Earnings Call Transcript - INMD Q1 2020

Operator, Operator

Welcome to the InMode Limited First Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a Conference Specialist by pressing the star key followed by Zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question you may press * then 1 on your telephone keypad. To withdraw your question, please press * then 2. Please note this event is being recorded. I would now like to turn the conference over to Miri Segal of MS-IR. Please go ahead.

Miri Segal, IR Representative

Thank you, operator, and good day to everybody. I would like to welcome all of you to InMode’s first quarter 2020 financial results conference call. With us on the line today are Mr. Moshe Mizrahy, Chairman of the board & CEO; Mr. Yair Malca, CFO; and Shakil Lakhani, President of InMode North America. Before we begin, may I 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 view it in 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. Moshe will begin the call with a business update and pass it over to Shakil to discuss our North American operations, followed by Yair with an overview of the financials. We will then open the call for the question-and-answer session. I'll now hand over the call to Mr. Moshe Mizrahy, InMode's CEO. Moshe, please go ahead.

Moshe Mizrahy, CEO

Thank you, Miri, and thanks to all of you for joining our first quarter 2020 financial results conference call. With me on the line today are: Dr. Michael Kreindel – our co-founder and CTO (Michael is also a Board member); Mr. Shakil Lakhani, our President of North America; Mr. Yair Malka, our CFO; Dr. Spero Theodorou, our Chief Medical Officer; and Mr. Rafi Lickerman, our VP Finance. I would like to start my address by presenting a quote that describes InMode’s philosophy in light of the COVID-19 pandemic. “Never let a good crisis go to waste” said Mr. Winston Churchill - Prime Minister of Great Britain - in February 1945 at the end of World War II in the Yalta Conference where he himself, Stalin and Roosevelt decided on the formation of the United Nations as a framework for creating opportunities at the end of WW II. InMode has adopted this belief. Although none of us ever hoped for anything like the COVID-19 crisis – we will not let this crisis “go to waste”. Our strategy is to turn it into an opportunity. In this earnings call, Shakil, Yair, and I will communicate to you our strategy during and post the COVID-19 event. In the first quarter of 2020 – InMode generated revenue of $40.4 million, a 32% increase from the first quarter of 2019, and $12.6 million of net income on a non-GAAP basis, a 20% increase from Q1, 2019. In Q1’ 2020 we derived approximately 61% of our US revenues from our platforms engaged in minimally invasive and subdermal ablative treatments, 37% of our U.S revenues from our recently introduced proprietary Hands-Free platforms, and 2% of our U.S revenues from traditional laser and non-invasive RF platforms. Q1 2020 was not a full quarter for InMode. Although we started working at full speed, the COVID-19 event was beginning to take its toll. The fact that our headquarters are based in Israel and that we have a presence in China enabled us to realize early enough that COVID-19, which broke out in China, would soon spread to other parts of the world. This realization led our management to make a decision to tactically shift marketing and sales activity and focus on Europe and North America in a timely manner and capture as much business as we could in January and February. This decision turned out to be a wise one, since in March – the entire world came to a standstill. Our non-GAAP operating margin for the first quarter of 2020 was 30% as compared to 34% in the first quarter of 2019. This decrease can primarily be attributed to the fact that our sales cycle in March was interrupted by COVID-19, and as a result – the marketing activity and expenses did not result in sales at the quarter’s end. So overall – our revenue in Q1 represents 2 months of sales and 3 months of expenses. InMode management has many years of accumulated experience. What we learned from the 2008-2009 crisis is that every crisis eventually comes to an end. Therefore, we decided not to contract the company, and not to lay off ANY of our employees, but rather to prepare ourselves for the day after COVID-19. We immediately implemented five key initiatives: to enhance our marketing and sales network, to enhance our relationship with our physicians and with potential customers, to expedite our R&D activity, mainly for products that will “fit” the market post COVID-19; to strengthen our infrastructure of manufacturing, logistics, IT, and financial; to develop marketing and selling programs that will motivate physicians to purchase InMode platforms as part of the recovery plan for their clinics. First, with regards to our marketing and sales network: in Q1 2020 we continued to hire experienced reps, including good reps that were laid off from our competitors, and established a new marketing subsidiary for marketing and sales in France. Second, with regards to enhancing our relationship with physicians – we established a