InMode Ltd. (INMD) Earnings Call Transcript & Summary

Thank you, and good afternoon. This is Jack Meehan from the Barclays Tools and Diagnostics team. Appreciate you joining us on the new virtual format for the conference. Next, our next presentation is with InMode, in the medical aesthetics space. We're joined by Co-Founder and CEO, Moshe Mizrahy; also have on the line, CFO, Yair Malca. And I'm going to turn it over to Moshe. He's going to give some thoughts. And I think at the end, we're going to do a little Q&A. Thanks.

Okay. Thank you, Jack. With me today, Yair Malca, our CFO, if you have any question regarding financial or anything else; but also Miri Segal, our external IR lady. She's based in New York. Yair is based in California. I hope that this -- my presentation will be clear, although it's more difficult when I don't see you and you don't see me, but we will try to do the best. For those of you who want to see my presentation in full, we uploaded the presentation in the IR section of our website. You can go there, and go over today -- right now, or if you want to do it later, that's also fine. I think the presentation is self -- will explain itself and all the new products and everything that I will describe in my presentation. I'm sure that most of you already heard about InMode. Just to give you a brief, the company was established a little bit more than 10 years ago. We are based in Israel. We're manufacturing, R&D, everything in Israel. We have right now a subsidiary, fully owned subsidiaries for marketing and sales in Canada, U.S., France, Spain, U.K., India and Australia. We're selling in close to 50 countries through our subsidiaries, but also through exclusive distributors. All the manufacturing, as I said, and the R&D in Israel. We have around 250 people, excluding manufacturing team, which is also done in Israel, out of which, about 60 people in Israel; the rest in North America, Asia and Europe, in our marketing and sales subsidiaries. We are -- we specialize in what we call bipolar RF. This is important to understand because this is our base technology. We are not a laser company. We are not a traditional typical laser company, like the other companies in the medical aesthetics field. All of our technology are based in RF. And I will explain through my presentation the difference between optical energy and RF energy. If you switch to page number -- the second page -- the Page #5, just to show you some of our numbers. We closed 2019 with $156 million, 87% gross margin, $61.2 million net profit. We have so far installed close to 5,000 systems worldwide, out of which, 2,800 in the U.S. We're selling in 53 countries. We have 121 direct salespeople in North America and all other subsidiaries. All of our technology are protected by patent. We have 5 patent technology across 8 product families. The management team -- I'm going to the next page in my presentation. The management team has a lot of experience in medical aesthetic. Most of our team in Israel and, of course, overseas have been engaged in medical aesthetic for many years through companies like Syneron Candela, Cynosure, Home Skinovations and others. So we know the industry for many years. I have been with this industry all the way from ESC then Lumenis. And then I was the founder of Syneron and the CEO up until 2006. Started the company in 2008 with my Co-Founder, Dr. Michael Kreindel, who is based in Toronto. We started -- we raised $3.5 million. That's all the money that we raised. And we started the operation in 2009. As far as the organization, and I'm going to the next page, 75% of our business today is the U.S., and 25% of our business is OUS. The U.S. and Canada are being controlled by one organization, which is based in the U.S. We have an office in Toronto. We have an office and a depot system in Irvine, California. In addition to that, we have companies in London, U.K.; Madrid, Spain; Delhi, India. We have an office in Hong Kong to manage Asian countries. We have a joint venture in China, which is right now doing the regulation in China. We're not yet selling in China. We have a company which we established recently in Sydney and another one in India. Altogether, as I said, we have a little bit more than 250 full-time employees, out of which, about 17 people today are in the R&D and regulation. If we go over to the next page, Page #9, and that's, I believe, it's the most important slide in my presentation, try to explain which category we develop. I'm sure everybody knows the traditional laser industry. There are many companies in the laser industry. Some of them are big, some of them are medium-sized, and there are many small companies in China and in Asia. They're all manufacturing typical laser and IPL product line, which basically can do everything topical, all the way from hair removal, skin rejuvenation, pigmented lesion, vascular lesion, acne, fine line, leg vein and other stuff, which is on the skin itself. Laser, or just because laser is an optical energy, cannot penetrate deep into the skin. And everything, all the treatments that are being done with laser, we