InMode Ltd. (INMD) Q1 2022 Earnings Call Transcript

InMode Ltd. (INMD 1.87%)
Q1 2022 Earnings Call
May 02, 2022, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, and welcome to the InMode Ltd. first quarter 2022 earnings result conference call. All participants will be in listen-only mode. [Operator instructions] 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 -- Investor Relations

Thank you, operator, and everyone for joining us today. Welcome to InMode's first quarter 2022 earnings call. Before we begin, I would like to remind our listeners that certain information provided on this call may contain forward-looking statements, and the Safe Harbor statement outlined in today's earnings release also pertains to this call. If you have not received a copy of the release, please go to the Investor Relations section of InMode'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 pass the call over to Moshe Mizrahy, chairman and CEO.

Moshe, please go ahead.

Moshe Mizrahy -- Chairman of the Board and Chief Executive Officer

Thank you, Mary. And thanks to all of you for joining our first quarter 2022 earnings call. With me today are Dr. Michael Kreindel, our co-founder, and chief technology officer; Yair Malca, our chief financial officer; Shakil Lakhani, our president in North America; Dr.

Spero Theodorou, our chief medical officer; and Rafael Lickerman, our VP of finance. We will all be available for a Q&A session after our prepared remarks. We are pleased to report first quarter revenue of $85.9 million, an increase of 31.1% compared to the same period last year. We continue to achieve strong, profitable growth despite the continuing uncertainty in the global market.

Net income for the quarter on a GAAP basis was $31 million, and $34.1 million on the non-GAAP basis, reflecting year-over-year growth of 16%. As a result of our strategy of focusing on selling more systems on the global market, sales of capital equipment were strong, representing 84% of our total revenue in the first quarter. Sales of consumables and services accounted for 16% of the total revenue in the first quarter. By launching the new platforms and innovative modalities, and by expanding our install base in the US and around the globe, we continue to look forward to consistent growth in revenue from consumables, which will over time become a more significant portion of our revenue mix.

Once again, our growth engine, our minimally invasive, and ablative technologies, these platforms are the core competitive advantage, and the main differentiator between InMode and other esthetic companies. Our technology-enabled patients to benefit from long-lasting results, similar to the one achieved in plastic surgery, but with minimal downtime, local anesthesia, and minimally invasive procedures. Minimally invasive and ablative platforms accounted for 80% of our Q1 revenue, compared to 69% in Q1 of last year. We achieve this trend in the strong indication of the growing demand in our increasing brand recognition in the US and globally.

Hand-free devices generated 10% of our total revenue, and non-invasive RF, and laser platforms represented the remaining 10%. Looking at the international side of the business, first quarter sales outside the US accounted for $32.3 million or 38% of total assets, a 50.6% increase compared to the same quarter last year. InMode currently operate in 77 countries. In the first quarter we open subsidiary in Italy, and we are very happy with the level of demand in this territory.

We see most of the growth coming from region where we have already established our presence. Yet, there are remain opportunities in new territories, and we will expect to keep expanding our presence outside the US in the coming quarters. While we face operational challenges due to global supply chain issue in the quarter, and increased shipment prices, we were successful in mitigating the impact of this challenges, and we were able to meet the demand and ensure each platforms was delivered within ten days. Our high commitment to each physician or clinic that order our platforms is stronger than ever, and we have developed different methodologies and mechanisms to cope with the current supply chain challenges.

We anticipated that the supply chain challenges will continue, but we are monitoring the situation very closely, and continue to proactively manage the process on a daily basis. As Yair will emphasize, we maintaining our 2022 guidance, expecting total revenue to be between $415 million to $425 million. We will continue to update you as the year progress. Now, I would like to turn the call over to Shakil, our president in North America.

Shakil, please.

Shakil Lakhani -- President, North America

Thanks, Moshe, and everyone for joining us. As Moshe indicated, InMode reported another strong quarter, especially for a quarter that is traditionally a slower one in terms of revenue industrywide. We posted a record number for consumable revenue, which is a good indicator of our growing utilization rate, increased demand for our platforms and consistently growing installed base. We are happy to report another strong growth indicator.

