All right. Thanks everybody for joining us this afternoon. Very pleased to have with us Yair Malca, CFO at InMode. You know, I think the topic for some time has been you know, sort of as I kinda make this shape with my hand of a down cycle and then the flat part of the cycle and then waiting for this upcycle. That's probably been something we've talked about a bunch over the last two years or three years. Maybe just to start off, I don't wanna make too much of it, I don't wanna get too over-optimistic, but it sounded like there were some signs of some improvement.
This was, of course, before the events of last week, but seemed like some hints that things might be starting to recover a touch in some of your end markets. I hope I'm adding enough caveats and calibrating my enthusiasm enough. You know, tell me your thoughts on how you're looking at the market now and the cycle that you're in.
Sure. First of all, thanks for having us.
Of course.
It's always a pleasure to come here to Miami to be with you guys. Great conference. In terms of what we see and our message is that after two years of declining business that we've experienced, we expect 2026 to be flat, and hopefully, things will only get better from here. That's basically what we have guided to, at least flat on the top line.
We are expecting some kind of pressures on margins. We can touch on it later. At least on the top line, we expect the decline to stop. Overall, there still will be probably some areas and some pockets where we see some decline and some growth that we see in other areas of the world. Overall, we would like to see a flat year, and we are building the foundation, especially in North America, to prepare this organization for the recovery and the return of the demand. Overall, we still believe that demand for aesthetic procedures is not gonna go away. People would want to come back and get aesthetic treatment. Yes, there was some decline in the last couple of years, all across the board, not only with energy-based device procedures.
Yeah.
Also with the injectable, such as toxins and fillers, et c. We believe that at some point, the demand will come back, and we can touch about the macro and the high interest rates and everything. At the end of the day, our basic assumption is the demand is not gonna go away. We started restructuring the U.S. team. We have a new president we appointed at the beginning of Q4 and two new VPs. Basically a new set of presidential suite.
Okay
In North America for us after having Moshe, our CEO, also carry the load as the president of North America for quite some time. I think that's a great step in the right direction. We have a dedicated new president of sales for North America. We definitely see the excitement within the team. We put together a structure. I think we basically gave them almost all the resources they asked for, and now they need to start to deliver. In addition, one more thing that we did this year is effective at the beginning of the year, we bifurcated a certain portion of the sales team to have them focus on non-aesthetic, what we sometimes call wellness, devices and business.
We have a team that exclusively sell the eye care product. A non-exclusive also sell some of the women's health and male health product as well in the U.S. Again, that's part of what I was talking about, putting together the new foundations for North America, and that we will be able to grow upon when things start to recover.
Got it. Right. I think we had also been talking about that as a strategy, you know, a couple of years ago. I think maybe some of the conversations were, you know, that's what we're doing. The market where it is, it's like we're, you know, we don't have to really, we're not rushing out to do this. We wanna get the right people. The fact that you're making those changes now, I mean, from our standpoint is a sign of confidence in what you were describing before, like some stabilization. Preparing for improving growth and putting the right people in place to manage that.
Exactly. We believe that now we have the right people in place to allow us to move forward with executing this plan.
Great. You mentioned financing and the rates. You know, those had been coming down since the upward rate cycle that triggered some of the initial challenges on the system sales side. That's also not—I mean, my understanding is that's not the sort of like the big variable in the equation right now. It'd be nice if rates continue to go down. Really it's sparking that end market demand and getting that going up again. Okay.
Correct. In terms of headwinds that we see, obviously, the softening demand by the patients is more significant in terms of headwinds than the high interest rate. Obviously, high interest rate, because we are focused on selling capital equipment as a business, that impact our business as well.
Got it. You know, a couple of elements of the strategy. One is going after non-aesthetic, and that's always been part of the view to get into extra sort of like verticals and call points and divisions, for example, urogyn and ophthalmology are examples. Maybe talk a bit about, you know, where things are. I ran into some folks at a couple of eye care related meetings from InMode. You know, obviously great to see in action. Maybe talk about what have you accomplished so far, anything you're able to share in terms of like, you know, how do we measure that or how can we see that? Then also what some of the catalysts are to sort of kick that growth up and adoption further.
Absolutely. Yes. As you mentioned, we expanded outside of the traditional aesthetic into those new segments. We started with women's health, then we moved to ophthalmology, optometry, and then the next one would be probably ENT sometime next year. As you mentioned, the ophthalmology team that we have, we have the indication for treating dry eye only in Canada. We're in the process and doing the studies that we need to in order to get a similar indication in the U.S. I think once we get this indication in the U.S., it will be easier for our sales team to sell, so we would see some uptick in sales once we get the indication, hopefully later this year or probably next year. I think it's a more reasonable timeframe.
