BlueLinx Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2024

There are 9 speakers on the call.

Operator

Please note this event is being recorded. I would now like to hand the conference over to Mary Sagal, CEO of MSIR. Please go ahead.

Speaker 1

Thank you, operator, and everyone for joining us today. Welcome to InMode's Q1 2024 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 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.

Speaker 1

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 Mizrahi, InMode's CEO. Moshe, please go ahead.

Speaker 2

Thank you, Miri, and to everyone for joining us. With me today are Doctor. Michael Kreindel, our Co Founder and Chief Technology Officer Yair Malka, our Chief Financial Officer Shakila Khani, our President in North America Doctor. Spirota Aduro, our Chief Medical Officer and Rafael Likerman, our VP of Finance. Following our prepared remarks, we will all be available to answer your questions.

Speaker 2

I would like to start with a review of development during the Q1. In the beginning of 2024, we launched our 2 new and advanced platforms, Ignite RF and Optimus Max. Meanwhile, the macro environment continued to be challenging and we experienced slowdown all through the Q1. As a result, we decided to decrease our guidance for the year. We believe that industry headwinds may continue into the Q2 as well.

Speaker 2

We're excited to see high level of interest and demand for our latest platforms, the IgniteRF, IgniteRF and the Optimus Max. Although these platforms accounted for 16% of our sales in Q1, delivery was delayed due to ongoing construction of manufacturing line that led to insufficient inventory levels. All our efforts are focused on fulfilling orders remotely and ensuring that our inventory meets the needs of customers who have already pre ordered the new platforms. Let me expand on the new line of platforms. Ignitos is the next generation of our legacy radio frequency assisted lipolysis technology, a minimally invasive platforms with the new Morpheus8 burst handpiece and all new Quantum RF endpieces.

Speaker 2

Quantum RF endpieces are expected to be FDA cleared in the second half of twenty twenty four and patent protected for 25 years. OPTIMOS MAXX is a multi application platform with Morpheus 8 Burst and non invasive RF, IPL and laser based treatment. We expect that these two platforms will play a significant role in our growth of our company. Moving to capital allocation, InMode's Board of Director has approved a 3rd share purchase program up to 8,370,000 shares. In addition, we keep all other options on the table, including exploring strategic M and A opportunities, paying dividend as well as additional future buyback.

Speaker 2

Before I conclude, I am pleased to welcome Doctor. Michael Engel as new Chairman of the Board. Michael has been a Board member since 2019 and he has served on the Board of several public companies. He has significant financial and executive experience including leading the Discount Investment Corporation Limited in Israel. His executive experience includes serving as the CEO of DCM, a publicly traded company.

Speaker 2

Doctor. Engel holds BA in Economics and an MBA and PhD in Finance from Columbia University. We look forward to benefiting from his financial and strategic expertise. Finally, regarding the current war situation in Israel and the status of our new platforms, management would like to assure investors that we prioritize safety and the well-being of our employees and all of our team is safe. In addition, due to the war in Israel, assembly line of the new platforms may take longer to complete and the new platforms delivery may be pushed to the second half of the year.

Speaker 2

Now I would like to turn the call over to Shaquille, our President of North America. Shaquille, please.

Speaker 3

Thanks Moshe and everyone for joining us. As mentioned, InMode is not immune to the headwinds in our industry. However, despite the slowdown, we are pleased to report that consumables and service grew 13% year over year and accounted for 22,500,000 dollars in Q1. Once again, it's a testimony to the demand and widespread recognition of the InMode brand. We are excited about the enthusiasm and demand for our new and improved platforms, and we believe there will be growth drivers for us going forward.

Speaker 3

Considering the anticipated slower market demand this year, we've implemented changes within our sales team in North America. Have adjusted our infrastructure to position ourselves for accelerated growth when market conditions improve. As a global leader in the aesthetic space, with the most diversified portfolio, we continue to attract seasoned and accomplished salespeople. Our talented and dedicated team remains pivotal in driving our future success. Once again, I'd like to thank our entire North American team for their continued hard work.

Speaker 3

I'll now hand over the call to Yair for a review of the financial results in more detail. Yair?

Speaker 4

Thanks, Sakil, and hello, everyone. Thank you for joining us. As Moshe mentioned, this quarter we launched 2 new platforms and started selling them on a pre order basis. While we could not yet recognize this sales as revenue, we decided to provide pro form a results, which add to the non GAAP results, the pre order sales and the related expenses. We believe that the pro form a results better reflect the business activity during the quarter.

