Good morning, and thanks for joining us this morning. Very pleased to have with us again this year InMode and the Chief Financial Officer, Yair Malca. My name is Matt Miksic. I cover medical devices here at Barclays. One of the things that I wanted to start with, if it's a good sort of baseline place to start, is I think the cycle or the consumer trends and demand that have kind of softened, slowed, maybe bottomed in the last year or so. Try to get your sense here at this point, what are you seeing and how are you thinking about the next three, six, nine months in terms of, let's call it the consumer cycle and aesthetics?
Great question. Matt, thanks for having me. The best way for InMode to track the consumer demand is by our disposable sales. Looking at our disposable sales in the US, which is our main market, we do not see things getting worse in the first two months of the year compared, let's say, to Q4, to November, December. January, February, tracking pretty much the same. Things are not improving, but they do not get any better. That is the overall trend I think that we have seen so far. Things are not improving, but we do not see them getting worse. That is why, again, I am sure we will touch about it later on when we put the guidance for the year together, we assume it is going to be flat. Things are going to be similar, very similar to 2024. The headwinds are still there.
There is a lot of uncertainty, as you can see in the market. We do not know what is going to happen or how even Q1 would look like for us, let alone the entire year. It is very difficult to focus in our space, especially in our industry where you have the majority of the revenue going to close from now until the end of the quarter. In the last two or three weeks of each quarter, we generate the majority of the business. In terms of the consumer demand, we do not see that improving. As I said, it is pretty flat. We do not see that getting worse. In terms of doctors, our providers placing orders for capital equipment, basically buying devices, that is a trickier question.
We need to look and see because consumer confidence has a lot to do also with the doctors themselves when they make the decision whether to invest in their practice or not. If they see that the economy is unstable, they might decide to wait a little bit before making the investment. We need to see how the quarter is going to look like. So far, things look pretty much the same. Same headwinds that we experienced in 2024 continuing to 2025.
Right. Yeah. If we kind of think back to how the beginnings of the slowdown in systems I think was first felt, it seemed to be related to delays in financing. It kind of settled into something. As you sort of took some steps to resolve that, eliminate those delays, it really became this kind of, call it sluggish, slow consumer that was then kind of influencing centers. If you think about.
There's still some of the financing headwinds that we see.
Still an issue.
Mainly on the interest side, the interest rate side. The interest is fairly high still. That makes the monthly payment of our doctors more expensive. There is still that. Compared to the consumer confidence or slow consumer demand, I think that has a much bigger impact than the financing impact.
Right. I think you've said that, yeah, the financing, if we could snap your fingers and solve the financing problem now or eliminate that as a concern, you'd still be left with this clinicians maybe wanting to see a little bit more of a.
Absolutely. If doctors see that they are not as busy as they used to be in prior years, that's a problem, even if we didn't have the financing issues.
Yep. Maybe many of the med device markets that we cover are a little less tied to consumer cycles. There's discretionary elements to them, but not as much as aesthetics. In the past, when you've seen having sort of followed these cycles in your business for a while, what have been the things that have kind of been leading indicators of consumer demand picking up? What else can we look to? What have been indicators of confidence among clinicians that have continued to kind of hold things back in the past?
That's a good question because looking back, each recession has its own characteristics. It is very hard to tell. Personally, I would expect to see demand start growing for the providers, for our doctors, probably with the less expensive procedures. They will come back first in terms of how we position our procedures. They are somewhere in the middle. At the top, you have the most expensive procedures, the full plastic surgery for facelift. You have our minimally invasive procedures. These are in the thousands of dollars. You have the procedures that are in the hundreds of dollars. I think these would come back first, injectables and some fairly low-energy-based devices. We probably will start seeing them improving first because everybody had a terrible year in 2024. Even the injectables, fillers, toxins, et cetera, as a whole, as a group.
Probably they will come back first, and then we will follow. This would give some confidence to the doctor to start reinvesting in their practice and buy more capital equipment. In my mind, that's how I foresee that happening. When that's going to start, that's a completely different question. It's a very good question. It's hard to tell. One thing I know, InMode is a very strong and stable company. Unlike some other companies in the space, one of them even filed Chapter 11 last week. InMode is a very strong and stable company. We will be able to get through that and be ready to take over the market as soon as things start improving. Some companies that would not survive these headwinds might create more opportunities for us.
Sure. Right. From an acquisition standpoint.
Either acquisition or just plain traditional market share.
Traditional shares, yeah. Just a leading indicator might be if some of the aesthetic injectable filler kind of volumes start picking up, that might be a sign that your category of procedures might be next.
