Earnings Call Transcript - INMD Q2 2020

Operator, Operator

Good morning and welcome to the InMode Second Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. 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, MS-IR

Thank you, operator, and good day to everybody. I would like to welcome all of you to InMode’s second quarter 2020 financial results conference call. With us on the line today are Mr. Moshe Mizrahy, Chairman of the Board & CEO; Dr. Michael Kreindel, Co-Founder and CTO; Mr. Yair Malca, CFO; Dr. Spero Theodorou, CMO; and Mr. Shakil Lakhani, President of InMode North America. 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 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 Lakhani, InMode’s President of North American, to discuss our North American operations, followed by Yair Malca, InMode’s CFO with an overview of the financials. We will then open the call for the question-and-answer session. I'll now hand the call over 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 us for our second quarter 2020 financial results. Before I start, I would like to congratulate the InMode family and all of our investors. Today, we are celebrating our one-year anniversary as a public company. Exactly a year ago this week, we did close InMode's IPO. In this earnings call, we will discuss the impact of the COVID-19 pandemic on our business, our strategy during the crisis, and our outlook going forward. With me on the call today are Yair Malca, CFO; Mr. Shakil Lakhani, our President of North America; Dr. Michael Kreindel, the Co-Founder and CTO; and Dr. Spero Theodorou, our Chief Medical Officer, who will be available during the Q&A. In the second quarter of 2020, InMode generated revenue of $30.8 million, a 21% decrease from the second quarter of 2019, with $8.6 million net income on a GAAP basis, and $10.1 million net income on a non-GAAP basis. In Q2 2020, we derived approximately 53% of our U.S. revenue from our surgical platforms engaged in minimally invasive and sub-dermal ablative treatment, 46% from our recently introduced proprietary hands-free platforms, and only 1% from traditional laser and non-invasive RF platforms. Our two main technologies, minimally invasive surgical technology and hands-free technology, have been well accepted by doctors during the coronavirus crisis due to the fact that they are clinic-based procedures and not hospital-based, and they maintain social distancing. We believe that since the coronavirus is here to stay for the near future, these two technologies will continue to be our main growth engine, and we will continue to develop additional applications for them. Our business felt the full impact of the global shutdown caused by COVID-19 in March, April, and May of this year as elective surgical procedures were altered worldwide. As a result, all of our customers closed down their clinics, and our ability to capture new business was at a standstill during the beginning of Q2 2020. Although the crisis halted business activity in our industry, our competitors decided to contract their organizations. We saw this time as an opportunity to invest in our organization for the future, and we decided not to downsize our operation. In fact, we continued to work business as usual in R&D, manufacturing, regulatory, and marketing, and positioned ourselves as best we could for the eventual return to normal business activity, which we outlined in our key initiatives last quarter. As we mentioned, we took steps to enhance our marketing and sales network, further build relationships with physicians and potential customers, expedite our R&D activity, invest in our infrastructure, and develop marketing and selling programs that will motivate physicians to purchase InMode's minimally invasive and hands-free platforms as part of their recovery plan for their clinics. To maintain our strong customer relationships and keep employee engagement high, we trained our sales staff and our client physicians through our newly developed virtual platform InMode University. Once again, our decision to retain our workshop and invest in their professional development was driven by our long-term approach to our organization. We knew that a temporary downside in subsequent sales and marketing would set us back both financially and tactically once elective surgery came back online worldwide. As we anticipated, in the beginning of June, the market began to reopen in the United States, allowing elective surgery across many states as well as elective surgery coming back internationally. During the month of June, we recovered significantly with sales close to pre-COVID-19 levels. In terms of our R&D pipeline, we will continue to develop new platforms and indications and plan to introduce new platforms in 2020 and two new platforms in 2021. We are continuing our R&D activities to develop minimally invasive clinical-based procedures, mainly for aesthetic surgery, ENT, gynecology, and ophthalmology. As guidance, we expect that our revenue for the full year 2020 will be between $156 million to $160 million, and we intend to maintain a gross margin of 84% to 86%. Lastly, 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 give you more details on our activity in the North American market. Shakil?

