Good day, and welcome to InMode's Second Quarter 2025 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. Please go ahead.

Thank you, operator, and everyone, for joining us today. Welcome to InMode's Second Quarter 2025 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 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 by 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, Dr. Michael Kreindel, our Co-Founder and Chief Technology Officer; Yair Malca, our Chief Financial Officer; and Rafael Lickerman, our VP of Finance. Following our prepared remarks, we will all be available to answer your questions. In the second quarter, we continued to navigate a challenging medical aesthetic market, especially in North America, due to reduced personnel spending. This environment resulted in fewer treatments and less capital investment from physicians, consistent with the macroeconomic trend of recent quarters. Building on the strategy we outlined last year, we have started restructuring key parts of our sales team to drive deeper market penetration. We have begun by appointing a specialized manager and a dedicated sales team focused on the Envision platforms for the ophthalmology market. At the same time, we are strategically expanding our global footprint with new direct operations in Thailand and Argentina. These offices will enhance our local presence, improve customer support, and streamline operations compared to working through distributors. Looking ahead, we are hosting a user meeting in late August to officially launch our new platforms in the wellness space, focused on increased blood circulation and pain relief for the urology community. We conducted a soft launch during Q2 and began introducing the platforms to selected users and gathered early feedback. The full commercial rollout will take place at the August event, and we anticipate initial revenue contribution in the fourth quarter. In closing, we will continue to navigate the current market challenges. We remain confident in InMode's offerings and brand recognition, backed by a strong balance sheet and diversified portfolio, and cutting-edge technology. We are well-positioned to continue leading the minimally invasive aesthetic and wellness industry. Now I would like to turn the call over to Yair, our Chief Financial Officer. Yair?

Thanks, Moshe, and hello, everyone. Thank you for joining us. I would like to review our Q2 2025 financial results in more detail. Despite global headwinds and the challenging macroeconomic environment, InMode generated revenues of $95.6 million. As a reminder, when comparing year-over-year results, last year's quarterly revenue of $86.4 million excluded $16.2 million in preorders for new platforms, which had not yet been delivered by the end of Q2 2024. Our minimally invasive platforms accounted for 84% of total revenues this quarter. Sales outside of the U.S. accounted for $45 million or 48% of overall sales, an 11% increase year-over-year. Europe was the largest geographical revenue contributor, reaching a record of $23 million. Gross margin remained strong at 80% on a GAAP basis, consistent with Q2 2024. These industry-leading margins continue to underscore the unique value that our platforms provide. Non-GAAP gross margins were 80% in the second quarter compared to 81% in Q2 of 2024. As part of our global expansion, we currently have a direct sales force of over 297 representatives and distributor coverage in more than 74 countries. Sales and marketing expenses increased to $47.5 million from $45.1 million in the same period last year. The year-over-year increase reflects continued investment in our sales team, resulting in higher salaries and travel and entertainment costs. We also saw increased spending on trade shows and other marketing activities. These were partially offset by lower share-based compensation, which declined to $3.4 million from $5.2 million in the second quarter of 2024. GAAP operating expenses in the second quarter were $53.6 million, a 5% year-over-year increase. On a non-GAAP basis, operating expenses were $50.5 million in the quarter, up from $46.3 million, a 9% increase year-over-year. GAAP operating margin was 24%, up from 21% in the second quarter of 2024. On a non-GAAP basis, operating margin reached 28% compared to 27% last year. GAAP net income was $26.7 million, up 12% from $23.8 million. On a non-GAAP basis, net income was $30.1 million, up from $29 million. GAAP diluted earnings per share for the second quarter were $0.42, a significant increase from $0.28 in Q2 of 2024. Non-GAAP diluted EPS was $0.47, up from $0.34 per diluted share in the second quarter of 2024. We ended the quarter with a strong balance sheet. As of June 30, 2025, the company had cash and cash equivalents, marketable securities, and deposits of $510.7 million. This quarter, InMode generated $24 million in cash from operating activities. If current U.S. tariffs remain at 10%, we expect gross margins to be impacted by approximately 2% to 3%. We continue to closely monitor the situation and will adjust our forecast and strategy as needed. Before I turn the call back to Moshe, I'd like to reiterate our guidance for 2025. Assuming the slowdown in our industry continues and interest rates remain at current levels, we expect revenues between $365 million and $375 million compared to previous guidance of $395 million to $405 million. Non-GAAP gross margins to be the same as in previous guidance between 78% and 80%, non-GAAP income from operations between $93 million and $98 million compared to previous guidance of $101 million to $106 million, non-GAAP earnings per diluted share between $1.55 and $1.59 compared to previous guidance of $1.64 to $1.68. I will now turn the call back over to Moshe.

