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InMode(NASDAQ: INMD)
Q1 2024 Earnings Call
May 02, 2024, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning and welcome to the InMode first-quarter 2024 earnings results conference call. [Operator instructions] Please note this event is being recorded. I would now like to hand 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 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. 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.
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With that, I'd like to pass the call over to Moshe Mizrahy, InMoode's of CEO. Moshe, please go ahead.
Moshe Mizrahy -- Chairman and Chief Executive Officer
Thank you, Miri, and to everyone for joining us. 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.
Following our prepared remarks, we will all be available to answer your question. I would like to start with a review of development during the first quarter. In the beginning of 2024, we launched our two new and advanced platforms, IgniteRF and Optimus Max. Meanwhile, the macro environment continued to be challenging and we experienced slowdown all through the first quarter.
As a result, we decided to decrease our guidance for the year. We believe that industry headwinds may continue into the second quarter as well. We are excited to see high level of interest and demand for our latest platforms, the Ignite RF 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 promoting and ensuring that our inventory meets the needs of customers who have already pre-order the new platforms. Let me expand on the new line -- on the new line of platforms. IgniteRF is the next generation of our legacy radiofrequency-assisted lipolysis technology and minimally invasive platforms with the new Morpheus8 burst handpiece and all the new Quantum RF handpieces. Quantum RF handpieces are expected to be FDA cleared in the second half of 2024 and patent protected for 25 years.
Optimus Max is multiplication platforms with Morpheus8 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 board of directors has approved a third share repurchase program up to 8.37 million shares. In addition, we keep all others options on the table, including exploring strategic M&A opportunities, paying dividends as well as additional future buyback.
Before I conclude, I am pleased to welcome Dr. Michael Anghel 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. Dr. Anghel hold 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 the 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 a new platforms delivery maybe pushed to the second half of the year. Now, I would like to turn the call over to Shakil, our president of North America.
Shakil, please.
Shakil Lakhani -- President, North America
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 $22.5 million 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. Considering the anticipated slower markets in market demand this year, we have implemented changes within our sales team in North America. We 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. I'll 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 us. As Moshe mentioned, this quarter we launched two new platforms and started selling them on a pre-order basis. While we could not yet recognize the sales as revenue, we decided to provide pro forma results, which add to the non-GAAP results, the pre-order sales, and the related expenses.
We believe that the pro forma results better reflect the business activity during the quarter. Starting with the total revenue, InMode generated $80.3 million in the first quarter of 2024. However, pro forma revenue was $96 million, which includes the pre-orders of new platforms not delivered yet. GAAP and non-GAAP gross margin in Q1 2024 were 80% while pro forma 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, first-quarter sales outside of the U.S. accounted for $38 million, 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.
and reached the record third 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 first quarter were $45.8 million, a 2% decrease year over year. Sales and marketing expenses decreased slightly to $39.8 million in the first quarter, compared to $41.7 million in the same period last year.
This decrease attributed to the revenue shortfall in Q1 of 2024. Next, we look at share-based compensation, which decreased to $4 million in the first quarter of 2024. GAAP operating margin for Q1 was 23%, compared to operating margin of 39% in the first quarter of 2023. Non-GAAP operating margin for the first quarter was 27% and pro forma operating margin was 35%, compared to a non-GAAP operating margin of 43% in the first quarter of 2023.
GAAP diluted earnings per share for the first quarter was 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 forma diluted earnings per share for this quarter were $0.45, compared to $0.52 per diluted share in the first quarter of 2023 on a non-GAAP basis. 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 the proceeds of $770.5 million.
This quarter, InMode generated $24.1 million 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 million to $495 million, compared to previous guidance of $495 million to $505 million; non-GAAP gross margins between 82% and 84%, compared to previous guidance of 83% to 85%; non-GAAP income from operations between $169 million to $174 million, compared to previous guidance of $217 million to $222 million; 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.
Moshe Mizrahy -- Chairman and Chief Executive Officer
Thank you, Yair. Thank you, Shakil. Operator, we are ready for Q&A.
Questions & Answers:
Operator
[Operator instructions] And our first question comes from Matt Miksic of Barclays. Please go ahead.