Shakil Lakhani, President of InMode North America

Thank you, Moshe, and hello everyone. During the quarter, we decided to keep all of our North American sales team in place and not furlough or lay off any of our employees in order to retain our top-quality talent for the post-pandemic market. We developed a new sales program to improve our sales team’s marketing tools and sharpened their messaging while they deepened their product expertise through the InMode University platform. These sales and marketing efforts were aimed at strengthening our brand and positioning us for success as business activity opens up again. We anticipate the needs of physicians post-COVID with regard to attracting consumers back into the clinic. We understood that patients would be resistant to treatments that required hospitalization in an effort to remain safe and socially distant. Therefore, we promoted our two main categories: minimally invasive and hands-free technologies, both of which are in-office procedures that maintain social distancing. The majority of our marketing in the month of June was focused on these two technologies, which ultimately enabled us to achieve the sales volume that we did. The demand that we've seen in June and July confirms our original thoughts that the market will be uniquely attractive to InMode’s minimally invasive and hands-free technologies. The interest in our technologies that we saw in the first half of the year translated into record sales for the month of June, which we were able to capture due to vigorous preparation during the height of the pandemic. We are proud of our actions throughout the COVID-19 pandemic and our ability to navigate the uncertainty. We were able to maintain the health and welfare of our employees and customers while positioning ourselves for success as the industry began its recovery. Additionally, our continued work on the regulatory side was fruitful as well. In June, we received Health Canada certification for Evolve Tone, which now makes Evolve Canada's first and only all-in-one hands-free device consisting of three unique remodeling technologies: Trim, Tite, and Tone. Looking to the second half of 2020, we are optimistic, and as such are preparing our sales force for the launch of a new platform. We expect this new platform to become a significant contributor in 2021. Now, let me hand over the call to Yair to review our financial results in detail. Yair?

Yair Malca, CFO

Thanks, Shakil, good day everyone. Total revenue in the second quarter of 2020 contracted 21% to $30.8 million, with a gross margin of 85% on a GAAP basis. The decline was primarily due to the impact of COVID-19, in which the U.S. markets had minimal activity during the economic standstill in April and May. Alternatively, InMode continued to gain traction in international markets, with international revenue growing 10% year-over-year. GAAP operating expenses in the second quarter of 2020 totaled approximately $18 million, a 1.3% decrease from the second quarter of 2019. Sales and marketing expenses decreased to 8.6% in the second quarter of 2020 compared to the second quarter of 2019. On a non-GAAP basis, operating expenses totaled approximately $17 million in the second quarter of 2020 compared to operating expenses of $17.8 million in the second quarter of 2019, a decrease of 4.8%. GAAP operating margin was 26% in the second quarter of 2020 compared to 41% in the second quarter of 2019. Non-GAAP operating margin in the second quarter of 2020 was 30% compared to 42% in the second quarter of 2019. This decrease was primarily attributable to the fact that the sales cycle in April and May was interrupted by COVID-19 and as a result, sales and marketing expenditures did not translate into sales during those months. GAAP diluted earnings per share in the second quarter of 2020 was $0.21 compared to $0.45 per diluted share in the second quarter of 2019. Non-GAAP diluted earnings per share in the second quarter of 2020 were $0.24 compared to $0.45 per diluted share in the second quarter of 2019. We completed the second quarter with a strong balance sheet. As of June 30, 2020, the company had cash and cash equivalents, marketable securities, and deposits of $203.4 million, out of which $70 million are net proceeds raised at the IPO in August 2019. During the quarter, as part of our initiative to strengthen our supply chain, we increased our inventory to adequate levels required by our business continuity plans in order to ensure uninterrupted delivery times in future quarters. Additionally, we recognized a higher than usual accounts receivable balance since the majority of our revenues were generated towards the end of the quarter and collected only in July. On the cash flow front, despite the negative impact from COVID-19, the company managed to generate $1.3 million from operating activities for the second quarter of 2020. With that, I will turn the call back to Moshe.

