InMode Ltd. (INMD) Earnings Call Transcript & Summary

All right, everyone. Well, thank you for joining us for our second panel of the day, fireside chat with a company I cover. I'm new to InMode and have had a fun time getting to know them. We have CFO, Yair Malca, with us. Thank you so much, Yair, for making the very long 30-minute drive here.

So maybe let's start with a brief introduction into InMode, how the product is different, how your product offering is differentiated and your approach to R&D, sales and marketing, all of that. What's the TAM, the competitive landscape? And we'll go from there. That's a lot. That will take 45 minutes.

Danielle, thanks for having me. InMode is the leading aesthetic medical device company. And we also started expanding to what we call wellness in the last couple of years. Our main focus is radio frequency-based technology and more specifically bipolar radio frequency. And this is an important part. We can touch about it later. Also, we focus on minimally invasive. What we realized is there is a huge, what we call, treatment gap between what used to be popular before InMode, which was noninvasive procedure, mainly laser-based procedures, which is optical energy and noninvasive. So that was one side of the spectrum. And another option was full surgery, full facelift, for example. And there was not too much solution in between. So people that wanted something more substantial than the noninvasive solutions, with mediocre results. On the other end of this -- the other option would be full surgery with all the downtime, 2 weeks downtime, not to mention the very high cost. And then we realized there's a huge gap there, and we tapped the market basically. And what we offer is minimally invasive solutions based on radio frequency. It's invasive enough to penetrate the skin, go directly to the fat layer, melt the fat from the inside, for lack of a better term, and also simultaneously tighten the skin. And by doing that, you basically create this significant effect, sometimes one -- or with RFAL technology, you need only one treatment. With the fractional RF, you need several treatments, and then you can get significant results, not as significant as full surgery, but we are getting close to that and with a minimum downtime up to 48 hours. We call it a weekend procedure. You can do the procedure on Friday, go back to the office on Monday. So minimal downtime, significantly less expensive than traditional plastic surgery, full plastic surgery. And for the physician, they can do it in their office under local anesthesia unlike full surgery that you have to do in the operating room in the hospital, and you will pay for another physician to come and do the anesthesia. So in terms of ROI for them, it's actually a good procedure for them.

Yes, yes. So -- and just to be clear, I think one of the unique benefits of your technology is the tightening component of this as well versus just the melting of the fat because that's very important. Is that right? And that's where you mimic more of the full surgery type of outcome.

Exactly correct. And I'm sure we'll talk about it also later, but tightening the skin is a big thing of what we do, and it's important. Killing fat is one thing, and there's several ways to do that. But once you get rid of fat, you end up with loose skin, and this is where tightening the skin and contracting soft tissues is very important.

Yes. Okay. And just curious how you see InMode evolving over the next few years. I mean you are an aesthetics company, but you've talked a lot about wellness. So I would just love to hear at a high level -- we'll dig into this deeper in a little bit. But just at a high level, how you see the company evolving?

