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InMode Ltd. (INMD 0.58%)
Q2 2022 Earnings Call
Jul 28, 2022, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning and welcome to the InMode Ltd. second quarter 2022 earnings results conference call. [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 to everyone for joining us today. Welcome to InMode's second 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 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, chairman and CEO.

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Moshe, please go ahead.

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

Thank you, Miri, and thanks to everyone joining us for our second quarter 2022 earnings call. With me today, 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.

Following our prepared remarks, we will be all be available for a Q&A session. We are pleased to report another record quarter with revenue of $113.5 million, an increase of 30% compared to the same period last year. Clearly, growth across the U.S. and the key region globally underscore the strong demand for our technologies and our product portfolio.

Our growth engine include the launch of two new modality every year, growth in the United States, geographical expansion outside the U.S. and high-volume sales of consumable as a result of more frequent use of our platforms. All these factor remain on track and support continued successful execution in the second half of 2022 and beyond. Our focus remain on our bipolar RF technology, offering minimally invasive surgical platforms for the body, face and also for women health.

We have highly efficient sales team of more than 200 reps worldwide. With their excellent work, sales of capital equipment represent 87% of our total revenue in the second quarter, while sales of consumable and services accounted for the remaining 13%. We are excited to see the numbers of consumable sales growing quarter after quarter and consistently hitting new highs. As our installed base grow and we expand our market share, consumable and services will contribute a bigger portion to our revenue mix.

Moving to our international operation. Second quarter sales outside the U.S. accumulated -- accounted for $41.2 million or 36% of sales, a 33% increase compared to Q2 last year. InMode now operate in a total of 78 countries.

Our newly opened subsidiary in Italy is up and running smoothly and contributing to our positive result in the European market. We see demand from Europe, Asia and Latin America continuing to be strong. In addition, important market such as China, Korea, Brazil and Mexico gained traction, thanks to the effort of our local presence. On the macro level, supply chain issue during the quarter were under control and closely managed as we continue to prioritize maintaining sufficient inventory level, placing order ahead of time and making exceptional effort to hold delivery time around the 10 days mark.

Now I would like to turn the call over to Shakil, our President in North America. Shakil?

Shakil Lakhani -- President, North America

Thanks, Moshe, and thanks to everyone for joining us. We are happy to report another record quarter, establishing a strong pace for the remainder of the year. North America continues to be the main contributor to our total revenue across all segments. Total revenue generated from North America this quarter was $82.7 million.

As we look ahead at the upcoming quarters, the North American market is positioned to remain the biggest revenue contributor and growth driver for InMode. Our Empower platform has received positive feedback from physicians and patients. Our expansion into the women's health and wellness space is becoming a vital part of InMode's business. Total sales were originally projected at $20 million for the year, but with the current market, along with Health Canada's approval, we are now aiming to reach over $30 million in revenue by the end of the year.

We continue to see our marketing events increasing in attendance. As we continue to invest in resources, our goal has been to attract new talent while retaining the top salespeople in the nation. I'd like to thank the entire North American team for their continued hard work. I will now hand over the call to Yair for a review of the financial results in more detail.

Yair?

Yair Malca -- Chief Financial Officer

Thanks, Shakil, and hello, everyone. Thank you for joining. Starting with total revenue. InMode generated $113.5 million in the second quarter of 2022, a 30% year-over-year increase with a gross margin of 83% on a GAAP basis.

Breaking this down, we see sales of minimally invasive and subdermal ablative technologies in the second quarter grew 48% year over year to 80% of our quarterly revenues. Of the total sale in Q2, 64% came from the U.S. and 36% came from the rest of the world compared to 65% and 35%, respectively, for the same quarter in 2021. Of our international contributors, Canada, Asia and Latin America were the major markets driving our growth rate.

Our Q2 non-GAAP gross margin remained strong at 84% despite the global supply chain challenges. Moving on. Capital equipment in the second quarter represented 87% of the total revenue, while consumables and service revenues accounted for the remaining 13%. GAAP operating expenses in the second quarter were $45.4 million, a 37% increase compared to Q2 of 2021.