Over 30% of our customers in the US purchased a second device. The US remains the leading market for InMODE, and was the biggest contributor to our top-line, with total first quarter sales amounting to $53.6 million compared to $44.1 million in the same quarter of 2021. We are optimistic about the overall demand for our platforms and unique technology. We anticipate the North American business will continue to grow and be the main contributing revenue contributor for InMode.

We're encouraged by the positive response to our EmpowerRF platform, and we believe that InModes' credibility, the strong performance will support our expansion into the women's health space. During the quarter, we noted marketing events and workshops attracting growing audiences. More and more patients have shown they are eager to improve their well-being, and InMode continues to be the leader in providing a wide array of esthetic, and wellness applications to help patients achieve their goals. We will continue hiring new sales personnel for the North America market, which we believe will boost top-line growth just as in previous years.

We're grateful to our team, and their continued commitment to our consistent growth. I will now hand over the call to Yair, for our review of our financial results in more detail, Yair.

Yair Malca -- Chief Financial Officer

Thanks, Shakil, and good day everyone. Now I'd like to review our quarterly financial results in greater detail. So total revenue in the first quarter of 2022 increased 31.1% year-over-year to $85.9 million, with a gross margin of 83% on a GAAP basis. As of minimally invasive and subdermal ablative technologies in the first quarter grew 50% year-over-year to 80% of our quarterly revenues.

The geographical revenue mix in Q1 was 62% in the US and 38% internationally, compared to 67% and 33% for the same quarter in 2021. Revenues outside the US represented 38% with Canada, Europe, and Latin America being major contributors to the company's growth. Our Q1 non-GAAP gross margin remained strong at 83%. We reiterate our long-term gross margin model of 84% to 86% but assume that in the short-term, global supply chain challenges may continue to impact our gross margins.

Capital equipment in the first quarter accounted for 84% of our revenue, while consumables and service revenues represented the remaining 6%. GAAP operating expenses in the first quarter were $36.1 million, a 26% increase year-over-year. There's in marketing expenses increased their similar rate of 26% in Q1 of 2022 compared to the first quarter of 2021. This is a result of an increase in incense-related expenses, as well as improvement in the COVID status in most countries and regions around the world, especially in the US, where we saw a significant increase in in-person marketing events, as Shakil mentioned.

Share-based compensation increased to $3.1 million in the first quarter of 2022, compared to $2.7 million in the first quarter of 2021, only non-GAAP basis operating expenses totaled approximately $33.4 million in Q1 of 2022, compared to operating expenses of $26.2 million in the same quarter of 2021, an increase of 27%. GAAP operating margin was 41% in the first quarter of 2022, the same as the first quarter of 2021. Non-GAAP operating margin for the first quarter of 2022 was 44%, compared to operating margin of 45% in the first quarter of 2021. The decrease in non-GAAP operating margin is primarily attributable to the change in gross margin.

GAAP diluted earnings per share for Q1 2022 were $0.36, compared to $0.31 per diluted share in the first quarter of 2021. Non-GAAP diluted earnings per share for Q1 2022 were $0.40, compared to $0.34 per diluted share in the first quarter of 2021. We ended the first quarter with a very strong balance sheet. As of March 31st, 2022, the company had cash and cash equivalents, marketable securities, and deposits of $399.5 million.

On the cash flow front, the company generated $51.9 million from operating activities in the first quarter of 2022. We are pleased to have announced another share repurchase program during the first quarter of this year of up to 1 million shares. We continue to evaluate different venues to use our cash and create shareholder value. Before I turn the call back to Moshe, I would like to reiterate our guidance for 2022.

Revenues between $415 million and $425 million. Non-GAAP gross margin between 84 and 86%. Non-GAAP income from operations between $199 million to $204 million. Non-GAAP earnings per diluted share of between $2.06 and $2.11.

I will now turn over the call back to Moshe.

Moshe Mizrahy -- Chairman of the Board and Chief Executive Officer

Thank you, Yair. Thank you, Shakil. Operator, we are ready for Q&A session.

Questions & Answers:

Operator

We will now begin the question-and-answer session. [Operator instructions] The first question comes from Kyle Rose with Canaccord. Please go ahead.

