In May, InMode (NASDAQ: INMD) reported strong first quarter earnings results. They reported quarterly revenues of $106.1 million, a 23.5% increase compared to 1Q 2022. Additionally, the company reported GAAP diluted EPS of $0.47, compared to $0.36 in 1Q of 2022. The company also reported record quarterly revenues from consumables and service of $20 million, a 43% increase compared to 1Q 2022. With these impressive first quarter earnings results in mind, we took a dive into some of the reasons why many investors are bullish on InMode.
InMode Ltd. is a global leader in the design, development, manufacturing, and marketing of advanced medical products for minimally invasive aesthetic procedures. Leveraging their proprietary radiofrequency assisted lipolysis and deep subdermal fractional radiofrequency technologies, the company offers a diverse portfolio of products catering to a wide range of treatments. These include simultaneous liposuction with skin tightening, body and face contouring, ablative skin rejuvenation, and applications in women's health conditions and procedures. InMode also provides non-invasive medical aesthetic products for permanent hair reduction, facial skin rejuvenation, wrinkle reduction, cellulite treatment, improvement in skin appearance and texture, and treatment of superficial benign vascular and pigmented lesions. They also offer hands-free medical aesthetic products targeting procedures like skin tightening, fat reduction, and muscle stimulation. With their global presence and commitment to innovation, InMode continues to shape the field of minimally invasive aesthetic medicine, providing healthcare professionals with advanced solutions to meet the evolving needs of their patients.
The Israeli company, headquartered in Yokneam, changed its name from Invasix Ltd. to InMode Ltd. in November of 2017. In August 2019, InMode Ltd. went public on NASDAQ at $7 per share. Their stock is up over 400% since then, and currently trades at around $37/share.
InMode’s proprietary radiofrequency (RF) technology and RF-based products allow for skin tightening procedures for patients who haven’t reached the skin laxity stage where more invasive procedures are required. This opens up a large potential market of patients aged 35-50, the largest age range in the domestic cosmetic procedure market. Minimally invasive solutions for this large market have sorely lacked in the past, and InMode is setting itself up nicely in the market with its RF-based products and technology, giving it a competitive advantage.
Here is an excerpt from InMode’s most recent Form 20-F, which outlines this RF technology in more detail: “RF energy can be delivered to the skin in a variety of ways, the most common being monopolar delivery, whereby RF energy is delivered through a single probe placed on the skin with a grounding pad distant to the probe site. Alternatively, in bipolar delivery, RF energy is delivered from a probe with two electrodes placed over the treatment area. Bipolar delivery has an important advantage over monopolar delivery: depth of penetration of the RF energy is not dependent on the tissue impedance, or electrical resistance, which varies from person to person, or the cross-sectional area of the probe. That is not the case with monopolar delivery. Instead, in bipolar delivery, depth of penetration of the RF energy depends on the distance between the two electrodes on the probe, with increasing distance resulting in increased depth of penetration. We believe we are the leader in the development, design and commercialization of bipolar RF energy devices for minimally invasive and subdermal ablative aesthetic purposes.”
InMode holds a number of competitive advantages that continue to make it a compelling growth case. They are pioneers of the minimally invasive aesthetic solutions market, and their proprietary technologies demonstrate multiple performance advantages over other invasive and expensive surgical procedures. This allows physicians and patients to obtain the results of these expensive and invasive procedures at a fraction of the cost. With a strong brand name recognition in the aesthetic solutions market, we believe that they will be able to heavily increase sales and revenue volumes over the next few years, as these minimally invasive cosmetic procedures catch on with physicians and patients.
Additionally, InMode sets itself apart by offering post-sales support for physicians. This post-sales support includes training, installation, repair support, and consulting services. This quality customer care and support keeps physicians coming back for more, helping InMode increase its installed base and consumable sales, a revenue stream that management is heavily focusing on.
Broad regulatory approvals also allow InMode to sell in a number of different markets. They have 29 FDA clearances and are permitted to sell across Europe, Asia, South America, and North America.