Speaker 4

Starting with the total revenue, InMode generated $80,300,000 in the Q1 of 2024. However, pro form a revenue was $96,000,000 which includes the preorders of new platforms not delivered yet. GAAP and non GAAP gross margin in Q1 2024 were 80%, while pro form a gross margin was 82% compared to 83% in Q1 of 2023. In Q1, our minimally invasive technology platforms accounted for 84% of total revenues. Moving to our international operations.

Speaker 4

1st quarter sales outside of the U. S. Accounted for $38,000,000 representing 47% of total sales, a 14% decrease compared to Q1 last year. In Q1, Europe was the largest revenue contributor from outside the U. S.

Speaker 4

And reached a record sales number. To support our operations and to ensure our future growth, we currently have a sales team of more than 248 direct reps and 83 distributors worldwide. GAAP operating expenses in the Q1 were $45,800,000 a 2% decrease year over year. Sales and marketing expenses decreased slightly to $39,800,000 in the Q1 compared to $41,700,000 in the same period last year. This decrease attributed to the revenue shortfall in Q1 of 2024.

Speaker 4

Next, we look at share based compensation, which decreased to $4,000,000 in the Q1 of 2024. GAAP operating margin for Q1 was 23% compared to operating margin of 39% in the Q1 of 2023. Non GAAP operating margin for the Q1 was 27% and pro form a operating margin was 35% compared to a non GAAP operating margin of 43% in the Q1 of 2023. GAAP diluted earnings per share for the Q1 were $0.28 compared to $0.47 per diluted share in Q1 of 2023. Non GAAP diluted earnings per share for this quarter were $0.32 and pro form a diluted earnings per share for this quarter were $0.45 compared to $0.52 per diluted share in the Q1 of 2023 on a non GAAP basis.

Speaker 4

Once again, we ended the quarter with a strong balance sheet. As of March 31, 2024, the company had cash and cash equivalents, marketable securities and deposits of $770,500,000 This quarter, InMode generated $24,100,000 from operating activities. Before I turn the call back to Moshe, I'd like to share with you our guidance for 2024. Full year 2024 revenue will be $485,000,000 to $495,000,000 compared to previous guidance of $495,000,000 to $505,000,000 non GAAP gross margin between 82% 84% compared to previous guidance 83% to 85 percent non GAAP income from operations between $169,000,000 to $174,000,000 compared to previous guidance of $217,000,000 to $222,000,000 non GAAP earnings per diluted share between $2.01 to $2.05 compared to previous guidance of $2.53 to $2.57 I will now turn over the call back to Moshe.

Speaker 2

Thank you, Eyal. Thank you, Shaquille. Operator, we are ready for Q and A.

Operator

We will now begin the question and answer session. And our first question comes from Matt Miksic of Barclays. Please go ahead.

Speaker 5

Great. Thanks so much. I appreciate you taking the questions. Maybe first, I think it's the topic that we talk most about when we do talk about InMode is the confidence in the direction of travel for things like the major factors that have been most challenging for you in the last 6 to 9 months, financing delays and the end sort of end market demand, if you could just talk about just that confidence? And then I have one follow-up.

Speaker 2

You mean, how confident are we on the market demand? I didn't hear the question.

Speaker 5

Yes, I'm sorry. Confidence in the trajectory of stabilization and improvement and anything that you can give investors on sort of the timing of how you expect that to play out this

Speaker 4

year?

Speaker 2

Okay. At the beginning of the year, at the beginning of 2024, I believe in the last earning call, I said that we expect that the interest rate in the United States and all over the world will start to come down in the second half of twenty twenty four. Most of our doctors are financing their acquisition of capital equipment with the lease of 5 years, a package lease of 5 years. The interest rate today on lease financing have reached a very high rate, something like 14% 15%. And that's something that caused delay in the decision of the doctors.

Speaker 2

We were under the impression that maybe in the second half of the year interest rate will go down and the interest rate on lease packages will go down as well. But in the last months what we have seen in April that inflation in the United States starting to rise again and the announcement of the Chairman was that he doesn't know where he will start cutting down the rate. Therefore, we are not sure that that will happen in the second half of the year. We hope so. Once the economy will start to grow again, especially when the interest rates will go down, then we believe we will start to see another momentum in the medical field.

Speaker 2

But right now, if we want to focus the Q2 and maybe the beginning of Q3, we don't see a major change and I believe I said that in my testimony. Does that answer your question?