Moshe Mizrahy, CEO

Thank you, Yair, thank you very much. With that, we will be pleased to take any questions now.

Operator, Operator

And the first question is from Matt Taylor of UBS. Please go ahead.

Matt Taylor, Analyst

Hi, good morning, everyone. Thank you for taking the question. So the first question I wanted to ask you was about your assumptions for the year. You've been able to give guidance and guidance for flat to slight growth, which is a lot better than other companies in terms of the visibility you're giving. So I just wanted to understand two things. One is you mentioned June was close to pre-COVID levels. Are you still seeing good trends in July, and then what gives you the confidence to be able to put out that forecast?

Moshe Mizrahy, CEO

Hi, Matt, this is Moshe. Thank you for joining us. Yes, you're right. A month ago, a few weeks ago, when we published the preliminary results, we said that our revenue will not be less than last year. Last year's revenue was $156 million. We decided to be more precise. So far in the first six months, we did $71.4 million in revenue. And in order to be on the $160 million, we need to make additional $90 million— a little bit less than $90 million. From what we see right now, from our two main technologies and the revenue that we generated in the months of July, we believe that we will be above $156 million. So we decided to give the range of $156 million to $160 million, and we hope to give a better range or better estimate after the third quarter. As you know, the summer quarter, which is July, August, and September, usually September is the strong month. But what we discovered this year is that July was relatively much stronger than any July that we had in the past. So, we believe that we will make the numbers above the $156 million that we did last year. And this is the reason why we decided to be more precise and give a range instead of saying that we will be at least as last year.

Matt Taylor, Analyst

Got you, thanks Moshe for that. And my follow-up question would be, you've been seeing a lot of traction with the hands-free devices. I was hoping you’d maybe cover that in more detail and just talk about how the value proposition is resonating versus the competition and the outlook for those for the remainder of the year?

Moshe Mizrahy, CEO

Okay, I will suggest that Shakil will start the answer, and then Spero will give you some of the clinical evidence that we see so far, which also will enhance the answer. Okay, Shakil, please.

Shakil Lakhani, President of InMode North America

Yes, sure hey, Matt. Thanks for your question. So basically, what we've seen is with everything going on, we initially, as we talked about on the last call, we thought there'd be some pent-up demand luckily that was fulfilled. We did see that and we see it more and more as Moshe mentioned, July was one of our record months as well. So we have seen it flow in from June to July, and a part of that is the hands-free technology that you're talking about. So with Evoke, Evoke is one of a kind. There’s nothing really else out there for it, and there are some people that want to handle that or one-third of the face, and Spero will talk about that shortly. But when it comes to the Evolve, where we've seen a lot of traction as well is because we're able to Trim, Tite, and Tone all on one modality rather than a physician having to go out and spend $300,000, $400,000 on multiple pieces of equipment, along with the decision that we made on the consumable side of things and not really having one there. It's definitely given us a leg up industry-wide. We feel that the competitors are still out there selling. I don't know what they're doing right now. But as far as we go, we've seen success in both products, and the Evoke has actually been very well received. Initially, there was a bit of a lag period with everything going on. And now we've seen a lot of our physicians really want to embrace and bring this into their practice.

Matt Taylor, Analyst

Got it, sure.

