Okay, great. Thanks everybody for joining this session. I'm Matt Taylor, the U.S. Medical Supplies and Devices Analyst here at Jefferies, and I'm pleased to be joined by in-mode management, including Yair Malka, outgoing CFO, and Moshek Itchkovich, incoming CFO. So we got through the first hurdle here with some help from my friends, and wanted to run through some fireside chat questions for this session. So I'll start off just with a high-level one, so I always want to do that to make sure that folks who are less familiar with the story understand where we're coming from. Could you talk a little bit about InMode from a high level, maybe walk through some of the history and how the company is now evolving to move into new areas and growth expectations for the different segments?
Sure. InMod was established back in 2008-2009, got their first FDA approval for our technology, the Alvifayel, back in 2017. This is where we started to build our sales team and launched it in the US and the rest of the world. We went public in 2019 and basically introduced to the market after that the morpheus set which is one of our brand a most recognizable brand and lately we introduced the quantum which is the latest rfail technology while doing mainly the aesthetic side and introducing the rfail as opposed to the lasers which is traditionally it's been in the industry we also have a wellness segment where we go after women health we will go after ophthalmology we go after in the future ENT men health and those have been same side or along the sides of the same company the same thing working aesthetics and wellness and on every wellness device we basically try and bring an aesthetic procedures so that we kind of combine those together and that's a quick overview of InMode's history.
Consumer and on physicians over the last couple years so I guess I'd love an update on where you think we are in terms of macro headwinds, and what would be sort of the key things that we would want to see turn to potentially enable better growth in the market and for Invo.
Okay. And from the consumer side, again, the U.S. has been, or the aesthetic in the worldwide is seeing a slowdown for the last couple of years, and basically – oh, sorry. Can you repeat the question again? I'm going to make sure I capture all of it.
Yeah, so I just wanted to kind of an update on those trends and whether you're seeing things stabilize, deteriorate, improve, and sort of what would be some of the key things to watch out for to see other markets evolving.
Okay, sure. So as I said, there was a slowdown in the last couple of years. We're seeing the market starting to flat out, and we hope that we reach the bottom. We see some encouraging signals from the toxin market, where we see Botox is starting to pick up, which is very encouraging because that has been also downtrending in the last couple of years. And last quarter we've seen basically an uptake on those. So we hope that we will see that as well in our industry. where our treatments are a little more expensive than the toxins. Toxins are in the hundreds of dollars. Our treatments are between the $25,000, $3,000 to $5,000. So we hope to see it trickle down to our industry or to our segment of the market in the next few quarters.
And then just to remind folks, So some of your business is capital-based, and so you've also talked about the rate pressures with rates increasing in the last couple of years, renouncing stability in rates. Is anything changing there? I know that you've talked about helping with financing. Are you thinking about doing things more flexibly or different to help customers with rate pressure?
Well, there wasn't a decrease in the interest rate in North America and globally. however that didn't trickle down to the physician or the aesthetics clinics or in the leases from the leasing companies yeah we had we have some support that we do to our customers and that stays the same as we've been doing in the last couple of years but I think it will take a while until we see this a decrease in interest rate until it arrives to our industry
In order to see a significant improvement in our business, those two things that Moshek mentioned needs to happen. We need to see the economy getting better, inflation get under control, so the Fed cuts more significantly the interest rate, so it has a significant impact on the leasing interest trade that our customers are signing for and also we need to see increase in demand by the patients for study procedures those two things need to happen this would make the physicians feel more comfortable getting themselves into, again, investing heavily in capital equipment into their business. This year we think, as Moshe mentioned, things are going to be flat compared to last year, which is a positive after two years of declining. Hopefully the decline will stop this year, and we hope things will move to growth next year.
And you talked about the Botox trend. I've actually heard that from a couple of folks. Is that typically a leading indicator or is that something that you view as a leading indicator for your business? Or what are the other things that you would look forward to seeing signs of either stability or a positive turn?
Well, when you look at that, you compete on the customer marginal dollar for treatment. And as the economy is maybe doing a little bit better and the customer has more money, they're going to spend it on the lower prices. And again, that's our assumption. And we hope that as the economy gets better, more money will be available for customers to spend into a more expensive treatment that we are in that space. But that's basically what we see here. In addition, there is the consumable spent on our, that we do, the consumable, sorry, the consumable that we sell, We see some good momentum over there, but it's too early to see on our side because it's still not there.
