Suraj, called you a Senior Medical Device Analyst at Oppenheimer. Pleased to have an old acquaintance of mine, Moshe Mizrahy, with us to discuss all things InMode. Moshe, you and I have known each other for, God, almost 15 years now.
Yeah.
It is amazing to see, you know, the energy you'll put into InMode. Moshe, actually, before I start, folks, you know, you guys know the drill. I'll just repeat the obligatory statement. Any questions, just email me or email my juniors and/or put it into the chat box. We'd be more than happy to pose them to Moshe and Yair. Yair, also welcome this morning. We do appreciate your time.
Thanks for having us.
Moshe, obviously, the number one question, right, everyone is asking, is about the macro-level environment, right? I do not think, by any stretch, anyone can say it has been easy. Start out by, you know, just telling us how, you know, how is InMode weathering this, what I say, and this is my word, self-inflicted storm, really, you know, on a macro level?
I'm sure everybody saw InMode results in 2024, where the macroeconomic severe situation, or I would call it high inflation and high interest rate, started in the middle of 2023. Basically, we noticed sometime around August, September, when inflation in the United States went up and the interest rate also went up, that businesses are coming down. The main reason for that is because most doctors today purchase equipment, medical platforms, via leasing packages. When the interest rate went up to 8%, interest rate on leasing packages went up to 12% and 14%. The return on investment to the doctors on InMode equipment is still high, even if they pay 12%-14% interest rate on a five-year lease package. Psychologically, it's a barrier.
In addition to that, in a macro situation like that, people are kind of prefer to wait before they get a treatment, a minimally invasive or even non-invasive, which can cost them, you know, between $2,000-$4,000. They waited to see what would happen. Throughout 2024, we projected in the beginning of 2024, we projected that the interest rate would start coming down in the second half of the year. It did not happen. To tell you the truth, I mean, right now, when you see what happened to the stock market in the last few days, and they start talking about reignite inflation, it is not helping us at all. I usually say we do not see the light at the end of the tunnel. We are not predicting when this will be changed.
We will see something more normal as far as cost of capital and the business atmosphere, and the consumer confidence will start going up. Therefore, our guidance for 2025, in the beginning of the year, was similar to 2024, since we do not see a major change yet. Hopefully, it will come sometime in 2025, but, you know, we cannot predict when.
Moshe, your sentiment, just in terms of the macro-level environment, I presume a lot of it has to do with the U.S., is being echoed by a lot of other CEOs. Just the general uncertainty in the day-to-day gyrations, you know, business planning has become very difficult. Moshe, if I could, tomorrow morning, I could take away all the macro-level gyrations, how would you characterize pent-up demand? Would you come back to normalized growth rates, or, you know, it would still take a period of time to recover based on what you are seeing?
Of course, it's not something that happened overnight. We're not a consumer product. Once we see the trend down of the interest rate and that trend up of the consumer confidence, I believe we will start to see a new momentum growing. It's not going to happen in one quarter. Absolutely not. It will take time to build the market. It will take time to go and knock on the doors and talk with doctors and offer them the technology. I believe that, like what happened after the COVID, we will take a big market share once that happens. Because during the slowdown, we did not fire people. We did not stop spending money on marketing. We did not stop spending, not spending, investing in R&D and new projects.
Just in 2024, during the slowdown time, we introduced two major products to the market, the Optimas Max and the Ignite. We believe once we will start to see some momentum, which will start in the US and will continue in Europe and then Latin America and Asia, it always follow on the US, we believe that we will go to a normal number. Yes.
Just a final question sticking on the macro-level theme, Moshe, you obviously saw Cutera has filed for bankruptcy.
Yes.
The market environment, you know, you can, and do you think InMode is relatively positioned to capitalize on share from some of these other players that are suffering more? I mean, you guys seem to be buffered relatively better. I am curious if share gains just from some of these other players would accelerate the moment the market starts to stabilize somewhat.