Sales and marketing expenses increased to $39.7 million in the second quarter compared to $28.7 million in the same period last year. This increase is primarily due to hiring more sales representatives, expanding our presence in the U.S. and attending additional in-person marketing activities and trade shows. Next we look at share-based compensation, which increased to $6.4 million in the second quarter of 2022 compared to $2.9 million in the second quarter of 2021.

On a non-GAAP basis, operating expenses reached $39.5 million this quarter compared to a total of $30.4 million in the same quarter of 2021, representing a 30% increase. GAAP operating margin was 43% in Q2 of 2022, and non-GAAP operating margin for the second quarter of 2022 was 49% compared to the operating margin of 51% in the same period last year. Looking at GAAP diluted earnings per share for the second quarter. We see an increase to $0.52 compared to $0.48 per diluted share in Q2 of 2021.

Non-GAAP diluted earnings per share for this quarter was $0.59 compared to $0.51 per diluted share in the second quarter of 2021. Once again, we ended the quarter with a strong balance sheet. As of June 30, 2022, the company had cash and cash equivalents, marketable securities and deposits of $443.6 million. This quarter, InMode generated $47 million from operating activities.

Before I turn the call back to Moshe, I'd like to reiterate our guidance for 2022. Revenues between $425 million and $435 million, non-GAAP gross margin between 83% and 85%, non-GAAP income from operations between $204 million and $209 million, non-GAAP earnings per diluted share between $2.11 and $2.16. I will now turn over the call back to Moshe.

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

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

Questions & Answers:


Operator

[Operator instructions] Our first question comes from Kyle Rose with Canaccord Genuity. Please go ahead.

Gibran Ahmed -- Canaccord Genuity -- Analyst

Great. This is Gibran on for Kyle. Congrats on another strong quarter. Maybe to start, just wanted to dig in a bit on China.

How has that fared into Q2? Has that situation improved at all? I think you had mentioned in the Q1 call that you had sold less than 50% of sort of expectations. So any update there would be helpful. And then, any other update on the CFDA approvals as well?

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

OK. Thank you. Well, the situation in China has not changed since Q1. The country is still closed, I mean, the same situation.

If you travel to China, you have to be locked down for two weeks in hotel. You cannot travel from city to city. But even with that, with all the limitation, we did better. We did twice as much as in Q1 in Q2.

And this is due to the fact that we did some kind of changes in our operation there. We moved some of the people from Beijing to Shanghai and some other -- to other cities so they can operate freely within the cities without the need to travel from city to city. But the main issue is, since the country is closed, we cannot send any training doctors to train or do seminar in China, especially not on the new devices that we are now developing. The CFDA is working very slow.

We filed another two applications for two more products the last month. But yes, we did not receive any new approval in the last quarter. It's not like the FDA when you file, you get an answer when you get a question or the approval. In China, the only thing you need to do is wait and see what will happen.

Hopefully, and these are the rumors, that starting October, November the Chinese government will open the country a little bit more. Some people will be able to travel within China and into China without the need to be locked down for a long time. The same situation with Hong Kong, which is now part of China. So overall, we managed to do twice as much better than last quarter, but yet not the way that we want to be.

Gibran Ahmed -- Canaccord Genuity -- Analyst

Understood. And then, on Empower, maybe through the first half, how are revenues tracking versus your expectations? Is $20 million still a fair assumption for the full year this year? And then maybe given your execution thus far, some of the KOL groundwork you laid and some of the data readouts that we're expecting, how can Empower sort of scale in year two, next year, in 2023? How should we start to think about the commercial scaling next year?

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

Well, the guidance that we gave for 2022 was $20 million. The only thing that I can tell you that so far, we did better than the guidance based on six months. In last month, months and a half ago, we managed to launch the Empower in Europe during the IMCAS conference in Paris. And now they are working country-by-country and sending trainers to train some doctors in order to establish luminary base in every country in Europe.