live-stream virtual medical training framework through the InMode University platform, and we conducted over 50 webinars. We were surprised at the number of physicians and salespeople who participated. This initiative led to the creation of a library of training videos, which is a great asset moving forward. Third, with regards to R&D activity – we focused on R&D projects for developing platforms and new procedures which we believe will become the standard of care post COVID-19. This focus has been mainly on two technologies: Minimally invasive procedures – we believe that this will definitely become the standard of care for facial and body reshaping, since we believe that patients will stay away from hospitals and hospital procedures, stay away from full anesthesia and other shortcomings of full surgical procedures, and will prefer customized, clinic-based aesthetic surgical procedures. Hands-free procedures – these procedures will be customized, private procedures that maintain social distancing in the privacy of the physician’s clinic. Selecting the right product portfolio post COVID-19 is important since we believe that physicians will be looking for unique platforms that will enable them to recover and restart their business activity. Crisis always accelerates innovation adoption. Physicians will refrain from buying another traditional laser - they probably already have 4-5 such lasers in their clinics - and the InMode product portfolio is an excellent fit for the new and dynamic demand post COVID-19. Our current R&D pipeline includes three new platforms and procedures, which we will release to the market starting Q3, 2020. In addition, we are continuing our R&D activity for new medical communities to develop minimally invasive clinic-based procedures, mainly for ENTs, gynecologists and ophthalmologists. Fourth, with regards to strengthening our infrastructure – as we stated before, we finalized the setup of an additional manufacturing facility. In addition, we expanded our network of vendors and suppliers. We have also improved our IT support for financial, inventory and supply chain management. Fifth, with regards to developing marketing and selling programs for the day after COVID-19 – we understand that the physicians will face several difficulties once they re-open their clinics. We also understand that our platforms create a perfect fit for the recovery of these clinics. Therefore, we developed a sales program that includes packages that will motivate physicians to purchase InMode platforms as part of the recovery of their clinics. These packages include financial incentives, training and direct-to-consumer marketing. Although the COVID-19 pandemic has caused a temporary halt in elective aesthetic surgical procedures, InMode is encouraged by the positive global developments. Namely: First - there is a decrease in new cases worldwide and this downward trend is continuing on a daily basis; second - social distancing has begun to be relieved and will continue to be relieved during the next few months, third - gradual return to work is expected to start in June 2020; fourth - certain experts have suggested that the disease is expected to wane with the change in season; fifth - elective surgeries are gradually being permitted in the USA and other countries. Based on these assumptions, InMode believes that starting June 2020 and throughout Q3 – business will gradually begin to pick up and return to normal. Therefore, InMode has remained positive about its business prospects. We believe that the demand for body and face reshaping will increase post COVID-19 since people will want to get back to their normal lives and leave the feeling of quarantine and lockdown behind. As such, aesthetics and good looks will be a major element in re-generating public morale. In addition, as I said before - we decided not to downsize the company and not to lay off any of our employees. On the contrary – in Q1, 2020 we hired new direct salespeople around the world and enhanced our infrastructure outside the USA. In addition, although we were approached by US government-sponsored fund providers to apply for the PPP program (Paycheck Protection Program), which would enable us to get funds from the government, we decided, unlike other companies in our industry, not to apply, and to leave the PPP money for our physicians who need it most. We believe that this is our social responsibility to our customers and vendors. Since visibility of the future is low, InMode management has withdrawn the previously announced full year guidance and elected not to provide detailed 2020 guidance. Currently, based on the assumptions above - our revenue outlook for the full year of 2020 will not be significantly lower than our revenue in 2019, and we will maintain a gross margin of 84%-86%. Last but not least, throughout this crisis we have taken good care of our employees worldwide, and have followed local and regional guidelines to prioritize the health and welfare of our employees and customers. Now I would like to turn the call over to Mr. Shakil Lakhani, who will go into more detail on our activities in the North American market.

