Earnings Call Transcript - INMD Q3 2025

Operator, Operator

Good day, and welcome to InMode's Third 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.

Miri Segal-Scharia, CEO of MS IR

Thank you, operator, and everyone, for joining us today. Before we begin, I would like to remind our listeners that certain information shared 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.

Moshe Mizrahy, CEO

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 Chief Financial Officer; and Rafael Lickerman, our VP of Finance. Following our prepared remarks, we will all be available to answer your questions. The third quarter progressed in line with our expectations, even as we navigated a complex economic environment. Our performance this quarter reflects the strength in our diversified portfolio and the disciplined execution of our strategy. We remain focused on expanding our presence in high-growth markets and positioning the company well into the future. This quarter, we expanded our global footprint with the opening of a new subsidiary in Argentina, an important milestone in our regional growth strategy. Establishing a local presence in this key market will allow us to better serve customers through direct engagement and localized support. We are now focused on obtaining final clinical clearances and expect to begin generating initial revenue by the end of 2025. Following the earlier launch of our subsidiary in Thailand, we are actively building a strong local team to drive sales, laying the groundwork for sustainable growth across both regions. As we noted in our Q2 update, we conducted a soft launch of the men's wellness platforms to introduce it to selected users and early adopters so we can gather initial clinical feedback. The full commercial rollout took place during the third quarter, and we expect the beginning of revenue contribution toward the end of the year. Finally, I'm excited to share some important news about a key leadership addition to our team. We recently appointed Michael Dennison as our President of North America. Michael is an entrepreneurial-driven and award-winning sales leader who has built an impressive career in the medical aesthetic device industry, holding nearly every sales role along the way with close to a decade at InMode. Michael advanced from District Sales Manager to Vice President of Sales, helping to grow revenue nationally, expand market share, and build a strong distribution network across North America. Looking ahead, we recognize the challenges in the marketplace but remain confident in our competitive advantages, including our strong financial position, diverse and innovative portfolio, and trusted global brand. These strengths position us as the global leader in the minimally invasive aesthetic and wellness industry. Now I would like to turn the call over to Yair, our Chief Financial Officer. Yair, please.

Yair Malca, CFO

Thanks, Moshe, and hello, everyone. Thank you for joining us. I would like to review our Q3 2025 financial results in more detail. InMode generated revenues of $93.2 million. As a reminder, when comparing year-over-year results, last year's quarterly revenue of $130.2 million included $31.9 million in preorder sales. Even with the traditional Q3 seasonality, consumables and service revenues were $19.9 million, up 26% year-over-year. This growth in consumables was driven primarily by markets outside of the U.S. Our minimally invasive platforms accounted for 75% of total revenues this quarter. Sales outside of the U.S. increased slightly to $40 million, or 43% of overall sales, a 10% increase year-over-year. The United States was the largest geographical revenue contributor, reaching $53.2 million. GAAP and non-GAAP gross margins in Q3 were 78%, down from 82% reported in Q3 2024. As expected, our third-quarter gross margins were lower due to the anticipated impact of tariffs, which we had incorporated into our outlook. As part of our global expansion, we currently have 284 direct sales reps and distributor coverage in more than 73 countries. Sales and marketing expenses decreased to $44.9 million from $51.9 million in the same period last year. The year-over-year decrease primarily reflects the reduction in sales between the two periods. GAAP operating expenses in the third quarter were $51.4 million, an 11% year-over-year decrease. On a non-GAAP basis, operating expenses were $49.1 million this quarter, down from $54.4 million, a 10% decrease year-over-year. GAAP operating margin was 22%, down from 37% in the third quarter of 2024. On a non-GAAP basis, operating margin reached 25% compared to 40% last year. GAAP net income was $21.8 million, down from $50.9 million in the third quarter of 2024. On a non-GAAP basis, net income was $24.5 million, down from $54.9 million. GAAP diluted earnings per share for the third quarter were $0.34, down from $0.65 in Q3 of 2024. Non-GAAP diluted earnings per share was $0.38, down from $0.70 per diluted share in the third quarter of 2024. Share-based compensation declined to $2.7 million from $3.9 million in the third quarter of 2024. We ended the quarter with a strong balance sheet. As of September 30, 2025, the company had cash and cash equivalents, marketable securities, and deposits of $532.3 million. This quarter, InMode generated $24.5 million in cash from operating activities. Before I turn the call back to Moshe, I would like to reiterate our guidance for 2025. Revenues are expected to remain between $365 million to $375 million, with non-GAAP gross margins remaining between 78% to 80%, non-GAAP income from operations remaining between $93 million and $98 million, and non-GAAP earnings per diluted share expected to remain between $1.55 to $1.59. I will now turn over the call back to Moshe.

Moshe Mizrahy, CEO

Thank you, Yair. Thank you very much. Operator, we are ready for the Q&A session. Please.

Operator, Operator

And your first question comes from Danielle Antalffy with UBS.