That's a good sign. I know some analysts are following discretionary spending on luxury items because for many consumers, that's considered to be a luxury procedure. Overall, I think we need the consumer confidence to improve, to see consumers start spending again, especially at high-price ticket items. I think that should give us a good momentum.
That's the consumer side. Now, on the doctor side, the clinician side and the centers, I guess things have obviously changed fast in the last 50 days in the US. A lot of uncertainty. We hear often that you hear just regular business coverage of everyone's kind of aware of the fact that hard for companies to plan, hard for companies to commit capital, not knowing sort of how things are going to shake out on a geopolitical scale. On a sort of microeconomic scale at the clinician level, we ask this question about hospitals all the time. There's uncertainty. If there's risk to budgets, what's going to happen? At the clinician level, do you think that that same kind of calculus is starting to work its way into doctor and center behavior?
Do we want to close this deal now, or do we want to wait another month or two to see what happens? Is that something that you're hearing bubbling back through your channels?
Uncertainty is not good for business, any business, right? We do not hear that yet. As I said, most of the business is going to close in the next few weeks. What happened in the market might have an impact. Again, doctors that see that there is some stability in the market, they will talk about recession. They might take the time to think making a $140,000 investment into their practice is a lot of money. If they do not have this confidence and they hear all this news about recession and uncertainty, they might sit on the sideline for another quarter or two. We do not know. We do not hear that yet, but that is definitely a possibility. We will know more after the quarter end. Uncertainty is not good for any business.
Yeah. No, that's fair. On the cash flow and sort of ability to sort of endure this kind of slowdown as you have, that has positioned you to do a couple of things. One is repurchase shares, which you continue to do in the absence of finding an M&A opportunity that you think is a good fit or would make sense. It has also enabled you to kind of do that in the context of preserving your operations and remaining kind of whole and ready for the cycle to turn. Is that still the strategy as you head into this year?
Yes, absolutely. I think despite all the headwinds, we plan to continue. Basically, business as usual. We continue to launch the products that we plan to launch. We continue with all the R&D projects that we have in the pipeline. We didn't cut on marketing initiatives. We didn't cut on sales force. In fact, we actually increased the sales force a little bit, both in the US and outside of the US. We established new subsidiaries last year, and we are looking maybe to do the same this year. In the past several years, we opened one to two new subsidiaries every year as part of our growth model. We plan to continue to do all of this. We understand that that might result in hit in the margins as happened in 2024.
I think we look at it as an investment, and we believe that it will be paid off eventually. We did the same thing during COVID, and it paid off big time as soon as the market started recovering. Unlike many other companies in the space where they downsized, terminated some of their sales force, and then struggled to rehire and rebuild their companies once the market reopened, we were there ready for the market. We plan to do the same right now.
Okay. We talked about some of the risks and the headwinds. Last year, despite those same kind of risks and headwinds, consumer demand, centers waiting, financing being at a higher cost, and still some delays, you did get a fair amount of traction with some of the new products that you launched. A little bit complicated as you sort of grew your supply to meet that demand. Maybe if you could talk about where you're seeing what some of those products are, where you're seeing the demand for them, and kind of what's driving that, some of that efficiency, some of that sort of new technology. Maybe walk through some of the things on the positive side that are sort of offsetting some of the concerns that we talked about.
Great question. In 2024, the beginning of 2024, we launched two new products, which were basically the next generation of two of our legacy products, the products that we used to sell the most in prior years. The OptimasMAX, which is the next generation of the Optimas, and the IgniteRF, which is the next generation of the Body Tite, Face Tite technology. Both of them are very exciting, especially the IgniteRF. It has the new QuantumRF handpiece on it, which is a breakthrough technology as far as we're concerned because we were able to put two electrodes and keep the bipolar feature of our procedures. We put it in one port, one cannula instead of two in the past, one internally and one externally. We still have those. Those we actually made stronger in terms of energy delivery, almost 50% stronger.
This might save time for the doctors when they come to treat their patients. Time is the most expensive resource for the doctor. If you are able to come up with procedures that will make his work more efficient and save him time, that's a big win for them. There is a lot of appeal there. We have that. We also have the QuantumRF, which is also a rigid cannula, unlike the flexible cannula with the Body Tite and Face Tite. Now the doctor has more options to choose from. It took us some time to get the FDA approval and start delivering the QuantumRF. It is only towards the end of 2024. The initial response, it's very promising.
