InMode: A Deep Dive After Q3 Earnings

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InMode’s products are part of the medical aesthetics industry that is expected to grow at an 11% CAGR over the next five years.Despite a punishing macro environment of late that has seen its share ...

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Yaroslav Astakhov/iStock via Getty Images   Thesis InMode’s (NASDAQ:INMD) products are part of the medical aesthetics industry that is expected to grow at an 11% CAGR over the next five years. Despite a punishing macro environment of late that has seen its share price decline over 80% from its peak exactly three years ago, InMode has remained profitable while continuing to innovate with new product offerings, and have retained a strong profile among both clinician and treatment user populations. The strong new and second-hand sales market for their platforms suggest their customers continue to see value in their products, while celebrity endorsements and a sustained emphasis in many nations on aesthetics and beauty (especially among women), driven by social media, suggests robust tailwinds for the industry and strong consumer desire for their product offerings. An investment in InMode comes with some risks. Sentiment for the company has soured over the last few years due to its declining revenues, claims of cash allocation mismanagement directed at the CEO, and a general aversion to investing in Israeli companies of late due to the war’s potential impact on supply chains. Lesser known but equally troubling in my eyes are the possible market saturation of their products in key markets, like California, and questions raised related to InMode’s sales practices that may have been connected to the recent departure of the company’s North American President and their VP Sales in North America. InMode recently released its Q3 2024 financial statements, which showed continued macro-economic pressures but revenue declines and adjusted guidance figures as expected. Weighing up the risks and benefits, and given the historically low PE ratio at present, I consider InMode as having an excellent risk-reward profile and rate them a strong buy under $18 a share. Company Background InMode was founded in 2008 and has become a leading innovator in medical aesthetic products and services. They design, manufacture and sell devices that use radio-frequency (RF)-based technology to provide both non-invasive and minimally-invasive treatments across several categories of surgical specialty including – according to their website – plastic surgery, gynecology, dermatology, otolaryngology and ophthalmology. Physicians in these areas (often surgically-trained) purchase InMode’s machines to provide a range of treatments to their patients. InMode’s products are part of the medical aesthetics industry, which according to Markets and Markets research was worth $15.4 billion as of 2023 and poised to grow at a 10.96% CAGR to $25.9 billion by 2028. The industry bridges the medical and healthcare technology sectors but offers services and products to consumers that are discretionary in nature. This makes them quite prone to cyclicality as interest rates and the broader macro-economic environment can heavily impact sales and revenue forecasts for the businesses providing these services (e.g. clinics), and lead to ebbs and flows in earnings for those companies providing the technology, like InMode. Data from FinChat.io Indeed, as revenue grew impressively into 2022, the broader economic downturn brought about by rising inflation and higher interest rates has weighed heavily on InMode’s growth, alongside its stock price which has declined over 80% from its peak almost exactly 3 years ago. FinChat.io Still, the company remains profitable and last year generated over $176m in FCF. InMode’s Products InMode is headquartered in Israel but has regional headquarters in twelve countries – the US, Canada, Argentina, UK, Germany, France, Spain, Italy, India, China, Japan and Australia – each run as subsidiaries, as shown in a recent SEC filing. InMode’s machines offer both minimally-invasive and non-invasive aesthetic procedures, but the company specializes in the former. They have identified what they call a ‘treatment gap’ that exists between traditional laser procedures (40m procedures annually worldwide) for things like hair removal, pigmented lesions, vascular lesions, leg veins and acne, and plastic surgery (2.5m procedures annually worldwide) that offers good results but is very costly, requires general anesthesia and therefore significant downtime (hospital stays, time off work, etc.), leaves scars, and offers low repeatability. The ‘unmet need’ for InMode is the population, typically 35-60 year-olds, seeking surgery-comparable results but without the same drawbacks, and who can’t benefit from the laser procedures that require multiple treatments and offer limited efficacy. InMode Investor Presentation, August 2024 InMode suggests they are at the forefront of a ‘paradigm shift’ in aesthetic treatments driven by their innovative technologies. They currently offer 10 different platforms ranging from those focusing on treatments for the face and neck (e.g. FaceTite, AccuTite Ignite RF, Morpheus8 Burst), the body (e.g. EvolveX, Morpheus8 Burst Deep), pigment and vascular issues (e.g. Vasculaze MAX, Lumecca Peak), to hair removal (e.g. Fusion Light/Dark, DiolazeXL MAX), and women’s wellness (e.g. VTone, FormaV, Morpheus8). Some platforms offer a range of different treatment options, like their Define, IgniteRF, and OptimasMax machines, while others are more specific to a particular treatment, like their Morpheus8 machine for body contouring/skin tightening and the Triton machine for hair removal. InMode Investor Presentation, August 2024 The range of treatments is large and growing, as InMode frequently adds new machines and handpieces that can be purchased to perform different treatments. This not only offers obvious benefits to their customers – the physicians who purchase their machines – in terms of having several different options to chose from when building their business and responding to market demands in their particular locale, but also offers InMode opportunities to generate additional follow-on revenue after they sell their machines. Costings: The Investment Case from the Clinicians Perspectives InMode does not provide cost information for their machines on their website, so this information would be difficult to obtain were it not for the various blogs, Reddit posts, online forums and consumer websites in North America that detail this information. Analyzing this information, three thoughts came to my mind: i) how much return a clinic might make from their investment in an InMode machine; ii) what InMode’s pricing power might be; and iii) what information from the second-hand sales market reveals about the value customers see in InMode’s product offerings. I’ll delve into each of these further. The ROI from a Clinic’s Perspective The price noted for a Morpheus8 machine, as noted here, was US$150,000, and for the newest version of the versatile OptimasMax machine discussed on a recent Reddit stream at the time of writing, prices ranged from US$197-275k. These are clearly quite expensive machines, but when looking at the various treatment price-ranges expressed from clinicians/treatment center owners themselves – depending on the clinic location and the treated area(s) of the body, anywhere from $500-1800 per treatment of Morpheus8, for example – a typical clinic that paid $100k for its machine and sells its treatments for $1000 a pop would have to perform just 100 treatments to pay off the machine. This seems very doable, especially given that – again, from the available information online – it seems patients/customers will need to undergo two or perhaps three treatments to obtain their desired results. On the surface, it seems an achievable target for a clinic to perform this number of treatments over the course of the machine’s life. Indeed, a target or two or three times that also seems doable, which would provide clinic owners a significant return on investment. However, these figures will vary according to the market demand of InMode’s treatments and the market saturation of InMode’s machines in a given area. I am not an expert in the economics of clinics offering non-surgical procedures such as those offered by InMode’s products. Nor do I know how large a population is needed to support one, but my contention is that there is probably a limit to the number of those who will undergo the treatments in every area, and if there are too many clinics offering the same treatments in a particular area, some of these may struggle to reach the ‘magic (break-even) number’ and therefore view their purchase of one of InMode’s machines a poor investment. Indeed, one clinic owner on the Reddit stream mentioned earlier said exactly that: ‘Cant give away these treatments in LA. Everyone has em, and we spent $111k for the Optimus.’ One med-spa director in California also reported: 'everyone in our area now has a Morpheus8 as well'. It is possible that markets in areas of California might be reaching a saturation point, and possibly elsewhere, but this would be mere speculation. Indeed, these types of comments were countered by other spa owners, such as Beauty O’Clock Medical Spa in Ontario, which expressed a very positive opinion on the possible ROI. ‘While the initial cost of a Morpheus8 machine may seem high, its advanced technology and versatile applications often make it a cost-effective choice compared to other aesthetic devices’. By delivering effective and efficient treatments, Morpheus8 can offer 'a substantial return on investment for clinics and practitioners’. It seems that cyclicality and basic supply-and-demand economic dynamics play a large role in determining the ROI for InMode’s platforms. At times when the clinic’s target population has less expendable income (e.g. during time of high interest rates and when managing high inflation), their business is likely to suffer, but during times of declining or low interest rates, with inflation at a much more reasonable level (near 2%), their business is likely to prosper. InMode CEO Moshe Mizrahy stated in during their Q3 2024 earnings call: ‘No, on the contrary, we know the consumable in the U.S. went down, not up and the total was again less what expected. And I said that in my speech because less minimally invasive treatment are being made right now. Now the reason for that is that our treatment with InMode equipment it's relatively expensive treatment. It's on thousands of dollars and not hundreds of dollars. So we believe the macroeconomics also reflect in that and also did not help doctors to do more treatment.’ However, there is a strong likelihood that the US economy is moving from the high-interest rate/high inflation environment to a declining interest rate/low inflation environment – assuming we are to achieve the Fed’s targeted ‘soft landing’ and avoid high unemployment rates and a recession – and this gives me a great deal of confidence that InMode can see substantial revenue growth once again. What also gives me confidence in this thesis are InMode’s relatively stable inventory levels.   Data from Yahoo Finance If InMode was struggling to sell their machines, we’d see inventory levels increase as a proportion of their revenue, but if we look across the last four years, we find relatively stable inventory-to-revenue ratios, which is encouraging. In terms of their addressable market for InMode’s platforms in the US and globally, the CEO Moshe Mizrahy offered some commentary at the recent 23rd Annual Needham Virtual Healthcare Conference. He claimed that only 30% of plastic surgeons in US clinics have purchased InMode’s platforms, leaving a large addressable market among this group, while there is an even larger addressable market among physicians like gynecologists and ophthalmologists who are, according to Mizrahy, increasingly diversifying into minimally invasive surgical procedures to boost their revenues. This should help sustain their growth trajectory going forward, while international expansion provides an even greater opportunity. Figures on this were disclosed for Q1 2024, where international sales (those outside of the US) represented 53%, representing an over 12% increase from the previous year’s quarter. Inmode’s Pricing Power The price ranges highlighted above suggest that InMode sales staff have flexibility to offer discounts, which I have mixed feelings about. On the one hand – as everyone knows in sales – the mantra ‘Make the sale!’ implies that selling for a small profit is better than not selling at all, but on the other hand, the best businesses (think Apple, Dyson, Lego) rarely offer significant sales to attract customers; they know the value of their products and have the confidence in them and their market, driven by years of business experience and a large market share, to not drop prices and still enjoy strong sales. The market that InMode operates in, however, is much more cyclical than cell phones, vacuum cleaners, and play products that are, in addition, much cheaper to purchase and considered less discretionary for their major target markets. InMode’s customers – think, your local clinic/med-spa – will consider a machine from InMode a major investment. Without a significant pool of local clients or patients to sell their treatments to, or a strong indication that their market size will grow, their customers may well hold off on such a purchase or seek a cheaper second-hand (used) machine. The Resale Market for InMode’s Platforms Looking through various resale websites (and I came across several), price ranges for InMode’s second-hand machines were much more affordable. For an OptimasMax machine, I saw prices here at the time of writing from $58-125k, though some of these were for their slightly older machines (e.g. their 2019 version), which did not offer the same performance. These figures suggest a fairly robust second-hand resale market, where initial purchasers of their machines could see a return of up to or more than half of their initial investment after, say, 5 years. Not bad. InMode must readily accept – like all car manufacturers do – that the second-hand market is where many of their customers will gravitate toward and make purchases from. This is entirely acceptable given the range of customers who operate: some wanting to be cutting-edge and buy the latest technology to stay ahead of their competition, while others are content to pursue a more conservative business plan. While views on this will differ, it is my opinion that a strong second-hand market where prices remain buoyant is a good thing for InMode. It suggests that their products are held in high regard, which would give confidence to those who purchase their brand-new machines that they will obtain a solid resale value later on if/when they choose to upgrade to a newer version. InMode also offers financing options for their customers, which is an absolute necessity for those clinics – most I’d imagine – who are not sitting on the necessary cash to purchase the machine outright. However, it should be noted – doing our due diligence, but digressing slightly – that InMode has been criticized for some of their sales practices here and here. The latter article makes the claim that sales representatives in the US were pressured to sell machines using high-pressure sales tactics and offer ultra-high financing options through a preferred financial broker that offered kickbacks to InMode sales executives. These