Danielle Antalffy, Analyst

Congrats on a good quarter here. Just curious, Yair, as you look at the Q4, the implied Q4 guidance based on what you provided at the midpoint, you did beat Q3. So it implies a little bit of a lower Q4 number. But I was wondering if you could level-set us, sort of, as we think about the exit rate here in 2025 and look ahead to 2026, how we should be thinking about sales growth next year given the lingering uncertainties out there? I think consensus is sort of in the mid-single digit range?

Yair Malca, CFO

I think it is a little bit too early for us to discuss guidance for 2026. We would like to see how Q4 plays out before we discuss 2026. I think we would want to be somewhat conservative when we go into next year because of all the uncertainties, as you have mentioned. That's all I can say about 2026 at the moment.

Danielle Antalffy, Analyst

Okay. That's totally fair. I hear you. And then just the capital equipment environment, it looks like in Q3, international was weaker, and the U.S. not as weak. But in the U.S. specifically, we are in an environment now where interest rates are coming down. I mean, does this make you a little bit more optimistic as we look ahead to 2026? Appreciating you want a conservative starting off point, but just maybe comments on hearing from customers? Is there increased interest now to purchase capital equipment as interest rates come down?

Yair Malca, CFO

So the interest rate has come down, but not enough to see that trickle in a meaningful way into the financing of the capital equipment in the U.S. Hopefully, as it continues to come down, we will start to see a more meaningful impact. And then hopefully, this will translate to an additional increase in capital equipment sales. And Moshe, go ahead.

Moshe Mizrahy, CEO

What I wanted to say is that it's not just in the United States. We don't see the light at the end of the tunnel in regard to financing capital equipment, especially medical equipment to clinics. I'm not talking about hospitals, and hospitals are probably different. But as far as clinics that are purchasing capital equipment for medical aesthetics or any other medical community, the interest rates on leasing are still very high. I know that the interest rate went down twice in the United States, 0.5%. In Europe, they have not yet. So we believe that sometime in 2026, when the U.S. leads the reduction of interest rates, it will come to other territories, but we don't see it yet.

Operator, Operator

Your next question comes from Matt Miksic with Barclays.

Matthew Miksic, Analyst

I had one question on the ophthalmology initiative that you've been pushing forward over the last couple of years. I ran into some of your folks at AO and the general sentiment around the conference and around those specialties is a significant upswing in dry eye treatment and significant interest, particularly in the optometrist channel. I'm just wondering any color or updates you have on your strategy there, the progress, contribution, if you want to go there? And then I had one quick follow-up.

Moshe Mizrahy, CEO

Well, let me answer your question on a couple of things. First, with regard to commercial and salespeople, we are separating the salespeople for the Envision from the rest of the aesthetic, and starting 2026, it will be managed by a director who is responsible only for the Envision, and the sales team will sell only to Envision, to optometrists and also to ophthalmologists. We are making some progress with the American Optometrists Association. We have some agreements with them to do workshops in different states. We started that in the second quarter, continued in the third quarter, and we have at least three events coming in the fourth quarter. Additionally, as far as ophthalmology, we still do not have the final clearance from the FDA to state that we are treating dry eye. We are still in discussion with the FDA regarding the protocol that we will undertake during the study to get the indication. We are in the last stage, and we are conducting safety tests right now. Hopefully, they will approve it before the end of the year, and we will start the study next year. It's not going to be a very long study because you need to show some immediate effects. Hopefully, towards the second quarter of 2026, we will finalize the study results and submit them to the FDA. So, sometime in the second half of 2026, we should be able to clear the indication and claim dry eye. Right now, not only in the United States, we have enough data that shows the significant competitive advantage over other modalities that deal with dry eye. We are selling it without the clearance, as we explain how it works. We do have the FDA clearance for the handpiece, either the Lumecca, the IPL, or the bipolar RF. The two handpieces are already approved, so we sell it without the clear indication, but we have ample clinical data to show to the doctors and to the optometrists, who are also doctors, the advantages. We are making progress, and hopefully, next year, once we have a distinguished and separated sales team, we will show better momentum.

Matthew Miksic, Analyst

That's very helpful. Just one, maybe zooming out to the broader business in aesthetics, similar kind of question. When we all sort of, I think, have a sense of where you think the market is and waiting for this general sort of uptick or upswing in the cycle in the U.S. But in terms of new products, anything that you would call out in addition to this initiative and follow-through in optometry and ophthalmology that could start to drive incremental growth in, say, early first half of '26, back half of '26? Any color on the pipeline would be super helpful.

Moshe Mizrahy, CEO

Well, we have some products coming to the market. We are set to launch early next year, mainly in aesthetics, featuring some new lasers that we are introducing. I don't want to reveal the type of lasers and what exactly these lasers do, but they are very complementary to our aesthetic portfolio. Two of them will be introduced during the national sales meeting in the U.S. sometime at the end of January '26. We will also present those two devices at IMCAS, the main conference in Europe, sometime in the beginning of February next year. Yes, we currently have sufficient projects in our R&D pipeline for aesthetics and wellness, and we will launch them two at a time.

