbers were higher than the GAAP revenue, in Q3, and for sure and potentially in Q4, the pro forma numbers will be actually lower.
I encourage investors just this year to look at the pro forma numbers if they want to, learn really about the business. We accept Q3 to be a soft quarter. Traditionally, according to the seasonality trend, Q3 tends to be a soft quarter. However, GAAP revenue, it will be a strong quarter because we are going to deliver many of the devices in Q3. But it doesn't really mean much about the business. If you really want to learn about the business, only this year, follow the pro forma revenue numbers that we provide.
Makes sense. And you know, we talked about US consumable demand. Are you seeing a similar you know, decrease in consumer demand OUS, or how is that?
No. OUS, actually, we see an increase in demand, but please keep in mind that in the international markets, we are not as big as we are in the US because we started, as I mentioned, focusing in the growth in going in the US market at the beginning of our penetration to the market. And we start expanding to the international markets only in the last couple of years. So we are still a fairly smaller player, and we are keep adding sales reps internationally, going direct in many countries. So it's easier to grow when you are a smaller player. I don't want to say that there are no challenges or headwinds or macro issues in the international markets. There are.
We are just able to bypass them and grow despite them, while in the US, we are the biggest player by far out of everyone else, and when you are the biggest player, you cannot avoid the macro headwinds.
Yeah. You know, and despite the difficult macro environment, in terms of capital allocation, you know, you said you won't cut sales, marketing, and R&D, unlike competitors that maybe don't have the balance sheet to, you know, maintain this level of spending. Are you seeing any early share gains, momentum, any kind of competitive conversions, just given your ability to continue to invest in these areas?
Yeah. It's too early to see those kind of things. We definitely don't see our sales reps leaving to competitors, or we don't see competitors trying to poach our sales reps, which is, you know, a good start. It's a matter of couple of more quarters until we see what happened to some of the competitors. Again, I expect that not all of them will be able to survive longer than expected slowdown. By the way, we did the same thing during COVID. If you remember, we didn't lay off people, didn't cut costs, and then several quarters after, once the market started opening up, we were there ready to take over the market while all the other competitors were struggling to rebuild their teams.
... You know, and with the cash you have on your balance sheet, you've noted that M&A is a first priority. You know, but in absence of some of those opportunities, you've, you know, jumped on share buybacks. But you've already executed pretty quickly on the share buyback that you announced last quarter. Any plans for further share buybacks or, you know, how does your M&A strategy stand?
So, M&A is still our first priority in terms of cash allocation. I think we completed the buyback, 10% of our outstanding share. It's a good size buyback program. Any additional buyback in the short term might be viewed by the Israeli tax authorities as dividend, and will tax as such. So there is no different now between from tax perspective, between dividend distribution or share buyback. They will be both subject to between 15%-20% tax withholding requirement. Again, not the end of the world, it is still doable, but there is no advantage for buyback right now over dividend. However, that being said, all options are on the table.
First priority is M&A, but still dividend, and or buyback or both. We can definitely continue to consider.
Any questions from the audience? Okay, Yair, just in the last few seconds we have, maybe you could just wrap up, you know, what you want to leave investors with about In mode and the trajectory going forward.
So, aesthetic space tends to be cyclical in nature. Unfortunately, we are going through a down cycle right now. InMode is a very strong company, in terms of profitability and in terms of the offering and in terms of the innovation. We are the only company in the space that is bringing to the market two new platforms every year. Innovation is key in this market. So again, it's gonna be a rough ride in the next several quarters, but the aesthetic market in the U.S. is very strong. It will come back, and we will be here ready to take over the market when it happens.