We're doing the same in Mexico right now, and we're going to send some doctors from the U.S. to train some Mexican luminary doctors. We are planning to launch the Empower in Asia during the IMCAS show in Bangkok at the end of September. So overall, the situation is good.

I believe we will do better than the $20 million that we gave as a guidance, but this is very early stage to judge what is going to be in 2023. I believe that if everything is OK, we're going to do well in 2023, above the guidance that we gave in 2022. I mean we don't want to give more detail on that because it's six months in a row that we're working with the Empower. We have some luminary doctors who like the system and get good results.

We started the process to clear the system for other indication with the FDA. We are very -- investing very heavily on the Empower since we believe that we want to be the leader in the women health or the wellness women health in the market.

Gibran Ahmed -- Canaccord Genuity -- Analyst

Understood. And if I could just squeeze in one quick question. On gross margin, just any updated thoughts given sort of the sustained inflationary pressures we're seeing. Is 83% to 85% still a reasonable sort of goalpost long term?

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

Well, I want to tell you that the fact that we went up from 83% to 84% this quarter was a big, big challenge. And now to keep the gross margin on 84% or in between 83% to 85%, it's a very difficult task. Because as you probably know better than me, prices of components and subassemblies of electronics are going up every day, manufacturing costs, labor costs, transportation and logistic costs. In the last six months, everything went up by an average of at least 10%.

Some component and some subassemblies are more than that. But we are fighting. We are opening more suppliers on every component and every subassembly. Right now, we have at least three suppliers and three vendors in order to make sure that we'll get everything on time.

The most important right now, it's not just the prices. The most important right now is to keep all the lines working. We know that some of our competitors are giving delivery time of six to eight months on platforms. We are delivering every system within 10 days, not more than 10 days.

This is a challenge. And I want to thank all the logistic and supply chain and manufacturing team here in Israel and all around the world for doing a good job. So to keep the 84% or even 83% becomes very difficult and very challenging. But as you see, we're doing the best.

Operator

Our next question comes from Joseph Conway with Needham. Please go ahead.

Joseph Conway -- Needham and Company -- Analyst

Hello. Quick question on, I guess, the Envision launch. Obviously, Empower is exceeding your guys' expectations so far and another record for consumables revenue in the quarter. Does this kind of change your guys' thinking on the launch for Envision? And I guess, maybe could you just solidify that timeline?

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

Well, the timeline stay the same. We did a soft launch in Canada, and I believe Shakil can elaborate on that more than me. We are now finalizing a study with the foresight that we did, and we're going to submit for publication peer-reviewed articles. We are working with the FDA on the indication.

I believe that if not the end of this year, sometime in the beginning of next year, the Envision will be launched in the United States and after that in Europe and Asia. Shakil, you want to say something on Canada, please?

Shakil Lakhani -- President, North America

Yes, Joseph. So we've actually had a pretty successful soft launch in Canada. As you know, before we do anything, we want to make sure that we have the appropriate KOLs on board. We want to ensure that we have the proper logistics in place, inventory, so on and so forth.

So as Moshe said, we're hoping sometime in early 2023, hopefully. But at this point, we've gotten some really good traction, as I mentioned, in Canada. And again, as I said, we want to make sure that we have the correct things in place, including the clinical side of things and the KOL side of things as well. So with that being said, I think we feel pretty comfortable and confident with it, but you'll hear more about that toward the start of next year.

Joseph Conway -- Needham and Company -- Analyst

OK. Great. And then, maybe just moving toward consumables. Can you maybe dissect a little bit of that growth? Obviously, there was very strong growth in the installed base.

So maybe -- yes, dissect a little bit between increased physician utilization and just purely from the growth of the installed base.

Shakil Lakhani -- President, North America

Sure. So we've actually started to expand our post-sales support team. I'll let Moshe discuss the international side of things. But at least in North America, we've expanded our post-sales support team, almost double the size of what we were last year.

We're still working on filling a few spots, but that's definitely been a major contributor. We have two directors that have done a great job, and they've helped us really grow that side of the business. Of course, some of the resources that we're investing into consumer marketing. We have a very good launch of some electronic billboards and things like that to raise consumer awareness.