Until then, they are able to somewhat sell, but they are limited. Once we get the full indication, full clearance for dry eye, we will be able, I think, to expand more into this space. Same with women's health. We are working on some interesting clinical studies around some women's health procedures. I think once we get those, this might take a little bit more time, but this is a big market. There's actually even a bigger market than ophthalmology, optometrists. What we've seen in ophthalmology and optometrists in Canada where we do have the indication make us actually think positive, very positive. I have a lot of confidence about this space.
In Canada, we see that dry eye's mainly being treated by optometrists rather than ophthalmologists, and we need to see what we are still trying to figure out what's gonna be how things would gonna look like here in the U.S. It also depends on the state. Some states is optometrists can treat dry eye, some states only ophthalmologists. We need to see how that plays out when we get the indication.
Okay. You know, platform known for Morpheus8 and skin tightening and less for laser, but laser has been something that you added to the portfolio recently. Maybe talk a little bit about that decision and then where the uptake has been, what the advantages are of bringing that into the mix.
Yes, you're correct. In the last couple of years, starting actually mainly last year, we start offering more lasers. What we have seen in the market is this trend that providers offer combination treatments to their patients. What it means is that when a patient comes to the doctor, oftentimes they offer them a Morpheus8 procedures together with a laser procedure. The Morpheus8, they treat deep into the skin and maybe sometimes it's needed all the way to the fat layer. With laser, they treat superficially the skin and do some sort of resurfacing. That's what creates some sort of a 3-D effect.
That's how they used to present it to the patients when you are treating both the deeper layer of the skins and then the superficial layers of the skin. We've seen a lot of competitors calling on our customers, trying to sell them lasers to all the Morpheus8 customers. We realized that, you know, laser is pretty much a commodity nowadays, and we should be able to sell it ourselves. We would like to become a one-stop shop for our customers, where they don't need to go to other competitors in order to get their energy-based device needs. I think that's the direction we started with the CO2 laser last year.
We introduced about a month ago the Pico laser here in the U.S. Later on this year we'll introduce our own Erbium laser. This is part of our direction right now. Most of our revenue is still coming from radiofrequency-based procedures and devices, but we wanted to add these lasers. As I mentioned, we would like to be a one-stop shop for our customers and keep the competition out of our customers.
Sure.
The price that we paid for that is on the margin. We get a hit on the margins because of that, because laser is a commodity, and it's fairly expensive energy to work with. ASPs, because of the competitiveness of the market, is not significantly high. We see some pressure on the margins, unfortunately, but that's part of the cost that we need to pay in order to be a dominant player across the market.
That's on the gross margin. Any operating margin or just the gross margin?
It's mainly on the gross margin.
Mainly on the gross.
Yes.
Cash contribution or, you know, contribution margin to the operating line because your rep is there, because you're in the account is still a positive for, I mean, obviously it would be better to be selling more skin tightening than
Yeah. It's always more profitable for us to sell radiofrequency. energy-based devices than laser. Again, there is a market for laser, and we want to take over this market as well.
Right. Any cost benefits of some of the laser products you're planning on launching in terms of it's never gonna be as profitable as RF improvements.
Yes. We try to combine it with some of our actual bundle, sell bundle deals. For us it's a very lucrative deal to do. In those cases where we can, at the same transaction, bundle an RF device together with a laser device, that's usually what we wanna see.
Okay.
That's kind of where it makes sense for us the most.
Not a new segment just from a standing start, but an adjacency that's tied into which makes sense. I know, you know, you know, business generates a fair amount of cash. I mean, I'll just say that there's not many companies of your size that we've seen buy back as much shares. ... as you have in the last, you know, two or three years. More of the struggles and pressure that you've gotten from folks, investors, analysts is like, you know, going back even like three or four years is like, "Why not do a deal? What can you add?"
The challenge has been, what are we gonna find that doesn't start to drag down our PNL? This has been, I think, positive. Any other opportunities or should we expect to see more opportunities on the business development front, you know, that sort of expand the bag, and maybe capture more adjacencies even though they may be hard to beat the 80%+ margin?
Yes. In terms of margin, you're absolutely right. Our margins are relatively very high. It's hard to find something that's getting close to what we do. It's not only about the margin, it's also about market expansion. We continue to look at all the alternatives. We continue to consider additional buybacks, maybe even dividend, and of course, M&A. What M&A can help us is either expansion into those new areas where we enter the women's health, ophthalmology, ENT, et cetera, or in the existing business.
It doesn't have to be a traditional M&A. It can be some kind of a distribution agreement that we might sign, exclusive distribution agreement with some products that we believe might be beneficial for us to add to our portfolio, at least as a first step. If we see that it makes sense later on, we definitely have the ability to buy them, if we think that's the right move for us. We keep all the options open, and we'll see what happens.
