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InMode(INMD) - 2022 Q4 - Annual Report
INMDInMode(INMD)2023-02-14 12:03

Revenue and Financial Performance - Revenue from minimally invasive platforms grew by 112.7million(44112.7 million (44%) in 2022 compared to 2021, contributing 81% of total revenue[362] - Revenue from hands-free platforms decreased by 27.3 million (38%) in 2022, contributing 10% of total revenue[362] - Revenue from non-invasive platforms grew by 11.3million(3911.3 million (39%) in 2022, contributing 9% of total revenue[362] - Total revenue for 2022 was 454.3 million, a 27% increase from 357.6millionin2021[397]−Grossprofitfor2022was357.6 million in 2021[397] - Gross profit for 2022 was 380.8 million (84% of revenue), compared to 304.0million(85304.0 million (85% of revenue) in 2021[397] - Net income for 2022 was 161.5 million (36% of revenue), compared to 165.1million(46165.1 million (46% of revenue) in 2021[397] - Income taxes increased significantly to 39.9 million (9% of revenue) in 2022 from 2.9million(12.9 million (1% of revenue) in 2021[397] - Revenues increased by 96.7 million (27%) to 454.3millionin2022,drivenbya454.3 million in 2022, driven by a 112.7 million increase in minimal invasive platform sales, offset by a 27.3milliondecreaseinhand−freeplatformsales[398]−U.S.revenuesgrewby27.3 million decrease in hand-free platform sales[398] - U.S. revenues grew by 61.3 million (26%) to 298.6millionin2022,primarilyduetoan298.6 million in 2022, primarily due to an 85.4 million increase in minimal invasive platform sales and growth in consumable sales[399] - International revenues increased by 35.4million(2935.4 million (29%) to 155.7 million in 2022, driven by growth in Europe (12.7million),Canada(12.7 million), Canada (9.6 million), and Latin America (5.1million)[400]−Consumablesandextendedwarrantyrevenuesgrewby575.1 million)[400] - Consumables and extended warranty revenues grew by 57% in 2022, supported by a 5,400-unit increase in installed platform base[401] - Gross margin decreased to 84% in 2022 from 85% in 2021, primarily due to higher material costs[402] - Net cash provided by operating activities was 181.6 million in 2022, driven by a net profit of 161.5million[413]ExpensesandInvestments−Researchanddevelopmentexpensesincreasedto161.5 million[413] Expenses and Investments - Research and development expenses increased to 12.4 million (3% of revenue) in 2022 from 9.5million(39.5 million (3% of revenue) in 2021[397] - Sales and marketing expenses increased to 160.6 million (35% of revenue) in 2022 from 119.4million(33119.4 million (33% of revenue) in 2021[397] - Research and development expenses increased to 12.4 million in 2022, up from 9.5millionin2021,drivenbyhighersalaryandshare−basedcompensation[403]−Salesandmarketingexpensesroseby9.5 million in 2021, driven by higher salary and share-based compensation[403] - Sales and marketing expenses rose by 41.2 million (35%) to 160.6millionin2022,primarilyduetoincreasedsalaryandmarketingcosts[404]MarketandProductPerformance−Globalinstalledbaseofapproximately17,000productplatformsasofDecember31,2022[359]−InMode′sproductplatformsincludeBodyTite,Optimas,Votiva,Contoura,Triton,EmbraceRF,EvolveX,Evoke,Morpheus8,andEmpowerRF,withEmpowerRFandEvolveXintroducedin2021[32]−TheInModeRFMulti−SystemwithFractionalApplicatorsemploysRFenergyfordermatologicalandgeneralsurgicalprocedures,includingskinablation,resurfacing,andhemostasis[297]−InMode′sEmFace(Evoke)devicewithCheekandChinapplicatorsisFDA−clearedfortemporaryreliefofminormuscleaches,pain,andimprovementoflocalbloodcirculation[299]−InMode′sEmBody(Evolve)platformwithEmBodyPlusandEmBodyFXapplicatorsisFDA−clearedfortemporaryreliefofmuscleaches,pain,andreductionintheappearanceofcellulite[299]RegulatoryandCompliance−InModemustobtainandmaintainFDAclearancesforitsproductstoavoidharmtocommercialoperations[33]−Thecompany′sproductsaresubjecttoextensiveregulatorycompliance,includingFDArequirementsformodifications,whichmaynecessitatenew510(k)clearancesorPMAapplications[291]−InMode′sproductsaresubjecttoFDAregulations,including510(k)clearance,labeling,advertising,andpost−marketsurveillancerequirements[313]−ThecompanyissubjecttoFDAinspectionstoensurecompliancewithQualitySystemRegulations(QSR)andotherregulatoryrequirements[310]−FDAclearanceprocessfornewmedicaldevicestypicallytakes3to12months,withpremarketapprovalpotentiallytaking1to3yearsorlonger[122]−FDAmayrevoke510(k)clearances,requiringchangestopromotionalmaterialsorcessationofmarketingforcertaindevices[123]−ModificationstoexistingdevicesmayrequirenewFDAclearances,potentiallyleadingtorecallsormarketinghalts[124]−FDA′spotentialmodernizationofthe510(k)pathwaycouldimposeadditionalregulatoryrequirements,increasingcostsanddelayingnewclearances[125]−Regulatorycompliancefailurescouldresultinfines,productrecalls,orshutdownsofproductionfacilities[138]−Regulatoryclearancesorapprovalsforproductscanbewithdrawnduetonon−complianceorunforeseenissues,potentiallyleadingtofines,recalls,orcriminalsanctions[126]−Misuseoroff−labeluseofproductsmayharmthecompany′sreputation,leadtoproductliabilitysuits,orresultincostlyinvestigationsandfines[127]−Mostofthecompany′sproductsareclassifiedasClassIorClassIImedicaldevices,exemptfrompremarketingauthorizationorsubjecttothe510(k)clearanceprocess[128]−TheFDAmayenforceactionsifpromotionalmaterialsaredeemedtopromoteoff−labeluses,potentiallyleadingtofines,seizures,orcriminalpenalties[129]−Physicians′off−labeluseofproductsmayincreasetheriskofinjury,harmthecompany′sreputation,andleadtocostlyproductliabilityclaims[130]−Failuretocomplywithpost−marketingregulatoryrequirementscouldresultinenforcementactions,includingpenalties,recalls,orproductwithdrawals[131]−Non−compliancewithFDA′sQualitySystemRegulation(QSR)orlaserperformancestandardscouldhaltmanufacturingoperationsandharmthebusiness[134]−AdversemedicaleventsorproductmalfunctionsmustbereportedtotheFDA,andfailuretodosocouldresultinsanctions,includingfinesorproductseizures[136]IntellectualPropertyandLegalRisks−Thecompany′ssuccessdependsonprotectingitsproprietarytechnologyandintellectualpropertyrights[33]−Thecompany′spatentportfolioissubjecttouncertainty,withpotentialrisksincludinginvalidation,unenforceability,orlimitationsinscope,whichcouldadverselyaffectitsbusiness[265]−Thecompany′sintellectualpropertystrategyreliesonpatents,trademarks,andconfidentialityagreements,butthesemeasuresmaynotfullypreventunauthorizeddisclosureorinfringement[105]−Thecompanymayfacelitigationorlicensingchallengesfromthirdpartiesclaimingpatentinfringement,whichcouldresultinsubstantialdamagesorproductredesigns[106]−Thecompany′sintellectualpropertyrightsmaynotprovidecompleteprotectionagainstcompetitors,asthirdpartiescoulddeveloptechnologiesoutsideitspatentscope[103]−Thecompany′spatentportfolioincludes6issuedU.S.patents,1issuedKoreanpatent,and14pendingU.S.patentapplications,withadditionalfilingsunderthePatentCooperationTreatyandinEurope[103]−ThecompanygeneratesmostofitsrevenuefromtheU.S.,whereithaspatentprotection,withnosignificantrevenuefromcountrieswherepatentprotectionisnotsought[102]−Thecompanyfacesrisksfromcompetitorspotentiallyreplicatingitstechnologyinjurisdictionswithoutpatentprotection,whichcouldharmitscompetitiveposition[102]−Thecompany′strademarksandtradenamesarecriticalformarketrecognition,buttheymayfacechallenges,infringement,orgenericization,impactingitscompetitiveposition[116]−Thecompanymayneedtoparticipateincostlylegalproceedings,suchasinterferenceoroppositioncases,todefenditspatentrightsagainstcompetitors[110]−SettledpatentinfringementclaimswithSyneron−CandelaandMGHinJanuary2019,involvingaone−timecashpaymentandanon−exclusive,royalty−freesublicenseagreement[111]−Potentialfuturelitigationrisksrelatedtointellectualpropertyinfringement,whichcouldresultinsubstantialmonetaryliability,productredesign,orlossofintellectualpropertyrights[109][111]−Risksoflitigationrelatedtotrademarkdisputes,whichcouldleadtobrandnamechanges,customerconfusion,andreducedsales[112]−Potentialforconfidentialinformationdisclosureduringintellectualpropertylitigation,whichcouldadverselyaffectthecompany′sstockprice[115]MarketExpansionandStrategy−Thecompany′sabilitytoincreaserevenuesdependsonidentifyingandpenetratingnewmarketsforitsproducts[21]−Thecompanyaimstoinnovate,develop,andcommercializeexistingandnewproductsbeyonditstraditionalcustomerbase[21]−InMode′scommercialization,marketing,andmanufacturingcapabilitiesarekeytoitsstrategy[21]−Thecompany′sestimatesofexpenses,futurerevenue,andcapitalrequirementsarecriticaltoitsfinancialplanning[21]−Thecompany′sinternationalsalesaccountedfor34160.6 