Shakil Lakhani, President, North America

Thank you, Moshe and hello everyone. During the quarter, we continued to expand our sales force with the hiring of experienced talent in North America. We believe that in doing so, we will be able to capitalize once things return to normal. Although the industry has come to a standstill due to the pandemic, we have used this time to strengthen our relationships with our customers. We have also been able to use this time to further develop our sales force, using multiple platforms for training and also through the establishment of InMode University, a virtual platform for the training of physicians and staff. We have successfully hosted numerous virtual seminars through InMode University since the crisis began and experienced a great amount of interest. In the beginning of the year, we continued to credential ourselves by attending several aesthetic and medical conferences. Additionally, our team has four new studies that have been accepted by major peer-reviewed journals. Coming out of the crisis, we expect to see a windfall of pent-up demand for body and facial reshaping procedures. As consumers aim to return to normal life, this will include them looking and feeling their best. Furthermore, we believe that our minimally invasive, as well as our hands-free devices Evoke and Evolve, will be increasingly attractive to the post-pandemic population. Based on historic data, we believe that people will seek to avoid high dollar, invasive, hospital-based surgeries and opt for a minimally invasive experience in a physician’s office. We also believe that our hands-free devices will be appealing to surgeons and patients as well. Currently, Evolve is the only hands-free device for the treatment of skin, subdermal fat and muscle toning, while Evoke is the first hands-free device for treating skin laxity on both the face and the sub-mental area. Looking to the second half of 2020, we will be preparing our sales force for the launch of two new platforms, keeping up with our previous momentum. We expect these new platforms to become significant contributors going into 2021.

Yair Malca, CFO

Thanks, Shakil. Good day everyone. Total revenue in the first quarter of 2020 grew 32% to $40.4 million with a gross margin of 85% on a GAAP basis. This growth was driven primarily by the continued expansion of InMode’s direct sales organization in the United States. Additionally, InMode continued to gain traction in international markets, with international revenue growing 49% year-over-year. GAAP operating expenses in the first quarter of 2020 totaled approximately $28.3 million, a 72.8% increase from the first quarter of 2019. Sales and marketing expenses increased 63.1% in the first quarter of 2020 compared to the first quarter of 2019. On a non-GAAP basis, operating expenses totaled $22.3 million in the first quarter of 2020, compared to operating expenses of $16.0 million in the first quarter of 2019, an increase of 39.6%. GAAP operating margin was 15.0% in the first quarter of 2020, compared to 33.0% in the first quarter of 2019. Non-GAAP operating margin in the first quarter of 2020 was 30% compared to 34% in the first quarter of 2019. This decrease was primarily attributable to the increase in sales and marketing expenses due to the continued expansion of InMode’s direct sales organization in the United States, as well as an increase in research and development expenses. GAAP diluted earnings per share in the first quarter of 2020 were 15 cents compared to 28 cents per diluted share in the first quarter of 2019. Non-GAAP diluted earnings per share in the first quarter of 2020 were 30 cents compared to 29 cents per diluted share in the first quarter of 2019. We completed the first quarter with a strong balance sheet. As of March 31, 2020, the Company had cash and cash equivalents, marketable securities and deposits of $201.7 million, out of which, $70 million are net proceeds raised at the IPO in August 2019. On the cash flow front, the company generated $6.1 million from operating activities for the first quarter of 2020. With that, I will turn the call back to Moshe.

Moshe Mizrahy, CEO

Thank you, Yair. With that, we will be pleased to take your questions.

Operator, Operator

We will begin the question-and-answer session. Our first question is from Matt Taylor from UBS. Go ahead.

Matt Taylor, Analyst

Thank you. Good morning and thanks for taking the question. So the first thing I wanted to ask you about was, you made some comments on recovery, which were helpful to understand how you're thinking about it. I guess, in talking with your customers, I'm curious to hear if you've got any sense for how they're preparing to reopen in some of these places that are going to have the lift of the lockdown on elective surgeries? And if you could give us any color on what you think they're doing to get patients back into a funnel and maybe any insights on how long or what normally they would have in terms of surgical procedure scheduled?