call them 2-dimensional treatment. They are on the surface of the skin. There are about 40 million procedures performed every year with laser equipment around the world. That's a huge number. This is a big industry. But it's well saturated, well saturated. A typical laser machine today costs in between $50,000 to $70,000, and I'm talking the high end of the market. Prices of laser in -- prices of laser product went down significantly in the last few years. There are about 6 Korean company now competing also in the United States with FDA. On the other side of the medical aesthetic, there are plastic surgery. Plastic surgery, total plastic surgery performed procedure every year around the world around 2.5 million procedures, and that's compared with 40 million laser treatment. Plastic surgery, everybody knows, very costly, adverse effects. You need to go to a hospital for full anesthesia. It's not something that you do in a lunch time. You'll have downtime of a few weeks just to recover the surgery. Not many people wants to do it. But many people, what we call the treatment gap, many people wants to get the result of plastic surgery without going into all the forthcoming effect of a plastic surgery, which I accounted before. And that's the group of people that we said, if we can develop with energy-based -- any energy-based technology, devices and platforms that can perform plastic surgery without a knife, without cutting the skin, just by making minimal invasive small hole or small incision point and do the same or at least 80% to 90% of the results of a full plastic surgery, but do it in the office of the doctor, with local anesthesia, without downtime -- with a very short downtime of not more than 1 day, then there's a potential market which might be used. Because people are, right now, with the selfie technology and everything, looking on themselves I don't know how many times a day. I don't know how many pictures they take for a day -- therefore, they want, what we call, 3-dimensional results. They want body and face reshaping in -- and get result of plastic surgery without going into the operating room. This is our -- this is what our vision in 2009. And we have developed a technology that we call RFAL, Radio Frequency Assisted Lipolysis. And I'm right now in Page #14. We developed the technology. If you are on our website, you can go to Page #15 and activate the animation and see exactly how this technology is working. What is the holy grail of a plastic surgeon? Holy grail of plastic surgeon is to get rid of the fat and tie the skin without cutting the skin. And that's exactly what this technology does. We're penetrating through a small incision point, with 1 cannula into the subdermal fat, the second cannula on the skin. And we developed a temperature, which is 65 degrees in the subdermal fat and 43 degrees on the skin itself. So simultaneously, we melt the fat and the fat go out, and 42 degrees ties the collagen of the skin. So basically, we're doing the 2 effects simultaneously without cutting the skin, without sewing and without all the adverse effects that's associated with the full surgery. If you go to page number -- if you go to Page #16, you can see Radio Frequency Assisted Lipolysis for the face animation, which demonstrates exactly how the operation is done. The operation is 45 minutes, not more than that. The patient is fully awake. He is not in sleep. We -- the doctor use local anesthesia by ingesting some tumescent into the subdermal fat, and the entire procedure can be a lunchtime procedure. It can be done on the face, it can be done on the neck, it can be done in any other part of the body. Pages 17 and 18. If you activate the animation, you can see the procedure itself made by Dr. Erez Dayan. And the patient, before and after, that is treated before and 2 weeks after the treatment, and these kind of results we can get without any going under the knife. So this was the first technology that we developed. In Page #19, we show others part of the body that can be treated with this technology. Of course, it's a different hand pieces and -- for different parts of the body. It all depends if you need to be delicate, how much fat you need to take out, how much fat you need to melt, how much skin you need to tight. But we have a solution for almost every part of the body using this technology. I would say that today, around the world, there are at least 3,000 doctors who are using this technology on a daily basis. The second technology that we developed is a fractional RF, fractional Bipolar RF. This you can see on Page #20. And in Page #21, you can see and activate the animation. If you are on the website, it's easy to see. Basically, what we do, something similar to the minimally invasive RFAL, we insert a matrix of needles, coated needles, into the skin, all the way to the subdermal fat, and today we can get up to 7-millimeter deep, it depends if it's on the body or on the face. We activate the energy by pulses, we melt the fat, and we keep the same 42, 43 degrees temperature on the skin to tie the skin. This is a complementary technology for the