million in 2022, primarily due to increased salary and marketing costs[404] Market and Product Performance - Global installed base of approximately 17,000 product platforms as of December 31, 2022[359] - InMode's product platforms include BodyTite, Optimas, Votiva, Contoura, Triton, EmbraceRF, EvolveX, Evoke, Morpheus8, and EmpowerRF, with EmpowerRF and EvolveX introduced in 2021[32] - The InMode RF Multi-System with Fractional Applicators employs RF energy for dermatological and general surgical procedures, including skin ablation, resurfacing, and hemostasis[297] - InMode's EmFace (Evoke) device with Cheek and Chin applicators is FDA-cleared for temporary relief of minor muscle aches, pain, and improvement of local blood circulation[299] - InMode's EmBody (Evolve) platform with EmBodyPlus and EmBodyFX applicators is FDA-cleared for temporary relief of muscle aches, pain, and reduction in the appearance of cellulite[299] Regulatory and Compliance - InMode must obtain and maintain FDA clearances for its products to avoid harm to commercial operations[33] - The company's products are subject to extensive regulatory compliance, including FDA requirements for modifications, which may necessitate new 510(k) clearances or PMA applications[291] - InMode's products are subject to FDA regulations, including 510(k) clearance, labeling, advertising, and post-market surveillance requirements[313] - The company is subject to FDA inspections to ensure compliance with Quality System Regulations (QSR) and other regulatory requirements[310] - FDA clearance process for new medical devices typically takes 3 to 12 months, with premarket approval potentially taking 1 to 3 years or longer[122] - FDA may revoke 510(k) clearances, requiring changes to promotional materials or cessation of marketing for certain devices[123] - Modifications to existing devices may require new FDA clearances, potentially leading to recalls or marketing halts[124] - FDA's potential modernization of the 510(k) pathway could impose additional regulatory requirements, increasing costs and delaying new clearances[125] - Regulatory compliance failures could result in fines, product recalls, or shutdowns of production facilities[138] - Regulatory clearances or approvals for products can be withdrawn due to non-compliance or unforeseen issues, potentially leading to fines, recalls, or criminal sanctions[126] - Misuse or off-label use of products may harm the company's reputation, lead to product liability suits, or result in costly investigations and fines[127] - Most of the company's products are classified as Class I or Class II medical devices, exempt from premarketing authorization or subject to the 510(k) clearance process[128] - The FDA may enforce actions if promotional materials are deemed to promote off-label uses, potentially leading to fines, seizures, or criminal penalties[129] - Physicians' off-label use of products may increase the risk of injury, harm the company's reputation, and lead to costly product liability claims[130] - Failure to comply with post-marketing regulatory requirements could result in enforcement actions, including penalties, recalls, or product withdrawals[131] - Non-compliance with FDA's Quality System Regulation (QSR) or laser performance standards could halt manufacturing operations and harm the business[134] - Adverse medical events or product malfunctions must be reported to the FDA, and failure to do so could result in sanctions, including fines or product seizures[136] Intellectual Property and Legal Risks - The company's success depends on protecting its proprietary technology and intellectual property rights[33] - The company's patent portfolio is subject to uncertainty, with potential risks including invalidation, unenforceability, or limitations in