Moshe Mizrahy, CEO

Shakil, I believe you should answer that.

Shakil Lakhani, President, North America

Yes, of course. Hi, Matt. After I finish answering this, I'll hand it over to Dr. Theodorou, who can also elaborate. We’ve had many discussions regarding this with physicians. As some regions have begun reopening, we've observed a buildup of demand, which we anticipated, but we weren't certain if it would materialize. We have seen that indeed, as people have continued with virtual consultations during this period, and many of our physicians are gradually returning. I don't want to create an overly optimistic view as things progress, but in areas where restrictions have eased, we’ve noticed that they are quite fully booked. Dr. Theodorou, would you like to share your thoughts on this?

Spero Theodorou, Chief Medical Officer

No, I think, it's absolutely true, Matt. And thank you for your questions. They're always excellent questions. I think it's important to delineate the fact that the elective surgeries that are coming on board right now through the hospital system are stratified according to different levels typically, as to what has been prioritized prior to the pandemic opening. So the plastic surgery, cosmetic surgeries and the things that we're involved in, are typically delegated or relegated to a different physician. However, the majority of what we do is office-based and the majority of the cosmetic procedures out there are usually done in the offices efficiently and certainly in New York. So it falls right into what we have always seen back in 2008 and 2009 that the demand is not going to go down. The patients want this really bad and we're getting emails and virtual consults steadily through this whole time, but having it done in the office, like 2008 and 2009, where the practices that have adopted technology and minimally invasive procedures did very well. So it falls back into our treatment gap population and it falls back into the fact that we have our technology positioned in such a way that these procedures have a short downtime, office-based, will come across very powerful. So we're quite optimistic. In talking to physicians everywhere, I get calls constantly about local anesthesia, how to administer it, how to get better at it, because there is awareness out there at this point that was not present before the pandemic, as far as general anesthesia and ventilators are concerned. The public now knows what ventilators mean. They don't want to get stuck on one, which means general anesthesia is a lot scarier now than it was before. As a result, the local anesthesia technology combination that we provide is becoming quite interesting and definitely a demand for learning how to do these things. And that's part of our virtual training program as well. I hope that answers your question, Matt.

Matt Taylor, Analyst

Yes, that was a lot of great color. Thank you for that. And, I guess, as a follow-up to that on the same theme here, given you're seeing some pent-up demand, maybe you could tag team this again and just talk about both as a physician and an officer of the company. What do you think you'll have to do differently over the next coming months, as things kind of start to slowly reopen? Does your practices in New York, are the ones that are harder hit places? Are there things you're going to have to do differently operationally? Is that going to be limiting? And/or we've also heard some practices saying, look, we're going to do more cases per day. We're going to run more hours. So, what do you think we could see for places like New York and for other places on different ends of that spectrum?

Spero Theodorou, Chief Medical Officer

Okay, Matt. Great question. Certainly, New York is probably going to be the last to open up regarding that sort of the feeling I get regarding what's going on out there. But the American Society of Plastic Surgery has given up – so it has given recommendations as to how to structure things. Spacing appointments, where no one's in a waiting room. So the flow is different obviously you're going to have to extend the hours. That's one thing. Virtual consultation is definitely a big deal and be able to accomplish as many things as possible prior to coming in, right? They've given recommendations as well as to the types of anesthesia and how to be protected during general anesthesia intubations for patients. But again, that doesn't necessarily fall for us. The social distance spacing in the clinics is not just for plastic surgery patients, it's across the board. All clinics are being set up that way. So they're just going to have to stay open longer in order to accommodate that volume. And that's part of the discussions that are taking place. As far as protection, masks and shields and also as it relates to testing discussed about just testing patients prior to elective surgery about two to three days prior to elective surgery, you have to do a COVID testing is what they're recommending. And as a result right after that to quarantine yourself prior to surgery. Some physicians have gone to the extent over on the West Coast about putting in the consent forms per surgery adding a COVID clause saying that, if you do have something done, it's not our responsibility as to if you got it or not. So, certainly in some way, it's a different world, but we have to always remember that demand for looking good is not going away. You look back in the recessions or everything lipstick and cigarettes is what we always say. So, we're a strong believer that we will overcome these things and it just has to operate a little differently.