RFAL; but for the face, sometimes, this is the main technology. Both technologies, they are minimally invasive and they're ablative RF with the matrix need to be done by a surgeon, either a plastic surgeon or a derm surgeon, but we sell also to other surgeons, like ophthalmologists, ENTs, et cetera, that can do a surgery in the clinic, and they are looking for all kinds of treatment that generate private money to their clinic. On Page #22, you can see before and after pictures of a lady who had a full face with what we call the Morpheus8, which is the fractional RF. So basically, these 2 technology are surgical technology. Both of them are using Bipolar RF technology that we have developed. All of our technologies are protected with patent, IP. So far, we're on the business for almost 10 years, 5 years in the United States since we received the FDA. We did not have any infringement of our patent by no one in the market. I believe we have a strong IP to protect ourselves in this unique category, which is the minimally invasive aesthetic surgery. In addition to that, and I'm jumping right now to Page #23. Last year, and this -- in the beginning of this year, we introduced 2 new platforms to the market. One is called Evolve and one is called Evoke. Evolve and Evoke generating, again -- creating another category in the medical aesthetics. This is a hands-free devices for skin tightening, for fat melting and for muscle toning, muscle simulation for the body and for the face. Two different platforms that can be run hands-free. So basically, this is something the doctor loves. They generate, with this type of equipment, more revenue to their clinic. Only thing they need is an extra room and maybe a nurse, which they already have. They can set up to the temperature and the parameter and leave it with the nurse or sometime even without. There was enough safety measure on those platforms to protect the patient and -- from any type of adverse effect. These 2 platforms were introduced to the market last -- at the end of last year and the beginning of this year. In the beginning, we did that in North America. It's already been approved by the FDA and Health Canada. So we started in the U.S. and in Canada. In February, we introduced that in Impact in Europe. It's already approved by the CE, which is the European regulatory body authority, and we are starting now country by country in Europe to introduce and train the doctors how to use it. I would say that we are very successful with the introduction. So far, we could -- we -- in the beginning of this year and 1 month last year, we sold a couple hundred system all around North America and some in Europe as well. We will introduce those platforms in Asia sometime in June if, of course, it will -- if the virus by then will allow us to do it. We believe that this is also something very unique, and it's another growth engine for our company. We continue to develop indication or enhanced pieces for the Evoke and the Evolve platform, and I'm sure that the potential of Evoke and Evolve, sometimes it's even much higher than the potential of the minimally invasive and ablative product that we develop at Stage 1 in our company development. And the reason for that is because Evoke and Evolve can work in every doctor office, not just surgeon. Every aesthetic doctor who wants to generate and create another business in his clinic can buy those equipment, can buy those platforms. There's no disposable associated with those platforms, and therefore, it can generate and create another stream of revenue for his clinic. And the potential for aesthetic doctors around the world today is much higher than potential of plastic surgeons around the world today. If you go to Page #25, 26, you can see what exactly we're doing with this. With the Evolve, with the hands-free body shaping. Page #28, you can see before and after picture of the hands-free treating cellulite. Page #29 and 30 is on the Evoke on the face. We have 2 modalities: one for the face, one for the neck, one for the submental. Again, we submitted the study to the FDA and receive FDA approval for that. On Page #32, you can see one before and after picture with the -- using the hands-free face shaping. And in page number -- that's basically what we show in Evoke and Evolve. So if we go back to Page #33, what we're showing here is there are 8 platforms portfolio for 2020. On the left side, you'll see 4 platforms, which are the surgical: minimally invasive for the face, which is the Embrace; minimally invasive for the body and for the face, which is the BodyTite; minimally invasive for women health, which is the Votiva; and minimally invasive also for the face, which is the Optimas, which is mainly fractional RF. Those 4 platforms today are about, I would say, 70% of our business. The hands-free, we have 2 platforms: the Evoke and the Evolve in the center of the slide. This is something that we introduced in the last months of 2019 and the beginning of 2020 very successfully. We believe that this will be another growth engine. On the right side of the slide, you see what we call the traditional