InMode Ltd. — FY2019 and Q4 2019 Summary
Reporting period: Annual report on Form 20-F for the fiscal year ended December 31, 2019. The filing also reports unaudited quarterly results; Q4 refers to the three months ended December 31, 2019. Financial amounts below are in U.S. dollars unless otherwise stated.
Business context
InMode develops and sells energy-based minimally invasive and non-invasive aesthetic medical devices, primarily using radio-frequency technology. Its products serve face and body contouring, medical aesthetics, and women’s health. The company completed its Nasdaq IPO in August 2019, raising approximately $69.8 million net.
Key financial metrics
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Revenue | $156.4 million | $100.2 million | +56% |
| Gross profit / margin | $136.1 million / 87% | $85.1 million / 85% | Margin +2 percentage points |
| Operating income / margin | $59.6 million / 38% | $23.5 million / 23% | +154% operating income |
| Net income attributable to InMode | $61.1 million | $22.4 million | +173% |
| Diluted EPS | $1.60 | $0.62 | +158% |
| Cash from operating activities | $62.2 million | $36.9 million | +69% |
FY2019 revenue grew in the U.S. to $124.2 million (+53%) and internationally to $32.2 million (+68%). The U.S. represented 79% of revenue, versus 81% in 2018. Product sales accounted for approximately 91% of FY2019 revenue; consumables and extended warranties accounted for approximately 9%, and their sales increased 94% year over year.
| Q4 metric | Q4 2019 | Q4 2018 |
|---|---|---|
| Revenue | $47.0 million | $28.8 million |
| Gross profit / margin | $41.0 million / 87% | $24.8 million / 86% |
| Operating income | $18.0 million | $1.3 million |
| Net income | $19.0 million | Loss of $0.2 million |
At year-end, cash and cash equivalents were $44.7 million; marketable securities were $120.1 million; and short-term bank deposits were $28.5 million, totaling approximately $193.4 million in these liquid resources. Working capital was $180.7 million. Total liabilities were $38.6 million; the company reported no outstanding borrowings. FY2019 investing cash outflow was $112.5 million, mainly reflecting purchases of marketable securities and deposits. Financing cash inflow was $70.2 million, principally IPO proceeds.
Material changes versus prior periods
- Revenue growth reflected greater customer awareness, an expanded direct sales organization, higher U.S. average selling prices, and international distribution expansion.
- Gross margin improved from 85% to 87%, which management attributed mainly to a greater share of direct sales relative to distributor sales.
- Sales and marketing expense rose 50% to $66.8 million as the company expanded its sales force; R&D expense rose 36% to $5.7 million.
- FY2018 included $8.0 million of legal settlement and loss-contingency expense. No such expense was recorded in FY2019. A related $10.0 million accrued provision at year-end 2018 was paid in February 2019.
- Net finance income increased to $2.4 million from $0.1 million, mainly from interest income on the enlarged investment portfolio and foreign-currency translation.
- FY2019 net income benefited from approximately $13.8 million in Israeli “Benefited Enterprise” tax benefits. The eligibility period is expected to end in 2021, subject to program conditions.
Outlook, commentary, risks and unusual items
- Management expected to introduce at least one additional product platform by the end of 2020, but did not expect platforms then under development to contribute meaningfully to 2020 revenue. It forecast 2020 capital expenditures of up to $1 million, funded from existing cash and cash equivalents.
- The filing does not provide numerical revenue, earnings, or cash-flow guidance. Management described continued investment in sales and marketing, R&D, new applications, and international expansion.
- Key business risks include dependence on elective, generally non-reimbursed procedures; intense competition and rapid technology change; reliance on a small number of Israeli manufacturing subcontractors and suppliers; product liability and misuse; regulatory clearances and marketing restrictions; and political or operational disruption in Israel.
- The FDA had previously questioned marketing claims for certain women’s health products. The company revised promotional and labeling materials; the FDA confirmed in November 2018 that the cited items had been addressed, but the filing notes that further agency action cannot be ruled out.
- Patent claims by Syneron-Candela and Massachusetts General Hospital were settled in January 2019 for a one-time cash payment made in February, with a fully paid, royalty-free worldwide sublicense in the relevant field. The filing reports no significant changes after December 31, 2019.
- As of the filing date, the company identified the coronavirus outbreak originating in Wuhan as a potential source of supplier disruption. The filing did not quantify any resulting impact.
- Management said disclosure controls were effective at year-end. The filing did not include management’s internal-control assessment or an auditor attestation, citing the transition period for newly public companies.
Important facts for investors to verify
- Whether revenue growth and the high gross margin persist as the sales mix, pricing, and geographic distribution change.
- How much recurring revenue consumables and extended warranties generate, and whether the installed base continues to expand.
- Availability and concentration of manufacturing capacity, supplier continuity, and any operational effect from events in Israel or elsewhere.
- Progress and regulatory status of planned product launches, and whether future marketing remains within cleared indications.
- The amount and duration of tax benefits, compliance with their conditions, and the earnings effect as the current benefit period approaches its expected 2021 end.
- Potential dilution from outstanding options and the 2018 Incentive Plan’s annual share reserve increase; diluted weighted-average shares materially exceeded basic weighted-average shares in 2019.
- The investment and liquidity profile of the $120.1 million marketable-securities portfolio, including maturities and exposure to interest-rate changes.