So first of all, we are an aesthetic company. We don't forget for one second that we are an aesthetic company. But as I mentioned, we are looking to expand our universe into more wellness. And we think that wellness and aesthetic actually goes hand in hand. And we believe, based on what we know from aesthetic and we starting from wellness is that there is a huge market out there, and patients are willing to pay cash, out-of-pocket money for -- to look better and feel better. So we started expanding to that. We started with the women's health we came up, and that's a good example. So again, we designed a device based on radio frequency, mainly radio frequency. There are some other energies, but the main one is radio frequency because that's what we do best to treat some traditional indication. But on those devices, on those platforms, we also have several aesthetic handpieces. So they have a handpiece that can treat SUI and pelvic floor restoration. So this is classic OB/GYN offering. But on top of that, we also have some aesthetic because what we've seen in the space is that it's very hard for those physicians that own the practice to grow the practice just by depending on insurance-based procedure, procedures that are covered by insurance. It's very hard because the insurance reimbursement tends to go down, rarely go up. The cost of managing their practice keep going up every year. If they really want to grow, they need to introduce some sort of a cash-based procedure to the practice. And I would argue that there's no better cash-based procedure for them to offer than aesthetic. So that was the concept. And what we've seen after 1 year in the field, we went to run some statistics, and so that Empower owner -- Empower is our women's health platform. So Empower owners on every vaginal tip that they order, consumable, they order 2 aesthetic tips, either for the face or for the body. So we see that it's actually happening in real life. A patient would come to get a vaginal procedure done. And OB/GYN, at least the ones that know what they are doing, on an average, we see that many of them do, are able to upsell an aesthetic procedure, so -- or even 2 because there are a lot of body parts that can get treated, so they treat -- they do their vaginal treatment and then start treating other areas: tummy, face, et cetera. And we see that happened in real-life, and our next offering would be to ophthalmology. So we started a soft launch in Q2 in the U.S. Before that, we launched the product in Canada. We got really great feedback from both ophthalmologists and optometrists. Same concept, we are going to have 2 handpieces to treat dry eye. One is based on IPL, and one is based on RF, bipolar radio frequency. Again, just to mention, our founders came from the traditional laser optical industry. So we have lasers. We have IPL. We have all of those. It's not the focus of what we do just because this market is saturated, and we believe radio frequency is a much more effective way to go, but we also have those IPL and laser technologies whenever we need to use them. So we have 2 handpieces, 1 for -- with IPL, 1 with radio frequency specifically for dry eye. But on the same device, we also have a fractional RF handpiece to treat periorbital wrinkles. With the IPL handpiece that they treat dry eye, they can actually treat the entire face, treat rosacea, so -- or like brown spots, take care of brown sports. So we believe -- and again, that's something that we are testing right now. Same thing with OB/GYN, patients that will come to the ophthalmologist to get treated with dry eye, the ophthalmologist would be able to upsell them. We tell them, okay, we got to take care of the dry eye. Let's take care of the wrinkles here. Let's take care of maybe full fractional RF treatment from the face. We give them this option as well. So by doing that, we are attracting more players into the aesthetic/wellness world. And that's why we believe it goes hand in hand together. Next thing would be some solutions for snoring for ENTs. Probably in the end of -- towards the end of next year, we will try to come up with a platform for ENT. Same concept, we'll have 1 or 2 handpieces specifically for ENT traditional procedures, take care of snoring, turbinate reduction, et cetera. And we also will have some aesthetic -- a couple of aesthetic handpieces on that device. And again, by doing that, we will attract more to the aesthetic/wellness. And again, we believe, same as we saw -- we learned from aesthetic, people will be willing to pay cash to get to treat the snoring, to treat the dry eye, to improve the wellness overall. And I think that will be a win-win situation for us, for the physician and for the patient.

Okay. So still very much an aesthetics company but very much also expanding the treating physician population through both the wellness and aesthetics.

Yes. And definitely, during this time, I just mentioned the product that a wellness -- focused on wellness, but we are going to launch also aesthetic -- like pure aesthetic products. So we don't forget that about aesthetic. And that's our bread and butter. That's where we came from. In the next probably 12 to 18 months, we are going to refresh our entire aesthetic product portfolio. Some of our legacy products are due for some refreshments and upgrades, and that would come probably in the next 12 to 18 months.

And actually, I want to -- while we're on that topic since we already went there, let's maybe talk about the pipeline and where the focus is when you say refreshing the existing products. What is the focus? Is it on improving outcome -- like maybe talk about what the focus is when upgrading the product portfolio.

So each product has its own upgrades that we are looking for. Definitely, we are going to stay both minimally invasive but go on to some noninvasive procedure as well, improve efficacy, improve safety, improve the outcome overall. Coming up with some new way to do -- to basically melt the fat and tight the skin simultaneously. That's important. That's basically the holy grail of aesthetic procedures. So I don't want to get into details. It's still in the R&D, but we are going to have something very unique replacing or upgrading the RFAL technology, which has been our legacy technology for almost 7 years. So definitely due for refreshment, Optimas, one of our best-selling products. We will update that as well. Morpheus, very popular procedure, very strong brand name. We're going to improve the Morpheus as well. We keep finding ways to do it even better. Even though right now it's probably the best fractional RF procedure in the market, we have some -- we keep receiving feedback from the field, from the physicians we work with. And that's what's unique about our R&D team, even our CTO lives here in North America, very close to the physician community. It keeps getting feedback, then go back to the backroom to the lab and try to -- exactly.