And you mentioned the flattish year. That's actually where the guide is for the revenue is about flattish for the year. And then it comes with some margin pressure. Could you illustrate what is changing on the margin side of things, and how should we expect going forward margins to progress?
Okay. There are several factors that affect us on the margin currently. One is a split between sales in the U.S. versus outside of the U.S., the other one, the product mix. We have the tariffs and freight. So regarding the U.S. and non-U.S. sales, our U.S. sales has declined slightly, and we have more sales in other parts of the world. In our industry, it's basically always has been that the U.S. has the best margins. So the more cells we have outside of the U.S., we'll see a lot of pressure on the gross margins. We also introduced lately two laser systems in the last couple of years, the CO2 and the Pico5. and the picofine and those are traditional lasers who which cost a lot more than our traditional RF platforms and those are rather new and we see some increase in sales of those compared to our DRF and as any new product our sales team is very excited to sell it once the it aligns back to where it should be and we'll see maybe some adjustment on the gross margin there. The tariffs that have been there for a while also contributes to some pressure on the gross margin, between 1% and 2% maybe. And freight, with the oil pricing going up, our shipping to the product and shipments of those cost more and again will affect the gross margins. Overall, we hope that as we see the increase in sales in the U.S. as the economy gets better and increasing the RF devices that we sell, we should see better margins. I understand.
And maybe there's a couple follow-ups I could ask there. One, I just wanted to call out, you have some presence in Israel. Maybe you could talk about how you're managing through the conflict in the Middle East. Has that had any impact? And what are things that you can do to protect your business against disruption?
At the moment, we don't feel the impact too much on our sales. And again, we manufacture in Israel, but if you've seen our numbers, we've increased our inventory and the inventory that's currently outside of Israel. So we didn't have, except for specific cases, a few delays, all in all, we're able to deliver the products to our customers in the same time frame we usually do. So I really think it's not really material.
Looking back at the last two and a half years, since October 2023, this region was in almost constant war situation. And I think that was never our main problem when it comes to delivering or executing on the business. It was the slow came from the demand side, not from the supply side. Yes, maybe in some scenarios we had some several weeks with disruption to the operation and the manufacturing. But overall, I can tell you looking back, it did not, that was not what impacted the business.
then I wanted to touch on you mentioned the new lasers and products that you're bringing into the portfolio yeah I think some of that was leveraging your position with the customers and your contracting to sell a more full bag of products and so maybe expound on that is there potentially to take that a few steps further to go into other product areas or could you speak to also just the lasers that you do sell today and how they're differentiated from competition?
Well, the Pico 5, which is Pico laser and the CO2 laser are not new technologies. They've been in the industry for a while now, decades probably. We are traditionally an RF-based company and most of our products are RF, however there is a demand for the lasers or for those lasers and we've decided to basically provide our customer the ability to buy their own products their products directly from us instead of going sorry instead of instead of going through a competitors you have a trend of a combination combination treatment, where a physician will offer the customer to do a Morpheus-A treatment, but include a resurfacing through a CO2, for example. And we've seen some of our competitors actually swooping in after we sell a Morpheus-A device to sell the CO2. Why not sell both by us at the same time? So that's basically it, the reasoning behind it. We need to see how it progresses as we sell those, if this becomes a more, a bigger sale portion than we anticipate, and then we'll make decisions then on that.
Now, you talked about in the beginning some specialized areas like women's health. You also now have an ophthalmology offering, and one of the new changes that was made in the beginning of the year was to focus on that space with a specialized sales force, which is sort of a new approach for the organization. So can you talk about the rationale behind that and how that's going so far?
So basically, we have a lot of products, and up until now, we had the same sales team selling And when you allow a sales rep to sell what he wants, he sells what he's comfortable with, he sells what's easy to sell. In order for us to grow in those markets, we need to specialize sales team to basically go and pursue that market and specialize in selling it. We chose the vision or the ophthalmology section as our test or as a segment that we can run with a direct sales team that can sell only that product and try and develop it even further. It's a bit too early to know how it is and how it's working still at the beginning, and there's some learning curve for that team on how to sell to ophthalmology, only to ophthalmologists and optometrists. But I think within a quarter or two, we'll have some more information on how it works and if it has been successful or not.