It's not just Cutera that filed for bankruptcy. It's also Venus Concept filed, not yet, but they are on the verge of bankruptcy. We know that Cynosure was sold to Lutronics almost for no money because they had a terrible, terrible result. We know that Candela went down since we didn't see any product that they introduced to the market in the last two years. The same with Cynosure and others. The answer is yes. We believe that the aesthetic market will grow in the future. It is not coming down. People will not, you know, give up on their appearance and on their quality of life, not only on aesthetic, because we're, as you know, engaged in women's health, in ophthalmology and other stuff that basically improves the quality of life. The answer is yes.
The reason why Cutera went bankrupt is not because Cutera was not a good company. Cutera, you know, they had to borrow $400 million. And we knew from the beginning when they took the money, when the cost of capital was very low, we knew that they are making mistakes because they felt like rich, but they were not rich. InMode is a different DNA. We have currently $600 million. We buy back stock, but we always keep a high level of cash in order to overcome slowdown like 2024, 2023, and 2025. We are more, I would say, lean and mean company. Look at our G&A, 3%. Look at Cutera G&A, 15%. So we are managing the business better than other companies. Yes, we don't have, you know, a backwind right now because the industry is collapsing.
Once the macroeconomics will improve, I believe we'll be the only company or the first company to create a new momentum of the portfolio and the product that we have.
That's an excellent point you made. Moshe, you mentioned women's health, right? You know, you guys are obviously targeting overactive bladder. I'm just curious, how do you all see the competitive dynamics in women's health and walk us through where you all are in the FDA process?
As you know, we introduced to the market the platforms which we call Empower. In the first year, we sold something like $40 million of this particular platform. There is a demand. There is a demand for all types of indications for women's health, you know, vaginal contraction, laxity, dryness, GSM, urine incontinence. Of course, overactive bladder is more difficult to prove. All the other indications, we have some approval from the FDA, and the other we're working on. Now, the overactive bladder, let me just close the door just a second. The overactive bladder, it's a very major indication. Not many companies have received clearance from the FDA for overactive bladder. The main solution is the full surgical procedures, which women try to avoid.
Only one company has received clearance for implantable devices that also cost something like $18,000 to the surgical and the device. Nobody received an overactive bladder indication from the FDA using one treatment, which is a 10-minute treatment in the doctor clinic with an energy-based device. We hope to be the first one. Now, where do we stand? When you try to get this kind of indication, you have to apply for what is called a pre-submission path. When you come to the FDA and say, "Hey, this is our technology," we did some proof of concept trial, not in the United States because you cannot do that in the United States if you are not under IDE. You tell them, "Okay, this is what we want to do." This is the protocol that we're suggesting. This is the numbers of patients in the study.
This is the endpoint. This is the biocompatibility of the device. This is the device description. It's a heavy submission, 300 pages. We already submitted that. We're waiting now for the FDA to come back to us with the final question. Once they clear the protocol, we will start to do site selection and hire a CRO because it's not a simple study. It's a study with at least six months follow-up and up to one year. We believe that in 2025, we will get the approval, and we will start probably sometime in the beginning of the third quarter. We'll start the study in the United States, maybe one site in Israel and one site in Europe in addition to a site in the US to do the study, and then file for what is called 510(k) Nuvo because you don't have a predicated device.
Hopefully, sometime after the second part of the second quarter of 2026, we will file it. Hopefully, by the end of 2026, we'll get the indication. It's interesting because we've already published some peer-reviewed publication on this indication because doctors are doing it off-label, not without support. They do it. Doctors can do whatever they want. The market knows that the system is working and the technology is doing well on overactive bladder. Once we get the indication, I would say that this is a breakthrough.
Yeah. Moshe, how big a market do you think this could be, this whole category in women's healthcare? Fast forward three years, four years, how big a market do you see?
Much bigger than aesthetic. Much bigger than aesthetic. If you count all the aesthetic companies together, including InMode, maybe what, $1.5 billion. If you look on women's health companies, it's a huge market, especially on the wellness side of women's health. We can go from there to any type of indication, fertility, you know, HPV, and other, and to improve. Because we believe that women's health, it's a company by itself. Sometime next year, we will create a division of women's health with special salespeople and marketing people to prepare us to go to this market in a big way. Yes, the market is the women's health market, especially the wellness type of the women's health. It's a huge opportunity.