Yes, that makes sense. Thinking about the product portfolio, what is the right way to think about InMode's strategy for new product launches? Is it like once every 2 years? Is it what?

No, we -- historically, we brought to the market 2 to 3 new platforms every year. And 2 platforms probably will be the sweet spot for us, especially if it's brand new technologies. So I think that -- because more than that might be too much for our sales team as well as the market to absorb. So I think bringing 2 is a sweet spot. And looking at on the other players out there, they don't do anything close. They bring to the market maybe 1 product every 3, 4, 5, 10 years, and then if it's a good one, they try to run with it until they hit some kind of a wall. That's exactly what we don't want to happen to us. And that's why we understand that in order to continue to go in aesthetic, you need to keep innovate. Even though we have a very strong product, the Morpheus8, we could run with this product forever. But no, we keep innovate.

Yes. Okay. Let's talk about recent performance and how you think about top line growth from a go-forward perspective. In Q2, another 20% plus sales growth quarter. It is true, though, the last 2, 3 years with COVID, with staffing constraints, we're not really at normalized procedure levels, just broadly speaking, in med tech overall. How would you characterize the sustainable top line growth profile for InMode in a normalized environment, taking into account the product refreshes that you've talked about to every year?

So overall, the way I'd like to look at it is in dollars rather percentage. And we believe that going forward, we can deliver additional $70 million up to $90 million this year. Probably, we'd be $90 million. But just to be conservative, we'll go with $70 million to the top line every year. Yes, we would love to grow 20%. But the more we grow, this is capital equipment. And most of our revenue or 85% of our revenue is based on capital equipment. It's not easy to convince a physician to buy $120,000 device. This is not a product that can go viral. This is a hard work every time. Every sell is -- takes its own time. There's no easy sell. So that's why innovating is important. So as long as we continue to innovate, bringing on those 2 new products to the market and continue to grow our sales team and go direct in some countries, we definitely can achieve that.

And then as far as the capital versus consumables mix, I definitely want to touch on them because I think you are unique in the aesthetics world given that dynamic. And maybe talk about where you expect consumables as a percent of revenue to go over time. And yes, I think your installed base is expected to exceed 20,000 in Q3. So how to think about the mix going forward of capital versus consumables?

So if you look at the last couple of years, let's say, 3 years ago, our consumable was only 9% of total revenue. 2 years ago, it was 11%. Last year, it was 13%. So this seems to be despite that we had 2 more percent. This year probably will be 15%, 16%. So I think at least 2% to 3%, we should add every year. We are not a razor and razor blade company. We sell the devices for full price and then sell the disposable for a very reasonable price. People would even say fairly low price. And the reason for that is that we want to incentivize the -- our physicians to offer our procedures to their patients as many times as possible. If the physicians see a patient, and let's say the patient can pay $2,000 for a procedure, and the physician has a bag of procedures that they can offer to the patients to start with, right? But if on one procedure, you would need to pay to the manufacturer $700, like 1/3 of what he charges, and on our procedures, you need to charge only -- or pay us only $100 or $200, let's say, $200 on average. What would we feel more comfortable to recommend and they tend to forget that for our product platforms, they paid full price, and the competitor, maybe they got a discount because they have the great model. So they tend to forget what was the initial cost for them, but they just look at this procedure and then don't like the fact they see it like the greedy manufacturer. This is his patient. This is his -- he's doing the work. And then the greedy manufacturer is coming putting his hand into his pocket and take a 1/3, sometimes even half of what they are able to charge. And physicians don't like it. So that's why we try to keep it low. But again, this is another lever that we can pull. If we see that we need to -- there is a reason for us to start increasing that. At the beginning, as a young company, we wanted to take this cost out of consideration completely. So they just offer our procedures as much as possible. But at some point, when we have such a strong brand name and we feel comfortable that we've put our name out there, we can definitely start pulling some levers that we never pulled before.

