Everybody, we'll begin our next session. My name is Matt Miksic. I cover medical devices here in the US at Barclays. Very pleased to have with us today InMode. We've got Yair Malca, Chief Financial Officer, and we've also got Spero. I'm not gonna try to pronounce your last name.
Just say Theodora, like Theodora Isabel.
Spero Theodorou, Chief Medical Officer. I wanted to maybe start with just one of the things about InMode that I think catches a lot of medical device folks a little bit off guard. You probably answer this question all the time, Yair, is the growth model. I think one of the first conversation we had, and we're really relatively new to the name, in medical device land, we like to think of capital consumable, capital based growth. With the razor blade focus being to sell the blades, not the razors. It took me a little bit to get my mind around the idea that this is really just a razor company.
You know, that you're selling platforms that enable procedures for clinicians, but that you see this like, this very, very large opportunity to kind of expand laterally. Maybe talk a little bit about the rationale behind sort of that business model and versus the approach that many other device companies is almost like, "We'll give you the capital. We just want the consumables."
Yeah.
Absolutely. First of all, thank you for having us.
You bet.
Just to mention, we do have razor blades.
Of course.
We do have consumables on many of our products. You're right, we took a different approach from any of the companies in the space. Ultimately, we decided to listen to our physicians. They don't, and Spero can talk about it, they don't like the razor and razor blade model. They tend to forget pretty quickly the what they paid for the original device. So even if you discount it or heavily discount it, as many of the companies do, the ones that go with the razor and razor blade, at some point, doctors don't like the fact that they need to pay a hefty fee to this manufacturer. What we do differently is we charge them the full price on the device and charge them a very reasonable price on the consumable.
By doing that, we are incentivize them to offer our procedures as many times as possible to their patients. You know, it works.
Right.
Spero, do you have any comments about that?
Yeah. I mean, I'm a practicing plastic surgeon, so I can tell you right now that every time you do an operation or a procedure, you're thinking about this company has their hand in my pocket, right? There's a magic number at what that disposable number can be. Don't forget, as we grow and that disposable base is gonna grow as well, we want them to be successful because the majority of our clients are small business operators, right? For them, it's a very simple math. Here's how much it costs, here's how fast I can pay it off.
The difference is that because our procedures are higher, it's not laser hair removal, they both pay it off within a year, which is pretty quick, which allows them to get a new machine from us, a new platform, and that model has worked for us. We understand the criticism. We understand it. We're completely aware of that, Matt, but appreciate you having us here.
Sure.
To try to explain it.
Yeah. I wouldn't say it's so much criticism, it's just a different model that is different. It's different than what we're used to, I think.
Sure.
on the medical device side. You know, zooming out and thinking about, you know, the process of my digesting that kind of, does this really, does this make sense, is this gonna work, is that you are dealing with, directly with a entrepreneurial business owner versus selling into a healthcare system that's based on, you know, reimbursement to DRGs and procedure codes and so on and so forth, which really does change the way you need to position that.
Right.
You know, another aspect of it that, you know, just again, sort of topical issues that come up in investor conversations is around the sort of economic sensitivity of aesthetics generally and how that might or might not affect InMode. You know, when we launched, in December, you know, it struck me that, in our view anyway, as we talk about it in our notes, I mean, the stock was discounting this sort of, you know, call it rote, you know, assumption that if there's a recession coming, isn't that gonna be hard on this procedure and this company because you're kind of in this aesthetics category. You know, maybe talk a little bit about how your procedures are positioned against some of the broader, you know, available products to patients.
In other words.
Right.
you know, this is bigger than Botox, but smaller than sort of a larger invasive procedure. Maybe talk about the positioning.
Well, you don't mind if I answer that?
Sure.
It's a really good question, Matt. A lot of our management team as well as our sales force comes from Cynosure. We had the experience of being with Cynosure when in 2008, 2009 when the crisis happened. What happens is, during those periods, does it affect the company's sales? Of course, it does. From a practitioner standpoint, what happens is that patients don't stop doing aesthetics. It's lipstick and cigarettes. They continue doing it. What has changed, though, is the price point's different. Instead of having a $30,000 tummy tuck or a $20,000 facelift, they'll still have things done, but they'll do it in your office, no anesthesia, no hospital fee, and the range is around $3,000-$5,000.