Speaker 5

Yes, very much. That's helpful. And then and so I guess while you're waiting for things that you can't control, which some of the things you just described, Maybe talk if you could a little bit about things that you can control. What can you advance in the next couple of quarters in terms of the new product launches? What can you advance geographically potentially to sort of offset some of the kind of macro backdrop issues that you just described?

Speaker 2

Okay. There are basically 3 venues that I will describe. The first one is we're trying to work with the leasing companies and work with them to ease the risk of the leasing company by creating some kind of a pool in order to enable them in order to share the risk with them and enable them to finance more deals. We did that in the Q1. It was successful, partially successful.

Speaker 2

We cannot include all the deals under the pool program. But that's helped because we have a very strong balance sheet and we can share the risk with the leasing company in order to enable them to finance more deals and we did that and I believe we will continue to do it in the Q2. The second venue is the new platforms. They're always what we call the 1st doctors to buy new equipment. We came up with 2, I would say breakthrough 2 new platforms, breakthrough technology on 2 new platforms.

Speaker 2

And we believe that some doctors even if the interest rate is high and even if those platforms are new, all kind of technology I would say users that they will buy the new equipment and that will help a little bit the growth or maintaining the revenue generation generating revenue in the second and maybe on the third quarter. The 3rd venue is I'm sure everybody knows that in late 2023 we have established 2 new subsidiaries, 1 in Germany that cover Austria as well and one in Japan. So these 2 subsidiaries started to work on the Q1. It's not on a full momentum yet. It's take time to ride on the learning curve and build the momentum in those countries.

Speaker 2

But when we go direct, we recognize the full value of the sales and not just the transfer price because we are direct. And that also, I would say help to increase the top line. Other than that, I don't think we can do something that might change the macroeconomics. I believe we're too small to do something like that. The

Operator

next question comes from Danielle Antalffy of UBS. Please go ahead.

Speaker 6

Hi, everyone. This is Simon Nagan on for Danielle. Just want to dig into your operating margin a little bit. It looks like general and administrative expenses ticked up a bit more than expected. Wondering if you could just give some color there?

Speaker 2

I don't think G and A was higher than the Q1 of 2023. Our G and A is relatively very, very, I would say, slim or very, very low. What went up was the marketing as marketing and sales and marketing. And this is because of two reasons. 1, when you measure percentage and we did not cut marketing and sales expenses.

Speaker 2

We continue to do all the marketing activity and all the sales activity that basically was planned late last year when we developed the budget or the beginning of this year. We did not say okay we are selling less, we are cutting marketing and sales. We did not. We did not cut R and D. We continue to do the R and D as we planned in the beginning of the year.

Speaker 2

So when you are marketing and sales expenses are combined fixed cost and the commission which is not fixed cost, But the fixed cost is the same when you sell $80,000,000 or when you sell $120,000,000 So percentage wise, it's a little bit higher. The second, the Q1 is usually a tough quarter as far as marketing expenses because we have at least 3 major events, the sales meeting of North America, IMCAS in Europe and the distributor meeting, and therefore the cost of those marketing expenses are a little bit higher than in a regular quarter. Overall, if you look on the pro form a marketing and sales expenses, With everything that I said, I believe that we will be able to adjust that to the original number or to the previous number once we reach again above $100,000,000 of revenue because percentage wise it will come down.

Speaker 6

That is really helpful. Just a quick follow-up for you. Thinking about the product launches this year, how should we think about the contribution of some of these platforms to sales throughout the year? And do you expect that any of these platforms will cannibalize sales of your other platforms?

Speaker 2

Well, a second generation of minimal invasive, usually I would not say cannibalize because it will take long time to cannibalize an old generation. But in the 1st few years, it's over and above. It's an addition because we did not stop selling the 1st generation, the RFAL. We continue to sell it. We launched the 2nd generation right now only in few countries.

Speaker 2

All the rest of the countries were still selling the regular Body Tight and not the Ignite or the regular Optimas and not the Optimas Max. But yes, eventually some of the doctor will prefer to buy the new generation even if it's a little bit more expensive than to buy the old generation, but there are always market for the old generation. So we are keeping 2 lines, the top line which is the 2nd generation and the baseline which is the I would say the 1st generation which is the BodyTite platforms and the regular Optimus. And I believe that it will take at least 4, 5 years before the 1st generation will disappear or fully cannibalize.

Speaker 6

That's helpful. Thank you.