Thank you, Yair. Operator, we're ready for Q&A, please.

The first question comes from Matt Miksic with Barclays.

So maybe if you could talk a little bit about two things. First, I think there were some dynamics in Q1 that drove, I think what you described at that time, slightly below expectation results for Q1 that didn't quite warrant a reduction. Some of that here continued in Q2. And just wanted to get a sense of the cadence of what that looked like. I think in Q1, there was a great deal of uncertainty towards the end of March that may or may not have influenced buying behavior, the timing of purchases, or that sort of thing. I'm just wondering qualitatively or if you could quantitatively describe how that compares to Q2 and the back end, particularly of Q2 when you closed most of your console deals? And then I have just one quick follow-up.

So as you remember, we discussed it after Q1. We did come a little bit below our expectation in Q1. And the same thing happened here in Q2. So now we have already two quarters behind us, and we kind of missed a little bit both of them, not drastically, but definitely, we saw some weakness in Q1 and also in Q2. So taking this into consideration, looking ahead to the remainder of the year with all the uncertainty that we are seeing, we thought it's the right thing to do to make this one-time adjustment to our guidance. Does that answer your question?

Yes. I mean partially, and thank you for that. I just was trying to get a sense of there seemed to be quite a bit more uncertainty in March and April than there is now, frankly, capital purchases or business investment or anything. And I'm just wondering, any of that came through or not in what you saw in the way the quarter shaped up, even though both the face of it were slightly below expectations. Any difference in that way? Or does it just look like two quarters that didn't quite hit what you hoped?

Well, this is Moshe. As you know, the business that we're in, medical aesthetics, has some seasonality effects. Typically, the first quarter is not very strong. I wouldn't say it's like Q3, but it's not very strong. And Q2 is one of the strongest quarters. So according to the seasonality model of the medical aesthetic industry for many years, the first quarter is basically 20% and the second quarter should be 25%. So if the original guidance was $400 million, we were supposed to do $80 million in the first quarter and $100 million in the second quarter. But we missed both quarters. In the first quarter, we did only $77 million and in the second quarter, $95.5 million. So the difference between the two of them, if you calculate the third and fourth quarter brings us to the new guidance. But it's all, as you know, estimation. If we do better, we'll improve the guidance. But we try to be conservative as usual in order not to promise something that we're not sure we can achieve.

At the moment, we don't see any change in behavior, if that's what you're looking for, if we see any change in behavior. So the answer is no. We do not see any change in behavior between Q2 and Q1. The market still continues to be challenging.

That's helpful. I have a quick question about your guidance. It seems like you've discussed maintaining your organization in anticipation of a turn in the cycle. Instead of reducing your top line and tightening your budget just to achieve a higher EPS, you're looking to navigate this flat phase of the cycle while still investing for the future upswing. Could you elaborate on that strategy, whether it's changing, and your thoughts on when we might see improvement?