It's always nice when you have friends that turn around and ask you, "Is Morpheus a device that you guys made," which happens quite frequently now. So we're building the brand, as I mentioned, same thing as Envision and Empower. We like to crawl, walk, run rather than the other way around. So in doing that, I think it's been a successful approach for us as a company, and we plan to continue to do that.

So I think we can expect some continual growth on that side of things. Hopefully, that answers your question, Joseph.

Joseph Conway -- Needham and Company -- Analyst

Yes. Yes, it does.

Operator

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

Jeff Johnson -- Baird -- Analyst

Thank you, guys. Good morning. Moshe, just on system placements. I mean you mentioned China still the lockdown issues there.

But I think this was your biggest quarter ever of global placements. So a couple of questions, I guess. One, what's been the tenor of demand even over the last couple of months? It seems like financing rates are probably going up. There's a little bit of competitive noise out there that we continue to hear in the channel, but you seem to be powering through very well.

So kind of what are your expectations maybe over the next six to 12 months in this macro? And what are you seeing in the field? And then kind of the second question on placement. Can you help us understand, again, it's a number we asked about quite frequently, but what is penetration in the U.S. now for -- in the surgical derm and plastic surgery segment of the market? Where do you see penetration at right now? How much room is left there? Anything on those topics would be helpful.

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

Well, if we want to take it to the worldwide, altogether, we have about 14,000 system installed, OK? The total available market, if you want to count dermatologist, plastic surgeon, aesthetic surgeon, OB/GYNs, in the future, ophthalmologist, worldwide is more than 200 doors. And I'm talking about doctors with clinics. And you know our portfolio is very wide. We can service aesthetic doctors who want to do hair removal and skin rejuvenation because we have the best hair removal device and also the best IPL for skin rejuvenation, all the way to plastic surgery, FaceTite, NeckTite, BodyTite.

We started with women health to do all kind of indication. So with a wide portfolio like that, I believe that worldwide we're in a very, very early stage, very early stage. And we have room to grow, and we're doing it. We have room to grow in almost every country.

In addition to that, we have several products which not yet approved, not in Europe, not in Asia and probably not in Asia and not in South America. And we continue to invest heavily on regulation in 27 countries, simultaneously in 27 countries. And it take time, it take studies, it take money and not always we get to overcome the bureaucracy on every state. But eventually, all the products would be approved, and this is another growth engine, widening the portfolio that you can sell in every country out of the 87 countries that we're selling.

In North America, we have the wide range of regulation from the FDA because we started in the U.S. And we started in -- and later on, we started in Canada. But for example, right now, in Europe, when the CE moved from the MDD direction of regulation from the MDR, which become much more difficult, we are -- where it's challenging, but we're working on it and we will overcome it. The good news is barrier to entry to competitors with all this regulation.

So I believe that as far as penetration, we're in a very early stage, and we will continue to develop product and create wider portfolio. So I don't know where -- what to say as far as penetration in the United States. In the U.S. alone, there are about, I would say, 40,000 to 50,000 lasers installed.

Every one of these doctors who are using laser eventually will use one of our system. So if we sold in the U.S., 6,500 or 6,600 system, we still have a way to go. And as you see, we are growing quarter over quarter, so the penetration is getting wider and wider. Did I answer you?

Jeff Johnson -- Baird -- Analyst

Yes. Maybe just a comment on -- yes?

Shakil Lakhani -- President, North America

Sorry, Jeff, just to chime in to answer some of the other questions you had asked. So in regards to financing, I know that's something that everyone is kind of keeping an eye on here. We've talked brokers and a number of the leasing companies. We haven't seen rate hikes as of yet.

I think they're going to start to kick in slowly. The nice thing about it is because of the macroeconomic environment right now, it's not going to come as a surprise or it's not just going to be niche to our industry. So I think people are going to be accepting of it. I think the key thing is as long as we can continue to ensure that our customers are successful with their devices, if it's going to be a small little delta on a monthly basis, we can try and help them make that up by driving more patients through their practice by investing in further resources as we do.