The other thing you mentioned, Moshe, was ophthalmology. You know, help us understand how you see this as an opportunity, you know, in any cross-selling with other aesthetic procedures. How are you all gaming out ophthalmology?
Ophthalmology is different. The system that we developed called Envision can do all the aesthetic stuff, more fused facial rejuvenation, Lumecca, IPL, lower and upper lid, small operation. The main indication that we're working on to get an FDA is dry eye. Although we have some proof and publication on dry eye, this is why we introduced the product to the market. It's not as big as women's health. We consider Envision and ophthalmology as an aesthetic device. It's, you know, I mean, dry eye is something that improves your aesthetic as well because you look better and you feel better. It's not very, I would say, medical type like the women's health.
Got it. Moshe, on Ignite and Optimus, you know, two of the product lines that you mentioned, help us understand, you know, just the intensity of adoption in the field. You know, how should we think about replacement, same store, new store? Just kind of walk us through where you all are seeing these products go and the resource intensity or capital intensity, you know, for growth in these categories.
Let's start with the Ignite. The Ignite is a platform that combines three different technologies. The first technology is what we call radiofrequency-assisted lipolysis. It's the BodyTite, FaceTite, AccuTite, the same stuff that we had for the last, I would say, seven years in the United States. What we did, we improved that and increased the level of energy by something like 50% to make it faster. Now that we get a lot of experience, we decided that that's about time. This is one technology. The second technology is the new Morpheus, the new Morpheus devices, which can do what we call burst. What does it mean? It means that in one shot, you can go to three different levels of the skin: 7 millimeter, 5 millimeter, 3 millimeter, 6 millimeter, 4 millimeter, 2 millimeter. Three different depths in one pulse.
That is something very unique. In addition to that, on every level, you can decide how much energy you want to apply. For example, if you want to melt fat and contract skin, you put 50% of the energy on the subdermal depth, which is in between 5-8 millimeters. Then on the dermis level, which is 2-3 millimeters or 4 millimeters, you can put 25% of the energy. On the subdermal fat, on the subdermal just below the epidermis, I would say 1 or 2 millimeters, you can put only 20% of the energy. You can play with how to apply the energy with the new medical, with the new Morpheus. We have two different Morpheus, one for the face and one for the body.
Both of them have the burst and the scale, which did not have in the last, in the old type of Morpheus. Morpheus by itself, it's a technology. The third technology is called the Quantum. The Quantum is a combination between the body type, face type, and the Morpheus. It's a one-cannula bipolar that can go any depth that you want and deliver energy in pulses, but not in a fractional way, in a continuous way. One cannula that you go into the subdermal or the dermal or just below the skin in order to do contraction. You kill some fat, but that's not the main purpose for that. The reason why we developed this cannula, it's because I'm sure that, I'm sure you know that the trend today is to use all kinds of GLP-1 and all kinds of drugs to kill fat.
At the end of the day, you don't want to stay with the loose skin. You need to contract the skin. The Quantum is the best way. We have cannula for the face and cannula for the body. All those three technologies in one platform, which is the breakthrough, I would say, the most advanced today on the market for minimally invasive penetrating the skin. The second device, the Optimus Max, it's more, I would say, universal in a way that you have all the technologies except the Morpheus, which is the new technology. You have the Lumecca Peak, which is an IPL with highest energy. You have the laser for hair removal. You have the laser for blood veins and blood coagulation. You have the Forma and the Plus for skin rejuvenation and skin contracting. It's more for the aesthetic surgeon, not for the plastic surgeon.
It's more for any doctor who wants to do a broad range of indication on medical aesthetic, body, and face.
Got it. Got it. Fair enough. Moshe, how should we think about R&D, you know, as you guys look at 2025 and 2026? You know, you guys have been talking about investing in R&D. I think earlier also in your remarks today, you said, you know, you'll manage wisely, but you'll still invest for the future. You have women's healthcare. You have Ignite, Morpheus, Optimus Max. You know, there are various and are there any other key areas that you all are focusing in that, assuming when we come out of this macro-level drama, you know, it's something that we should focus on as it relates to InMode?