laser equipment, which we manufacture as well. And the reason why we manufacture those equipment, it's not because we want to compete heavily with all the traditional laser companies on the market like Cynosure, like Candela, like Cutera. The reason for that is because we want to be one-stop shop for our customers. All the customers that are buying our unique equipment, they need those equipment as well because -- and we don't want them to go to competitors, and they buy from us. But this is not more than 10% to 50% of our business. So 85% of our business in 2020, I believe, will be between the surgical and the hands-free. These are the 2 major growth engine of our company. In Page number 34, you can see our financial results. We did -- in 2016, we received the FDA, we did $23 million in worldwide, and then we jumped to $53 million revenue, and then we jumped to $100 million revenue per year in 2018. In 2019, we did $156 million, and the guidance that we gave before this year, for 2020, is in between $190 million to $198 million. We gave the guidance in our earnings call early in February, and in -- 17th of February. I'm sure some of them have been on this earnings call, and I believe that we will reach the target. I believe we will reach the target even if there was some kind of difficulties right now because of the virus, and I will talk a little bit on it in a few minutes. As far as P&L structure, we have 85% to 87% gross margin, about 40% net profit. We spend not more than 4% on G&A and about [ 4.5% ] of our revenue on R&D. Our R&D pipeline right now will generate $50 million growth every year in the next few years. This is our -- this is what -- this is basically our R&D pipeline. And we demonstrated that in the last 3 years, all the way from $23 million to $156 million in less than 3 years. And I believe we will continue to grow with the same rate, with all the products and all the new ideas that we're developing here based on our technology. So $62 million almost, $61.2 million net profit in 2019. We actually -- I don't want to say spend, but we invest a lot of money on marketing and a lot of money on clinical. We have close to 50 peer review articles of third-party doctors who make studies and publish them in a peer review medical magazine. We do a lot of business-to-business and business-to-consumer advertisement and marketing activity, which is -- which, I believe, is very important because we need to get to the consumer and explain to them why the technology is working for them and why they need to look for this technology and this type of procedure rather than doing another laser procedure, or rather than doing a full plastic surgery. And we're doing it almost every week and every month, few workshops and few conferences. Unfortunately, in the last 2 weeks, all the conferences around the world are being canceled. I'm sure you know that the American Academy of Dermatologists 3 days ago announced that the conference, which was scheduled later for this month, will -- is canceled. Last week, the American Society of Plastic Surgeons also canceled the conference that they were supposed to do in San Diego. And almost all the conferences in Asia and in Europe are being canceled one after the other. In order to -- so what we decided to do is to do our own conferences and our own meeting. And for example, last weekend, we had a conference, internal conference, for 330 doctors in Beverly Hills, California, and 330 doctors spent 2 days with us to understand the technology and the platforms. So this is the marketing activity that we are doing. I want to speak a little bit -- before I will leave it for questions, I want to speak a little bit about the effect of the coronavirus on our business. And I mentioned in the earning call that we have basically 3 levels of effect, and I want to give you some updates on all 3 of them. In the earning call, I said that the first effect is the business in Asia, especially in China and the Chinese-speaking countries, all the neighbor countries of China, like Singapore, Taiwan, Hong Kong, and even Thailand. I'm sure everybody understands that those countries, in the last 2 months, were almost dead because of that. We did not see any significant revenue from them, but smartly, we converted some of the marketing activity -- marketing and sales activity in Asia from those countries to the countries which are not heavily affected by the virus, like Australia, like Philippines, like Japan and Korea. Korea is yesterday, but not in the beginning of the quarter. And we managed to get more business in those countries to accommodate for what we lost in the other countries. So I will not say we got 100% recovery with those countries, but I can tell you all that we did not lose more than 10% of the -- of our budget or the forecast in Asia. And I believe this is very good. In Europe, up until the crisis in Italy, we did very well in Europe according to the budget or even a little bit more than that. In the last 2.5, 3 weeks, the crisis in India, which is now spreading to other countries in Europe, like Spain, like Portugal, like France is