InMode’s management team has deep experience in the medical aesthetics industry, with proven track records of success. CEO Moshe Mizrahy and CTO Dr. Michael Kreindel previously founded Syneron Medical Ltd., a medical aesthetics company that merged with Candela Corporation in 2017. On top of this, the senior executive team has an average of over 15 years of medical aesthetics industry experience.
With this deep experience, InMode has outlined its growth strategy in a few key areas to help drive increased recurring revenues and revenue growth and further market penetration to capture a larger customer base. They plan to do this by increasing their sales presence. Management outlined their plans to expand their direct sales organization and recruit talented sales representatives in existing and new markets to broaden the adoption of their products.
Additionally, like mentioned before, management plans to drive revenue growth via recurring revenue streams and consumable sales. In their most recent Form 20-F, they mentioned that they have sold over 1.6 million consumables, a figure they expect to grow massively as their customer base grows. An increased customer base allows them to exponentially increase revenues via recurring consumable sales, leading to even more revenue growth beyond an increased customer base.
They also plan to apply their RF based products and technologies to new medical applications. Their near term product development portfolio includes applications for dry eye and eyelid treatments, postpartum treatments, wearable, noninvasive face and body reshaping products, and TMJ (Temporomandibular Joint Disorders), among others. Due to this push for further medical application of their proprietary technology, management plans to increase their addressable market by working with a new customer base of ENTs, ophthalmologists, OB/GYNs and general practitioners. InMode’s further product offerings that are currently being developed help meet the unmet market demands of these medical practitioners.
As of December 31st, 2022, InMode has a global installed base of 17,000, with an installed base of 7,200 in the United States. With nearly 60% of its installed base being from global markets, InMode has shown its incredible growth potential in international markets.
Looking at InMode’s financials, we can see some spectacular financial metric growth. Since 2016, InMode has grown its net revenues at a CAGR of over 50%. Additionally, InMode has grown its gross profit at a rate of around 55%, and its EBITDA and EPS at CAGRs of 120% and 114%, respectively. While these numbers are skewed slightly due to small denominators in the company’s earliest stages (2016-2018), we can still see very healthy growth since 2019. For example, revenues have grown at a CAGR of over 30% since 2019. Additionally, the company has been able to grow its gross profits at a CAGR of 30% in the same time frame, along with EBITDA and EPS, which have grown at a CAGR of around 36% and 19%, respectively (since 2019). These figures show the impressive sustained growth of the business.
Additionally, for an early stage company, InMode has one of the best balance sheets you could ask for. InMode currently holds around 574.45 million dollars worth of total cash and short term investments. Specifically, InMode holds around 93 million dollars in cash and cash equivalents. Even better, InMode holds no long term debt.
Looking at InMode’s cash flow statement, we can see the growth that they have had in free cash flows. InMode has grown its free cash flows at a CAGR of 80% since 2016 and a CAGR of around 29% since 2019. Free cash flow will only increase as revenues expand as InMode runs a very efficient business, with a LTM ROIC of 33.6%, a LTM ROE of 34%, and LTM gross margins of nearly 84%.
Quickly analyzing valuation metrics and multiples, we can see that INMD is currently trading a NTM Levered Free Cash Flow Yield of 6.98%, above the 4 year average (since 2019) of 5.34%. Additionally, INMD is trading at a NTM P/E ratio of 13.44x, well below the 4 year average of 22.54x.
A quick analysis of ownership reveals that CTO Michael Kreindel and CEO Moshe Mizrahy own roughly 4.17% and 3.48% of outstanding shares, respectively. Mizrahy holds a $103.7 million dollar stake in the company, with Kreindel holding a $124 million dollar stake in the company. This ownership from management is bullish, signaling their confidence in the business and incentivizing them to return value to shareholders.
Furthermore, we have seen some large asset managers and financial firms increasing their shares of INMD stock. Looking at Quiver Quantitative’s Institutional Holdings Dashboard, we can see that firms like Renaissance Technologies, Susquehanna International Group, and William Blair Investment Management have all added to their INMD stock positions, as filed on 03/31/2023. Additionally, asset managers Aureus Asset Management and Clark Capital Management Group added new positions as filed on 03/31/2023, adding 557,283 and 455,242 shares, respectively. You can view all of InMode’s institutional holdings data with Quiver Quantitative.
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