Yes. I mean it makes sense if the physician is investing in the capital equipment upfront, too. It's kind of like chicken-egg situation, like they're already invested, so it makes sense for them to want to use that system as much as possible. So they already have that incentive, and you're offering at a lower cost for the disposable. And I actually wanted to touch on because of the -- you're not a razor-razor blade model. And often, it's a capital equipment that's lower gross margin, and the disposal higher gross margin. But you have one of the best financial profiles of any company in our coverage universe as it relates to operating margins. And maybe talk a little bit about how you're able to achieve that, and I have my own thoughts about where the market sort of misunderstands this, but I'd love to hear your...

Sure. So our gross margin actually on the capital equipment, as we mentioned, is higher than our gross margin on consumable. Our gross margin on capital equipment is over 85%, in some countries over 90%, 9-0. On the disposable, it's around 70%, 7-0. So as I mentioned, we purposely keep it lower. We want the physician to make a lot of money on our procedures. We want them to keep most of the money because then when we come back to them with the new technology or a new product or new offering, it makes it easier for us to sell them the next product, and that's kind of the concept. And so far, it seems to be working. I think there's a misconception. And I think in the next recession, we'll find it out that companies that has the razor and razor blade model would fare better during recessions. In COVID, that was not the case. During COVID, that was not the case. We did better than any other company that deploys the razor and razor blade model. But again, COVID was a unique situation. We'll see in the next recession how things would look like. But we are very agile. If we need to make some changes or tweak our models, we can definitely do that. But for now, I think we are completely fine with having only 70% gross margin on consumable. I think this is a respectable gross margin. And keep in mind, we barely have any additional expenses related to consumable sales. So the 70%, almost 90%, 80% out of it, trickle down to the EBITDA margin. So that's also something to keep in mind.

Well, and I think that's one of the conceptions that I see when talking to investors is people really want to put InMode in the box of medical device company, which you are, but you're also very much a consumer company in that you're selling the cash pay to the patient. But I think what people miss is the physicians that buy your systems, they're the ones marketing this to the patient, right? So once they are invested in buying in Morpheus, whatever, FaceTite, BodyTite, they're going to put the money behind. Mark -- I was at my dermatologist office, and I was captive in the examination room and all these InMode procedures, scrolling across the screen. So I think that's something that people miss. And is that one of the drivers of keeping your sales and marketing and high operating margins?

Yes, absolutely. We do a lot of what we call co-op marketing because, as you mentioned, these physicians, not only that they can advertising to the captive audience in their practice, many of them become like a social media celebrities, and they have a lot of followers. There are a lot of patients following them. They like the work. They want to see what's new and coming, like to see the before and after pictures. So us partnering with them for fairly inexpensive cost, we can have them put together a post and provide them some of the material. And then all the followers can see that. So that works very well. And some of them are tweeting some very famous celebrities, and some of the celebrities post something on social media about, hey, I did this procedure, mentioning us, calling out us, calling the doctor out, and that's always helping a lot with, again, minimal spending.

Yes. Right. So where is the pushback from a physician purchasing assistant perspective? Is it usually the cost of the capital equipment? And maybe walk us through the process of selling one of these systems to a new practice. It feels like the practices you're already in, they're using it, so maybe a new practice.

