Good day, and welcome to the InMode Fourth Quarter and Full Year 2024 Earnings Results Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Miri Segal, CEO of MS-IR, to review the safe harbor statement for today's call. Please go ahead.

Thank you, operator, and to everyone for joining us today. Welcome to InMode's Fourth Quarter and Full Year 2024 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 release also pertains to this call. If you have not received a copy of the release, please visit 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 in the forward-looking statements made today. Our historical results are not necessarily indicative of future performance. 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 turn the call over to Moshe Mizrahy, InMode's CEO. Moshe, please go ahead.

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 CFO, and Rafael Lickerman, our VP of Finance. Following our prepared remarks, we will all be available to answer your questions. The fourth quarter of 2024 was indeed challenging for InMode as we navigated intense headwinds in the aesthetic industry, which were compounded by broader macroeconomic factors. Despite this obstacle, we stayed focused and productive in 2024, driving innovation and maintaining a strong emphasis on R&D. We launched two new platforms in 2024: the IgniteRF and OptimasMAX, which are both breakthrough technologies, though it took longer to reach the market due to the extended training cycle and increased complexity of the tools and the manufacturing line. Now that the delivery challenges are behind us, we are optimistic that these platforms will see better adoption in 2024. The IgniteRF platform provides a comprehensive range of radio frequency solutions to address a variety of aesthetic and surgical needs. At the heart of the platforms is the QuantumRF 10 piece, a breakthrough technology that delivers RF energy to deeper tissue layers, achieving remarkable results while maintaining a minimally invasive approach. As we previously mentioned, the IgniteRF is an upgrade of our popular body type platforms and features nine advanced technologies that facilitate soft tissue contraction at multiple tissue depths for optimal outcomes. I would like to provide some color on the second platform, the OptimasMAX. It is a versatile multi-application platform that delivers more energy and superior heat distribution, resulting in faster, more efficient results. Since time is one of the doctors' most valuable assets, our solution allows physicians to perform more treatments per day, which translates to seeing higher numbers of patients. Both platforms are still in the early stages of revenue, but early feedback from doctors worldwide has been positive. We hope that we can update you on our progress in the coming quarters. As you may know, InMode has a long history of leading the industry in innovation and pioneering several technologies. We have maintained our leadership position in the aesthetic market by continuously introducing new and exciting technology and platforms. In fact, in 2025, we plan to launch two new platforms: the fractional laser CO2 and another platform for the medical market. We will be able to share more information as we approach the launch. Our fractional laser CO2 platform focuses on the popular facial rejuvenation and resurfacing market, and when added to our Morpheus technology, patients receive noticeable results and smoother and more youthful skin with minimal downtime. Since physicians like to bundle the Morpheus treatment with the CO2 laser, we expect this FDA-approved technology to gain more traction later this year. As a result of our extensive portfolio and innovative product offerings, combined with our streamlined organizational structure in line with our expansion strategy, InMode is well positioned to continue our leading market position, generate superior margins, and benefit once conditions will recover. We are confident in our operations and our ability to meet demand. We have long-term relationships with three subcontractors located in Israel, none of which have had any significant delays, and we maintain relationships with multiple suppliers of major components. In 2024, we returned more than $285 million to shareholders via repurchases, representing approximately 19% of our share capital, and more than double our fiscal year 2024 free cash flow. As we mentioned in today's press release, we are happy to report that our Board has approved a new tax-efficient share repurchase program of up to 10% of our share capital to be executed over the next three to six months. Together with our 2024 repurchases, this represents approximately 27% of our share capital to be bought within less than 15 months. Given our strong free cash flow generation and our confidence in our business, we are also exploring, in consultation with our financial, legal, and tax advisers, returning a significant amount of capital by the end of the year to create future value for our shareholders. We continue to evaluate our options to enhance shareholder value as part of a balanced, disciplined approach to capital allocation. We believe this latest decision reflects our strong confidence in the company's future and our commitment to delivering value for our shareholders. Now, I would like to turn the call over to Yair, our Chief Financial Officer. Yair, please.