Again, we remain positive on the long-term potential of the market. Yes, we are experiencing a temporary weakness. How long it's going to last, we don't know. But we believe at some point, the market will recover and will come back. In terms of making the necessary investment in some parts of the world, we are expanding and going direct in more countries because we think that's the right thing to do. In the U.S., we see that the headwinds are significantly stronger than what we experienced in Europe and Asia. We don't have any concrete plans for downsizing the company. We don't need to. But definitely, we are looking to make sure we have the best structure in place to stay competitive.

Our next question is from Danielle Antalffy with UBS.

Just one question on capital allocation, Moshe, for you. And then I have a specific question on noninvasive and the strength we saw there. So on capital allocation, Moshe, I know you guys have done some share repurchasing. I mean you still have like $600 million in cash on hand as of, I think, the end of June. So just maybe talk a little bit about where your priorities are, how they're changing, whether you're still exploring assets to potentially acquire? And then I'll ask my follow-up on noninvasive.

Okay. As far as capital allocation, I believe we're giving the same answer all the time. We did $508 million of buyback in the last two years, which was a lot. I mean, if we will do additional buyback in Israel, it will require 20% dividend tax. So we are considering it. I'm not saying we're not. It's one of the options. So every type of capital allocation is considered all the time, and it's on the table. We don't have any acquisition in the pipeline. So I cannot announce that we're doing any acquisition this year. As far as dividend, it might, but it also requires dividend tax. So basically, everything is possible. We will need to see how the continuation of the year will go, and probably we'll make a decision sometime in the next six months.

And then one area of strength, at least relative to what we were modeling, but also, I think, versus last year, very strong growth in noninvasive. Just wondering what's driving that? Is it a new product cycle? Is it just customer behavior? Is that something that's notable? Is it one-time in nature? Maybe talk a little bit about that and the mix of noninvasive versus minimally invasive.

Well, as you know, minimally invasive procedures are relatively expensive, whether it's body type, face type, quantum, or Morpheus, which can go up to 8 millimeters. They are relatively expensive and require local anesthesia, either by blocking, tumescent, or other types of local anesthesia. So the range of one treatment can be between $1,500 and $4,000 or $5,000. The noninvasive procedures are much cheaper, such as laser, IPL, or noninvasive RF. So we see some trend that the minimally invasive, which relatively requires more personal spending, I don't want to say is going down, but the number of procedures is decreasing. And therefore, we see a little bit of a trend to the noninvasive handpieces and platforms. That's what happened in the second quarter. In addition, we came up with the platform, which we call OptimasMAX. This platform has a new type of IPL, IPL Peak, and a new type of laser for hair removal, and also for blood vessels. This platform is very successful. And therefore, this part of the market is noninvasive. However, yet the most significant part of our business is still invasive, penetrating the skin. And it's almost more than 80%. So it's a high number.

Our next question comes from Michael Sarcone with Jefferies.

This is Mike on for Matt this morning. I guess just to start, Moshe, some clarifying questions around your commentary on guidance. I think you mentioned with that $400 million original guide, you were a little light in 1Q and 2Q. To me, it looks like you were maybe $7 million or $8 million light in the first half versus those original expectations. I think you also said that's kind of the reason you lowered the guide, but you lowered it by about $30 million at the midpoint. Could you just clarify that? Have you also lowered your outlook for the second half?

Well, as you know, the third quarter is usually a very slow quarter, especially in Europe because of the summertime and the vacations. In recent years, we see that effect also in the U.S. market and also on the Canadian market. So basically, in order to achieve the $400 million, we thought we will do $100 million in the third quarter and $120 million or $125 million in the fourth quarter. Based on the slowdown and the slow market that we experienced in the second quarter, we don't think that achieving $220 million is feasible. This is why we reduced the target.

And then I guess, can you comment on any kind of contribution that you may have included from the urology end markets in the 4Q quarter?

It's minimal. I think it's going to be a minimal contribution. That's usually what we do with every new launch of a product. We don't count too much on contribution. It will be more symbolic than anything. Again, if we are pleasantly surprised, we'll take it, but we don't count on it.

The next question comes from Caitlin Cronin with Canaccord Genuity.