So one thing to complete the marketing, we also spend on direct-to-consumer marketing. We have random back the doors. We started doing billboards all across the U.S. So we are focusing on that as well. And that's also something that helps us selling to the physicians. So when we come to a new physician and 70% of our revenue from capital equipment in the last couple of quarters came from new customers. We are still in the process of adding new customers to the InMode family. So basically, it's some kind of a discovery meeting with the physicians, try to explain to them what they are missing out on, trying to identify what are their needs, what kind of demographic they have, what procedures they already have, what's not. The fact that we have such a robust product portfolio, almost 9 products in our portfolio, and that's also something that is very unique. We can offer them -- other than the 2 remover that we don't have currently, we have all the aesthetic procedures that they might need. So we're trying to identify what would be best for them to start with, and then they can add more products later on. So -- and that's, again, one of our main competitive advantage because many of the other competitors, we don't really see any other competitors that compete with us head to head on the entire product portfolio. There are some companies with a single product, which is extremely hard to be a single-product company in our market, right? So the fact that we have this robust product portfolio is a huge competitive advantage for us. So we come -- we try to understand what are the needs. We have those very successful workshop events. The workshop events looks something like that. Like we take a very luxury hotel, just like as this, and we bring a very celebrity physician, a very successful doctor, and they talk about how they became successful with the practice, of course, mentioning the InMode products but not only the InMode product. They're also talking about injectables and what treatment they combined with the InMode procedures. We sponsor the event, obviously, but it's a very educational event for those customers. So even customers that were not sure before what -- whether they need or not an InMode procedure, once they hear the physician, the doctor speaks about his success, he's doing many times a live demo on the stage. They can ask him questions. That helps us kind of address all their concerns and make it basically easier for us to sell them after such an event. And in addition, we show them all the huge investment that we do on direct-to-consumer so they understand that we are actually trying to attract patients to his practice.

Yes. Yes, that makes sense. Okay. Maybe let's talk about site of care. I mentioned I saw the InMode products in my dermatologist office. Your primary call point, I think, is plastic surgeons still. So maybe talk about the opportunity expanding beyond just -- there's still plenty of plastic surgeons still to adopt the technology, but expanding even beyond that and how you think about the TAM in that regard.

Yes, that's absolutely correct. So this company starts with a $3.5 million initial investment. The next round was the IPO. So we needed to be very focused, almost laser focus, although we focus on RF, in what country and what specialty we go after. And we decided to start with the plastic surgeon community in the U.S. Why is that? Why is the U.S.? Because the U.S. actually set the aesthetic trends for the rest of the world to follow. And why plastic surgeon? They are top of the pyramid that all other aesthetic providers looking up to, to see what they are using, and then they tend to follow. But this is also the hardest community to penetrate. However, because of the minimally invasive nature of our product, that was the perfect community for us to go after. It did take us many years to penetrate them. But all of our KOLs at the beginning were geared toward plastic surgeons. We're basically able to do something that no one in the past thought it's even possible to create a very successful aesthetic companies without the derms, just around plastic surgeons. But now after we established ourselves and the brand and with the plastic surgeon, we start expanding to other communities, more traditional ones. And especially since we -- in the last several years, we also launched the hands-free devices and devices that are less invasive in nature so they can actually cater for those communities much more. So only in the last couple of years, we start building relationship with the dermatologists. And if you think about it, dermatologist is a larger group than plastic surgeons. And we are maybe 5% penetrated there, 6%. With the plastic surgeon, we're a little bit more penetrated, probably 20%, 25%. But with the rest of the group, this is definitely an opportunity for us to build a relationship with them and start expanding to them as well.

And can you do that without adding to the sales force as it is today? Or do you have to continue adding maybe more derm-focused reps?

We have -- aesthetic companies -- any aesthetic companies, if they want to grow, they need to do 2 things: one, keep adding more sales reps or more people and keep bringing innovator and bringing new products to the market. You cannot do only one of them. So yes, we will need to bring. On average, a sales rep in the industry is doing between $1.2 million to $1.5 million a year per rep. That's productivity, the average productivity. We used to be higher in the last couple of years. But basically, if we want to add another $70 million to the top line, yes, we will need to add another 30, 40 reps at least every year.

Okay. From a geographic perspective, in the first half of the year, U.S. grew high teens, but OUS grew high 20s. Now there are some, I think, comp dynamics with China. But maybe talk about international versus U.S., what's happening there, how the markets are different fundamentally and how the long-term growth profiles between the 2 geographies are different.