Yes. We're developing now two new lasers. One is Erbium for, and one is Q-Switch for pigmentation and skin resurfacing. We're in the process to develop, you know, a device with a new handpiece for opening the breathing tunnel to contract the, what do you call it, in the nose for ENT. We just introduced a device for ED for erection dysfunction, and we're doing some studies on that. In any given time, you can find, you know, 10 new projects in medical as well as aesthetic in our R&D pipeline.
Interesting. Interesting. Yair, if I may pose a couple of questions to you. How should we think about where InMode's sales rep productivity is? You know, obviously, you all are managing your numbers pretty well in terms of the reps and the top line. Help us understand where you all are in rep productivity, you know, in the entire ecosystem with the other players also that Moshe mentioned. At the same time, you know, and if I could pose another question simultaneously is, you know, you all have mentioned improving 200 to 300 basis points of gross margins, right? What are the puts and takes? How are we going to get there as we exit 2025?
Let me start with the first question. Of course, in 2023, 2024, and we see it now in 2025, revenue per rep went down because we did not fire reps. We never fired reps. We did not fire reps even in the COVID time when we did not sell even one product for four months. We kept the talent in the company because we believe that once the market will start to go up again, we do not want to lose them to competitors. Other companies adjust the cost with the expenses. They fire people. During the COVID time, once they start recruiting them back, they lost market share. We know that the revenue per rep are coming down in this slowdown, but the reps are the most important people. You know, it is all about people, especially in this company.
It used to go up to $1.8 million per rep in the United States. I would say today is $1.2-$1.3 million, but that's okay. We are fine with that. We have the money. We're not going to sacrifice. We're still positive in cash. We're still profitable. We're still cash. We're still, you know, making money on every platform that we're selling, even if we sacrifice a little bit on commission and marketing expenses, et cetera. Regarding improving on the gross margin, we believe it will come once the momentum will start. It will come from economies of scale because we're not growing in cost. We will have better negotiation with component manufacturers. I believe that staying above 80% is the goal.
If we will be able to improve that by 1% or 2%, which we are working on all the time to see what we can do in order to save another dollar from the system. All the time. This is another, I would say, part of our DNA. We are doing it very well.
In addition to that, the US market, once we see that start recovering, it tends to be our most profitable market, especially in terms of gross margin as well. Once we see things improving in the US, we should expect to see some improvement in the gross margin.
Got it. Got it. Fair enough. Moshe, Yair, we are almost up on time. Moshe, you mentioned earlier about stock buybacks. I am curious, in the current environment, given how you all are, to me, it seems from the last time you and I chatted, you guys have a much wider lens now of how the different segments that you all are targeting, which is quite encouraging to hear. Does it mean M&A? Should we start thinking about M&A as something that InMode is looking at, or would you all say, look, in the current environment, we are better off just buying stock? Let's revisit in 2026.
We're not active in the M&A. We're not active now. We don't have any bank that represents. If the opportunity will present itself, yes. We already set up the criteria. We said we will buy a company if within 12 months, it will add at least 1% to our EPS. That's what we said. We're still with it. We gave two proposals to two companies, but they did not accept our proposal. I mean, we're doing buyback. By the way, once we finish the program that we're doing now, altogether, we invested $500 million in buyback. I don't want to say over and above. I know that some shareholders want us to do a tender offer and buy 40% of the stock at once.
We do not believe in that kind of strategy for create market shareholders' value or capital allocation. We do it in the most efficient tax manner. Okay? We are buying stock back. Altogether, with everything, including this current program, it will accumulate to 30% of the outstanding share altogether by then, which is a high number. It is not a slow number. If the opportunity will present itself on the M&A side, yes, but with the right price, not to do an M&A just because to do an M&A.
Fair enough. Fair enough. Gentlemen, we are up on time. I'm so glad we connected, Moshe. I think I'll ping you separately because the profile of InMode is a lot different than what I had thought about last year in ViaTalk. Good things happening. I wish you all the best. Congrats on the progress and hang in there. I think the drama in the U.S., hopefully it'll end sometime soon. Gentlemen, thank you so much.
Thank you very much.
Thanks so much. Thank you very much. Bye-bye.
Have a nice one, everyone.