scope, which could adversely affect its business[265] - The company's intellectual property strategy relies on patents, trademarks, and confidentiality agreements, but these measures may not fully prevent unauthorized disclosure or infringement[105] - The company may face litigation or licensing challenges from third parties claiming patent infringement, which could result in substantial damages or product redesigns[106] - The company's intellectual property rights may not provide complete protection against competitors, as third parties could develop technologies outside its patent scope[103] - The company's patent portfolio includes 6 issued U.S. patents, 1 issued Korean patent, and 14 pending U.S. patent applications, with additional filings under the Patent Cooperation Treaty and in Europe[103] - The company generates most of its revenue from the U.S., where it has patent protection, with no significant revenue from countries where patent protection is not sought[102] - The company faces risks from competitors potentially replicating its technology in jurisdictions without patent protection, which could harm its competitive position[102] - The company's trademarks and trade names are critical for market recognition, but they may face challenges, infringement, or genericization, impacting its competitive position[116] - The company may need to participate in costly legal proceedings, such as interference or opposition cases, to defend its patent rights against competitors[110] - Settled patent infringement claims with Syneron-Candela and MGH in January 2019, involving a one-time cash payment and a non-exclusive, royalty-free sublicense agreement[111] - Potential future litigation risks related to intellectual property infringement, which could result in substantial monetary liability, product redesign, or loss of intellectual property rights[109][111] - Risks of litigation related to trademark disputes, which could lead to brand name changes, customer confusion, and reduced sales[112] - Potential for confidential information disclosure during intellectual property litigation, which could adversely affect the company's stock price[115] Market Expansion and Strategy - The company's ability to increase revenues depends on identifying and penetrating new markets for its products[21] - The company aims to innovate, develop, and commercialize existing and new products beyond its traditional customer base[21] - InMode's commercialization, marketing, and manufacturing capabilities are key to its strategy[21] - The company's estimates of expenses, future revenue, and capital requirements are critical to its financial planning[21] - The company's international sales accounted for 34% of total revenues in both 2022 and 2021, with a focus on expanding into markets such as Canada, the UK, Spain, Portugal, France, Belgium, Luxembourg, Italy, Australia, and India[250] - The company's growth strategy includes expanding its customer base to non-traditional markets such as ENT physicians, ophthalmologists, general practitioners, and aesthetic clinicians[34] - The company's success depends on maintaining strong relationships with physicians and healthcare professionals, as well as attracting and retaining key personnel to drive product development and sales[37][45] - The company's financial results may fluctuate due to factors such as customer adoption, regulatory compliance, supply chain disruptions, and the impact of global health crises like COVID-19[48][49] - Regulatory risks in international markets, including delays, additional costs, and uncertainty in obtaining and maintaining foreign regulatory approvals[141] - Delays in obtaining international qualifications or approvals could prevent the company from effectively marketing products in certain global markets[142] Operational Risks and Challenges - InMode faces risks from rapid technological development and competition in the surgical aesthetic solutions market[33] - The company relies on a limited number of contract manufacturers and suppliers, with primary facilities located in Israel, making it vulnerable to disruptions