Matt Taylor, Analyst

Got it, got it. Maybe I could sneak one last one in there on that. I think that's a very interesting point and investors would be curious to hear more about the context that you had from your experience in the financial crisis. We all have to look good for our Zoom calls as the – I'll make. But what did you see in your practice? And what can you tell us anecdotally about some from your colleagues in terms of how they were able to grow during that period of time?

Spero Theodorou, Chief Medical Officer

Absolutely. So what we saw during that time was very, very interesting. We were a technology-based practice that at that time it was Cynosure and Smartlipo, which was a technology. And during that time what happened is, two things. The price cost for actual procedure was around – the magical number was between 3,000 to 5,000 for one area of liposuction and your average patient was doing 3.8 areas a year, during that time. But what was interesting was that the age dropped. So, the parents at that time were concerned to tighten their belts, but the younger patient population went from 36.4, our population down to 26.5. So the younger population was a lot more aggressive in seeking procedures plus they have a disposable income at the time that no generation ever had before. So $2500 for a laptop, $600 for a smartphone for them to spend $5000 for an area at the time which was Smartlipo was not a big stretch, especially because it was under local, they were awake, they could tweet their friends about it talk about it, and it wasn't as scary. So the practices that did establish and did adopt technology in this respect did very well. We published our experience in – after those years in 2012 the article came out and we had done about 1,000 cases in under 18 months. So in this respect, minimally invasive in this type of environment is uniquely positioned to do well. And if you correlate that together with injectables and the companies that are pushing injectables and BOTOX and fillers, as a minimally invasive in their respect they did as well also. So the numbers that dropped were the major operations Matt, the ones that required hospitalization, because it was a lot more expensive to pay for general anesthesia and a hospital fee.

Matt Taylor, Analyst

So this group will come out and do it. However, they will not engage in large procedures because of the fear of basically surviving a pandemic and end up getting – will end up getting something that will give them a nice result in 48-hour downtime done in the office and they can go back to their homes. So those are the patterns we're predicting which are a little different but very similar along those waves. Got you. Got you. Well, then thanks for all those thoughts. A lot of interesting point. I’ll have some others jump in here. Thank you.

Moshe Mizrahy, CEO

Welcome, Matt.

Operator, Operator

Our next question is from Kristen Stewart from Barclays. Go ahead.

Kristen Stewart, Analyst

Hi. Thanks for taking my question. I was wondering if you guys could just remind us about the payback on the capital equipment component for most practices and just what the general timeline looks like and just the number of procedures that one would have to do in this environment?

Shakil Lakhani, President, North America

Sure. Hi, Kristen. This is Shakil here. So typically – hi, so during a normal – during normalcy I should say and not at a time of pandemic. We've typically been able to see some physicians who've paid off the equipment in two to three months and others that take 18 months. It depends on the physician, the practice and what they do and obviously their staff. However – and how aggressive they are in marketing. However during this time, of course it's going to be a little different. Now, overall as an average, we typically see people pay these things off anywhere between six to 12 months on average. And the reason for that is most of the technologies that we have, whether it's our hands-free or minimally invasive, typically are within those price ranges that Dr. Theodorou just mentioned. So somewhere between $2500 all the way up to $7000 or $8000. Hence the equipment cost is then easier to pay off for the physician. Does that make sense?

Kristen Stewart, Analyst

Yes. That's perfect. And then just a question on the gross margins. I was pretty impressed with the ability of gross margins to remain in that 85% to 86%. Is that even despite what might be kind of a fall off, which I would expect to see in the second quarter? Is there anything to kind of think about just in terms of absorption or any sort of fixed cost or overhead? Or is that just representative of maybe some of the contracting that you have with some of the contract manufacturing partners that you use?