Hopefully, that answers that question there. But in terms of competition, I know you've kind of talked about that. As a company, we don't really -- we don't worry too much about competition. We actually look at competition as a good thing.

It breeds awareness. I think a lot of times when you do have word getting out there -- just keep in mind, as much as it sounds like we've had a seasoned laser industry or seasoned RF industry, we're still relatively new players into the market, and we've carved out kind of a unique market in some of the devices that we have. So we've been pretty comfortable penetrating what we have. We still see a very long runway.

But also don't forget that the non-core market is a huge market on which we can penetrate. So as long as the healthcare system continues to be the way it is in terms of managed care, there's always physicians that are going to look at continuing to add certain revenue or separate revenue streams to their practice when it comes down to the specialties, as you mentioned, with plastic surgery, dermatology so on and so forth. We -- again, in the derm world, we're very, very early on the plastic surgery world. Don't forget the goal with them and with all of our doctors for that matter is to get in their offices to make them successful.

And because of the wide array of products that we carry, we're able to go in. If they're successful with their first one, we're going to help them benefit, and hopefully, they'll reinvest for the second one. So that's part of the business model as well. Hopefully, that answers the other part of your question.

Jeff Johnson -- Baird -- Analyst

Yes, it does. That's helpful from both of you. And then, I guess my only other question really is just, Moshe, we only see it in the proxy once a year, but stock has been off here, pretty meaningfully this year. Has there been any level of interest from an insider buying standpoint? Has anybody stepped up in defining at these levels internally? And maybe same question for Yair.

I think there's over $400 million of cash and marketable securities on the balance sheet at this point. Any thoughts on a buyback? Again, valuation looks pretty compelling, I would argue, at these levels. So just any thoughts on both insider buying and/or buyer expectations?

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

Well, let me answer the first question or the first part of your question, and Yair answer the second part. As far as the executive team and the insiders, they are fully committed and they are here to stay. Yes, some of them sold some shares because -- and I can tell you that in 2021, we plan to do a secondary when the banks ask us to sell some of the executive and some of the insiders through the secondary, but unfortunately, it did not happen. So it was done on the market.

I can tell you some of the insiders and the executive started to buy shares when the stock went down because they believe in the company. And therefore, again, the executive team is here to stay. We are not going anywhere. This is the company that we have established.

This is the company that we built. It's a successful company quarter over quarter, and we're not going to leave just because some of us have sold some of the shares or some of the employees exercised some of their option and sold some shares. This is something very common in a public company, especially four years after the IPO. In addition, we do have $450 million.

And we don't have right now any candidate company to buy. But we're exploring opportunities. I can tell you that we are exploring opportunities. Almost every month, we're exploring opportunity.

And when the opportunity will present itself, we will do it. And therefore, the money is still on the balance sheet, but we have -- and we have the intention to use it.

Jeff Johnson -- Baird -- Analyst

Thank you.

Operator

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

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

OK. Thank you, operator. Thank you, Miri. Thank you, Shakil, Yair, Spero, Mishka and Rafi who are with me here today.

I want to extend thanks to all the InMode team, salespeople, logistic people, manufacturing people, R&D people, engineering, everybody who's working very hard 24/7 to make sure that we will deliver what we promise to deliver, and we're doing it quarter over quarter. This is a family oriented company. Everybody here is some kind of a partner and an owner. I want to thank all the shareholders who are staying with us for a long time.

I know that right now, there's some macro issue and the stock market is not in the best shape and in the best position. I believe that if we will continue to deliver quarter over quarter another record, everything will be in place. So thank you all again. And hopefully, we'll see you in the next earning call.

Thank you.

Operator

[Operator signoff]

Duration: 0 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

Gibran Ahmed -- Canaccord Genuity -- Analyst

Joseph Conway -- Needham and Company -- Analyst

Jeff Johnson -- Baird -- Analyst

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