claims make for very uncomfortable reading for InMode investors like myself, and should not be taken lightly. Overseeing these practices, the article claims, was InMode’s North American president Shakil Lakhani, who recently departed the company, along with Dan Wilson, their VP of Sales USA. While the terms or details regarding Lakhani’s departure from InMode after 7 years at the company were not disclosed – and therefore I’m forced to read between the lines and take a subjective view on the events – the vagueness of Moshe Mizrahy’s response when asked about this in the latest earnings call – ‘he did a great job’ but we needed a change ‘to realign the organization’ – leads me to believe that there might have been a disagreement at the heart of his departure. Are we to view these personnel changes as part of an effort to clean up the company’s sales practices in North America? This is certainly plausible, and I’d like to give InMode’s C-suite team in Israel the opportunity to prove themselves with their organizational realignment one way or the other. Let’s now return to assessing InMode’s business model. How InMode Makes Money Inmode makes money through both one-off sales of their machines to clinics, and through recurring revenue in the form of servicing and parts (consumables). From their latest earnings from Q3 2024, of their total $130.2m in revenue, $15.8m (a little over 12%) was from recurring revenue, which represented an 11% decline from the year ago quarter. While over 85% of their revenue might be classed as non-recurring, it is important to remember that many clinics will reinvest their cash back into their business buy purchasing machine upgrades, which will benefit InMode, much like most iPhone users will seek to upgrade to a newer phone once every few years to keep up with the latest technology. The pressures to do this for InMode’s customers re even greater, however, as they are in competition with other clinics in their local neighborhood. Through their global sales force of around 250 representatives, InMode sells their platforms in 97 countries, but most of their sales are in the US (11,480 platforms out of a total installed base of 26,070 worldwide, or 43.78%). For the most recent quarter, 72% of InMode’s revenue was derived from the US. Does InMode have a Durable Competitive Advantage? When I invest, I look for companies with a moat, which enables them to stay ahead of competition and hopefully gain – or at least retain – market share within their industry, retain pricing power for their products/services, and maintain a high ROIC. My assessment of InMode’s possible durable competitive advantage is part based on research (both qualitative and quantitative) and part logic. I usually start with the qualitative and then see if the numbers reflect what I have found out. There are four areas where InMode could have a moat, setting them apart from their competitors: their brand recognition; their technology, their celebrity endorsements; and their founder-led company with strong insider ownership. Brand Recognition and Competition This is difficult to assess in any reliable way. However, from those who are in the industry – including clinicians whom I have personally spoken with in my neighborhood (which is albeit very limited and subjective but nevertheless insightful) – it is apparent that InMode is one of the leading companies in this space. Their treatments are award-winning; their name crops up in almost all of the online forums debating the merits of the different platforms offering minimally-invasive aesthetics treatments, and their treatments are widely available internationally and especially in the US and Canada. In the BC lower mainland (the Greater Vancouver area) where I reside, for example, over 100 different clinics/med-spas offer at least one InMode treatment. This suggests strong market penetration, with the opportunity for InMode to sell further handpieces and new machines to these customers when they want to upgrade. The company obviously has strong brand recognition and a sizeable market share, but this is also difficult to quantify. They have several competitors in this space, but many spread their treatment offerings across different sectors of the same industry, such as companies like Allergen Aesthetics (a subsidiary of ABBV) and Revance (RVNC) that specialize in dermal fillers, and Cutera (CUTR) that specializes in laser treatment for acne among other offerings involving RF skin rejuvenation and muscle toning. The latter two are unprofitable at present, meanwhile AirSculpt Technologies (AIRS) which operates in the body contouring area also remains unprofitable three years after its IPO. Several privately-held companies including Syneron Candela, Lumenis, and Cynosure operate in the laser-based space but as their financial information is not made publicly available it is difficult to make comparisons in terms of revenue or profit margins. In any case, InMode aims to operate outside of these areas and fill the niche between laser treatments and surgery as discussed earlier. Of those that are close to operating in the same space – CUTR among them, plus Venus Concept (VERO), Apyx Medical (APYX) and Viveve Medical (OTC:VIVE), all are unprofitable, while the latter is close to bankruptcy. Data from FinChat.io Across all of these metrics (market cap, LTM revenues, gross profit margin, current ratio and ROIC), InMode outperforms its peers. Moreover, to my knowledge, there are no other companies that offer the breadth of procedures across the range of different treatment areas than InMode. This places them in a unique position and affords them a degree of safety should any of these treatment areas decline in popularity; they can divert their resources to developing new platforms and treatments to meet market needs. Technology InMode’s technology will contribute to its moat, and they have 10 technologies across 11 product lines supported by patents to protect them in this regard. While counterfeit machines built in China are being sold online at a significant discount, InMode was recently granted an injunction against them to (hopefully) limit their business. Reviews of their treatments are largely positive which suggests they are effective. Another Seeking Alpha analyst provided numerous comparisons of review scores from Realself.com pitching InMode’s treatments (e.g. Evolve, FaceTite, BodyTite, Votiva, BodyFX and Morpheus8) against their peers, and they compared very favorably across the line-up. Their treatments have also been subject to independent analysis from academic scholars who have published their research findings in peer-reviewed academic journals, some of which are well established and carry a strong reputation in their respective fields, such as Aesthetics Surgery Journal (published since 1980 by Oxford University Press, with an impact factor of 3.1) and Aesthetic Plastic Surgery (published since 1976 by Springer, with an impact factor of 2.0). Some of their treatments have been singled out for specific praise, winning prestigious industry awards including the 2020 Good Housekeeping Best Beauty award for its EvolveX treatment (body – skin toning and tightening); the Elle Future of Beauty award for its FaceTite and AccuTite Ignite RF treatment (face – skin tightening); and the 2024 NewBeauty awards for Morpheus8 Burst (facial dermatology – soft tissue contraction) and Morpheus8 Deep Burst (body – soft tissue contraction, e.g. cellulose) treatments. InMode Investor Presentation, August 2024 What you want to see is InMode effectively responding to customer feedback by creating better products and constantly striving to do better by their customers and their treatment users. I would suggest that the repeated improvements of their product technologies every few years provides some evidence of that. They are not resting on their laurels or on their previously strong reputation; they are actively cultivating it going forward. This is evident in the amount of money they are diverting to R&D, which has shown a steady increase from 2019-2023 – representing a 5.9% CAGR – though its proportion of revenue has declined somewhat.   Data from stockanalysis.com Celebrity Endorsements and Societal Trends Also helping the investment case – and perhaps giving InMode a competitive advantage in comparison to their peers – is the brand recognition created by their celebrity endorsements. Eva Longoria – the American actress and film producer of Desperate Housewives fame – is their global brand ambassador, who reportedly used Morpheus8 Body and EvolveX Transform after the birth of her first child. While there will be some who are skeptical about the effectiveness of such endorsements – including myself, admittedly – Longoria’s 6.4 million Twitter and 10.2 million Instagram followers would probably disagree; her public support of InMode’s treatments will not go unnoticed. So long as the attention she brings InMode is positive – and there is always a risk of this not being the case – her outward support and sustained use of the company’s treatments is likely to continue bringing attention to their products and encourage other celebrities to use them too. Indeed, InMode have a separate page on their website dedicated to showcasing the celebrities who have used their products, with accompanying photo evidence. Those featured – who have agreed to be associated with the brand after receiving treatment – include several singers, television personalities and socialites such as Kim, Kourtney and Khloe Kardashian, singer Jessica Simpson, actress Francesa Farago, model Paige Hathaway, AJ McLean from the Backstreet Boys, and high-profile male American football players JuJu Smith-Schuster and Dalvin Cook. That even some men have been shown to use InMode’s products is instructive, given most of InMode’s marketing – and some of their products – are directed specifically toward the female market. Prospects within the medical aesthetics market in general shows positive signs for InMode especially. A recent McKinsey survey highlights which specific areas within this market have the most potential for growth, and it appears the two leading areas are body contouring and facial rejuvenation, both of which (of the six shown below) InMode have created treatments for. McKinsey US Consumer Aesthetics Survey, December 2022 In a more recent report by McKinsey entitled ‘Here to stay: An attractive future for