INMD- InMode

Investment Analysis Clubs Saul’s Investing Discussions
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From Beth Kindig, “The large addressable market coupled with low barriers to entry has created a gold rush of SaaS startups. Despite such fast growth, investors are leery of companies with neck-breaking revenue growth, such as Okta OKTA, +0.79%, Yext and CrowdStrike. Instead, we see ample evidence that positive EPS with at least 10% forward growth is attractive to investors. And there’s no reason to believe that trend won’t spill into next year.”

It bothers me greatly that all the stocks held/discussed here are all basically from the same/similar category. I would like to introduce a different growth stock other than the usual suspects- INMD, InMode. Most of what is taken is from IBD’s New America article, November 2019.

InMode sells systems that can contour the body and face. It counts Kim Kardashian, Emma Roberts and Chrissy Teigen among its users. The platform uses two electrodes. One is placed under the skin using local anesthesia, while the second is on a wand pressed against the skin. Energy then flows between the two electrodes. As it does, waves of radiofrequency ablate fat cells and tighten the skin simultaneously.

  1. Why- The traditional plastic surgery world is based on scalpels and lasers. InMode, on the other hand, uses radiofrequency technology to melt fat and tighten the skin simultaneously. A competing procedure, coolsculpting, freezes away fat cells, but the procedure doesn’t tighten the skin simultaneously. Their technology still has 13 years of patent protection and additional patents cover other features like safety, design and application.
  2. TAM- Half the population in the world. InMode’s technology is classified as minimally invasive surgery. Patients are treated under local anesthesia. Each procedure runs for under an hour, leaves no scarring and recovery spans less than a day. Many people who want to do face and body reshaping, they cannot afford $20,000-$30,000 for surgery, but they can afford $6,000-$7,000 for FaceTite or BodyTite. InMode’s technology is also significantly less expensive for the consumer than plastic surgery. This is important because insurance companies typically don’t pay for elective procedures like medical aesthetics.
  3. Growth rate- 51% YOY on revenue, 96% on EBITDA. Sales- 2016- 23.1 MM 2017- 53.5 MM 2018- 100.2 MM. EPS rank from IBD = 99. A doctor might spend $130,000 to buy a BodyTite system. Each procedure also requires one-time tools that cost roughly $200-$400. Each treatment generates about $6,000-$8,000 in revenue. So by even doing one procedure a week, a doctor could pay off the system in under a year. Thirty percent of the doctors have already bought a second machine, according to Chief Executive Moshe Mizrahy.
  4. Profitability- 87% Gross profit margin investors. I understand that some promising biotechs have been kicked off this board, but this has GROWTH NUMBERS AND is EPS POSITIVE, despite being an IPO.
  5. The future- InMode plans to expand to other wellness areas in the future like snoring and dry eyes. Both uses will help the medical aesthetics company differentiate itself from its rivals, many of whom still rely on laser technology, which is well saturated.
  6. Small base- market cap only 1.2 B, institutions only own 11% of the company.

Final thoughts- This stock is getting hammered over the past month, driving the forward PE down to 23. After scouring the web for answers, I believe that they are planning a secondary offering.

DoesMIWork

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Yes, INMD is much cheaper than your typical SaaS stock despite similar growth and margins. Actually better margins because they are profitable.

My main concerns are: recurring revenue. They sell the $130k machine as a one time deal then each operation it is used, the doctor buys $200 worth of consumables. Not very high.

TAM; somewhere around $6 billion. It becomes necessary for increased adaption of the surgery InMode does for the TAM to grow. This could possibly be done because they brought the operation costs down significantly that the procedure could become more common thus spread number machines out there.

They are however well entrenched in a moat protected by patents.

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12x,

They could also sell service contracts on their machines. I’m in very old tech industry. The air compressor company wants $5000/yr for a $20000 air compressor! They “hide” behind a computer setup and make it so hard for is to service it ourselves.