such as natural disasters, epidemics, or COVID-19-related interruptions[49] - The company faces risks related to product liability claims, which could result in expensive litigation, damage awards, and increased insurance premiums, potentially impacting financial results[40] - The company's products are used in elective procedures, with demand influenced by factors such as patient affordability and economic conditions[35] - Exchange rate fluctuations may decrease earnings if currency exchange risks are not successfully hedged, with a majority of revenues and substantial expenses denominated in U.S. dollars, while some revenues and costs are incurred in NIS, Canadian dollars, and Euros[85] - Cyber-attacks and improper disclosure of personal information could result in liability, harm reputation, and adversely affect business and results of operations, with increasing frequency and sophistication of attacks[86] - The global data protection landscape is rapidly evolving, subjecting the company to numerous state, federal, and foreign laws, which may create uncertainty, affect operations, and impose additional costs[87] - The CCPA and CPRA in California increase compliance costs and potential liability, with the CPRA imposing additional data protection obligations and creating a new California data protection agency[89] - The GDPR imposes strict requirements for processing personal data within the EEA, with potential fines of up to €20 million or 4% of annual global revenues for non-compliance[90] - The UK GDPR mirrors the GDPR fines, with potential fines up to the greater of €20 million (£17.5 million) or 4% of global turnover, and uncertainty remains regarding data transfers between the UK and EU[91] - The CJEU invalidated the EU-US Privacy Shield Framework, requiring case-by-case assessment of standard contractual clauses for personal data transfers, potentially leading to additional costs and regulatory investigations[92][93] - Failure to comply with foreign, federal, and state healthcare statutes and regulations could result in significant civil, criminal, and administrative penalties, adversely affecting the company's ability to operate[97][98] - The company is subject to anti-bribery, corruption, and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, with potential civil or criminal penalties for non-compliance[99][100] - Future sales of ordinary shares by shareholders could reduce the share price and impair the company's ability to raise capital or acquire other companies[148] Research and Development - InMode has 27 R&D staff based in Israel, focusing on developing new products and extending existing ones in the minimally and non-invasive medical aesthetic markets[260] - The company received three 510(k) FDA clearances for its Sub-Necrotic Thermal Tissue Remodeling technology in 2014, 2016, and 2017, with applications targeting fat and larger body areas at depths of up to 6mm[244] - The company outsources manufacturing to subcontractors who comply with ISO 13485:2016, CE, and FDA quality standards, with quality control employees stationed at subcontractor facilities[256] Share Repurchase and Capital Management - The company repurchased 2,557,829 shares for 95.2 million under its share repurchase programs as of December 31, 2022[409] - Working capital stood at $547.4 million as of December 31, 2022, with liquidity primarily from cash, cash equivalents, and marketable securities[410] - InMode Ltd. has 82,544,991 ordinary shares outstanding as of December 31, 2022[5] - The company repurchased 1,975,003 ordinary shares held as treasury shares by the end of 2022[11] Legal and Regulatory Compliance - As a foreign private issuer, InMode is exempt from certain U.S. securities laws and Nasdaq corporate governance rules[33] - The company is subject to U.S. federal and state data privacy laws, including HIPAA, CCPA, and CPRA, which regulate the handling of consumer and health information[88] - The company is subject to anti-bribery, corruption, and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, with potential civil or criminal penalties for non-compliance[99][100]