Overall, the direction is the right one. Bifurcating the sales team is the right way to go. We are experimenting with it at the moment. I'm not sure we have the solution of how exactly to do that, but at least we do have a team that exclusively sell Envision, which is our eye product, ophthalmology, optometrist product, exclusively, meaning they cannot sell aesthetic, and the aesthetic team cannot sell the ophthalmology product. That's a change. We implemented it earlier this year. Let's see how it goes. We need to make this successful, and we will. And once we finalize what exact way to do it, we probably implement it in other areas Women health, we plan in the next year to bring an ENT device to the market. So whatever we learn here from this experiment would help us a lot when we move forward with additional products.
Great. Great. Maybe that's an opportunity to switch and talk about the pipeline a little bit. You mentioned ENT. What are some of the other products that you would point us to in your roadmap and maybe expand on the ENT opportunity and talk about how big that could be?
So the ENT is something that will come in, I would say, in two years. I think it's a sizable opportunity. I think overall we are looking about, I want to say, 12,000 ENT doctors, practices in the U.S., so it's a good-sized market. As with everything we do, we will include the static handpieces on the ENT platform. Initially, the ENT would focus on turbinated reduction procedures. And maybe we'll add some additional procedures to assist with snoring. At the same time, we are also continuing to develop indication or get indication on the women's health side. OAB is a big one. We are conducting a fairly big study for us. and it costs millions of dollars over the course of a few years to see if we can get an indication for overacting bladder. That can be a huge market, obviously. But we don't forget aesthetic for a second. We are planning to launch later this year the Morpheus 8 Cool, the next generation, Morpheus 8 Max, the next generation of Morpheus 8, Morpheus 8 as Moshek mentioned was one of our strongest product in the history of the company and I think the next generation Morpheus is a big one and we I think Moshe mentioned that we are going to launch it together with an Erbium laser on the same device. This would help providers provide patients with a complete solution. Go deep with the Morpheus-8, painless with the new Morpheus-8 going to be painless, and then top it off with resurfacing using an Erbium laser. And I think that combination would be an amazing one. Gotcha.
Jan, just to be specific on the OAB timeline, where are you in the progress of that study, and when could we see some data?
We are just in the site selection phase, so it's going to take at least a year and a half until we can talk about some data, at least a year, let's say.
I also wanted to just address this issue of GLP-1s in aesthetics and how that impacts your business seems to me just to remind folks that you have solutions that can help with fat reduction with lipolysis but your real calling card's been skin tightening so i'd imagine there's some push and pull there but maybe you talk about how that's evolved the demand and how you approach the market given that trend sure so we compete with the glp1
on the marginal dollar from the customers and right now customers are going through those treatments and we see maybe a one of the reasons we see less demand to our products however you have what's called those empty face which is what happens after you go on those GLP ones and you have sagging of the skins on the skin which were our products can be complementary to it we We haven't seen it significantly yet, and you've seen how our numbers have been in the last year of the entire industry. But we're hoping that there will be a synergy over there going after the GLP-1s and help tight the skin and fix those side effects of the weak fat reduction, weight loss.
GLP-1 doesn't improve or doesn't do anything to the skin to the quality of the skin it kills fat killing fat in our space it's fairly easy fat cells are fairly easy to kill contracting the skin contracting soft tissue this is something more unique and that's something that the GLP-1 cannot do and this is where our procedures can can help as Moshe mentioned and I don't want to tie in mode to the GLP-1 craze of phenomena but we definitely don't look at it as a headwind long term if anything it might be a tailwind but we don't want to count on that as well at the end of the day it's two different thing we are treating the skin and GLP-1 to skin and fat cells. And the problem with GLP-1 is that when you lose so much fat so quickly, the skin is unable to contract properly. And this is where we can help ultimately. And hopefully we will see it in the numbers soon. Gotcha.
You need a GLP-1 recovery package.
So some providers already, when they start putting their patients on GLP-1, We see today a lot of med spas and aesthetic providers putting their patients on GLP-1 as the first line of defense, first line of treatment. First we'll put you on GLP-1, we'll see how you look like after, and then we'll start to treat based on the results. I believe personally that if the GLP-1 would not help the doctor increase the business, they would not offer it so quickly to their patients. They also see the GLP-1 as one of the tools in the tool bag when they come to offer aesthetic procedures to their patients. So they start with that, and then they move on to our procedures.