Thanks, Moshe, and hello, everyone. Thank you for joining us. Starting with total revenue, InMode generated $97.9 million in the fourth quarter of 2024, with a gross margin of 79% on a GAAP basis. For the full year 2024, revenue totaled $394.8 million, a decrease of 20% compared to 2023. Non-GAAP gross margin remained the highest in the industry, and within our target range at 80% for the fourth quarter and 81% for the full year of 2024. In Q4 and the full year of 2024, our minimally invasive technology platforms accounted for 86% and 87%, respectively, of our total revenues. For the full year of 2024, consumables and services accounted for 20% of revenue, an increase from 16% in 2023. Moving to our international operations, fourth quarter sales outside the U.S. accounted for $35.2 million, or 36% of sales, a 23% decrease compared to Q4 last year. This decrease was across all regions. For the full year of 2024, sales outside the U.S. accounted for $150 million, or 38% of sales, a 19% decrease compared to 2023. To support our operations and growth, we currently have a sales team of more than 260 direct representatives and 87 distributors worldwide. GAAP operating expenses in the fourth quarter were $49.8 million and $204.5 million for the full year, a 10% and 5% decrease year-over-year, respectively. Sales and marketing expenses increased slightly to $44.7 million in the fourth quarter compared to $49.5 million in the same period last year. For the full year of 2024, sales and marketing expenses totaled $181.4 million, down from $193 million in 2023. The year-over-year decrease was primarily due to lower sales commissions resulting from a decline in sales and a reduction in share-based compensation. These decreases were partially offset by increases in salaries, trade show expenses, and other marketing costs. Next, we look at share-based compensation, which decreased to $3.4 million in the fourth quarter of 2024 and $16.6 million in the full year of 2024. On a non-GAAP basis, operating expenses were $46.8 million in the fourth quarter compared to a total of $49.5 million in the same quarter of 2023, representing a 6% decrease. For 2024, non-GAAP operating expenses were $189.8 million compared to $194.1 million in 2023. GAAP operating margin for Q4 and for 2024 was 28%. Non-GAAP operating margin for the fourth quarter and the full year of 2024 was 32% and 33% compared to 45% for the fourth quarter of 2023 and for the full year of 2023. GAAP diluted earnings per share for the first quarter were $1.14 compared to $0.64 per diluted share in Q4 of 2023, and $2.25 in 2024 compared to $2.30 in 2023. Non-GAAP diluted earnings per share for this quarter were $0.42 compared to $0.71 per diluted share in the fourth quarter of 2023 and $1.76 for 2024 compared to $2.57 for 2023. Once again, we ended the quarter with a strong balance sheet. As of December 31, 2024, the company had cash and cash equivalents, marketable securities, and deposits of $596.5 million. This quarter, InMode generated $32.4 million from operating activities. Because of our strong balance sheet and free cash flow, we completed our fourth share repurchase program approved last September in the fourth quarter, buying back $135 million, or 7.7 million ordinary shares, of which $120 million were purchased during Q4. This is in addition to the share repurchase program approved back in May for 8.4 million ordinary shares. In total, we repurchased 16 million ordinary shares or $285 million under these programs in 2024, returning capital to our shareholders in a tax-efficient manner. As part of our financial update, I'd like to highlight a significant one-time tax adjustment. Over the years, our U.S. subsidiary has accumulated a federal tax loss carryforward of approximately $203 million and a state tax loss carryforward of about $165.5 million. These primarily stem from employee stock option exercises that generated tax deductions exceeding recognized compensation expenses. After reviewing our cumulative income in recent years and evaluating the realizability of deferred tax assets, we released a valuation allowance related to our U.S. net deferred tax assets. This led to the recognition of deferred tax assets of $55.1 million. It's important to note that this amount has been adjusted for non-GAAP purposes. Before I turn the call back to Moshe, I'd like to reiterate our guidance for 2025: revenue between $395 million and $405 million; non-GAAP gross margin between 80% and 82%; non-GAAP income from operations between $130 million and $135 million; non-GAAP earnings per diluted share between $1.95 and $1.99. I will now turn the call back to Moshe.

Thank you, Yair. Operator, we are ready for questions.

Our first question comes from Danielle Antalffy with UBS.

I just wanted to, Moshe, get your further thoughts on capital deployment. I appreciate the new share repurchase. But you guys have been transparent in the past, specifically also being opportunistic on the M&A front. Just curious if that's still the case? And then just one follow-up after that.

Well, as you know, we are always exploring M&A opportunities. Once something comes, we will report it. So far, we have not been able to find anything that we can buy or that is very synergetic to us. Therefore, we have decided to start expanding the buyback. In 2024, we bought $285 million of shares back from the market, and now we announced another 10% buyback, which I believe will accumulate to another $120 million, maybe a little bit more depending on the share price. Again, if an opportunity presents itself that is either complementary to our product line, synergetic to our product line, or something related to the aesthetic field, we will explore it and report. But right now, we have nothing in the pipeline.