Spero Theodorou, CMO

Matt, just to jump in, it's Spero here. Regarding Evoke, I agree with Shakil 100% but they have to explain this is not just a face tightening device. Depending on specialty, whether you're a plastic surgeon or dermatologist or artist, if you want to get, you can actually remodel the fat and position it the way you want. So, in the lower one-third of the face – depending on the number of treatments, we are able to remodel that fat, remove the fat, and tighten the skin—that's something that CoolSculpting has not been able to do. So, that's like a big, big differentiator. In the case that you do not want to have any fat loss or you’re not in the mid-face, you want to be able to change the positioning of the device and actually get what you want. So, it's customizable to the different types of faces and what you're trying to achieve. And this is – in plastic surgery, this is definitely one of those revolutionary types of things, as no face is the same. And having a device that has the versatility of what Evoke has and that ability was given to us, of course, by Mishka, Michael Kreindel and modifying the treatment according to what you want to get is a big, big deal. So, this is not a one-size-fits-all, and that's a big differentiator when it comes to the competition of what's been in the past. So you can melt that, you can tighten skin, you can preserve that, you can tighten skin, depending on what you're trying to do. So that's resonating big time depending on the specialty we're selling and what they're comfortable with and their training. As far as Evolve is concerned, I know Shak brought this up. The fact that there are no disposables is a big, big deal—not just the financial aspects of it, but traditionally non-invasive devices. To look at the numbers in the past, they usually give you about a 25% difference from before you have the procedure done. So 25% difference from before and after is not necessarily the result you want to write home about because it's not comparable to surgery, of course, right? However, 25% is a difference. We've seen tons of these numbers in the past with 25%, patients tend to come back and not be necessarily depending on course some patient choice, they're not going to come back and not necessarily might want more, right? So in the past, if they want to have more done, then the doctor would have to do an extra procedure and he would have to pay for extra disposable in order to get that patient happy. So, because of Moshe's guidance and Mishka's guidance, we decided and because of the COVID, we realized that a lot of practices were shutdown, not using disposables has also allowed on a clinical level to achieve that result. In other words, the patient comes in has five or six treatments and wants a little more done to achieve what they want, that's not a problem; that only costs a little more time to the doctor, but it's not money out of his pocket. So they were very quick to be able to get that patient to the result they want by any more treatments on, and that's critical. The second aspect that's critical, obviously, we are very familiar with tightening and we're very familiar with heat, but when it comes to EMS and muscle, the biggest differentiator, Matt, is in the past right, muscle we know that essentially EMS is not very, very different in different types of machines. The EMS is EMS, the muscle does not know the difference between whether it's been which way it's stimulated and all enough in an event; there's enough muscle fibers that together, and they either contract or they don't contract. So what we're able to do is we look really closely as to heating the muscle prior to treatment. And being able to heat the muscle and looking at the literature and looking at what's out there with professional athletes, that the training environment, which is heat prone, hot environment, hot yoga, as you probably know, all these sorts of things increase muscle performance. So by increasing muscle performance, you're increasing the ability of the muscle to get stronger and to be able to lift bigger weights and actually perform better. So, we have the ability to preheat the muscle and then do the EMS. That's a big, big differentiator, because it increases performance versus other companies that aren’t able to do that, plus it's a big barrier to entry. Right now, the other companies aren’t able to actually preheat the muscle, which we are able to do because of our ability and our comfort level with the RF that we have. Hopefully that answers your question, those are two devices.

Matt Taylor, Analyst

And maybe I'll speak one more in here. You've given some teasers on the pipeline and talked about new platforms coming this year or next year. Could you offer any additional thoughts on those? Are they line extensions? Are they totally new? Anything that would help us understand how to think about the contribution in the modeling?

Moshe Mizrahy, CEO

Well, Matt, we have basically four new platforms in the R&D pipeline. One or two will be introduced to the market until the end of the year, and another two next year. I don't want—that we're going to launch one of them late next week, which again is part of our surgical platforms. I don't want to give more information; I want to keep it for the launch. The other three are one for the gynecology market, one for the ENT market, and one for the ophthalmology market, all of them clinical-based procedures, platforms, all of them are basically actually private money and not code or reimbursement, the individual platforms, and they all based on the same bipolar RF technology, fractional and minimally invasive and non-invasive. But they will be unique, and they are giving answers to an unmet need with all four of them, and hopefully, they will be well accepted. We did some kind of focus group with some customers. We asked doctors about the features that we want to include in those platforms, and we do believe that they will be well accepted as the other portfolio for InMode.