Unknown speaker

Great, good morning. This is [inaudible] on for Kyle, and congrats on a strong quarter. Maybe to start, could you talk a little bit more about your China business, how that's being affected by the current resurgence of COVID, and some of the scaling lockdowns in the major population centers? Maybe, what are your thoughts for the remainder of 2022? And secondarily, do you think that the timeline for approval of your two platforms in China has maybe been pushed out?

Moshe Mizrahy -- Chairman of the Board and Chief Executive Officer

Yeah. OK. I will answer that, it's Moshe. Well, we're monitoring on a daily basis the situation in China.

In China right now, we cannot send people to do training because anybody who went to China need to go to a lockdown or three weeks in the hotel. So no one from Israel and no one from other territories that usually we send to China to do training to doctors will not accept such restrictions. A certain areas in China are in the lockdown. Shanghai was until this week, and now they started to lock down Beijing as well.

The area of Sangin is also on lockdown. Our company, our distributors in Beijing, is trying to do as much as they can. They don't allow salespeople to travel from city to city, and as we go to the CFDA and regulation, the CFDA is now almost 100% occupied with the COVID and solution for the COVID, and as everybody know, they do not have good vaccination, and this is the reason why they continue to lockdown their cities and citizens. We sold less than 50% of what was in the budget in China in Q1.

We don't know when the lockdown and the situation will get better. We are getting surprise every day, hopefully toward the end of the second quarter, they will have, we will have a better, I would say, view and better clearance on what's going the market there. In addition to China, also Hong Kong, which is today part of China has the same restriction, and other countries in Asia, Korea, and Japan are getting better, but not are not fully open yet. For example, to Japan, you need to get what they call a COVID visa in order to enter, and they are making a lot of difficulties on people to come into the country.

Yeah, I mean, in the other part of the world, things are getting better, but as I describe, Asia is the worst case.

Unknown speaker

Understood. That's helpful. Thank you, Moshe. And then if I could just follow-up on Empower.

When could we see some data for EmpowerRF in terms of efficacy for SUI? And then in terms of expectations, I know you had previously mentioned $20 million for 2022. Is that still relatively in line? Thanks again for taking the question.

Moshe Mizrahy -- Chairman of the Board and Chief Executive Officer

Yeah. I will say yes, that the guidance that we gave for $20 million in 2022 is still valid. Spero, would you like to answer the question regarding the SUI results?

Spero Theodorou -- Chief Medical Officer

Sure, [inaudible]. We are already in the process of a couple of our studies are already in press. So I'm happy to share those with you, or Moshe can to show you some preliminary results of SUI. So there, as I said, we said in previous calls, they're very, very encouraging, and the feedback we're getting from the field, more importantly, is giving us a huge base of data set, where we are as doctors can push off of.

So we're collecting data not just from our studies alone that we've been conducting. We've engaged with a couple of universities to start doing some prospective big trials, which is great, also based on this proof of concept that we've already established. So we can share with you, I think we have in the past that we can show you these applications are in press. We're hoping it comes out in the next two or three months, but we're happy to show that too.

Operator

OK. The next question comes from Mike Madsen with Needham and Company. Please go ahead.

Mike Matson -- Needham and Company -- Analyst

Yeah. Good morning, or good afternoon. Thanks for taking my questions. I guess I want to ask first about gross margin.

So you're maintaining the 84% to 86% guidance for the year. You did 83% in the first quarter. You mentioned a kind of near-term pressure. So just from a modeling perspective, I assume we should kind of have it gradually ramp up through the year, and probably end up more sort of at the lower end of that range.

Is that a reasonable assumption?

Moshe Mizrahy -- Chairman of the Board and Chief Executive Officer

This is Moshe, [inaudible] I would say, yes. We lost 1.5% in the first quarter, mainly due to the supply chain challenges as I describe. I'm sure everybody knows that right now electronic component prices went up dramatically, and sometimes we are struggling to get them. As we said before, we managed to develop a supply chain which we have at least three suppliers on every component.

So we managed to get what we need, but sometimes we need to use a replacement component, and change the printed circuit board and do all kind of maneuvering in order to be able not to shut down the production line, and we managed to achieve that. As I said before, we don't see the light at the end of the tunnel as regard to supply chain. And of course, as we go to shipping cost, I can tell you that the 40-foot containers from Israel to the US used to cost are $35 hundred, now it's $13 thousand, so this is also something. But eventually, I believe the market will get back to stabilization, and things will be better.