Yes. That's a good question. So again, back to what we mentioned in the previous question, we started from the U.S. So that was our focus. Only in the last few years, we start investing seriously in the international expansion. And to remind you, that was COVID years, so we opened some direct subsidiaries in some countries during COVID. The contribution was minimal. Only now we start seeing the fruits of the investment that we did during COVID, and that's the plan. We continue to expand also internationally, go direct versus distributor in some countries, at least 1 to 2 subsidiaries every year. That's what we would like to see. It takes time from the moment you open a subsidiary, a direct operation until you start seeing some contribution. Italy, we opened a subsidiary there 1.5 years ago. Only now we start seeing the contribution. So it takes time. But overall, comparing U.S. to OUS because of the fact that we started in the U.S., obviously, the growth rate in the OUS would be higher. We -- but it will come from all regions. We see very strong demand in Europe, Asia, including China and Latin America.

Okay. Okay. So it sounds pretty broad-based. So I was going to ask if there are any countries that are better primed for aesthetics than others.

Yes, there are. But overall, they are spread across several regions.

Yes. Okay. All right. Let's talk about your second half guidance because I know you love to be conservative, like that $70 million per year, which we can discuss off-line. But your second half revenue guidance implies 15% growth at the midpoint, 17% at the high end. That is a slight deceleration versus over 20% in the first half of the year. Maybe talk about the dynamics that are driving this conservatism and how we should be thinking about the puts and takes to the back half of the year.

So as you mentioned, we do tend to be conservative. And I think 17% growth is still a very good and healthy growth for a company on our side. Keep in mind, we are the biggest aesthetic company. No other company achieved those levels ever in the history of the space. So yes, we want to be conservative because as I mentioned, no other aesthetic company has done this before. This is new field for everyone. And the second, there are so many question marks about the economy, where things are going. Interest rates keep going up. Financing processes start taking longer. There are so many question marks. So we prefer to be conservative. And overall, even 17%, I think it's a nice number to -- it's a nice target to have.

Sure. I'm very greedy, but yes. So what level of visibility do you have when you give guidance? Sort of how long is the lead time for making a sale?

And that's one other thing. It's not long. So we don't really have visibility. We can measure that, as I mentioned, by the number of sales reps we have, and we know what's the average productivity per rep. We look at the demand for our consumables, working with our distributors, trying to gauge their intention to place orders for -- towards the rest of the year. But there's no real visibility. This is something that -- we use our past experience. This is more art than science, unfortunately. So that's why we want to be conservative.

And we talked about recessionary risk. So I'm not going to really go there. I'd rather actually talk about something else that's very dynamic in health care right now, and that's the GLP-1. And we've seen meaningful stock moves, and we'd love to get your thoughts on how broader GLP-1 adoption could impact the aesthetics market as a whole, but obviously, we care most about InMode specifically. And have you started to see anything yet?

So let me start by saying that I don't -- I do not want to tie InMode to a specific fat loss trend. But overall, as with every fat loss trend, that actually helps the aesthetic space because once you get rid of fat, you end up with loose skin as we mentioned before. And it doesn't matter how you get rid of fat. That trend might be stickier than others, and that may be the holy grain and solve the -- all the obesity problems and all the weight problems. But all those patients that would lose weight and lose fat would end up with loose, saggy skin. Some call it Ozempic phase when you have a -- your face becoming a little bit droopy. And this is exactly where our fractional RF, our Morpheus device can help them. Our RFAL device can help them. And we start seeing that, but it's too early to quantify. But overall, from a past experience, this is something that will do great for aesthetic. Keep in mind, our products right now are not recommended for obese people. But obese people who have been put on those drugs lose a lot of weight. Now we can start working with them, which before we couldn't. So no matter -- why do -- what brought you to use these drugs, we might end up helping you out with looking even better.

Yes. Okay. That's a very fair point. I want to talk a little bit about the expansion into wellness. And you mentioned this already, but about OB/GYN practices, not only adopting Empower for vaginal rejuvenation but also adopting some of your other products to do the aesthetic procedure. So this is already happening with OB/GYNs. You will be launching a product to ophthalmologists. And I'm just curious to get your view on how -- what the friction points are to these physicians getting comfortable with doing a more pure aesthetic procedure. Is that something you guys have had to take on?

