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InMode Ltd. (NASDAQ:INMD) Q4 2023 Earnings Call Transcript

InMode Ltd. (NASDAQ:INMD) Q4 2023 Earnings Call Transcript February 13, 2024

InMode Ltd. beats earnings expectations. Reported EPS is $0.71, expectations were $0.68. InMode Ltd. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and welcome to the InMode's Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to Miri Segal of MS-IR. Please go ahead.

Miri Segal: Thank you, operator, and to everyone for joining us today. Welcome to InMode's fourth quarter and full year 2023 earnings call. Before we begin, I would like to remind, our listeners that certain information provided on this call may contain forward-looking statements, and the safe harbor statement outlined in today's earnings release also pertains to this call. If you have not received a copy of the release, please go the Investor Relations section of the company's website. Changes in business, competitive, technological, regulatory, and other factors could cause actual results to differ materially from those expressed by the forward-looking statements made today. Our historical results are not necessarily indicative of future performance.

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As such, we can give no assurance as to the accuracy of our forward-looking statements and assume no obligation to update them, except as required by law. With that, I'd like to pass the call over to Moshe Mizrahy, Chairman and CEO. Moshe, please go ahead.

Moshe Mizrahy: Thank you, Miri, and to everyone for joining us. With me today are Dr. Michael Kreindel, our Co-Founder and Chief Technology Officer; Yair Malca, our Chief Financial Officer; Shakil Lakhani, our President in North America; and Rafael Lickerman, our VP of Finance. Following the prepared remarks, we will all be available to answer your question. The second half of 2023 presented challenges for InMode for their aesthetic industry as all and to the aesthetic -- and to the surgical aesthetic sector in particular. In the fourth quarter, we revised our guidance for the first time in the history of the company due to the increased impact of the industry slowdown. This resulted in 5% year-over-year decline in Q4 revenue, which amounted to $126.8 million.

However, we are pleased to have grown our full year revenue to a record of $492 million, reflecting an 8% increase compared to the full year of 2021. We take pride in being the only company in the industry that consistently generate over $100 million per quarter, demonstrating growth even in the face of a challenging year. Moreover, we keep our gross margin the highest in the industry, strong and steady at 84% for both Q4 and the full year, all while maintaining our established price structure for the platforms and for the consumable. As previously mentioned, over 80% of the platform sales are facilitated through leasing agreement, higher interest rate and longer lending approval cycles have impacted InMode overall growth rate. This macroeconomic environment has also affected patients who are more sensitive to the price of the aesthetic treatment, resulting in lower underlying demand for our minimally invasive treatment.

To address these challenges, we are in the process of establishing approval program with financial institution to improve and expedite the credit decision process. In some cases, we directly leverage our strong balance sheet to support physicians by providing financing option ourselves. Additionally, capitalizing on this lower year and our robust balance sheet, in 2023, we expanded our R&D activity by hiring more engineers and recruiting training professional. Also, we increased our sales team in our subsidiaries, expedited international expansion and increased investment in worldwide regulatory pathway. During 2023, we introduced 2 successful new platforms, Envision for the ophthalmology market and Define for the hands free aesthetic market, which is the next generation of Evoke.

We are encouraged by the results from the soft launch of our Envision platforms last year, and we expect Envision to expand outside the U.S. during 2024. InMode continue to innovate, bringing new and exciting products to the market. In 2024, we plan to launch 2 new platforms, offering significant improvement in technology and energy levels, along with the new technology for our minimal invasive treatment and for Morpheus8. Finally, we remain committed to supporting all customers, distributors, employees, salespeople worldwide. Regarding the situation in Israel, we could like - we would like to reiterate that we have established a contingency plan with sufficient inventory globally, including in Israel in the U.S. and in Europe. We continue to closely monitor the situation and are pleased to report that we are conducting business as usual.

A medical professional wearing gloves and a protective mask performing a minimally invasive aesthetic medical procedures on a patient.
A medical professional wearing gloves and a protective mask performing a minimally invasive aesthetic medical procedures on a patient.