Okay. I understand. For my follow-up question, I assume you are noticing the same leading economic indicators we are observing. However, is there anything beneath the surface that you find noteworthy? With a new administration in the United States, the news is quite unpredictable. Are you observing any signs that might suggest a potential economic recovery at some point in 2025? I understand that this may not be reflected in your guidance, but I am curious to know if there is anything you see that gives you a sense of optimism.

Well, so far, the answer is no. We don’t see the light at the end of the tunnel, unfortunately. And we don’t expect to see it in the beginning of 2025, not in our business. Maybe in other businesses, they can see something. But we tried to estimate when the economic market or macroeconomics would improve, and we said that it might happen in the second quarter of 2024. I’m sure you remember that. But we were wrong; it didn’t happen. Unfortunately, the second half of 2024 was also not good for InMode. We don’t want to make any estimations at this point; we would like to work and if something will come, maybe when interest rates go down and we see some kind of improvement, we will report.

Our next question comes from Matt Miksic with Barclays.

Could you provide an update on the management structure changes you've made recently, particularly regarding the alignment of the senior management team in sales and marketing and the potential CMO role in relation to the markets you are targeting? What can we expect to hear or see about this? I also have a follow-up question.

Well, all the managerial changes that we made were implemented in 2024. I believe we discussed this a quarter ago; we changed management in three countries in Europe: Spain, the U.K., and France just because we felt that the existing management was not engaged enough and was not in tune with the market, so we refreshed all of this. In addition, we have appointed a new Vice President to manage all five subsidiaries in Europe. This is a new position that we added because we believe that distribution and subsidiaries are working differently. We would like to emphasize direct sales and maximize that as much as we can because it will allow us to be close to the doctor and also to recognize the full value of our sales. In the United States, we reported that we changed management; we released the President and two Vice Presidents of Sales. We have refreshed the organization internally. We did not bring in outside people. We now have two new Vice Presidents of Sales, one for the East and one for the West. We've also made some changes to the territory allocations between the East and the West to maximize the abilities of the representatives and the directors. We do not yet have a President for the U.S. or North America; Canada will remain unchanged. Currently, I am also the President of North America and I spend a few days a month in the U.S. working with them on a daily basis. Regarding Asia, we recently changed the VP responsible for the countries in Asia, bringing someone with industry experience, not from within the organization. I hope to make additional changes there. I'm flying tomorrow to visit seven countries in Asia with him to go over country by country and determine the budget and strategy for 2025. I hope that this region will perform better than it has in the past. Did I answer your question?

Yes, yes. Very helpful. Kind of an overview of everything you've done, so thanks for that. And then just, Yair, for you or for you, Moshe, if you could help us understand, looking at 2025 and this uptick in interest and traction and volume both in procedures and then hopefully in equipment that we're all kind of looking for and waiting for and asking about. Maybe help us understand the cadence that you expect, not predicting when volumes will pick up, but is it patient flow and then a month or two later, it's system demand? Or is it a quarter or two later, it's system demand? Maybe help us understand how your business inflects if we get to the other side of this cycle here?

Okay. Good question. Well, what happened in 2024 is that, first, we saw at least a 20% to 25% decrease in the demand for minimally invasive procedures. Now we know that because we sell disposables and we can see how many disposables we sold. And don’t forget, as we install additional equipment in the market, we anticipate that the total number of disposables should grow, but it did not. It went down, mainly in the United States. Second, the interest rates for leasing, which is the method by which doctors purchase equipment during inflationary times, increased to a range of 12% to 14% on an annual basis, which is very high. That, combined with the fact that doctors are seeing fewer patients, has led to the 20% decrease in our total revenue that we're experiencing. Now for the future, I believe two things need to happen. If interest rates go down, the interest rates on leasing will also decrease. Once that happens and patients begin to return to the doctor's offices for minimally invasive treatments, we should see an inflection. I want to clarify this: treatments like Morpheus or Quantum or FaceTite are significantly different from hair removal treatments with a laser; these are $1,000 treatments, not $100 treatments. People tend to delay more expensive procedures when they feel uncomfortable with the macroeconomics. So as soon as customers start returning to the doctor’s office, we will see that based on the disposable sales to doctors, and once the interest rates decrease, we will see a turnaround. Currently, we don’t see it yet.

The next question comes from Michael Sarcone with Jefferies.