Matt Taylor, Analyst

Great, thanks a lot for the color. Thanks guys.

Moshe Mizrahy, CEO

Thanks, Matt.

Shakil Lakhani, President of InMode North America

Thank you, Matt.

Operator, Operator

The next question is from Kristen Stewart of Barclays. Please go ahead.

Kristen Stewart, Analyst

Hi, thanks for taking my question. I just wanted to follow-up on one of the comments you made in the prepared remarks just around the accounts receivables. You'd mentioned that you did see increased receivables towards the end of the quarter and did make some collections heading into July. Is there any way to just kind of quantify that if they returned to a more normalized level in July?

Yair Malca, CFO

Sure. Let's first take it in perspective. We went up from two weeks DSOs to three weeks. So it's still a very, very good number. As you know, usually throughout the quarter revenue tends to spread more evenly, but with the COVID impact and we had almost no sales in April and May, most of the revenue came in June. We did see a collection of the majority of it and a return to normality back in July.

Kristen Stewart, Analyst

Okay, so that's nothing that you're seeing in terms of concerning trends, customers are still coming in, of course, okay, great. And then you did get clearance in China. Could you just remind us how large of a market opportunity you expect that to be? And I would assume that's probably something that could maybe be more meaningful to look out over the longer term?

Moshe Mizrahy, CEO

Yes, yes this is Moshe. Yes, we received CFDA approval for the BodyTite and FaceTite hand-pieces and platforms, which we now start to market in China to their plastic surgery and hospitals. At the same time, we received the CFDA approval for InMode RF non-invasive like former and plus only. We have not yet received for the hair removal with the laser or the IPL. We're still in the process. It's a long process actually in China, but we decided that these two CFDA approvals are good enough to start in the market. We do have now a joint venture in China in Guangzhou, which is only for marketing and regulation. We opened an office with the partner who will be exclusive distributors in Beijing. The company that they established will be called InMode Beijing. They already started to do marketing activities. We had that great opening less than a month ago with many doctors online and many doctors in the hall in the event. They already sold I can tell you 12 platforms even before they started, I'm very optimistic. The team is well dedicated. The team is doing only InMode. They are not allowed to sell any other products or any other brand. And hopefully, this year, we will do in China between $1 million and $2 million because we just started and we're looking forward to expanding the operation. You cannot cover China with one distributor or with a few direct; you have to divide the country into territories. Each territory is different. And also in China, there are different markets, the hospital market, the clinic market, which is now being developed, and the spa market, which is the biggest market. But the spa market is not doing minimally invasive and maybe not too deep ablative. Therefore, we need to customize some of our portfolio to the Chinese spa market, like hair removal, skin rejuvenation, skin tightening but with non-invasive RF devices, and we are doing right now. The market in China is totally different than the market in the Western world as far as statistics and as far as who is doing what in the world. Most of the minimally invasive surgical procedures right now are being done in the hospitals and not in the doctor's clinic. Although we see some development and some doctors are opening their clinics and small hospitals. The dynamic in China is really interesting. We have an office in Hong Kong, and we have a base in Beijing and a base in Guangzhou. Although we do not cover the entire country, at least in the main cities we will have a presence, and that will be developed in the next six months. In 2021, we see a growth engine in China.

Kristen Stewart, Analyst

Thanks very much and congrats on a good quarter.

Moshe Mizrahy, CEO

Thank you.

Operator, Operator

The next question is from Kyle Rose of Canaccord. Please go ahead.