If you're in that range, which our procedures are in that range, and the doctors that have that ability with our technology to do it in the office, they go through the recession, they're a lot more resilient to it. That's one. The second thing is the spas, right? We're heavy in the core doctors and plastic surgeons and all the things that we do. Our spa exposure is not as big. During the recession back in 2008, 2009, the spas were the first to fold. We don't have that sort of that exposure as well. The third thing is, and this is important, we designed everything we did. We wanted to have staying power. If you look at aesthetics and you look at kind of the Wild West, right? You have a great machine, you market the hell out of it.
18 months later, it becomes a coat hanger, and you get another machine, and it's this crazy vicious cycle. We never wanted to do that. We wanted to make our machines ubiquitous in every office and have staying power that will protect us through that period of time. Our majority of our clients are those kind of professional clients when they're able to have established practices and weather that storm. we're not no one's completely insulated, but we are as best as we could consider also, you know, that we're sitting on a bunch of capital in our balance sheet and all that. We're not concerned if there is a recession, if it does come forth, it will affect us tremendously or anything like that.
Sure. No. Again...
Did that answer your question, Matt?
Yeah, absolutely. I have a couple of follow-ups. What I would say is that is taking into account that sure, to your point, there could be an impact, you know, if the recession's of a certain degree.
Right
... there's likely to be an impact. At least from our perspective, you know, hence our overweight rating was that really seems like it's adequately discounted here, if not more than adequately discounted.
Right.
So, so-
Yeah.
We wouldn't say, you know, you're bulletproof either.
Yeah.
It seems like it's contemplated in the numbers.
You mentioned Botox, and I think this is an important sort of analogy, right? Botox is at this point commercialized commodity. Everyone does it, right? We looked at our patients, we looked at all the numbers and the studies that we've done, and we know that the average patient that comes in and has a procedure done has 3.8 procedures done a year at a $3,000-$5,000 price point. We are the Botox of minimally invasive surgery in a way. It's a differentiated product that nobody else really has.
Right.
You have to sort of take a step back because it is a paradigm shift from what's traditionally being done, 'cause it's a long-term surgical result delivered in a minimally invasive way in the office. That recurring patient that keeps on coming back for more is also very similar to Botox, but a different price point.
Yeah.
So.
Different price points. The follow-ups are, you know, different price point to the, to the patient-
Right.
To the consumer, but also a different price point to the clinic.
Right.
maybe talk about, you know, one of the aspects of 2007 and 2008 was that.
Right
You know, the price tickets on lasers and such were quite different.
Right
The, you know, the, right, the, you know, the sort of, the capital required to begin using your platform.
Right.
Maybe talk a little bit about that.
Well, I mean, your average at this point, laser hair removal, for example, is $200, right? It's gonna take you how long, how long to pay off even a $60,000 machine? It's gonna take a lot of laser hair removal, a lot of procedures to do that. If you're looking at our procedure, average ASP for the box is $130-$140, right? You have the average procedure is around $5,000. The numbers are actually add up very quickly. The doctor can do that simple math in his head right off the bat. The average of it's less than a year when they pay off the box, about 12 months.
Mm-hmm. Okay.
So.
The other follow-up on this idea of like, sensitivity and sort of risk to growth, if you will, risk to your plan, is that you're sort of moving laterally into these other specialty segments.
Right.
You know, urogynecological and ophthalmology. maybe talk a little bit about that.
Right. I think it's very... I'm glad you brought that up because the first criticism could be, are you guys losing focus? What are you doing? Why are you going? Are you sort of butterfly hopping everywhere?
Right.
We're not. You see, the biggest criticism for aesthetic companies, they can't get past the half a billion dollar mark, right? They're, this is it, this is the mark. There's only so many people you can sell to. What we're doing is we're increasing our TAM. We're at the core of who we are. We're an aesthetics company, right? When you're selling to a gynecologist who's never bought equipment, who's never bought, you know, devices like that, they're scared. They've never bought a piece of capital equipment for that. We go to them and say, "Look, you have these patients in your practice already. Stress urinary incontinence. You don't have to go look for them. Send them an email. We have the procedures. It's within your scope of training. You're comfortable with it, right?
By the way, here, we'll teach you how to do aesthetics." For us, we're going in with an indication or something that they already know and then teach them aesthetics, and that's how we're increasing our TAM. That was our theory, right? That was our theory. That's what we thought was gonna work that way. We had to validate that theory. What we did, Matt, was we looked at our Morpheus8, vaginal Morpheus8 tips, and we say, okay, for every vaginal Morpheus8 tip used for stress urinary incontinence or for GSM, how many tips are being bought for aesthetics? We looked at the top tier practices, and we found it's one to six . It validates the fact. For every vaginal Morpheus8 tip, there's six aesthetic tips faced everywhere in the body that's being sold.