Moshe Mizrahy, CEO

Okay. This is Moshe. I will answer that. An 85% gross margin is essential for us. It is not just a benefit. For every product or platform we develop, we have our own formulas to determine the gross margin from the outset. We conduct focus groups to understand needs, pricing, and manufacturing costs, enabling us to set clear expectations for the gross margin. Additionally, we operate as a lean company with minimal fixed costs. We work with an outsourcing partner for manufacturing, employing only a few people to manage logistics, supply chain, and production. Some manufacturing occurs in-house, particularly for specialized laser and optical handpieces, while most electronics and medical electronics are done externally. Our general and administrative expenses are significantly lower compared to competitors, around $5 million annually, whereas others, like Cutera, spend about $24 million. Therefore, most of our costs are variable. To ensure the 85% gross margin, we manufacture in Israel, where production costs are lower than in the U.S. When comparing the cost of generating RF energy to that of laser energy, producing RF energy costs about 50% less for the same energy level. Additionally, we have substantial experience in designing and developing Bipolar RF equipment. Our expertise and intellectual property provide us with a competitive edge in manufacturing this equipment. Pricing also plays a key role; our platform costs between $120,000 to $130,000 in the U.S., in contrast to laser equipment priced around $70,000 to $75,000. Our ability to charge higher prices is bolstered by patented technology and the six-year FDA approval process, which creates barriers for competitors trying to develop comparable solutions. The market has also come to recognize the value of our product, making it challenging for others to replicate our success. We are confident in our ability to maintain the 85% gross margin. Even during the first quarter, when we faced challenges sourcing certain components due to the shutdown of operations in China, we still achieved an 85% gross margin. Although we had to purchase components at higher prices to keep the facility running, we only experienced a 1% decrease in margin. We expect to recover that 1% once our supply situation returns to normal. Did I answer your question?

Kristen Stewart, Analyst

Yes. That's very helpful. Thank you so much.

Operator, Operator

Our next question is from Kyle Rose from Canaccord. Go ahead.

Kyle Rose, Analyst

Great. Thank you very much for taking the questions. So I just had a couple of follow-ups on some of the previous commentary you provided. I appreciate all the extra color on this earnings call given some of the uncertainty out there. So maybe just help us understand just a little more information, specifically around the packages or the focuses you've put together to help develop the sales and marketing programs for the physicians. I think you talked about three of them that have one has a DTC advertising component, a financial component, a sales training component. Maybe just help me understand what kind of programs you had in place prior to this? And then how these will actually structurally change, I guess, the recovery for the physician customers and what the early feedback was on those programs?

Moshe Mizrahy, CEO

Shakil?

Shakil Lakhani, President, North America

Sure. Hi, Kyle. Essentially, in the past, we had third-party partners who assisted physicians with business generation through lead generation and open houses to educate potential patients. However, we've had to completely shift our approach to a virtual model like many other companies. We created platforms similar to the ones we previously used successfully and adapted them for the online experience. We're currently working with our third-party partners on virtual consultations and open houses to support physicians as they reopen. We plan to assist some physicians by distributing equipment over time, ensuring we take care of them as we've always done. In light of the cash flow challenges many are facing due to prolonged closures, we feel it's our responsibility to help them, particularly since they are our customers. For those considering hands-free products like Evolve or Evoke, we will offer specific support. There is a demand from patients eager to proceed with treatments once restrictions ease, reflecting the pent-up demand mentioned by Dr. Theodorou. We're in the early stages of incorporating these changes, and feedback from our physicians has been positive so far. We look forward to advancing these initiatives. Does that answer your question?

Kyle Rose, Analyst

Thank you. I appreciate it. I also wanted to talk about the U.S. business in Q1, particularly the fact that 30% of revenue is coming from hands-free, which is a great start. Can you help us understand what surprised you with that launch? What were the positive and negative aspects? COVID certainly had an impact, but I'm trying to grasp the current stage of the launch and how significant the potential growth may be from the 2020 and 2021 perspectives.