Kyle Rose, Analyst

Great, thank you for taking the questions. So I just wanted to follow-up a little bit on just the overall trends that you're seeing in the market. Obviously, it seems like June and July had terrific bounce backs, and the gross margins were strong. So maybe just help us understand what the ordering patterns from positions look like—we’re seeing more bundling or more purchasing maybe Evoke and Evolve rather than one system alone? And then just overall, Spero if you could give us a sense of what you're seeing as far as the health of or demand from patients in particular, coming into practices, that will be very helpful?

Shakil Lakhani, President of InMode North America

Kyle, it’s Shakil, I'll handle the first part of the question, and I'll toss it over to Spero. So in terms of trends, we definitely saw—you’re absolutely right—we did see some major bundling opportunities. The one thing we did coming out of the pandemic, you know, obviously, there's a lot of psychological impact on both patients, physicians, everyone in general, right? So the approach we decided to take is we didn't want to be that company that went out there and just tried to capitalize; we wanted to do the right thing, and make sure that we cater to their needs. So if someone was in a position financially where they wanted to capitalize on certain incentives, yes of course, there were some bundles and bundle activity going on—100%. The two of them actually go quite nicely, and we have an incentive program internally to take care of our reps on that. But also, when it comes down to what the actual physicians were looking for, and what they were looking to treat, many of them, as I mentioned before, did respond very, very well to the social distancing side of things and being able to get a treatment done while being in the room without having to worry about much. So I'll let Spero kind of talk about the patient demand and what that kind of looks like there.

Spero Theodorou, CMO

Great, Kyle, as you know, I'm a practicing plastic surgeon in New York City. So I'm not just speaking for all the doctors that talk to across the country, but also for what we're seeing in New York, which to be honest, we were quite surprised that it ended up following the pattern of everybody else, because it was hit so hard. Here is the bottom line: the patient demand COVID happened during the high season for what is considered plastic surgery high season, which is usually from January till July. And the fact that the middle of the spring when everyone wants to get ready for summer, especially for body contouring procedures more of them face. This demand came out in July, very, very, very strong initially in June, specifically for New York, started ramping up. But this has been the busiest July that I've ever seen in 18 years of practice. So the same demand that was across the country is also occurring in a city like New York. And that is a little surprising; I didn't expect it to be occurring in New York specifically just because of the different factors involved. Having said that, we have a huge network of doctors that we speak to; every single one of them, and it's been hard to get them on the phone to be honest—the demands there. However, what’s most—I made the prediction early on that we saw the demand going to be just like what happened in 2008. Patient demand was still there, but not for the big cost procedures that required hospitalization and different price range, and more office-based. And sure enough, demand is just right along those lines, it's from minimally invasive procedures. The hospitalization aspect, there are still people are still confined, they're still worried about it. I think until the vaccine comes out, they're not going to be wanting those huge procedures that require overnight stays or require long amounts of anesthesia. So it falls right into our sweet spot that we've been advocating all along. So they're still coming in and they want—aside from the fillers and Botox and all those things—they still want minimally invasive procedures and they want to have it done over the weekend. And they want to have an average of a two-hour procedure in the office under local. So the InMode physicians are doing extremely well, coupled with the fact that now the InMode doctor is able to control the ecosystem. And no patient leaves the office because you have the non-invasive, which ushers them in, covers them and they’ll no longer—the doctors no longer have to rely on other companies or other technologies. So controlling that ecosystem is critical, not only in the sales pitch, but actually happens in the real world. So if I’m a plastic surgeon, now I’m seeing patients and I really didn’t see before I was losing before because they were just scared to have it. So they're coming in for step one non-invasive; those are those patients that want to get to the next level instead of jumping to fully-invasive plastic surgery. Despite they're going into minimally invasive. So it's an ecosystem that's self-sustainable and feeding itself. And I think that is part of the big success that we've been seeing with our products. So we are exactly where we need to be, and demand has not slowed down; most clinics are booked through September, which is really unusual, especially during these months when return for office is not the case. So hopefully, Kyle that answers your question.