And I just wanted to follow up on the Morpheus Cool, because you seemed excited about this. So maybe just explain what that is, what it offers over and above the current generation of Morpheus.
So we don't want to provide too much details before the official launch. It's going to happen later this year. We are going to keep all the details until we launch it. Again, I'm excited about it because I actually tried it on myself three times already. and I can't wait for this product to launch officially soon. Right.
Most people don't know yet. Yair is 92 years old. That looks good. So going back to the guidance, I wanted to talk about what you think about that could really drive you to the upside or above the guidance or the downside or below. What are the main factors for this year that could really swing the guidance one way or the other?
Well, basically the economy is what's going to drive it. As I said, we see some flattening, we see some improvement. But at the end of the day, we're part of the aesthetic industry. The aesthetic industry is not doing well up in the last two and a half years. We see some improvements. We're very optimistic. However, we need to see that this improvement is consistent and affects us as well. Yuri, anything else?
Yeah, I think Q1 was a good start for the year for us. But Q1 is the first quarter and the slowest quarter of the year, so we don't want to make too much out of it. We want to see how Q2 would look like. I think in terms of what we believe, if things stay the same, We probably will be flat on revenue year over year. We continue to make investment. We continue to open subsidiaries. We bifurcated the system in North America. All those investments cost money. So that's one of the reasons why you see the declining in margins. But at the end of the day, I look at it as investment. We are investing, yes, we are spending the money. We are not expecting to grow this year. But these are the foundations that we put now out there that would help us with growing once the economy recovers. Upside and downside, obviously if there will be a downshift in the economy, we will have a downside to the guidance. Upside might be a more successful launch to the Morpheus 8 Max than we expect.
Okay, great. With the few minutes that we have left, I wanted to talk a little bit about capital allocation, M&A, and share repurchase. So the last few years, there's been some big share repurchases that the company has made and taking advantage of that up to a point where the kind of tax kicks in. How are you thinking about M&A versus share repurchase from here? And what areas are interesting in terms of white spaces that you could acquire into?
Well, on the share of purchase, we have a program right now that we've announced it and that runs. Regarding M&A, all options are on the table. We review all kinds of ways to bring shareholder value through M&A, through share of purchases, through everything else. At the moment, Yair, I don't think we have anything specific.
On the M&A front, nothing specific, but, you know, we are always looking, and, you know, many companies and banks looking at our balance sheet and see they used cash balance, so they tend to run opportunities by us. I think for, personally, if you're asking me, going after smaller companies in the women's health space, ophthalmology space, one of the new space that we are trying to penetrate, I think that can accelerate our penetration. So that makes a lot of sense in my mind. Creating those divisions for women's health, ophthalmology, ENT, et cetera, by acquisition, might accelerate our growth. and on the buyback I would also add we don't have anything against buyback unlike what some investors might think we spend well over half a billion dollars on buyback in the last few years and we don't see any sign of stopping we even have an announced plan this year and I can tell you that the board is truly evaluating all options either to do even a more significant buyback with some tax consequences for that, but that's fine. Some investors say that even with the tax, this is still an attractive price to go and buy back shares in the market. We also have the options of dividend. You know that the board was actually examining some strategic transactions as well. So is it truly that all the options, It's not like we are staying just to say that. All the options are really on the table, and we are evaluating all of them.
Maybe just on that last point, just to remind us, there was a strategic review which was recently closed. There were some announcements in the media that there were offers for the company. But what happened, and how did that process conclude?
So, yeah, so I cannot comment on the, you know, articles in the media. But overall, the board mentioned that they formed a committee, a special committee, only with the independent board members, and they engaged with a major investment bank to see if they can provide value to shareholders in a way of strategic transaction. And it was an extensive and serious process, I can tell you that. And at the end, I, you know, the management were not, did not have access to, or visibility to the offers that were received. But the board decided that the offers were not good enough in a way that they believe will maximize the value to the shareholders, and they decided to end the transaction, end the process.
I think we have to end there, but thank you guys so much for your time, and thanks, everybody, for your attention.
Thank you very much.