Matt Miksic -- Barclays -- Analyst
Great. Thanks so much. I appreciate taking the questions. Maybe first, I think it's the topic that we talked most about when we do talk about InMode as the confidence in the direction of travel for things like the major factors that have been most challenging for you in the last six to nine months, financing delays and sort of end market demand if you could talk about just that competence? And then I have one follow-up.
Moshe Mizrahy -- Chairman and Chief Executive Officer
You mean, how confident are we on the market demand? I didn't hear the question.
Matt Miksic -- Barclays -- Analyst
Yes, I'm sorry, competence in -- in, the trajectory of stabilization and improvements. And anything that you did, you can give investors on sort of the timing of how to play out this year?
Moshe Mizrahy -- Chairman and Chief Executive Officer
OK. 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 2024. Most of our doctors are financing there -- acquisition of our capital equipment, with the lease of five years, a package lease of five years, the interest rate today on lease financing, have reached a very high rate something like 14% and 15%. And that's something that caused a delay in the decision of the doctors.
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 month 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're not sure that -- that will happen in the second half of the year. We hope so once this, one-day 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.
But right now, if we want to focus the second quarter, and maybe the beginning of the third quarter, we don't see a major change. And I believe I said that in my testimonial. Is that answer your question?
Matt Miksic -- Barclays -- Analyst
Yes, very much. It'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 a 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 are the venues geographically, potentially to sort of offset some of the kind of macro backdrop issues that you're -- that you just described.
Moshe Mizrahy -- Chairman and Chief Executive Officer
OK. There are basically three 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 first quarter. It was successful, partially successful, 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 small deals. And we did that and I believe we will continue to do it in the second quarter.
The second venue is the new platforms that are always what we call the first doctors to buy new equipment. We came up with two, I would say break through two new platforms break through to technology on two new platforms. And we believe that some doctors even if the interest rate is high, and even if those platforms are new, all kinds 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 third venue is I'm sure everybody knows that in 20 -- in the late 2023, we have established two new subsidiaries, one in Germany, that cover us too, as well, and one in Japan. So these two subsidiaries started to work on the first quarter. 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. But when we go direct, we recognize the full value of the sales, and not just the transfer price because we're direct.
And that's also I would say a help to increase the top line. Other than that, I don't think we can do something that might change the macro economics. I believe we're too small to do something like that.
Matt Miksic -- Barclays -- Analyst
Yes, of course. Thanks so much for the color.
Operator
The next question comes from Danielle Antalffy of UBS. Please go ahead.
Simon Negin -- UBS -- Analyst
Hi, everyone. This is Simon Negin on for Danielle. Just want to dig into your operating margin a little bit. It looks like general administrative expenses ticked up a bit more than expected wondering if you could just get some color there.
Moshe Mizrahy -- Chairman and Chief Executive Officer
I don't think G&A was higher than the first quarter of 2023. Our G&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.
One when you measure percentage and we did not cut marketing and sales expenses, we continue to do all the marketing activity and all the sales activity that basically was planned late last year, when we develop the budget or the beginning of this year. We did not say OK, we're selling less we're cutting marketing and sales. We did not -- we didn't cut R&D. We continue to do the R&D as we plan in the beginning of the year.
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 million or when you sell $120 million. So percentage wise it's a little bit higher. The second, the first quarter is usually a tough quarter as far as marketing expense, because we have at least three major event, the sales meeting of North America, Incas in Europe, and the distributor meeting.
And therefore the cost of those marketing expenses are a little bit higher than in the regular quarter. Overall, if you look on the -- overall, if you look on the performer, marketing and sales expense. With that everything that I said, I believe that we will be able to adjust that to the original number or to the previous number in once we get -- once we reach again above $100 million of revenue. Because percentage wise this will come down.
Simon Negin -- UBS -- Analyst
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?
Moshe Mizrahy -- Chairman and Chief Executive Officer
Well, a second generation of minimal invasive, usually I would not say cannibalized because it will take long time to cannibalize an old generation. But in the first few years, it's over and above it's an addition, because we did not stop selling the first generation, RFAL we continue to sell it. We launched the second generation right now only in few countries. All the rest of the countries were still selling their -- the regular body type and not the Ignite or the regular Optimus and not the Optimus Max.