Shakil Lakhani, President, North America

That's a great question, Kyle. We officially launched at our sales meeting towards the end of January, so we only had about a month with Evoke. We launched Evolve last year in late 2019 and achieved significant success. As I mentioned earlier, it is the only device that addresses skin, fat, and tones muscle all in one. Typically, if a physician purchases from a competitor, they pay double or even triple the price. We were able to consolidate this into one platform, which we believe contributed to Evolve's strong early success. We feel like we have only scratched the surface with Evolve. There was considerable initial interest, but in March, as practices began to close and elective surgeries were halted in most states, we noticed a decline. With Evoke, it's the only device capable of facial reshaping in a hands-free manner. As Dr. Theodorou mentioned, we anticipate that physical and social distancing will be a consideration for some time. This allows patients to purchase treatment, have it shipped, and then their staff can apply it for the procedure. We only launched this product in January, so we haven't fully realized its potential yet. However, given that it's the first of its kind and considering our history in the industry, we’re optimistic. Typically, new and innovative products that engage physicians can be very powerful.

Kyle Rose, Analyst

Great. And then I'll just sneak in one last one here. I know that you guys tend to keep things tight to the lift just given competitive purposes, but you talked about a couple of launches in the second half of the year. Any insights you want to give as far as the anatomical focus or some of the technologies we might see there? Then I'll hop back in the queue.

Shakil Lakhani, President, North America

Sure. I'll summarize it like this. One of the products will be minimally invasive, while the other will build on something we already have, elevating it to a completely new level. I apologize for being vague, but I hope this provides enough insight. The minimally invasive product will tackle a treatment that has been attempted for years with limited success, but we will approach it differently using our expertise in that area. As for the other product, it will build on our RF micro brand.

Kyle Rose, Analyst

Great. Thank you.

Operator, Operator

Our next question is from Jeff Johnson from Baird. Go ahead.

Jeff Johnson, Analyst

Thank you. Good morning, everyone. Moshe, can you provide any updates on the international markets? Specifically, what trends are you seeing in Brazil and India? We believe India could be a significant opportunity, although they have had some COVID challenges. How should we view India in the near to intermediate term? Additionally, any news regarding plans to enter China? Thank you.

Moshe Mizrahy, CEO

Sure. It varies by territory. Brazil is currently in a unique situation since COVID-19 hit South America a bit later than the rest of the world, and countries like Argentina and Brazil are nearly shut down. We previously announced that Anvisa approved our minimally invasive products and platforms. We intended to launch with a significant event in June, but that is now delayed. Currently, there are no operations in Brazil, even though there are more plastic surgeons there than in the United States, and they are all eager for our products. We completed the necessary training and had luminary doctors, such as Dr. Spero Theodorou, ready for the launch, but everything is postponed, similar to the situation in Argentina and other South American countries. I would say South America is in a similar position to Europe back in early March. It will take some time to see how things develop there. In Brazil, we are prepared with registration, Anvisa approval, and training for salespeople and distributors, although they are not selling directly in Brazil or Argentina. The same applies to Mexico and other South American countries. We had some sales in the fourth quarter, but Brazil has been stagnant in the first quarter. In Asia, the situation differs; in China, we're seeing some openings, and the recent CFDA approvals should benefit us this quarter. I believe the third quarter will be strong for us in China, as we can sell to hospitals and private clinics, reaching the entire medical community including plastic surgeons and dermatologists. We have several well-known American doctors assisting us, such as Dr. Ward and Dr. Erez Dayan. We’re currently planning how to launch the InMode RF, which is a key part of our sales globally, in China. In countries like Korea, we are performing well and have already sold a few systems in the first month since the pandemic is well-controlled there. We're optimistic that Japan's second wave will end soon so we can continue our sales momentum. In India, we established a subsidiary in late 2019 but the country is currently under a complete curfew until May 14. We are monitoring the situation closely. We have four salespeople and an office, and we performed well in Q4. We're hopeful that from mid-May to the end of June, we will generate some revenue there. The same goes for Australia, where we launched a company last quarter and set up the necessary infrastructure, aiming to keep costs low while anticipating some revenue in the latter half of this quarter. In Europe, the situation varies by country; we expect to see revenue from the U.K. and Spain in May and June. The situation in Italy remains uncertain, but we believe there will be activity in June. Surprisingly, we received some orders from Eastern Europe, including Russia, in the first quarter and in April. We hope this trend continues despite the lack of transparent data from that region. In the Middle East, the situation also varies; Israel recently resumed elective aesthetic surgeries, and we sold several systems. We expect to regain momentum in Israel. Overall, outside the U.S. and Canada, we anticipate that things will gradually start to improve in Q2 during the latter half of the quarter. However, visibility regarding revenue is quite low, and we remain cautious about a potential second wave of the pandemic, though we are optimistic.