Okay. You know, one of the things about the business that I remember the first couple of times we talked about it was sort of like, well, it's capital, but then, you know, when does the recurring revenue kinda overtake the capital? Because that's the classic kind of med tech, you know, robot-like, you know, business model. You had to explain to me several times, and I think other analysts like, "That's not really what we're, you know, what we're doing. We wanna create a business model for a clinic that purchases the device to run a more profitable consumer-facing, you know, business essentially by keeping the consumable costs, like, under control." You know, I'm thinking of vision.
You know, there's been some, call it med device vision, folks pursuing dry eye. I think some of them, no disrespect of course, 'cause some have been quite successful, but they are kinda taking that like consumable-
No razor and razor blade approach.
Yeah. Like, we're gonna charge you, but then our business, really, we make our money off the consumables, whereas yours does not have a consumable. Sort of how the response in that channel has been to a more, you know, profitable commercial opportunity they can offer their patients.
Yeah, you're absolutely right. In the aesthetic space where we know the space very well, we decided that we don't want to implement a razor and razor blade model in this space. I think that was a big part of our success so far. Expanding to those new areas, at the moment we still keep the same model of no razor and razor blade. However, in the future, we might consider other things. We are new to the space. We are still trying to build relationship, learn the who's the different players, what are the most successful business models in the space. If we see that we need to make changes, we will. At this particular moment, we still keep the same model we have in aesthetic that worked for us very well in aesthetic and see if it's gonna work there too.
Okay. So back to margins for a sec. You had been taking down as the market slowed, you know, declining revenues year-over-year, but declining margins because you're sort of holding on to the commercial organization, you know, staying in place and ready for the turn. You know, maybe talk about what happens, not to get ahead of ourselves here, but you know, when this goes from flat to, you know, 2% to 4% to 7% growth or some sort of recovery to sort of more historically standard aesthetics volumes, you know, what does that look like on the margin front?
Okay. Great question. It also depends a lot on the mix. Okay? One of the reason for the decline that we've experienced was the mix, because most of the decline came from North America, from the U.S., where it used to be and still is the most profitable region that we have by far in terms of the margins, right? It depends also where this growth, the 2%, 3%, 4%, 7% as you're talking about is coming from. If it will come from the U.S., yes, we should expect to see some improvement in margins. If it comes from international or from consumables, maybe less so much. We need to see.
We do believe that with us putting together this new structure and new foundations in the U.S., hopefully in future years, the U.S. will return to growth. If it will be flat this year, that will be great, and then start coming back to growth in future years, 2027 and on. I think that will definitely help with improving some of the margins. We are also following very closely what's going on with the tariffs. If they are gonna go away for good, maybe we can see also some improvement on the margins as well. Yeah, I don't want to commit to any-
Sure. Of course.
... anything, if we play the cards right and the U.S. continue to grow and the tariffs will go away for good, maybe we might see in the future some improvement, slight improvement on the margins.
Right. Just to, again, kinda set the right cadence, you know, you might first see an improvement in consumables. We all might be hearing about, you know, improving volumes through our colleagues that cover, you know, specialty pharma and, you know, aesthetic consumables. We might start hearing about more volumes, but it's really a period of time of seeing that that would then lead to systems and console purchase, which then really is where the inflection and leverage comes for InMode. Is that fair?
Yeah.
Okay.
That's very fair.
Great.
I think that's accurate.
You've also launched a number of new products during this, you know, period of time. As things were difficult in the end markets, you were, you know, next genning some of your products, launching some new products, you know, in addition to the laser and the consoles in ophthalmology and Em power. You know, what sorts of things can you tell us? I know you don't wanna get too far ahead of your new products, but you know, what sorts of cadence of new products can we think about this year?
This year we started with the Pico. In Q1 last month we launched the Pico. We start selling that as we speak. I think the last week or two we start selling those in the U.S. and start taking orders, and we start delivering in the next week or two. We started with that. That's again, it's not a new technology. Pico laser has been around. It's used mainly for tattoo removals and skin treatment. I actually did the Pico laser myself on my face.
Okay.
As a skin treatment. I was really impressed. We're starting with that, and later on in the year we will bring probably a new version of the Morpheus8 together with Erbium laser that I mentioned both of them on the same console. But that will be towards the end of the year. So I don't count on too much contribution- from that product.
Okay. You're kinda where you need. Then the other is, 2027 is a reasonable timeframe for potential approval of-
Yes
...of on-label dry eye, and then no other real console additions this year?
No. No.
I mean, I'm talking about on the RF side.
No, no, those two. The Morpheus8 is RF. That it will come at the end of the year.
Okay.
Morpheus8 together with the. We'll have a console that can do radiofrequency Morpheus8 together with laser on the same console.
I gotcha. Okay. That's helpful.
Usually we try to stay within two platforms every year, and this is where we are.
Awesome. All right. Well, I don't know if it's the Pico laser or the Southern California climate, but you look great.
Thank you very much.
It's nice to have you here again this year, so thanks.
Thank you.
You bet.
Great being here.