If a unit can pay for itself in a year, and 30% of the doctors want to buy a second unit, then the doctor must be making a lot of money. I think INMD can charge accordingly.

DoesMIWork

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Saul, I’m very sorry for my pithy answer. One word come to mind that puts me off this type of investment. Lasix.
BCTim

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Inmode (Inmd)
Market Cap: $1.3 billion
Price: $41.50
P/E 34
P/S 9.4
FCF Yield 3.4%

What is Inmode: InMode is a leading global provider of innovative medical technologies. InMode develops, manufactures, and markets devices harnessing novel radio-frequency (“RF”) technology. InMode strives to enable new emerging surgical procedures as well as improve existing treatments. InMode has leveraged its medically-accepted minimally-invasive RF technologies to offer a comprehensive line of products across several categories for plastic surgery, gynecology, dermatology, otolaryngology, and ophthalmology.

3Q:2019 Notes:

Income Statement:

Increased revenue 57% from $25.4 million to $40 million YoY, Gross Margins came in at 87% up from 86% YoY, Net income increased 87% from $8.6 million to $16.2 million. Earnings per share increased 62% from $.26 to $.42.

Balance sheet and shares outstanding:

The balance sheet has $166,253,000 in cash and $0 dollars in debt. They have 39,004,000 million shares outstanding.

Cash Flow Statement:

The company had $13.5 million in FCF in the Q3 quarter and had $43.6 million in FCF YoY.

Event: Oct 31st , 2019

Received Health Canada Certification for multiple new products which will further expand its penetration into the Canadian market. Included in this certification are Morpheus8 and AccuTite,.

Event: November 25th, 2019

This was their very first quarterly earning call as a public company since their IPO which took place on August 8th.

Things to Watch:

They launched the Evolve platform in the U.S. market. They established sales and marketing subsidiaries in India and Australia. By the end of 2020 they expect to have operations in eight territories. They are diversifying their product the now have BodyTite Embrace, Optimas, and Votiva. The CEO stated that Gross Margin’s above 85% is a must and that they will not produce a product that does not have a gross margin of at least 85%. There RF based products have a gross margin of 87% and the lasers are 85%.

They are launching the Evolve product in the rest of the world in first quarter 2020. They are waiting for final approval in Europe. The Evoke product is pending FDA approval. They expect it by the first of next quarter. They also expect to launch the CelluTite product, which is already FDA approved, in the first quarter of 2020 too.

Concluding Thoughts:

This is an Israeli company and the CEO was a founder of another facial forming and body forming company that was sold and taken private. Inmode was sued by the CEO’s previous company for patent infringement but that was settled and is no longer a problem. I really like the growth this company is showing, and the profitability. This is all coming from a small base. With the company already FCF positive and the room for growth, I think this company could be a long term company. Especially with all the people that are trying to remain young looking. The company is starting to move into Europe and Asia. This company at this time only has four analysts on their conference call so it remains under followed.

Current Numbers

November 5th , 2019 3Q:2019 earnings highlights:
** Revenue was $40,010 million up 57% from $25,418 million
** TTM Revenue was $138,132 million or $3.54 per share
** Earnings were $.42 up from $0.26
** TTM earnings were $1.22 per share
** Shares outstanding 39.004 million
** Cash flow for the quarter was $13,461 million up from $7,062 million
** TTM cash flow was $43,642 million or $0.1.12 per share
** Cash $166,253 million: debt $0
** Gross margins 87%
** Trading range between Aug 14th, 2019 and Nov. 5th, 2019 was $15.56 to $42.00: the PE ratio
range was 12.75 to 34.42 : PS ratio range was 4.39 to 11.85
** Special Note: The stock went up $6.69 the day of the report. They reported in the morning.

Inmd in Thousands except for EPS


                     Q318       Q418        Q119       Q219        Q319    
    Rev              25,418     28,773      30,552     38,797      40,010
    Net Inc           8,638       -213      10,124     15,797      16,186
    EPS                 .26       -.01         .32        .49         .42
    FCF               7,062      9,373       2,393     18,415      13,461

Andy

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One word come to mind that puts me off this type of investment. Lasix.