Kyle Rose, Analyst

It does. Thank you very much for taking the questions.

Shakil Lakhani, President of InMode North America

Of course.

Moshe Mizrahy, CEO

Welcome, Kyle.

Operator, Operator

The next question is from Jeff Johnson of Baird. Please go ahead.

Jeff Johnson, Analyst

Thank you. Good morning guys. So just a couple of follow-up questions here from me if I could. First on the EMS side and being able to preheat the muscle. That was new to me, so thanks for that update on that, but any IP around that or is that just more the design of your system and company know-how? Just wondering how sustainable that advantage could be versus competitive systems?

Moshe Mizrahy, CEO

Well, this is Moshe; I’ll Spero also answer your question. But yes, we have a special EMS technology, which is not the same as BTL and others—totally not the same as BTL and the other company that you're probably familiar with that is doing the EMS, although it's the same electromagnetic stimulation, but we're doing it differently than the others. And we believe that our device is better from a technology point of view. Although we will not get right now into hardware/software combination and what exactly what we're doing because this is protected. But to answer your question, yes, we do have something which is different than the others.

Michael Kreindel, CTO

This is Michael Kreindel. About the IP, this is new technology and less than one year old. So, we do have patent application on this technology combining EMS and heat, and heat can be generated in different ways; but because it's only was applied about a year ago, we don't have yet issued patent.

Jeff Johnson, Analyst

Yes, understood. And then maybe help us size that Evolve/Evoke market. I mean, obviously we know on the MI RF sub-dermal market you're maybe 10% penetrated in the aesthetic market—still have a lot of room to go there. I'm assuming on the Evolve/Evoke, does that go into the same kind of aesthetic and plastic offices? Does it go into other offices that increase even your market opportunity beyond aesthetics and plastics? Just help us, you know, I'm sure the penetration there is extremely low right now and a huge opportunity. But how do we think about sizing that total addressable market? Thanks.

Moshe Mizrahy, CEO

Yes, no, it's reversible to Tam, we've barely scratched the surface. As you said, we have a lot of runway for penetration. But when you're looking at—we have seen kind of a combination of what we would define as core and non-core—both being part of this, mainly because it's so easy to add into the practice, patients like it. There's an immediate feeling of heat, so they know that it's working. It's not just something we strap on, and there's no result. We had before and afters now coming in on a regular basis; they are actually very, very impressive. So when it comes down to who we're going after, as you know, we primarily focus on physicians, at least in the North American market. We're doing the exact same thing, but we've seen interest from everyone from your plastic surgeons, dermatologists—more traditional market aesthetic surgeons—down to family practice doctors, OB GYN, depending on what they're looking at doing and what kind of fits into their practice. The same thing has not changed. And that's the fact that managed care is still not really—it’s not really doing what it needs to for a lot of these physicians. And so many of them are just looking for different ways to increase revenue streams, and they have their patient bases that they’ve worked years and years to build. So why not feed off it? So I do think in answer to your question, there is a very, very—like I said, we haven't scratched the surface, but there's a large—the time on this thing is big, and we're seeing it grow more and more day by day, which is nice to see. So I think that'll be sustainable for the next few years for sure.

Jeff Johnson, Analyst

All right, great. One more. Just one more regarding…

Moshe Mizrahy, CEO

Yes, this is Moshe. We welcome everyone from outside the U.S. As you may know, we are currently working on registering these two platforms in various countries. Recently, we obtained CE clearance for Europe, and we will begin marketing in different European countries. At the moment, most of our revenue comes from the U.S. with some contribution from Canada. However, we see significant potential in Asia, Europe, and South America, where we are just starting to establish ourselves, and growth is expected from these regions as well. It’s not just about North America; there is widespread interest. We have chosen not to market these two platforms outside the U.S. in the spa sector, instead focusing on doctors to maintain a high price and high value. This is our plan for the next six months and into 2021.