I guess just to start and really expand on the urology question earlier. Just any more details on the urology market and the opportunity, and if you'll use a dedicated sales team like you're going to do for the Envision platform.

Okay. Let's start with the urologists. As you know, we are developing a platform for erectile dysfunction, but we don't have the indication from the FDA yet. So we are launching it on a pilot level for blood circulation, pain relief, and are doing some clinical testing right now to prove the concept. Although we are launching the platforms, eventually, once we have the FDA indication for erectile dysfunction, these platforms will be much more successful. Right now, we have to be very careful with how we do it and under IRB and all kinds of regulatory procedures. Regarding the Envision, the Envision platform is for dry eye and full face rejuvenation. Again, we don't have the FDA indication approval for the dry eye yet. It's in the process. We have submitted to the FDA the protocol to prove it and start the study. We submitted all the pilot and clinical data that we had. Once we have the approval from the FDA for dry eye treatment with the bipolar RF, again, this platform will take off. And yet, it's in the early stage; we're not promoting it directly for dry eye because we cannot. Every test and every study that we do is under regulatory procedures like IRB, et cetera. These two platforms in the wellness business are in the middle of regulatory procedures and submissions. Hopefully, sometime next year, they will be approved.

And I think you talked about last quarter, just given the relative strength for OUS and Europe, in particular, you were expecting somewhat of a larger skew in the mix to OUS versus U.S.? I mean, is that still something that's contemplated in your guidance for this year?

Yes. It is built into the guidance already. As you know, in previous years, the split between U.S. and OUS was about 60% to 65% U.S., and the rest was OUS. Now in Q1, and in Q2, it was more 50-50 split, and that was the assumption that it will remain 50-50 for the rest of the year. It's already built into the guidance.

Our next question comes from Jeff Johnson with Baird.

Moshe, maybe if I could follow up on some of your Envision comments. We've been out there kind of doing some checks, and we have heard of a decent number, I would say, of Lumenis account conversions and wins for you guys. Would it be crazy, as Danielle asked about the noninvasive number that was strong this quarter, to think that Envision also contributed to that? I know you're still waiting for the dry eye indication. But our back-of-the-envelope math, maybe it was as much as 5% or 10% of your U.S. system sales in Q2. I'm sorry, could have been Envision. Would that be too high of a number?

10% to 15% would be relatively high. I would say it's more like a 10% or a little bit less than that, but not more than that before we get the FDA. Now regarding Lumenis, Lumenis has the approval on the IPL and not on the RF. Everybody knows, we also have IPL on the system, on the Envision, and doctors can use either the IPL, which is approved like Lumenis, or the RF, but the RF needs to be done under regulatory procedures and local approvals.

And my question was, could it be 5% to 10% of your U.S. system sales, not 10% to 15%? So it sounds like you're saying yes there. I just want to clarify, you think 5% to 10% is a reasonable estimate for U.S. system revenue for Envision for this quarter?

Correct.

Moshe, Yair, you mentioned there was no change in behavior throughout the quarter. Is this applicable to both the doctors' purchasing of capital and the patient demand for procedures and consumables? Specifically, with consumables nearing flat levels, are we seeing a slight improvement in patient demand? If you could break down your comment regarding the consistency in behavior between system purchases and patient demand, that would be helpful.

Sure. Just one quick comment about your previous question. The CO2 device that we launched earlier this year is also included in the noninvasive area. That's one of the reasons why we see this jump. Regarding your second question, yes, it might be better to separate between the two. The trends that we see in capital equipment have stayed pretty similar for the last several quarters with high interest rates and challenges with financing, and the uncertainty in the market, I think you see many doctors probably delaying their purchasing decisions on capital equipment. Consumables behave a little bit differently; this is more subject to discretionary spending by consumers, and we see some challenges there. But as you mentioned, it looks like the decline has plateaued, so I guess we can see there's a positive that we've stopped the bleeding. Hopefully, when things improve, we'll start seeing that climbing back up.