medical aesthetics’, the authors shared thoughts on the robust growth of the industry that were driven by ‘the widespread and dramatic shift regarding aesthetics and self-image’. Between 2000 and 2018, researchers representing the American Society of Plastic Surgeons found that ‘29 percent more males underwent cosmetic procedures overall and 72 percent more opted for minimally invasive procedures’. This signals that this new field of medical technology is drifting towards more widespread adoption, and increasingly towards men, and is likely, in part, driven by what the authors of the McKinsey article – in agreement with the American Academy of Facial Plastic and Reconstructive Surgery – described as increasing consumer demand for ‘procedures that help them look ‘better in selfies,’ maintain previous procedures, and reduce signs of aging’. InMode’s treatments also play into the efforts of Novo Nordisk (NVO) and Eli Lilly (LLY) to market their GLP-1 weight loss drugs as transformational for individual patients. When asked during the Q2 2023 earnings call of the possible effects of these drugs on InMode and whether they were noticing patients formerly on a GLP-1 drug reaching out for one of InMode’s treatments, the former Chief Medical Officer Spero Theodorou stated: ‘So, you're looking at a patient spending $10,000 to $15,000 in a year on these medications and committed and now they definitely have lost the weight, but they've also looked worse. So, once they've crossed that line, what we're seeing is for them to come in and have things done to spend more money on a Morpheus treatment, for example, which is simple, $3,500 to $4,000. It's not a big deal. So I don't want to say it's sort of like a gateway drug to us, but it kind of is. So I do think it's going to have a positive impact for us. We're seeing these patients come in.’ I agree with Theodorou when he says that these drugs and the physical effects that they generate – e.g. what some have called ‘Ozempic face’ – will create new demand for InMode’s treatments, to tighten and tone the skin from the areas where fat loss has occurred. Once these individuals embark on their personal journey to lose weight, it is unlikely they will stop, but instead will continue to focus on self-improvement and turn to InMode’s treatments as a result. Clinics and med-spas will purchase InMode’s platforms to meet this demand, and the general public’s awareness of treatments like Morpheus8 will increase. All of these trends can be considered tailwinds for InMode, but they will take some time to play out in a meaningful way. Founder-led Company with Large Insider Ownership For all of its 16 years of existence, InMode has been led by its founders, the CEO Moshe Mizrahy and CTO Dr. Michael Kreindel, both of whom worked together previously when they founded Syneron before moving on to set up InMode. Founder-led companies have been shown to outperform their peers, and what gives me even more confidence in their ability to do so going forward is the significant insider ownership and the company’s recent share buyback program that remains in place. Together, Moshe Mizrahy and Michael Kreindel own over 6% of the company, representing over $110 of their own money invested in the business. After some initial trepidation, the CEO also responded to investor pleas and initiated a share buyback program in 2023. At the end of Q2 2024, InMode had repurchased 8.37m shares representing 10% of the outstanding share count. In September 2024, InMode announced yet another buyback program for up to 7.68 million shares. These buybacks not only boost shareholder returns but also indicate the management’s confidence in the company’s future alongside its present depressed valuation. Collectively, these aspects give me confidence, though the question of their moat remains. There are some aspects of InMode’s business that suggest some possibility that a moat could develop in time, though right now this is difficult to state with any confidence. Their market share is difficult to determine; their technological prowess has yet to be proven; there is no direct evidence that their celebrity endorsements help drive meaningful sales; and there is no guarantee that insider ownership will lead to earnings growth. However, the ratios drawn from their financial statements paint a different and more positive picture of sustained profitability and excellent capital allocation despite broader macro headwinds. Data from stockanalysis.com and FinChat.io While their pricing power seems to be partly determined by the necessity to offer discounts, their gross profit margins have remained over 82%. For their most recent quarter, the figure was 82.2%. Certainly, we are seeing a slight decline, but should this worry investors? I think not, at least not yet. The company seems able to maintain their pricing power. What to Make of InMode’s Finances? From 2019-22, InMode’s revenue grew at an impressive clip, but this has recently slowed down and in fact gone in reverse. Investors have listened to the CEO repeatedly lower guidance for forthcoming quarters, and in their latest Q3 earnings call, Mizrahy repeated the message, reducing full year 2024 guidance from $430-440 to $410-420. Declining