But yes, eventually some of doctor would prefer to buy the new generation, even if it's a little bit more expensive than to buy the old generation. But they're always market for the old generation. So we're keeping two lines. The top line, which is the second generation and the baseline, which is the -- I would say the first generation, which is the body type platforms and the regular Optimus.
And I believe that it will take at least four or five years before the first generation will disappear or fully cannibalize.
Simon Negin -- UBS -- Analyst
That's helpful. Thank you.
Operator
The next question comes from Caitlin Cronin of Canaccord Genuity. Please go ahead.
George Gianarikas -- Canaccord Genuity -- Analyst
Hey. This is George on for Caitlin. Thanks for taking our questions. So our first one just 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 kind of lasting throughout the year? And then more so looking at your guidance, how much of a contribution of these, new platforms, these pre-orders is kind of accounted in your current guidance numbers?
Moshe Mizrahy -- Chairman and Chief Executive Officer
OK. Regarding the first quarter, we believe that it will take at least the second quarter and the third quarter in order to fulfill all the pre-orders. Because remember, in the third quarter, 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 it will last more than one quarter.
I hope that in the fourth quarter, everything will be in line and we will deliver the system without any need to accept pre-orders. So before the end of the year, our business will go back to usual. Now remind me the second -- the second question.
George Gianarikas -- Canaccord Genuity -- Analyst
Yes, just on the new platforms like the pre-orders, how much of that is currently considered within your guidance?
Moshe Mizrahy -- Chairman and Chief Executive Officer
I mean, it was all considered within the guidance. I mean the guidance, that we gave took into account the pre-orders of Q1.
George Gianarikas -- Canaccord Genuity -- Analyst
OK. Great. And then our second question, any more color you can give on the sales force changes in the U.S?
Moshe Mizrahy -- Chairman and Chief Executive Officer
Shakil, can you answer that?
Shakil Lakhani -- President, North America
Yes. Sure. We have actually had some changes at the top of management. We have 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 have obviously deserved it and those who will be deserving it. So once the things change a little bit and the macroeconomic environment becomes a little more favorable for us, we are just planning on that bounce back, as I mentioned in the script earlier. So we are obviously trying to prepare for it. We are trying to move forward.
We are trying not to do what many other companies do at times like this, while we are still trying to control our balance sheet as well. So we are trying to get primed for when things bounce back.
Operator
The next question comes from Mike Matson of Needham and Company. Please go ahead.
Joseph Stringer -- Needham and Company -- Analyst
Hey, everyone. This is Joseph on from Mike today. Wanted to maybe -- some of these may have already been asked, so apologies, I joined late. But I wanted to maybe just get an update on the manufacturing facilities, you are still seeing pressure on delivery times or I guess as that gotten better or worse? What's the labor capacity look like? And I guess how is that affecting the pre-order backlog? I just want to kind of get a gauge of how much of this pre-ordered backlog is more or less just demand versus reduced delivery times and manufacturing ability there?
Moshe Mizrahy -- Chairman and Chief Executive Officer
OK. Good. We have two facilities, two manufacturing facilities in Israel, one in Tiberias and one in a small city called Migdal HaEmek. And we are manufacturing all the product in both of them.
So that basically every line that we have, every manufacturing line can be adjusted to every product. So it's a full backup, OK. That's the way we design it and that's the way we build it. As we go to the new platforms, yes, we are in some delay and this is because of the situation and in Israel.
Everybody know that now 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 two-shift in order to catch up and create enough inventory to enable us sufficiently to deliver every pre-order. But as I have said, we will not -- we don't think it will take one quarter.
It will take more than one quarter to fulfill all the pre-order, but these orders are already been accepted, or most of them already been paid. So we are 100% sure, that we will deliver 100% of them in the next, I would say three months to six months. As far as the manufacturing facility, we have capacity to double the sales. Last year, we basically manufactured more than 6,000 systems, 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.
So as far as the logistic and the purchasing of component, there is 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 are working on it 24 hours a day and we believe so far, even with the war that is running now for more than six months, we have successful delivery.
The only thing that we did not deliver on time are those pre-orders, 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 will -- basically we will get back to normal.
Joseph Stringer -- Needham and Company -- Analyst
OK. Great. Yes. Thanks for all that color.