Across the board, we looked at everybody, it was one to 2.8.
Wow.
Three. We know that when we tell this, you don't stop being a woman, 'cause it's the majority of the patients, the moment you walk in a gynecologist office. That's how we are looking at this. Same thing with ophthalmology, right? We're looking at dry eyes, right? We go in, but we're doing a periorbital rejuvenation. There's a lot more money in Morpheus8 and IPL for the orbit around the eyes for aging as opposed to a dry eye procedure. It's the same concept. We have a very large training force, and we have a lot of things in place to be able to educate and train these practitioners so we keep things safe, which is also a big deal, right?
Right.
What people don't know about us, everyone has said, "You're a plastic surgery company," because we stuck to plastic surgeons in the beginning. I can tell you right now that 50% of our clients are non-core, right? That's a lot larger number of people doing aesthetics than actually your 8,000 plastic surgeons, out of which 2,000 do pure aesthetics. We do have a long runway. We're only penetrated in dermatology about 8%, so we have ways to go. We're very confident with this, you know, the core approach, still going to dermatologists, still going to the people we know, but also opening up the TAM with these different procedures. There's a method to the craziness. Sure. It's not like we're jumping around and doing stuff.
Yeah. No, I wouldn't say it's crazy.
It's certainly different. It's a different strategy, but it's, when you sort of piece it together, it is, it makes sense.
You know, many physicians or practice owners are looking for ways to grow their practice, and introducing cash-based procedures is a very attractive way to go with. This, this is how we attract more of them into aesthetic.
Yeah. That makes sense. The on just the timing, you're launching into, you know, with Envision into ophthalmology this year.
Yes.
Maybe talk a little bit about, you know, what sort of early proof points or, you know, what do you have already that gives you confidence in that?
Sure.
When do you think investors will start to see kind of the breadcrumbs of the path towards what that opportunity could be. Right. Like EmpowerRF, which has been pretty successful.
Right. We don't think it's gonna be as EmpowerRF, as strong as EmpowerRF. We've been already selling to ophthalmologists and oculoplastic surgeons, so they're familiar with our product. Our device, if I had to quantify it, we're a little better than J&J's LipiFlow, obviously, right? Are we dramatically better? Is this gonna save all dry eyes in the world? No. It's a good. It actually does. You know, the fact that we can control the temperature, do what we need to do, is very effective. What's differentiated is that it's customized to every eye, right?
It's not J&J's product is basically a one-size-fits-all. That customization helps and a lot also for the efficacy. On that device, though, we have Morpheus8 and we have IPL, right? Again, we're going in with a dry eye issue. We're hitting, you know, we're gonna be talking to a lot of different specialties that focus on dry eye. Say, "By the way, you could also do rosacea with IPL. You could do the periorbital rejuvenation with Morpheus8, and that's all cash-based, and that will make money." Depending, for example, optometrists in certain states where we're allowed to sell and what we do with them, that's also a call point. Because an average optometrist will spend $250,000 to get up, set up his practice. None of that revenue makes revenue. It's all diagnostic.
We're looking at the whole gamut, but we're very careful how we position our devices, just like we did plastic surgery. We're starting with the oculoplastic surgeons and the ophthalmologist, and we're getting the credibility we need. We're publishing our studies. As we trickle forward down, we see within reason what we can do to the different other specialties. Okay. That's sort of, you know.
To answer your question, yes. We are going to do a soft launch what we call this year. The contribution to the revenue will not be significant this year. Right. Later on in the year, maybe we'll be in a better position to understand what the long-term opportunity from this market. As Spero mentioned, just because this community is smaller, it's not gonna be as high as EmpowerRF.
Okay. Right.
Fair enough. Yeah. I guess, yeah, thinking about one of the, one of the thematic issues across our space which so far doesn't seem to be, you know, impacting you very much, but maybe you could speak about it as you get into, further into urogynecological surgery and then also further into ophthalmology, is staffing. You know, these, a lot of these clinics are trying to figure out how to, how to get patients through faster-
Right ...
with a tighter staffing footprint. You know, how does your solution fit into that or are you starting to see any pressure like that?
No, Matt, I think no one's ever asked us that question, and I think it's an excellent question because every physician is thinking about it.
You know, if you start disrupting the physician workflow, I don't care if your device is amazing, they're not gonna use it. Two things. First, we try to make our devices so simple, where the lowest common denominator in the office can use it. That's very, very important. Morpheus8 is like that. Depending on the state, of course, and the regulations. The training and all of that goes into that is what matters. We're able to do that and we're able to say, "Okay, yes. You could be playing golf and someone in your office is doing it while you're not there." That's a huge, huge thing. Again, our devices are small, they're compatible. You can wheel it out of one room, wheel it out of the other.