Operator

The next question comes from Caitlin Cronin of Canaccord Genuity. Please go

Speaker 7

ahead. Hey, this is George on for Caitlin. Thanks for taking our questions. So our first one kind of builds off the last question. As we think about these new platforms, especially with the delays in delivery, how long do you see that lasting throughout the year?

Speaker 7

And then more so looking at your guidance, how much of a contribution of these new platforms, these preorders is kind of accounted in your current guidance numbers?

Speaker 2

Okay. Regarding the Q1, we believe that it will take at least the 2nd quarter and the 3rd quarter in order to fulfill all the pre orders. Because remember, in the Q3, we're still accepting orders for the new devices and we still have something like I would say 120 devices or platforms that we have to deliver which were pre ordered. So which will last more than 1 quarter. I hope that in the Q4 everything will be in line and we will deliver the system without any need to accept preorders.

Speaker 2

So before the end of the year, our business will go back to usual. Now remind me the second question.

Speaker 7

Yes, just on the new platforms like the pre orders, how much of that is currently considered within your guidance?

Speaker 2

I mean, it was all considered within the guidance. I mean, the guidance that we gave took into account the preorders of Q1.

Speaker 7

Okay, great. And then just our second question, any more color you can give on the sales force changes in the U. S?

Speaker 2

So Keith, can you answer that?

Speaker 3

Yes, sure. We've actually had some changes at the top of management. We've also added a separate group of directors, which were internal promotions, which in turn will create some upward mobility and has for some of the people that obviously deserved it and those who will be deserving it. So once things change a little bit and the macroeconomic environment becomes a little more favorable for us, We're just planning on that bounce back, as I mentioned in the script earlier. So we're obviously trying to prepare for it.

Speaker 3

We're trying to move forward. We're trying not to do what many other companies do at times like this, while we're still trying to control the in our balance sheet as well. So we're trying to get prime for when things bounce back.

Operator

The next question comes from Mike Matson of Needham and Company. Please go ahead.

Speaker 8

Hey, everyone. This is Joseph on for Mike today. I wanted to maybe some of these may have already been asked, so apologies if I joined late. But I wanted to maybe just get an update on the manufacturing facilities. Are you still seeing pressure on delivery times?

Speaker 8

Or I guess has that gotten better or worse? What's the labor capacity look like? And I guess how is that affecting the preorder backlog? I just want to kind of get a gauge if how much of this preorder backlog is more or less just demand versus reduced delivery times and manufacturing ability there?

Speaker 2

Okay, good. We have 2 facilities, 2 manufacturing facilities in Israel, 1 in Tiberia and 1 in a small city called Migdal and we're manufacturing all the product in both of them. So basically every line that we have, every manufacturing line can be adjusted to every product. So it's a full backup, okay. That's the way we design it and that's the way we build it.

Speaker 2

As we go to the new platforms, yes, we're in some delay and this is because of the situation in Israel. Everybody knows that in Israel, the army is built from a reserve duty. And therefore some of our employees were drafted for a long time and that's created some delay in the manufacturing. But we are catching up right now. We are working 2 shifts in order to catch up and create enough inventory to enable us sufficiently to deliver every pre order.

Speaker 2

But as I said, we don't think it will take 1 quarter. It will take more than 1 quarter to fulfill all the pre order, but these orders are already been accepted, most of them already been paid. So we are 100% sure that we will deliver 100% of them in the next, I would say, 3 to 6 months. As far as the manufacturing facility, we have capacity to double the sales. Last year we basically manufacture more than 6,000 system and if necessary we can bring the production level or the production capacity to 10,000 without adding any capital equipment, it's only to run the production line more than one shift.

Speaker 2

So as far as the logistic and the purchasing of component, there was no problem, a little bit delay because of logistic issue due to the war in Israel. But other than that, we are building a safety inventory to make sure that the production line will never stop. So we're working on it 24 hours a day and we believe so far even with the war that running now for more than 6 months we have successful delivery. The only thing that we did not deliver on time are those preorders but we can assure the investors that all of these orders will be shipped within a timeframe that I said before, few months and we basically will get back to normal.

Speaker 8

I guess maybe just moving on to the new platform. So you're launching some upgraded platforms to your legacy your legacy devices. I think you said that they're been shipped to a certain number of countries. And so I just wanted to maybe get some info there, maybe some early feedback from some of your customers who have used these new platforms, as well as I think you said previously that the new body's height and face tight, the upgrades kind of lower the procedure complexity. So I was also curious if maybe you've been selling more to anybody that's, I guess, not a plastic surgeon, so like health clinics or anything like that, if they found the new platform easy to use?