Operator, Operator

Your next question comes from Michelle with Canaccord Genuity.

Unknown Analyst, Analyst

Can you talk more about your rationale for picking Michael Dennison for the new role of President of North America and what he is working to drive in the early days in the new position?

Moshe Mizrahy, CEO

Yes. Michael worked with us for more than 10 years. Prior to that, he worked for Cynosure, which is another major company in medical aesthetics. He is relatively young, in his 40s. Before he took the President position, he was Vice President for the East Coast of the U.S. and performed very well. The reason we nominated him is that we didn't want to separate the East and West regions in the U.S. We wanted to combine all territories under one management. We believe Michael is the right person to lead this for InMode. Currently, we are unifying all territories under one manager, including Canada. We are not hiring another VP for the West or Canada; instead, we have sales directors in every territory. We have divided the U.S. into six territories, with Canada being the seventh, and they all report to Michael. Next year, we might appoint another position for strategic planning or other responsibilities, but we want to keep the entire North American operation under one roof.

Unknown Analyst, Analyst

That's great. And maybe one more from us on urology. How did the user meeting in late August go on the urology side? Have you begun rolling out the products or seen revenue contribution? Any commentary or directionality you could give us for your expectations for the urology business in 2026?

Moshe Mizrahy, CEO

Urology, I understand you mean men's wellness. Yes, the August event was a user meeting we had in Chicago with approximately 800 doctors. We introduced it with two lectures and presented some clinical data we had at that time, which showed good clinical results. Now we are launching it, and every aesthetic representative can sell this device as well. We are not separating yet. We want to assess the results until the end of the year and the beginning of 2026 before we make any decisions.

Operator, Operator

And your next question comes from Sam Eiber with BTIG.

Unknown Analyst, Analyst

I just had a quick question on the OUS business. So you mentioned that you opened a new subsidiary in Argentina this quarter and also have been expanding your efforts in Thailand. Can you talk more about the strength in OUS this quarter? How can we think about it moving forward?

Moshe Mizrahy, CEO

If you are referring to the two subsidiaries we opened this year, we are currently selling in 88 to 90 countries, out of which in Europe we have five subsidiaries covering ten countries, including Italy, Spain (which covers Portugal), Germany (which covers Austria), France (which covers Belgium), and the U.K. (which covers Ireland and Scotland). We have direct operations in these ten countries. In Asia, we have four countries: Australia, India, Japan, and the newly established Thailand. We are not planning to add more countries in 2025, neither in Europe nor in Asia. The only country in Latin America with direct operations is Argentina, and this base is also responsible for managing all distributors in Latin America. For the EMEA region, we have a base in London with a VP responsible for all operations there. In North America, Michael Dennison is overseeing all operations in the U.S. and Canada. Israel is also a country where we are considering going direct. We used to have two distributors, but we want to sell directly starting 2026. It's important for us. I can't predict which countries will become direct operations in 2026. We are exploring several opportunities and focusing on the two newly established territories from the last six months.

Operator, Operator

And your next question comes from Mike Matson with Needham.

Unknown Analyst, Analyst

Just looking at non-invasive growth, you guys had a really large quarter in the second quarter and dropped back down this quarter. I'm kind of wondering how we should think about the lumpiness of this division?

Moshe Mizrahy, CEO

You mean on the non-invasive and non-ablative? That's correct? Let me say something before. I would say that except for one or two platforms that we sell, almost every platform we sell has at least one invasive or ablative handpiece, either Morpheus body face or the Ignite or the BodyTite. What we sell as non-invasive are what we call the commodity-type products like all the other competitors, including diode lasers, IPL, and non-invasive RF hands-free devices. We have a competitive advantage in this field, and we want to see it grow because we want to be a one-stop shop for every doctor. If a doctor needs complementary technology to our minimally invasive and ablative offerings, we want them to buy from us. We also have several new non-invasive laser products in development. I hope that answers your question.

Yair Malca, CFO

I would like to add that this year, the two new products we added happened to be non-invasive—the CO2 we introduced at the beginning of the year and the men's health product that we added afterward. This is the reason for the increase you see in the non-invasive category for us.

Unknown Analyst, Analyst

I see. So just a lot of orders for customers that were waiting for those new platforms, and a lot of that was realized in the second quarter. That's helpful. And just one quick one, touching on the consumables growth. I'm curious how many handpieces you sold in the quarter and how you think about growth in procedures.

Moshe Mizrahy, CEO

In the third quarter of 2025, we sold about 230,000 disposable, which means one-time use tips, either for minimally invasive or ablative procedures.

Operator, Operator

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

Moshe Mizrahy, CEO

Thank you, operator, and thank you to everyone who attended this call. I want to thank the InMode team, especially in all the territories. We hope that the fourth quarter, as always, will be the strongest one, and we're looking forward to 2026. Thank you very much.

Operator, Operator

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