We believe that in the second quarter and the third quarter we will do better, and therefore we have maintained the guidance of 84 to 86. If you want to be on the safe side, to use 84 is better than 86.

Mike Matson -- Needham and Company -- Analyst

That's helpful. Thank you. And then I want to ask, Shakil mentioned that you've seen 30% of your I guess, it was maybe US customers buying a second device. Can you maybe talk about are they buying the same type of device that they already had? Is it a different system? And then, to what degree are these sort of replacements where they're not using the other one, or are they continuing to use both devices?

Shakil Lakhani -- President, North America

Sure, Mike. So actually, no, they're completely different devices. So it's not because of anything other than the fact that they're actually successful with their first device, which is a big feather in our cap. In order to get them a first device, have them successful with this great the return on investment that we've promised them, which kind of shows that they do well with one device just like any other investment, you do well with one thing, then you want to go in and invest in something else.

So because of our broad product portfolio and offering, if we can get in there with one device, help them succeed, and do well, then they come back in and do that. A big part of that is also our post-sales support team, which has been very helpful for our customers. But also they're in their kind of talking and they work alongside with our reps on the field level in order to get them generating these leads.

Mike Matson -- Needham and Company -- Analyst

OK. Thanks. And just as far as the surgical or guess the minimally invasive systems go, is there any reason that one of the surgeon customers would want to have multiple systems? Or is it just not feasible to need the same type of system for efficiency reasons or something like that?

Shakil Lakhani -- President, North America

Yeah, Mike, good question. So essentially for the products that we do have, body type, for example, the surgeon has to obviously use that for some of our hands-free technology, or some of our other esthetic applications. We're actually able to have them delegate some of these things depending on which state they're in, or which province or in Canada. So essentially, they want to have their the one device that they're using, and that they can actually use the applications on, and then at the same time have something else that they can delegate.

So they're generating, double the revenue in that period of time. Does that make sense?

Mike Matson -- Needham and Company -- Analyst

Yeah, it does. Thank you.

Operator

Is there a follow-up Mr. Matson?

Mike Matson -- Needham and Company -- Analyst

No, no, that's it. Thank you.

Operator

Thank you. [Operator instructions] The next question comes from Jeff Johnson with Baird. Please go ahead.

Jeff Johnson -- Robert W. Baird and Company -- Analyst

Hey, guys. Good morning. Good afternoon. Thanks for taking the question.

I just wanted to start Asia, China, obviously, as you mentioned, a lot of headwinds still in that market. What was maybe, any way to quantify kind of the year-over-year impact of those markets? Did it drag growth down by X number of points? Or even for the full-year, kind of what were you anticipating China and Asia might contribute, and how much has come out of that even as you're still maintaining the full year guidance, any insight there would be helpful?

Moshe Mizrahy -- Chairman of the Board and Chief Executive Officer

Well, I believe China in 2021, we had the same situation with the COVID. In January until March, the country was totally was totally closed. China right now, in the first quarter of 2021, we did $1.9 million, and in the first quarter of 2022, within [inaudible] excuse me, $1.1 million. So we went down a little bit in China because of the situation on the first quarter.

Your question whether or not we will maintain the budget for China for the rest of the year? We hope so. So far acute to the first months. We don't see a major change. I mean, they just change, and instead of that they released Shanghai, and now they are putting restrictions on Beijing.

And therefore, I don't anticipate the big jump there. I would say that if we will do 50% to 60% of the original budget, it will be good. Within the regional budget for China on 2022 was between $12 to $13 million, we still waiting to get approval from the CFDA for the other three platforms that we applied for. We have not yet.

Everything is slow because of the COVID, as we go to other countries in Asia, I believe that Korea is doing better than China. And we will do something similar to what we did last year, which was in the range of $10 to $12 million. Japan are more difficult because of the COVID. Australia and India are open now, so we hope that these two subsidiaries will contribute.

We are not changing the guidance for 2022 because of that, and we would like to we hope that we will be able to sell more in other territories in order to cover the shortage in Asia.