revenue growth has been the story of InMode’s stock over the past few years, but across multiple metrics, the company looks incredibly stable and very comfortable weathering the storm. The company has a pristine balance sheet, with cash and equivalents of almost $685m, a debt/equity ratio of 0.75% and a current ratio of 8.63. The extremely low level of debt is especially important in the high interest-rate environment we are now in, as it allows InMode to keep their interest payments low. Despite their falling revenue, they were able to generate approximately $34 in free cash flow in the most recent quarter, which proves they can turn a hefty profit even in bad times. This bodes well going forward, when the broader macroeconomic conditions will certainly improve and favor more growth for InMode. In terms of the current valuation, their PS and PE figures are at historical lows. The company is being valued as if revenue growth will never return, and this is absurd to me. LSEG Stock Report, Oct 30 2024 Should the company return to its five-year historical average of a 24.6 earnings multiple, that would represent an almost 140% increase from current levels, valued at over $42 a share. During the Q2 2024 earnings call, the CEO felt confident that InMode had seen the bottom in terms of revenue declines, but Q3 showed further downward pressure leading Mizrahy to take a more conservative view when asked: ‘Well, in the beginning of this year we thought that in the third quarter we will start seeing some relief on the slowdown. But you know, to be honest, unfortunately we don’t see any change in the slowdown, especially not in the interest rate on lease packages and we don’t see that on the fourth quarter as well. So I hope that it will start sometime next year. I don’t think it will be on the first and maybe the second quarter. We don’t know and we don’t want to say anything on that because, you know, in the last two quarters earning calls we said we believe it will start in the third quarter, but as I said, we don’t see it yet’. Whether it ends up being this quarter or one of the next few quarters that comes to be seen in hindsight as the ‘bottom’ is of little interest to me, as I have confidence in the company’s ability to make do. The market is always forward looking – usually 6-12 months in my experience – and so the cyclicality of the industry will play out as it will, and I believe InMode will continue to show resilience in this environment and patient investors will be rewarded. The owners of clinics and med-spas will once again return to a growth mindset and seek to buy new equipment from the leading provider of this cutting-edge technology, or update their older machines as their local clientele demand it. The pressure of keeping pace with, or wanting to take business from, their local competitors will drive this behavior, but only when the broader macro-economic environment offers them a sporting chance to do so with less risk than at present. InMode’s competitors won’t fare as well due to their weaker balance sheets, lower (or no) profit margins, and higher debt loads. There could be some consolidation in the industry. In previous earnings call, Mizrahy has responded to analyst questions about M&A opportunities by highlighting the unique ‘profitability structure’ of InMode. During the Q1 2023 call, he stated: ‘One thing I want to say, very difficult to find a company that will be with the same profitability structure of InMode. So, any company that we will acquire should not dilute the shareholders. It should be accretive and not dilutive. And it's not easy … So, we're very careful in the analysis that we're doing on companies that we would like or that we're exploring a possibility to do M&A.’ Looking forward, the broader macro environment could offer up some bargains soon enough if bankruptcies materialize. This will benefit the best-in-class company in this industry. This will benefit InMode. Conclusion InMode is well-managed company in a niche area with a very profitable business model, that has been able to execute and generate free cash flow during this current period of no growth. Their share price has declined over 80% from its peak three years ago, meaning that much of the risk, but very little of the potential future growth, has already been priced in, with a forward PE of less than 10. Thus, I consider the company to offer an excellent risk-reward profile at present. A rebound in the macro environment could see this reverse sharply over the next 6-12 months, with increased sales and revised forward guidance from the CEO certain to act as a catalyst for a significant hare price movement. The company has excellent capital allocation – as assessed by its high ROE, ROA and ROIC figures – and is almost entirely debt-free. With their cash per share sitting at a tantalizing 8.69, the company is priced for failure, but I anticipate a gradual turnaround as many of the company’s short-term headwinds are mitigated. For me, this was an absolute steal when I bought shares a few weeks ago at $15, and they remain a strong buy at $18.  Editor's Note: This article covers one or more microcap stocks. 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