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

I have a question regarding the tariff impact. The press release mentioned a tariff rate of 10%, but I thought the rate on Israel was 17%. Was that reduced to 10%? Also, the 2% to 3% impact on gross margin from tariffs, is that the estimate for the entire year? Will there be any timing considerations, such as a greater impact in the second half of the year?

So you're right. The original tariff was set at 17%. It was reduced to 10% on a temporary basis, and it was extended. I'm sure there is some negotiation going on between Israel and the U.S. administration. Our assumption right now is that it's going to remain around 10%. It can be higher. However, we are also working to see if we can make some strategy changes that would help us actually bring this even lower. I think going with an average of 10% at this point is the right thing to do because this is what we are currently paying. Once we have updates in this regard, we will provide an update. Regarding the 2% to 3% impact, that's on an annual basis. That said, since we didn't have the tariffs from the beginning of the year, and some of the inventory that we already have in the U.S. was not subject to this tariff, the impact would be lower, probably half that. We thought basically like Europe and other countries that Israel would reach an agreement before the end of the second quarter, but it has not yet happened. I believe that by the end of August, President Trump will impose final tariffs; that's the deadline. I believe by then, it will be settled, and probably it will be 10%, or in Europe, it's 15%. I don't think we'll get to 15%, but it's all guesswork.

Yes, I understand. Just to clarify, the 2% to 3% is a fully annualized figure regarding the impact if you were to pay the 10% for the entire year. I also have a question about the new urology system you're launching. Can you discuss the initial labeling you will have and how you plan to market it for urology-specific treatments? Additionally, I assume the user meeting will be focused on urologists, correct? You will be hosting a group of urologists.

This particular platform, yes, is for urologists. The development continues to get an indication by the FDA for erectile dysfunction. We're conducting clinical studies right now in major hospitals and clinics that deal with this indication in the U.S. In the meantime, the approval we received for these platforms, bipolar RF, is basically for increased blood circulation, pain relief, and also collagen building, which are the basic three elements for erectile dysfunction. Not yet with the final indication. Hopefully, in the future, we have approval.

Our next question comes from Sam Eiber with BTIG.

Maybe just coming back to Europe for a second. Two straight quarters here of growth in capital equipment outside the U.S. So would love to hear maybe, is that a reflection of a more stable environment? Are you launching new products there, taking price? And then how sustainable do you think some of those trends are?

I think they are very sustainable because, just to remind everyone, we started in the early years focusing on developing the North America market mainly. We were a little late to the game in developing the OUS, the international markets, which is what we are doing right now. We used to be a smaller player in the international markets, and that's definitely one of our growth engines in the year to come. So it's very sustainable.

And then moving to the U.S. here. Are we starting to see any kind of upgrade cycle with Ignite and OptimasMAX? I know it's a question we typically ask every quarter, but are you offering discounts yet for customers to upgrade? Is there any way to quantify that contribution?

We will probably start doing it in the third quarter, trying to convert users that use the OptimasMAX and the body type, which are both fully FDA-approved with Ignite, which is also fully FDA-approved. We will probably start doing it in the third quarter, and at the same time, we're introducing those platforms in ROW as well.

This concludes our question-and-answer session. I would like to turn the conference back over to Moshe Mizrahy for any closing remarks.

Thank you, everybody. Thank you for joining us today. I believe we covered all aspects of the financial results that we usually present. Hopefully, the market will improve in the next two quarters, especially in the fourth quarter, which is usually the strongest quarter. We're going to be there. I know that one question was asked regarding whether or not we are cutting down costs. We're a technology company. If we cut down costs, it means that we will fire engineering people and good salespeople. We don't want to do it. We're adjusting our costs in manufacturing and logistics. But all the rest, we keep business as usual in order to jump on the market whenever it improves. Again, thank you for joining us. We'll see you again in the summary of the third quarter. Thank you, everybody.

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