Tim, for those of us who aren’t up on Lasix, why don’t you tell us what you mean, and how Lasix, an oral anti-fluid retention drug, puts you off InMode. (I don’t have a clue what you were trying to say).

Saul

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I assume they mean LASIK, the eye surgery, of which a few manufacturers were rockets of a stock for a year or two, then when the install base was there, the stocks tanked.

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Regarding recurring revenue, this is addressed in the company’s growth strategy detailed in their F-1:

Continue to further penetrate our existing customer base and drive recurring revenues. We believe that there are opportunities for us to generate additional revenue from existing customers who are already familiar with our products. Since our inception, approximately 30% of our North America customers have purchased a second platform to expand their treatment offerings. Additionally, we have experienced growth in the sales of consumables (handpieces that are, or contain, one-time use applicators that must be replaced following each treatment) over the past three years. Since inception, we have sold over 257,000 consumables. We expect that as our customer base grows, the percentage of our revenues attributable to consumables will increase. We also expect that certain customers will be candidates for technology upgrades to enhance the capabilities of their existing InMode products. In addition, as we continue to grow our support services program, we expect to seek to increase the number of customers that enter into service contracts and extended warranties, which would provide us with additional recurring revenues.

Here is the F-1:

https://www.sec.gov/Archives/edgar/data/1742692/000114420419…

Best, Swift
Long INMD

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I’m sorry Saul I really dont have the skills to illuminate much. I believe Lasix was the name of the original equipment manufacturer of the machinery used for Lasik eye surgery. As I recall everybody including the Motley Fool were crazy hyper excited by the prospect of the technology. I believe there was one year where it returned #1 or near #1 gains in the broader market. But ultimately the price of lasik surgery dropped like a stone and the fact that no SaaS type of sales were reoccurring the TAM was quickly saturated and lasix as a company and lasik as a procedure were huge investment failures.

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ISRG increasing its revenue potential through the expansion of leasing. This action increases their reoccurring revenue from new customers and greatly expands opportunities in the underdeveloped world. IMGN has stated intentions to increase revenue via a more aggressive leasing program. While there are tremendous differences in levels of technology and investment cost by clients, and without a defendable numerical basis for this comment, I believe both companies have a real opportunity to sustain stock price appreciation paths by increasing lease based revenue. Are there more similarities than differences between ISRG and IMGN at similar stages in their corporate development?

Drake

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First off it was VISX and they got disrupted by a newer company with a superior machine that took over the market. Much like INMD is now to the likes of the CoolSculptor.

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First off it was VISX and they got disrupted by a newer company with a superior machine that took over the market. Much like INMD is now to the likes of the CoolSculptor.

Look up symbol VISX. They were acquired by AMO. Look up AMO.I ot nothing on them so what’s “second off”

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TAM- Half the population in the world.
…
Many people who want to do face and body reshaping… can afford $6,000-$7,000 for FaceTite or BodyTite.

Half the population of the world can afford $6,000-$7,000? You might want to rein in your hyperbole.

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Glad to see information and encouragement for INMD. I BOUGHT IT ALMOST AS SOON AS IT WENT PUBLIC AND ADDED a little,twice, but as you know,it kept going down.
Was glad to see it can sell in Canada, as well as in several other Countries…but not in USA, yet? STJ

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I’d say suitable analogs for this could include:
Lasik
Intuitive Surgery
Invisalign
Coolsculpting

Some of the risks could include -

  1. getting on the wrong side of perverse incentives of physician clinics
  2. disruptive technologies
  3. losing patent protection

I will consider but need a lot of due diligence on this kind of elective stuff.
Ant

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.but not in USA, yet? STJ

The United States is 77% of their revenue at this time.

Andy

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Tim,

I’m just trying to clarify that VISX was the name of the company that had the huge short run related to the Lasik procedure (not Lasix).