slowing down the market altogether. I can understand that. Doctors do not want to buy equipment when they don't see the customers. They want to see the customers and then invest $100,000 per piece of equipment or even more than that. But I believe that with all the activities that we are doing, we will cover what we are losing in Italy right now and some other countries in Europe, in the activities that we're doing in the U.K., in Russia, in Israel and other countries. So we will be affected, but not more than, I would say, again, not more than 5% to 10% from our original forecast. Hopefully, the virus will disappear sometime in the summer, that's what everybody is telling us, and then everything will go to normal in Europe and also in Asia. In the United States, the escalation started just last week. And up until last week, we did well. There are another 3 weeks of -- before the end of this quarter. I don't know what will happen in the U.S. It's very hard to tell. We see some slowdown, of course. Again, doctor buying equipment don't want to pay the lease payment in the months that they don't make money with the equipment, and we can understand that. I can assure you that we're not losing business. Some delay will be on some doctors. But our selling team and all the 115 reps that we have right on -- right now in Canada and the U.S. are working very hard to try to convince the doctor not to wait and to buy the equipment. We managed to get some lease packages from the third-party that gives some advantage of buying now and not to wait. And hopefully, we will not be affected in the United States up until the end of this quarter. So from a revenue effect of the virus on us, I would say that we may -- maybe we are 10% or even less than 10% below our original focus, not more than that. But I can assure you that we did not lose the customer. We did not lose the customers. We know exactly who are the customers. Those customers already got training. They ask for a month or 2 before they invest the money just to help with the cash flow right now of the clinic. We do not lose the customers, we will win them, if not on the second quarter, of course, on the third quarter. But right now, all the market is affected, and it affects us as well. The second level of effect is the manufacturing. As you know probably, part of our components are coming from China. And the Chinese manufacturing was closed for more than 2 months, all the -- starting the Chinese New Year. Right now they start to get back to production. But in the last 2 months, we didn't get any component work from China, and we need to go and source from other sources. I can tell you that we managed it very successfully, and we got from a third -- from a second and a third source every component. The manufacturing was not affected at all. We will supply every system that will be ordered until the 31st of March. We will not delay even 1 system. This is -- I believe, here, we did a great job with all of our purchasing, engineering, and all the teams here in Israel, we managed to get everything that we need. The third effect, the third level is China itself. We have a joint venture in China with the Guangzhou government. We have a company there, which is now doing the regulation phase with the CFDA. The CFDA, in the last 2 months, was closed to any submission. They dealt only with the coronavirus. And therefore, I believe we had a delay in the approval of our equipment in China of about 3 months. I hope not more than that, but that's the force majeure. There's nothing we can do to help here. And hopefully, that's also where we have good news from China. It seems like they're overcoming the difficulties that they have. Manufacturing now is going back to work, and the capacity starts to run. The CFDA gave us yesterday a notice that now they are ready to start reviewing our submission. So hopefully, it will be end sometime in the end of the second quarter, and we will go back to normal days. So this is the effect of the coronavirus. I'm sure everybody is worried about that. I can tell you that in Israel and in the U.S. and in other subsidiaries around the world, we are doing everything we can to overcome it with all means. For example, buying components not from China, sometimes it costs more, but we have 86% to 87% gross margin, so we can sacrifice for short time, 1%. This is not a major effect on us. We will not lose the business even if we will not capture it in this quarter. We will continue the contact with the doctors, and we will do the business and close the deal sometime at the end of the year. We are not changing the guidance for 2020. We're staying with the same guidance that we gave a month ago in the earnings call. So this is my presentation. Any questions you have, I'm here happy to answer.

Okay. Thank you, Moshe. That actually covered everything that I wanted to hit. And I think we're a little past the presentation. And I appreciate all the thoughts. And if anyone has a follow-up, feel free to reach out to me or to the team, and we'll make the connection. Thanks, Moshe.

Thank you very much. Thank you, Jack.