All those things is what physicians like about it. They can put it in their car, take it to a different clinic. You can't do that with lasers. All these things, even though they sound mundane, do have a very high impact on what the physicians, the way they look at things. I mean, it's a simplistic way of answering your question, but I think those things matter. Sure.
Many of the practices also that we sell to are fairly small practices with one physician own the practice and one or two nurses, so they don't need a huge staff. We did some survey late last year about staffing concerns with some of our physicians, and we don't see many issues. We don't see a problem.
I mean, what strikes me is the challenge for ophthalmology, not Right, not so much, you know, cosmetic surgery is.
For sure.
Yeah. Is that, you know, and you can, you can appreciate this, I think, is that the margins are just better in cosmetic surgery.
Mm-hmm.
The margins are tighter in ophthalmology. What they're trying to do is. The reason why staffing is an issue is 'cause they need these patients coming through like a lot of volume, like a well-oiled clock. You know, to like, you know, here and out.
Because they're doing a lot of, you know, Medicare IOL procedures that are not really where they're making their money. It's a way of figuring out, you know, I guess two things. One is the workflow, but the other is if the issue there is profitability per patient, then introducing something that raises that margin opportunity substantially.
I mean, you have ophthalmologists fighting for a $20 copay.
Right.
They'll find the time. If they're making $500 off a procedure, they'll find the time to make that workflow work.
Right.
Yeah.
Makes sense.
What they usually do is you start off with like, "This will be our aesthetic day." Right? They sort of. When they realize that aesthetic day is, you know, pretty effective, they add another aesthetic day.
Right.
The next thing you know, the whole practice is converted over a period of 18 months to 50% aesthetics.
Okay.
So-
That's helpful.
Yeah. The market drives it.
Yair, maybe just to wrap up, you know, again, kinda ticking through the things that I've, I found unique, at least getting to know InMode a little better, is sort of the sort of margin and cash flow. I'm sort of chuckling when I say this 'cause it's different and strong for a company growing this fast. Maybe talk a little bit about the, you know, what drives your gross margins, which are high. The sustainability of that sort of 83%-85% range, and then some of the elements of your P&L that help you get to the kind of cash flows that you're generating. I'm speaking of, you know, the R&D spend, the G&A costs being an Israeli-based organization and so on.
Yeah, that's a good question. Listen, this company started with an initial investment of $3.5 million. The seed round. The next round was a IPO in 2019. We operate as a very lean and mean startup. We still try to maintain this culture even now we are the biggest company in the space. We can maintain, expect to maintain 83%-85% gross margin because of the fact that our ASPs are very high. Because of the IP that we have, we can maintain very high ASPs. We don't have too many competitors that can compete with us on the surgical or minimally invasive procedures. We manufacture in Israel using some outsourced manufacturing agreements. That helps us a lot, maintaining a very low cost of manufacturing.
Also, the fact that we are mainly focused on radiofrequency, this is a much more effective and efficient energy to work with and less expensive than laser. Taking all this into consideration, I believe we can maintain this gross margin range also in the long term. R&D, I think R&D, we don't like to look at it as a % of sales, more as a total dollars spend and productivity. We were able to bring in the last four or five years, two to three new technology or new products to the market every year. This is much better than any other company in the space did. We plan to continue to do that.
We know that the R&D structure that we have in place can continue to bring two, at least two new products to the market. G&A, again, very lean and mean mentality, and the rest is sales and marketing. On that, this is the only thing we don't save on. We spend 35%, up to 35% of our revenue on sales and marketing because this is an industry that is very heavily related to sales and marketing. If you want to continue to grow and take market share, you need to continue to spend. Luckily, we have the gross margin and the profitability to afford spending 35% on sales and marketing as part of our business model, which is not something many other companies can say.
Sure. No, with the growth trajectory that you have, you know, constantly investing in expanding the field force and so on, getting into new specialties...
Yeah.
That you can see, you know, the need for higher spend there. No, that's super helpful. You know, I think given that we're at time, we should probably stop. With that, I'll say thank you both for coming, and this is a really helpful kind of overview of what's unique about InMode, at least from a perspective of a traditionally MedTech analyst. Thanks.
Thank you.
Thank you, Matt.
Thanks for having us.
Appreciate it. Thanks for having us.
You bet.
Thank you.
See you. Thanks a lot.