Now I would like to turn the call over to Shakil, our President in North America. Shakil?

Shakil Lakhani: Challenges in North America during the fourth quarter, despite the headwinds of lower platform sales, we are reporting a 20% increase in consumable and service sales in Q4. Consumables and service revenue accounted for 16% of total Q4 revenues. As Moshe mentioned, we are pleased with the successful launches of Envision and Define. Both platforms have made significant progress in North America, gaining traction amongst practices and patients. Considering the anticipated slower market demand this year, we've implemented changes within our sales team in North America. We've adjusted our infrastructure to position ourselves for accelerated growth when market conditions improve. Lastly, I'd like to thank our entire North American team for their continued hard work. I will now hand over the call to Yair for review of the financial results in more detail. Yair?

Yair Malca: Thanks, Shakil, and hello, everyone. Thank you for joining us. Starting with total revenue, InMode generated $126.8 million in the fourth quarter of 2023 with a gross margin of 84% on a GAAP basis. For full year 2023, revenue totaled a record $492 million, an increase of 8% compared to 2022. Non-GAAP gross margins remained the highest in the industry and within our target range at 84% for both the fourth quarter and the full year of 2023. In Q4 and in the full year of 2023, our minimally invasive technology platforms accounted for 83% of total revenues. For the full year of 2023, consumable accounted for 16% of revenue, an increase from 13% in 2022. Moving to our international operations. Fourth quarter sales outside the U.S. accounted for $46 million or 36% of sales, a 9% increase compared to Q4 last year.

For full year of 2023, sales outside the U.S. accounted for $184.2 million or 37% of sales, an 18% increase compared to 2022. InMode now operates in a total of 96 countries. Among our global contributors, Asia and Europe were the primary drivers fueling our growth rate. To support our operations and growth, we currently have a sales team of more than 256 direct reps and 82 distributors worldwide. GAAP operating expenses in the fourth quarter were $55.3 million and $215.7 million for the full year, a 5% and an 18% increase year-over-year, respectively. Sales and marketing expenses increased slightly to $49.5 million in the fourth quarter compared to $47 million in the same period last year. Sales and marketing expenses for the full year of 2023 were $193 million compared to $160.6 million for 2022.

This increase is attributed to hiring more sales representatives, increasing our presence in the U.S. and globally. Next, we look at share based compensation, which decreased to $6.3 million in the fourth quarter of 2023 and $23.6 million in the full year of 2023. On a non-GAAP basis, operating expenses were $49.5 million in the quarter compared to a total of $46.1 million in the same quarter of 2022, representing a 7% increase. For 2023, non-GAAP operating expenses were $194.1 million compared to $160.4 million for 2022. GAAP operating margin for Q4 and for 2023 was 40%. Non-GAAP operating margins for the fourth quarter and for full year 2023 was 45% compared to 50% and 49% for the fourth quarter of 2022 and full year 2022. GAAP diluted earnings per share for the fourth quarter was $0.64 compared to $0.44 per diluted share in Q4 of 2022 and $2.30 in 2023 compared to $1.89 in 2022.

Non-GAAP diluted earnings per share for this quarter were $0.71 compared to $0.78 per diluted share in the first quarter of 2022 and $2.57 for 2023 compared to $2.42 for 2022. Once again, we ended the quarter with a strong balance sheet. As of December 31, 2023, the company had cash and cash equivalents, marketable securities and deposits of $741.6 million. This quarter, InMode generated $61.2 million from operating activities. Before I turn the call back to Moshe, I'd like to reiterate our guidance for 2024. Revenues between $495 million and $505 million, non-GAAP gross margins between 83% and 85%, non-GAAP income from operations between $217 million and $222 million, non-GAAP earnings per diluted share between $2.53 and $2.57. I will now turn over the call back to Moshe.

Moshe Mizrahy: Thank you, Yair. Thank you, Shakil. Operator, we are ready for Q&A, please.

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Matt Miksic with Barclays. Please go ahead.

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To continue reading the Q&A session, please click here.