Jeff Johnson, Analyst

Very helpful. But Dr. Theodorou, I want to go back to a point you made about testing patients maybe a few days before procedure, given where we are as a country from a testing perspective. Do you think that could be a rate limiting step number one in some of these procedures coming back? Do you think all doctors are going to require that for an aesthetic procedure? Number two, can you just remind us the penetration rate of InMode technology in the plastic and aesthetic surgeons office? My gut feel is that even if patients are somewhat slow to come back, they'd still have interest in your technology, or in the InMode technology, because of the marketing advantage it might bring things like that. So even if patients are slow to return, there's still an opportunity to go in and sell systems to these offices, because they're going to be looking to increase their visibility or competitiveness in the field. So I just would like to take your temperature on that as well. Thanks.

Spero Theodorou, Chief Medical Officer

That's a two-pronged question. Thank you for asking, Jeff. Excellent questions. I'll start with the second part first. I think it's very important to delineate that we're not just a technology company that sells boxes or systems. We develop new operations that require our technology to do it. So in this respect we're very unique, and thanks to Moshe and his support and then thanks to Mishka to be able to develop an idea that's on the napkin and to hit the street to be able for the distribution to take place. It's eight to nine months on average. So that's unheard of. So those advantages are very, very significant, because we use a lot of our surgeons as almost in a crowd-sourcing kind of way. We get our feedback. We know what problems are out there that need to be solved in plastic surgery, that haven't been solved and we go after that, and that's been our model. So in a way, if you're selling a new operation as a physician addressing a problem that was not addressed before, immediately you have a huge advantage over anybody else who doesn't have that technology. So that's sort of our core DNA and the ability to do R&D and innovate so quickly and deliver a product. We'll put physicians that have our equipment in a very good position to take advantage, and especially delivered in a way that we deliver it. As far as testing, I don't think it's going to be an issue. Remember this is not the first time any physician office is involved in testing product procedures. You go back to the days HIV. We require that for testing and that never really limited anything. It just made sure that the doctors were careful. Initially it might have been an issue, but most of the doctors basically have adapted to that and it never comes up anymore other than the fact that there's recommendations as far as protective gear and what to wear and double glove and things like that. So I anticipate the same thing to happen here, initially, the recommendations for face masks and clear shields and all that's in place. And as we move along, I think those standards will be sort of loosened up, but they're no different than the universal standards we all practice as surgeons. Patients refusing to have surgery because they need to have COVID test, I see that highly unlikely. I think at least remember, I'm in New York. So it's a little different. But from the physicians I have talked to across the country, they don't see this as a rate-limiting factor, because there's been so much education about that from the government that most patients are okay with it. I have yet to speak to physicians saying, my patient is refusing to have this done, or is not aware of it, or does not want to do it. So does that answer your questions?

Jeff Johnson, Analyst

It does yes. Yes, thanks. Very helpful. And then last one just Shak or Moshe, do we have a U.S. and Canadian sales force updated count? I think you were at 110 coming into 2020, just where that's gone with some of the new hires? Thanks.

Shakil Lakhani, President, North America

Yeah, sure. So we're actually now at approximately 135 and that's Canada and the U.S.

Operator, Operator

This concludes our question-and-answer. I will now turn the conference back over to Moshe Mizrahy, Chairman. Go ahead.

Moshe Mizrahy, CEO

Hi, everyone. Thank you for being here today and for your questions. If you would like to continue the discussion or have any inquiries, please feel free to email us for any clarifications or information. Myself, Shakil, Yair, Dr. Michael Kreindel, and Dr. Spero Theodorou are all available to assist. I hope you and your families are doing well. Take care and thank you once again for joining us. Goodbye.

Operator, Operator

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