Second off VISX wasn’t a bottle rocket that came crashing down to earth because that’s just the inherent nature of medical device industry. It happened because VISX got disrupted. So you can’t throw out the baby with the bathwater and write off this industry because of it. That was my point. In this case, it’s InMode doing the disrupting, and signs indicate that there is nothing on the horizon that can displace them from garnering more and more marketshare as time goes on.

Here is an article that discusses VISX’ downfall: https://www.thestreet.com/opinion/visx-a-hard-look-found-the…

I’m not saying INMD is a buy (I’m on the fence myself due to a seemingly low TAM), I’m just saying I don’t think it’s a good idea to just write off entire industries because of one failed stock in a similar industry.

The other is true as well. We don’t want to just buy based on one time incidents that lead us down the wrong path. Frederick Moll left ISRG when it was failing, started Hansen Medical. Hansen Medical was favored over Stereotaxis by many in the investment community because of the “ISRG pedigree” when he deserved no such thing. HNSN went on to severely underpeform STXS and Moll left the company at a significant loss to investors. He went on to found yet another company called Auris that eventually acquired HNSN, then sold that company to Johnson & Johnson I believe. But before it was acquired by JNJ, I read about people highly interested in the company Auris hoping to buy when it went public, all because he was affiliated with ISRG in the early years. So despite Moll’s “pedigree” around ISRG, I would not blindly invest in his next venture, if he were to have one.

I can’t recall if I ever bought Stereotaxis or not, but vetting between HNSN and STXS I favored STXS though HNSN was well favored by the investment community. I believe it was even a TMF recommendation at one point. STXS is still just barely hanging on life support to this day but it’s clear now they had the superior technology at the time.

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https://www.barchart.com/stocks/quotes/INMD/interactive-char… T I M B E R.

“in tribute to all who seek to record their ideas and share them with others”

Quillnpenn - a poor church mouse scratching for a living as a Swing Trader.
------------ Vision - Multi-Millionaire…Goal - earn 1.3% compounded Daily.

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“Was glad to see it can sell in Canada, as well as in several other Countries…but not in USA, yet?”

They are selling in USA. I checked. You can go to InMode’s website, enter your zip code and they will give you names and contact information for the closest 20 customer/doctors to that zip code. Link here:

https://inmodemd.com/physician-finder/

The “population density” of InMode doctors in an area might also be a hint to the TAM. My reasoning is, if you are in East Pigsbelly and there are four doctors offering the service there, the market may be saturated. If you are in Beverly Hills and there are only four, there is room for expansion.

As examples, I did three searches:
I used a Hollywood zip code 90048 and found 20 within 10 miles drive (many in Beverly Hills, West Hollywood area where there is money and demand to look your best).
I used a Portland Oregon zip code, and found 6 within 20 miles. The rest were as far as 200 miles.
I used a Des Moines, Iowa zip and found 3 in the whole state. Closest 20 go all the way to Wisconsin, Illinois, Nebraska and Missouri.

So if you know the people/culture of your area, you may have a sense of how many customers will pay for an Inmode RF facelift, and can see from the doctor-density if there “should” be more.

The Lasik surgery analogy seems to be realistic. But I don’t know where we are in that growth curve yet.

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Several things:

  1. There appears to be no penetration in the NYC area or Atlanta (there’s a Marvel Studio there, where they made Avengers, etc). There are no offices in those areas. It appears to be pretty early in the growth cycle.
  2. Lasik is a two shot deal, one for each eye. There is no recurring revenue. People will always get old and fat. Those are repeat customers.
  3. Aging- imagine how many people who wished to look like what they used to look like and what they would do. Forget Peleton! This market appeals to the ego.
  4. The price level is significantly cheaper than the plastic surgeries. This means that it is a lot more available to many more customers.
  5. Safety- Although I did not get into it, the Chief Executive Moshe Mizrahy, is very high on the relative safety of his procedure.
  6. This is my submittal to stock of the year for 2020.

DoesMIWork

1 Like