This is Mike on for Matt this morning. I guess just first one to start more of a modeling-type question, but we didn't see typical seasonality through the quarters in 2024. Was wondering if you can give us just some color on how you're thinking about seasonality in 2025?

Yes, you're spot on regarding why we were surprised in 2024. We expected Q4 to show typical seasonality, especially in what we used to call the pro forma numbers, and Q4 was not the strongest quarter of the year. I do want to believe that in 2025 the overall numbers will look the same as in 2024, but we probably should return to more traditional seasonality this year, where Q1 is usually the slowest quarter of the year, Q2 is strong, Q3 is somewhat soft due to summertime, and Q4 should return to being the strongest quarter of the year.

Got it. And then just the last one for me. And Moshe, I think you might have mentioned this kind of reading in between the lines. You said you have multiple suppliers for the strategic components of your systems. I guess just in light of all the volatility we're seeing around potential tariffs and when they may be implemented, could you just give us some comments around supply chain risk and how InMode is thinking about what could happen if there are potential tariffs put in place either in Canada, Mexico, or China?

Well, right now, we aren’t suffering from any changes in tariffs or duties and import taxes to Israel. Some of the components are made in Israel, so we don’t have any problem. Some of the assemblies are also made in Israel, while others we buy from the U.S., like diode lasers, etc. I hope that we will not see a 25% tariff like Canada and Mexico are experiencing. I believe that the relationship between Israel and the United States is generally positive, and it will not happen to us. The fact that we have multiple suppliers in different parts of the world provides us with some protection. If something occurs in one country, then we can buy from another country. The components that we use, except for maybe three or four, are not exclusive to one supplier. We have at least two, three suppliers we work with to negotiate prices and lead times adequately, and we maintain all of them, knowing that they are in competition with others. So if something happens in the tariff structure related to Israel, we are prepared for that. It likely will not affect us.

The next question comes from Caitlin Cronin with Canaccord Genuity.

Just one on consumables. So I think global consumable services are down about single digits year-over-year. What about the U.S. consumables and services for the quarter?

Well, the 20% that we lost in 2024 were equal across all territories—20% in North America and 20% in ROW. Certain countries in Europe did well, but overall, if you aggregate all of Europe or all Latin America or the U.S. and Canada, it's about a 19% to 20% decrease in each territory.

Great. And just some more color on the capital return that you were talking about for this year and what that would entail and if it would also be tax-efficient?

The first 10% that we announced is pretty much the same 10% that we try to do every year. We believe it's going to be tax-efficient. As for a future capital allocation program, we will need to wait and see, and we will report that. We are, of course, in discussions with experts and advisers in both the tax and financial areas. We would like to try to do it as tax-efficient as possible. But we will know only once we finalize it and report back to investors.

I believe just to add to what Yair said. In Israel, a buyback is considered by the Israeli IRS as paying a dividend. Therefore, you need to pay a 20% tax. We tried to do it in the most efficient way with some pre-approval from the IRS, etc. So we do the best we can to buy back shares without paying dividend tax.

The next question comes from Mike Matson with Needham & Company.

I guess, first, the EPS guidance that you guys are providing, does that account for the share repurchases that you're guiding to as well?

No. We usually don't account for future share repurchase programs when we put guidance out.

All right. Got it. And then it sounds like in 2024, you called out there were some supply chain challenges in addition to lower demand. So I don't know if it's possible to separate those two issues, but was there a situation where you could have sold more systems if your supply chain had been functioning better? Or was it really just purely an issue of demand not being there?

Okay, this is Moshe. Well, just due to the war in Israel, in the first and second quarter, because our major facilities are in what we call the war zone in the north, we had some delays in manufacturing. However, we worked 2 or 3 shifts a day in the third quarter and supplied a $30 million of preorders that we received on the first and second quarters. Q4 was back to normal, and we delivered everything within a week or 10 days. Therefore, the decrease in revenue was not due to logistics or supply chain issues or the war in Israel or our ability to manufacture. We have two production lines, each one capable of producing all of our platforms and disposables. So we didn't see any issues even during the war months and we supplied everything no later than one quarter. Most of the decrease in revenue resulted from a slowdown in the U.S. and Europe, high interest rates, and macroeconomic conditions leading to fewer patients visiting doctors for treatments.

Okay. So it sounds like it may have affected the quarterly sequencing, but on an annual basis, you sort of caught up to where you would have otherwise been, I guess. Is that a fair way to summarize it?

That's correct.