Speaker 2

Absolutely. Let me start with the Ignite, okay? The Ignite is a full surgical platform. What do I mean by full surgical platform? The Ignite can handle the body tight, the face tight, what we call the 1st generation, but with higher energy because we improved the handpieces but that's something that we did in order to ease the process and make the treatment faster.

Speaker 2

In addition, we have developed new handpieces, which instead of 2 cannulas, they have only 1 cannula and the bipolar RF is in the tip of the cannula. That make the doctor more flexible to reach any part in the body much easier than with the regular RFA L. In addition to that, these platforms will include 2 new Morpheus handpieces, 1 for the face and one for the body. And also the Morpheus which call now Morpheus 8 Burst is a new generation technology. You can go any depth you want, you can pulse in any depth up to 3 in every punch of the skin, you can determine the level of energy in every depth.

Speaker 2

So for example, you can go to 7 millimeter, deliver 50% of the energy, go up to 5 millimeter, deliver 30 percent of the energy, and go up to 2 millimeter deep in the skin and deliver 20%, altogether 100. So this is another technology that we developed and the Morpheus 8 Burst handpieces for the face and for the body with 24 pins or with 40 pins are able to use these 2 technology which we call Burst and Scale. So this is one platform which we believe that it's a breakthrough technology. It's something that nobody did before, well protected because all covered with patent, which now we can count on 25 years. Although I have to say that nobody has tried to infringe our radiofrequency assisted lipolysis, the body type patent since the beginning of 2026 when we start promoting them and commercializing them in the United States.

Speaker 2

The second platform is the Optimus Max. Basically the Optimus Max, it's a new design, much nicer than the regular Optimus with adjustable screen, with handpieces that look a little bit better and different. The IPL handpiece has 25% more energy, but this platform is designed to be able in the future to handle some other handpieces that we're developing now which the regular Optimus cannot. So this is another platform which is the new platform. Now as I said before, we do not think that these two platforms will cannibalize the 1st generation, meaning that the OPTIMA Smux will cannibalize the OPTIMA or the IGNITE will cannibalize the BodyTite.

Speaker 2

It will be over and above. So every doctor who wants to do more with the Morpheus will need to buy one of these 2. You cannot use the new Morpheus handpiece on the old generation platforms. So that will push the doctors to have 2 or more 2 or 3 different platforms and that's good for us. In addition, as I said, we are now launching them in the U.

Speaker 2

S. We are working on regulation in Canada, Europe, Asia and other territories. Will take time. As you know for example in China it takes 2 to 3 years to get the new platforms on the market. In Brazil and Visa it can take the same about year, year and a half and we just started.

Speaker 2

So it will take few years before these two platforms will be commercially available in all the countries, 96 countries that we are selling today. It's a process. It's a medical equipment. It's not fire and forget. You need to train.

Speaker 2

You need to create clinical data. You need to have training centers. You need to publish. It's a process that takes few years before the full capacity of those platforms will be exploited. Did I answer the question?

Speaker 8

Yes. Oh, absolutely. Yes. That was all very helpful. Thank you.

Speaker 8

Maybe just one more. I think I heard you discuss that they providing loans for certain customers using your cash balances has been going well more or less?

Speaker 2

No, no, just based on what I said. I didn't say that we're providing loans. I didn't say that. I said that we had an agreement with leasing companies to help them limit the risk by creating a pool, pool of money that in some real cases that can help the leasing company. So to enable them to take more risk in the deals that they are helping to finance.

Speaker 2

I didn't say that we are financing the customers. We're not. We're not a bank.

Speaker 4

This is Yair. We put together some programs, risk sharing programs with some leasing companies in which under which we take a fraction of the risk. And in return, they are willing to provide faster approval and basically buy deeper in terms of credit profile of our customers.

Speaker 8

Okay. Yes. Okay. That makes much more sense then. I mean that clears up my question.

Speaker 8

Thank you very much.

Operator

This concludes our question and answer session. I would like to turn the call back over to Moshe Mizrahi for any closing remarks.

Speaker 2

Okay. Thank you everybody. Thank you everybody for joining us. I want to thank all the InMode employees all over the world for continuing to work with us. I want to thank especially for the Israeli team that work days and nights during the challenging time that we are having today and maintaining all the activities that basically this company is performing.

Speaker 2

Thank you again and we'll see you again in August.

Operator

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

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