Jeff Johnson -- Robert W. Baird and Company -- Analyst

Yeah, that makes sense. Thank you. And then just a follow-up on the system sales themselves. I think one thing that maybe getting lost in your numbers today, the minimally invasive RF number was stronger than I think it was up over 50% year-over-year and improved on evenly stacked comp basis that growth rate did.

It's the hands-free stuff that was down, and obviously hands-free with a fantastic product in the early days of COVID recovery, at $8 million a quarter this quarter, is that kind of a new run rate for that hands-free? Does it still come down another few million dollars? But it seems like to me that hands-free, again, a great product for its time back when we were first recovering from COVID. But once we get through maybe some year-over-year headwinds on that, start to stabilize here and the whole company number then can improve a little bit once we get through some of the headwinds of that year-over-year at hands-free issue.

Moshe Mizrahy -- Chairman of the Board and Chief Executive Officer

OK. Let me expand what happened with the hands-free, and why the hands-free went down a little bit. I mean, as you know, we came up with a new generation of the Evolve. We added a modality called Transform, which is a combination of EMS  and RF, and we believe that going well.

We're doing the same with the Evoke. We plan to launch a second-generation Evoke toward the end of this quarter, or beginning of next quarter, the third quarter. And therefore, we decided not to continue to sell the Evoke on the first quarter. But mainly we sold only the Evolve.

Hopefully, by launching the second generation Evoke, within a few months, numbers will go back again to the same level it used to be in between 17% to 18% of the total revenue.

Jeff Johnson -- Robert W. Baird and Company -- Analyst

OK. So you're not seeing necessarily a fundamental fall off in interest for the hands-free stuff, it's more of just product timing at this point?

Moshe Mizrahy -- Chairman of the Board and Chief Executive Officer

Exactly.

Jeff Johnson -- Robert W. Baird and Company -- Analyst

OK. And last question I have, sorry for a few here. I just think when you and I spoke last, Moshe, you were not passing on some of those increased shipping costs, some of the increase, some component cost. I think you could, it feels like to me and in esthetics, there has been some pricing power for other companies.

But just maybe talk about your rationale for not doing that. Does that improve your standing in the eyes of customers? Just your thoughts on why not passing through some of those added freight cost and or system cost?

Moshe Mizrahy -- Chairman of the Board and Chief Executive Officer

Well, usually we don't waste crisis in the middle of the year. And we're trying to fight the supply chain challenges, not to fight, but try to overcome it in order to go back to the same gross margin. I don't think it's necessary to raise prices of the platforms and the disposable just because we are having some, I would call it temporarily, maybe, it would take longer than that, challenges with the supply chain, we all believe that it will come back to normal. It cannot work like that forever, and therefore we have decided that we do not raise prices of the platforms.

We examine our decision some time at the end of the year toward 2023 and decide again whether we would like to do it, or we would like to maintain the same price structure that we have today.

Jeff Johnson -- Robert W. Baird and Company -- Analyst

OK. I think I remember you did not put even a free surcharge in that, was that correct? Just remind me on that, that you've been absorbing pretty much of everything, and not passing anything on.

Moshe Mizrahy -- Chairman of the Board and Chief Executive Officer

Correct. We did not pass anything to our customers.

Jeff Johnson -- Robert W. Baird and Company -- Analyst

Yeah. Thank you.

Operator

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

Moshe Mizrahy -- Chairman of the Board and Chief Executive Officer

Thank you, operator. Thank you, Yair. Thank you, Shakil, and thank you, Spero. Thank you, Michael, and Miri, of course, for organizing this earnings call.

I would like to thanks again to all of InMode employees. We work very hard in the first quarter, overcoming all the challenges that we have describe. We continue to work hard. We will continue to service our customers in the best way and come up with new technologies, and new platforms every year.

Again, thank you all, and looking forward to see you in the next earnings call.

Operator

[Operator signoff]

Duration: 33 minutes

Call participants:

Miri Segal -- Investor Relations

Moshe Mizrahy -- Chairman of the Board and Chief Executive Officer

Shakil Lakhani -- President, North America

Yair Malca -- Chief Financial Officer

Unknown speaker

Spero Theodorou -- Chief Medical Officer

Mike Matson -- Needham and Company -- Analyst

Jeff Johnson -- Robert W. Baird and Company -- Analyst

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