I guess maybe just moving on to the new platform. So you are launching some upgraded platforms to your legacy. Your legacy devices, I think you said that they have 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 tight and face tight, the upgrades kind of lower the procedure complexity. So I was also curious if maybe you have been selling more to anybody that's I guess not a plastic surgeon, so like health clinics or anything like that, and if they found the new platform easy to use?
Moshe Mizrahy -- Chairman and Chief Executive Officer
Absolutely. Let me start with the Ignite, OK. The Ignite is the full surgical platform. What do I mean by full surgical platform, the Ignite can handle the body type, the face type, what we call the first generation, but with higher energy because we improve the hand pieces.
But that's something that we did in order to ease the process and make the treatment faster. In addition, we have developed new hand pieces which instead of two cannulas, they have only one cannula and the bipolar RF is on the tip of the cannula. That make the doctor more flexible to reach any part in the body, much easier than with the regular our sale. In addition to that, these platforms will include two new Morpheus hand pieces, one for the face and one for the body.
And also the Morpheus, it's the Morpheus which call now Morpheus8 Burst is a new generation technology. You can go any depth you want. You can pulse in any depth up to three in every punch of the skin. You can determine the level of energy in every depth.
So for example, you can go to 7 millimeter, deliver 50% of the energy, go up to 5 millimeter, deliver 30% of the energy, and go up to 2 millimeter deep in the skin and deliver 20% or together 100%. So this is another technology that we develop. And the Morpheus8 Burst hand pieces for the face and for the body with 24 pins or with 40 pins are able to use these two technologies which we call burst and scale. So this is one platform, which we believe that it's a break -- 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 have tried to infringe our radiofrequency-assisted lipolysis, the body type pattern since the beginning of the -- since the beginning of 2026, when we start promoting them and commercializing them in the United States. The second platform is the Optimus Max.
Basically the Optimus Max, it's a new design, much nicer than the regular Optimas with adjustable screen, with hand pieces that look a little bit better and different. The IPL hand piece has 25% more energy, but these platforms is designed to be able in the future to handle some other hand pieces that we are developing now, which the regular Optimus cannot. So this is another platform which is the new platforms. Now, as I have said before, we do not think that these two platforms will cannibalize the first generation, meaning that the Optimus Max will cannibalize the Optimus or the Ignite will cannibalize the body type.
It will be over and above, so every doctors who wants to do more with the Morpheus will need to buy one of these two. You cannot use the new Morpheus hand piece on the old generation platforms. So that will push the doctors to have two or more -- two or three different platforms and that's good for us. In addition, as I said, we are now launching them in the U.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 two years to three years to get the new platforms on the market. In Brazil and Visa, it can take the same about year or year and a half and we just started. 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 medical equipment. It's not fire and forget. You need to train.
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?
Joseph Stringer -- Needham and Company -- Analyst
Yes. Absolutely. Yes. That was all very helpful.
Thank you. Maybe just one more, I think I heard you discuss that providing loans for certain customers using your cash balances, that's been going well more or less?
Moshe Mizrahy -- Chairman and Chief Executive Officer
No. That's not what I said. I didn't say that we are 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 view cases that can help the leasing company, so to enable them to take more risk in the deals that they are helping to finance. I didn't say that we are financing the customers. We are not. We are not a bank.
Shakil Lakhani -- President, North America
Sure, this is a we put together some programs, risk sharing programs with some listing 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.
Joseph Stringer -- Needham and Company -- Analyst
OK. Yeah. OK. That makes much more sense then.
I mean that clears up my question. Thank you very much.
Operator
This concludes our question-and-answer session. I would like to turn the call back over to Moshe Mizrahy for any closing remarks.
Moshe Mizrahy -- Chairman and Chief Executive Officer
OK. Thank you, everybody, for joining us. I want to thank all the InMode employees all over the world for continue 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.
Thank you again, and we'll see you again in August.
Operator
[Operator signoff]
Duration: 0 minutes
Call participants:
Miri Segal -- Investor Relations
Moshe Mizrahy -- Chairman and Chief Executive Officer
Shakil Lakhani -- President, North America
Yair Malca -- Chief Financial Officer
Matt Miksic -- Barclays -- Analyst
Simon Negin -- UBS -- Analyst
George Gianarikas -- Canaccord Genuity -- Analyst
Joseph Stringer -- Needham and Company -- Analyst
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