Okay. All right. And then finally, just on the existing installed base, do you have any sense for how old those machines are on average? And what I'm getting at is could we start to see some sort of replacement cycle here at some point, particularly now that you're launching some new platforms or I guess, upgraded or enhanced platforms with Ignite?

Well, we have something like 27,000 systems installed worldwide, of which approximately 12,000 are in the United States. I would say that the oldest system on the market is from approximately 2017 in the U.S., so they are not very old. Don't forget, this is an RF system, and if you maintain it correctly and purchase a service contract from us, it can last more than 15 years. We do see doctors buying second machines because of the new generation we've introduced to the market. For example, OptimasMAX versus Optimas, Ignite versus BodyTite. Doctors want to use the newest version while keeping the old one to work in parallel in two rooms with two patients. However, I don't believe there's any existing installed base or system that is not being used. We see from all the systems that we believe they're still operational.

And I’ll add for 2025, we do plan to introduce some promotions for upgrades, targeting some of the older systems that have been in the field for more than five years. The doctors have paid them off, and we are going to come up with attractive promotions for them to upgrade, especially to the new OptimasMAX and the new Ignite.

The next question comes from Jeff Johnson with Baird.

I have some questions about gross margin. In the fourth quarter, gross margin fell below the 80% mark. Was this due to manufacturing inefficiencies caused by lower volumes? Considering the ongoing Israel-Hamas conflict, could that be a factor? Or perhaps it was due to higher supply chain costs or increased discounting during the quarter? What caused the gross margin to drop below 80% in the fourth quarter?

Well, our gross margin in 2024 was above 80%. Now, we need to remember that we're manufacturing hardware and not software. Prices of components, subassemblies, logistics, and the supply chain increased significantly in 2024. However, we managed to be more efficient, although we lost 2% or 3% on the gross margin; it was still above 80%. The gross margin in 2024 was primarily affected by a 20% decrease in revenue, while we did not cut personnel. There are always fixed costs in any product, which we maintain because it's part of the IP of the company. Therefore, I believe that's one of the reasons we lost about 1% or 2%. The other reason is we did not increase prices, while the costs of components and subassemblies went up.

Okay. And then I guess two follow-ups on that, Moshe. One, so as we're hopefully moving beyond the Israeli-Hamas war, you don't believe that's going to help just from a workflow efficiency standpoint, anything like that, that alone not enough to pick up, number one, in gross margin? And number two, as you introduce the CO2 laser, my understanding is that one of the things that's helped those gross margins in the 80s and solid gross margins for capital equipment is that the RF technology is relatively low cost to manufacture, especially relative to the ASP in the field to the system. So is CO2 laser manufacturing a lower gross margin product? Are the input costs of the system more expensive than RF?

Well, good question. You asked two questions. One, I mean, we all hope that the war and the ceasefire will continue, especially in the North, so we will not return to a war situation. Your second question regarding the gross margin on RF versus laser: the RF gross margin is higher because it costs less to manufacture. The gross margin we report is the average between all the RF, IPL, laser, and all the other platforms that we cover in each product.

The next question comes from Sam Eiber with BTIG.

Maybe just following up on the last question. Anything on timing you can say for the CO2 laser? It sounded like you already do have FDA approval. And then if I'm reading your commentary right, that's going to be a multi-application platform with Morpheus. I just love to hear how you're positioning that in the marketplace.

No, the CO2 laser is only a CO2 laser; it cannot carry any RF. It's a laser device. Timing-wise, hopefully, we will start seeing traction in the U.S. market because currently, we have only FDA approval; we don’t have other regulations for this platform for other countries. Therefore, we anticipate some time toward the end of the first quarter and the beginning of the second quarter.

Okay. That's helpful. And I think it's been a couple of quarters since we heard any updates on some of the adjacent products like Empower and Envision. Just wondering the latest on how some of those are doing over the last couple of quarters?

Well, like the full portfolio, in 2024, Envision and Empower went down around 20%. Therefore, I mean, once the market picks up, we will see some increase in these medical products as well.

This concludes our question-and-answer session. I would like to turn the conference back over to Moshe Mizrahy, InMode's CEO, for closing remarks.

Thank you, operator. Thank you, Miri. I would like to thank everybody who joined the call. I would also like to express my gratitude to all InMode employees worldwide, the Israeli team, the U.S. team, and the other teams around the world, including all of our subsidiary teams or agents. We do hope that 2025 will be a better year than 2024. We don't see it yet, but hopefully, it will come in the next following months. Thank you, everybody.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.