Jeff Johnson, Analyst

All right, that's great. Thank you.

Moshe Mizrahy, CEO

Thank you.

Operator, Operator

The next question is from indiscernible of Oppenheimer. Please go ahead.

Unidentified Analyst, Analyst

Hi, thanks for taking our questions. Great quarter. Just two questions here. We didn’t notice any installed figure mentioned on the call or in the press release. If we could just get the two numbers for U.S. and international. And then international growth of 7% was really impressive. Is there anything driving that growth, that kind of resilience? Is it any difference between direct and indirect markets, any particular geography or product mix? Any color there would be helpful. Thank you.

Moshe Mizrahy, CEO

Yes, welcome aboard. I hope to see you in our office next week. I will answer your question. Outside the U.S., we have subsidiaries in several countries while the rest are exclusive distributors. We established subsidiaries in France during the COVID crisis, as well as in the U.K., Spain, Australia, and India, which we have just set up, along with an office in Hong Kong. All other locations are served by exclusive distributors. There is a distinction in how we recognize revenue between distributors and subsidiaries; for subsidiaries, we recognize the full value, while for distributors, we recognize the transfer price. The combined direct and transfer pricing to distributors yields an average gross margin of 85% to 86%. Prices in Europe and Asia tend to be slightly lower than our sales in North America, even through distributors. Additionally, currency exchange rates affect our revenue recognition. We sell in multiple currencies including Euro, U.S. dollars, Canadian dollars, and Australian dollars, and we aim to minimize exposure to currency fluctuations. The growth outside the U.S. is occurring at a faster rate since we began operations there after already starting in the U.S. It took time to gain approvals, and we're still working on registrations in various countries, which contributes to this growth. I anticipate that the growth outside the U.S. will be at least 10% higher than growth in the U.S. in the coming years. While North America is a mature market, we expect continued growth. Over the past few years, our growth has been about $50 million annually, excluding 2020. We hope to return to similar figures in 2021, combining North America and international sales. There are four main growth drivers outside the U.S. that we expect to see results from next year. The first is China. The second is Brazil, a significant market where we recently started operating, having received visa regulations that allowed us to ship five systems recently. However, Brazil is currently struggling with the coronavirus crisis. The third growth driver is India, which has the potential to be a very strong market once it overcomes the pandemic. This led us to establish a subsidiary in India, where there are 46,000 gynecologists, but we currently do not have a strong presence. Every company has some footing there, but we’re beginning to sell and believe this market will be a fourth growth driver. Lastly, countries surrounding France and Spain, where we are still in early stages, will also be a growth opportunity. Combining these four drivers with other countries, including the U.K. and Australia, along with our exclusive distributors, we foresee significant success in the international market next year. Did I answer your question?

Unidentified Analyst, Analyst

Yes, very clear. But just the number on the install base.

Yair Malca, CFO

Yes, that’s 5,600 globally. 3,200 of those are in the U.S.

Unidentified Analyst, Analyst

Okay, great.

Moshe Mizrahy, CEO

You may want to take a look at the corporate presentation, we uploaded this morning to the website; you’ll have all the information there.

Unidentified Analyst, Analyst

Okay, maybe I missed that. Okay, thanks.

Operator, Operator

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

Moshe Mizrahy, CEO

Thank you, Operator. Again, thank you all for joining us today. It was a very tough quarter for us. I would say the toughest—whatever had, two months out of this quarter basically our business was on standstill. We sold a little bit in April and very little in May, but due to the fact that we kept the organization full and we did not downsize it, once the market started to open in the months of June, it was like a bullet train. All of our salespeople hit the streets, and we made almost $31 million in revenue, most of it in the month of June. So it was encouraging and a big success. The month of July was also surprising and good. Therefore, we believe that we will continue to see regenerating the momentum that we had pre-COVID-19 crisis. Again, I'm thanking all for joining, and I hope to see you again in three months. Thank you.

Operator, Operator

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