Yes. So with every -- each of those groups, even before we introduce a solution for them. We had OB/GYN using aesthetic, ENTs, ophthalmologists, even before we had a solution for them because, as I mentioned, many of them realize that there is a lot of money in aesthetic. So they will start -- sometimes, we saw -- they call it aesthetic day. The -- one day, they do only aesthetic treatment, or they have an aesthetic room in the treatment room in their practice. So they have the ophthalmology practice or ENT practice or OB/GYN practice with a room specifically for aesthetics. But this was done only by the savvy physician. The savvy like business -- business-savvy physicians. And unfortunately, there are not too many of those. Most physicians are very good doctors, not very good businessmen. But the ones that are business-savvy already adopted aesthetic and already had our products. And that's how we came to know this community and start thinking of, okay, how can we expand? Because if you want to go to the mass population of a community, you need to offer them some sort of procedure on your platform that's customized specifically for them, and that's what we are doing. And with that, then they will feel more comfortable adopting our technology. And we need to work with them hand in hand at the beginning at least. And pose to them that you can make money out of cash-based procedures. You just need to know how to position it right and how to sell it to the patient, so -- and we can help with that.

Yes. So just following up on that, we have been very focused on the opportunity with Empower and women's wellness. You guys significantly outperformed expectations last year in the first year of launch, I think, $45 million. The initial guidance was for $20 million in the U.S. But you stopped highlighting it as much, or you're not giving the numbers. But is that because maybe we were looking at it incorrectly, and it's more about getting into the OB/GYN practice with Empower? It's less about who cares almost how many Empower procedures they do. It's them adopting the entire portfolio.

Yes. Exactly. And we always knew that Empower can be $45 million, $50 million a year kind of product. So when we gave the original guidance, we usually don't do that, but when we were asked about it, we said $20 million will be a good number to achieve in the first year of a soft launch of the Empower. We ended up doing $45 million. So what we thought would take us about 2, 3 years to get to, we got in 1 year, in year 1. But once we are there, I think it's going to grow like similar to the rest of the portfolio. 15% to 20%, that probably will be on the higher end, like 20% because it's still a very new product, but it's going to behave in a similar fashion to the rest of the portfolio.

Is there still opportunity to add more OB/GYN? So it's not like they're done penetrating the market.

No, no. The OB/GYN is a huge market. And we are continuing to innovate also with Empower. I didn't mention that, but we plan to bring to the market on the Empower new handpieces and new indication. So right now, we have only SUI, but we are looking at OAB, overactive bladder, which can be huge. We know it helps. We don't know why yet, right? The feedback that we get from the field, it helps with the urgency, like instead of getting up 7 times a night, they get up only 2, which is a huge improvement. But we don't know how yet. So we are still studying that. HPV, we believe that we can provide some solution for HPV using microneedling RF solutions. So yes, once we add more indication, I think this will help us with expanding more to the OB/GYN, and think about it, OB/GYN community is bigger than the aesthetic community. So this thing can be big.

Yes. Well, in the last 30 seconds that we have, capital allocation. So you guys have a ton of cash. And just curious about you've been pretty transparent about where you could potentially go with that. Has anything changed there? Maybe remind us sort of how you're thinking about deployment of capital.

So our main priority is -- right now is to do M&A. We really believe that if we can find an M&A target that would help us create a one-stop shop in aesthetic or M&A target in one of the new communities that we are after, OB/GYN, ophthalmologists, ENTs, that can actually help us a lot and establish us in these communities or establish us completely as a one-stop shop in the aesthetics space. That's the first priority. However, we are generating a lot of cash, which is the problem, a big problem. We are not going to sit on this cash forever. If we are -- if we see that we cannot find a suitable M&A target, we will start giving this cash in some form or at least some of this cash back to the shareholders. But the first priority is M&A. Luckily, we have such a strong R&D pipeline. Unlike many other companies, we will not do M&A just for the sake of doing M&A because we need new products to fund our growth. We don't. We will do M&A just because we believe strategically that's the best thing for us and for our shareholders.

Okay. And with that, I think we'll wrap up. Thank you, Yair. Thanks, everyone.

Thank you for having me.