In a world where the word "selfie" translates into every language, more and more people want to look their best -- preferably without surgery. InMode (INMD 1.34%) is riding the wave of safer and faster results for patients, with industry-leading minimal and non-invasive RF technology that displaces painful liposuction, wrinkle reduction, and body contouring. Here's how the tech is benefiting physicians and patients alike.
Cutting through the fat
InMode uses bipolar radio frequency technology for body sculpting, fat reduction, wrinkle reduction, and muscle toning that previously required plastic surgery, scars, and long recovery times. Its devices deliver thermal energy to fatty or wrinkly areas of the body, face, and neck. The resulting heat liquefies fat, which the devices suction away, while tightening the skin and connective tissue around the treated area so that patients aren't left with flabby excess skin. Its technology can often provide deeper, more extensive results than competing technologies, and some minor procedures can even be done hands-free by attaching the device to the patient.
InMode sells it's systems through its direct sales force and also through third-party distributors. After the initial sales, InMode sells consumables that are needed for each procedure. As the number of installed systems and procedures grow, so do the recurring sales of consumables.
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For instance, in the first quarter of 2022, consumables grew 79% to $14 million, or 16% of overall revenue. For the full year 2021, InMode sold a record number of consumables representing 11% of overall revenue. The tremendous growth of consumables shows that physicians are increasingly adopting InMode's systems and that patient demand is growing.
In addition, InMode has devices that take care of hair removal, vein problems, and skin rejuvenation like many other companies. By going with InMode, physicians can deal with one company representative instead of multiple reps, creating a network effect for the business. InMode's long history of successful procedures makes it tough for competitors to break into the market with any significance.
According to InMode's 2021 annual report , its technology is the first and only RF-based, non-invasive body contouring technology that permanently kills body fat. InMode's systems deliver either pulse treatment, which doesn't burn skin, or continuous treatment, which monitors skin temperature to ensure skin is not burned during procedures. Thus far, the company's only real rival in non-invasive cosmetic treatments is AbbVie's (ABBV 0.98%) Allergan, which sells CoolSculping systems that freeze fat cells, later expelled by the body. Though CoolSculpting systems require fewer treatments, their results may not be permanent.
The global market for radio frequency-based devices is expected to grow over 12% a year to $3.2 billion in 2030. New physicians have adopted InMode's systems, and existing physicians have expanded into new InMode systems rapidly over the last few years. Equipment sales jumped 72% in 2021. Such demand translates to gross margins consistently above 80% and free cash flow margins of over 38% in each of the last three years. And InMode's annual net income has risen each year since it went public, from $300,000 in 2016 to over $165 million in 2021.
A promising before-and-after picture?
Rising interest rates, among other things, have caused a sell-off in growth stocks this year. InMode shares are down dramatically from their all-time highs in November of 2021. On the company's first-quarter results, management reiterated guidance of revenue in the range of $415 million to $425 million, or about 17.5% growth, its lowest since going public. That's a big slowdown from its post-COVID 73% sales growth in 2021.
The guidance also included non-GAAP diluted EPS of $2.06 to $2.11 for full-year 2022, a modest increase from 2021's $2.05. If guidance holds, the stock trades at just over 10x forward earnings -- a compelling multiple for a competitively advantaged growing company, and well below the company's five-year average forward P/E of nearly 28x.
The main risk to the stock is a full-blown recession that might drive patients to forgo elective expenses. But given the nearly $400 million in cash, marketable securities, and bank deposits on the company's balance sheet in Q1, InMode should be able to weather whatever storm comes its way.
The precipitous fall of InMode's stock seems to be caused by the same supply chain and inflation concerns that have caused growth stock stocks to suffer this year. Cautious investors may want to wait for signs of these issues easing before diving in.