On the OptimasMAX, we also have the new Morpheus8 handpieces, which are able to distribute the energy better and more efficiently in between the needles. That results, again, in faster treatment, but more uniform heat distribution. We also have an IPL handpiece on the platform that is much more powerful than the old one. We plan to bring additional applicators to this device in the future. We will talk about it once we introduce those. This year, we are looking to add two more platforms. We discussed only the first one, which is the CO2 laser. The reason we are doing that is we've seen this trend in the market that many users are combining Morpheus8 with something else.
There is this trend out there that doctors start bundling procedures, whether injectables with Morpheus8 or some topicals with Morpheus8, or we start seeing a lot of CO2 laser with Morpheus8. They send it as a bundle package to their patient. You get a fractional effect in addition to the Morpheus8. We wanted to take advantage of this trend and decided to launch our own CO2. Again, the CO2 laser is not a new technology in the market. There are several companies that have offered that over the years. However, we wanted to become a one-stop shop for our customers. We know that they offer those bundle packages to the patients. We want them to buy everything from us.
That is something that we will continue to monitor, these kind of trends in the future, and see when it makes sense to combine them with our technology.
Timing on the combination laser.
We launched the device. We started selling that already. Public contribution for this quarter will be minimal. Overall, when we launch a new product, we like to set the expectation low. Again, especially when it's not a new technology. Both new products that we plan to launch this year will have minimal contribution. I would say that's fair to assume at least at this point in time.
Sure. Yeah. They'll ramp. You'll see what the market response is. The Morpheus8 is the system that kind of takes that multilayer process that folks were doing, sort of call it manually, and it sort of collapses it into a more efficient procedure. Is that the idea?
Yeah. The Morpheus8 is a functional microneedling device. The next generation that we launched last year basically allows better heat distribution with the needles. You are able to deploy that in different depth. You can control the temperature and the energy that will be different in different depth. The deeper you go, you want higher energy. The more superficial you go, you want lower energy because you do not want to create a burn. You do not want to burn dermis and epidermis. We are able to achieve that with the new Morpheus8.
In an automated way.
Yes. In one punch.
Yes. As opposed to having to do three passes.
Yeah, three passes. Yes. This is, again, talking about saving times to doctors. Instead of doing like three, four passes all over the face, now they do one to two.
Yeah, the reason I ask is just maybe to put some context around that. Like with, I don't know, Body Tite, Face Tite, Morpheus8 procedures, does this take 20 or 30 minutes off a procedure? Is it like 10 minutes off a procedure? Just to put it in the context of a clinician trying to figure out, I could do X more procedures.
Probably towards 20, 25 minutes. Instead of 45 minutes, it can be 25-30 minutes.
That's helpful. Okay. And then kind of coming up on time, but let's see. You've laid out margin guidance. I mean, the repurchases are obviously opportunistic, but.
Yeah. Opportunistic, but we have been consistent with doing about 10% a year every year. We are looking at all options. We are in the middle of doing, we just started on the recently announced 10% share purchase program for 2025. Once we complete that, we are going to examine all the options. Maybe we'll do, because from that point on, any additional buyback would be treated as dividend in terms of tax purposes. We can do whatever we want, but this would be treated as dividend. We are going to evaluate whether we should do additional buyback. Maybe we should do dividend now when they are taxed the same. Again, M&A is always there. We are going to be opportunistic about that too.
If we see something of an interest for us, either in aesthetic or in one of those new areas, segments that we are going after, women health, ophthalmology, ENTs, we are going to bring a device for ENT next year, urology. These are areas of interest for us. If we see something interesting, we might act upon it.
Sure. Yeah. That, just to put context, is something you've, from our conversations, you've looked at actively for a couple of years now, the challenge being the impact on the gross margin and strategically. Is this something?
It's more strategically, impact on the gross margin. We have a very high gross margin. For sure, probably whatever we do will have an impact on the gross margin. That's why we are focusing on getting it accretive to the EPS. That's doable.
Okay. Yeah, again, something that not that you would ever do a deal just to do a deal, but I think it came under some pressure to look at opportunities or something, and you have. It's just that, I mean, sometimes not doing the deal is the right call.
Absolutely. I think and I hope that investors appreciate that, that despite all the pressure and the fact that we did look at companies and we did not even make an offer to some companies, the fact that we did not do something yet, that means that we are very disciplined with what we are looking for.
Right. Fair enough. With that, we're at time. Thank you, Yair. Always a pleasure. Appreciate you coming again this year.
Thank you very much.
You bet.