Executive Summary / Key Takeaways

• InMode Ltd. ($INMD) stands as a specialized innovator in the medical aesthetic and wellness markets, leveraging proprietary radiofrequency (RF) technologies to offer minimally invasive and non-invasive solutions. The company's strategic focus on continuous R&D and diversification into new segments like urology and ophthalmology underpins its long-term growth thesis.
• Despite a challenging macroeconomic environment, particularly in North America, characterized by reduced consumer spending and high interest rates affecting capital equipment purchases, InMode has maintained its investment in its workforce and R&D, positioning itself for a market rebound.
• Recent financial performance in Q2 2025 saw revenues of $95.6 million and strong non-GAAP gross margins of 80%, reflecting operational efficiency, though full-year 2025 guidance has been adjusted downwards to $365-$375 million due to persistent market headwinds.
• The company boasts a robust balance sheet with over $510 million in cash and has actively returned capital to shareholders through significant share repurchase programs, while also exploring future capital allocation strategies.
• InMode faces competitive pressures from diversified players and specialized laser companies, but its technological differentiation, particularly in RF-assisted procedures, and strategic market expansion into wellness and ophthalmology, provide a distinct competitive edge.

InMode's Enduring Aesthetic Edge

InMode Ltd., established in 2008 as Invasix Ltd. before its rebranding in 2017, has carved a significant niche in the medical aesthetic industry. Headquartered in Yokne'am, Israel, the company designs, develops, manufactures, and markets advanced medical products primarily based on its proprietary radiofrequency (RF) assisted lipolysis and deep subdermal fractional radiofrequency technologies. This foundational technological expertise has enabled InMode to offer a comprehensive suite of minimally invasive and non-invasive solutions for a wide array of procedures, including liposuction with simultaneous skin tightening, body and face contouring, and ablative skin rejuvenation. The company's strategic evolution has also seen it expand into women's health conditions with its Empower platform and, more recently, into the ophthalmology market with Envision and the broader wellness space targeting urology.

The medical aesthetic market, while fundamentally driven by consumer demand for elective procedures, is highly sensitive to macroeconomic shifts. Since mid-2023, the industry has faced significant headwinds, particularly in North America. Elevated interest rates, which saw leasing costs for medical equipment surge from a typical 6-7% to 14-15%, have made capital investments more challenging for physicians. Concurrently, reduced consumer confidence has led to a notable decline in discretionary spending on aesthetic treatments, especially the more expensive minimally invasive procedures that can cost thousands of dollars. This environment has resulted in a roughly 30% decrease in the average number of minimally invasive treatments performed per doctor, contributing to a 20% year-over-year decline in InMode's total revenue in 2024.

Amidst these challenging market dynamics, InMode's overarching strategy has been one of resilience and targeted expansion. The company has made a deliberate decision to maintain its investment in research and development and its skilled workforce, opting against layoffs to preserve its talent base for an anticipated market rebound. This approach, which prioritizes long-term leadership over short-term cost-cutting, is a testament to management's confidence in the fundamental demand for aesthetic and wellness procedures once economic conditions stabilize.

Technological Differentiation and Innovation

InMode's competitive moat is deeply rooted in its proprietary radiofrequency (RF) technologies, which form the core of its differentiated product portfolio. The company's RF-assisted lipolysis and deep subdermal fractional RF technologies offer distinct advantages over traditional surgical methods and alternative energy-based devices. These technologies enable precise energy delivery to deeper tissue layers, facilitating simultaneous fat reduction and skin tightening, a benefit that often translates to superior aesthetic outcomes with minimal downtime.

A prime example of this technological edge is the IgniteRF platform, an upgrade to the popular BodyTite system. IgniteRF incorporates nine advanced technologies that facilitate soft tissue contraction at multiple tissue depths, achieving remarkable results in aesthetic and surgical needs. Similarly, the OptimasMAX platform exemplifies InMode's innovation in non-invasive solutions. This versatile, multi-application system delivers more energy and superior heat distribution, resulting in faster and more efficient treatments. This efficiency allows physicians to perform more treatments per day, directly translating to higher patient throughput and improved practice economics. The OptimasMAX also features a new IPL Peak and a new laser for hair removal and blood vessels, contributing to its success in the non-invasive segment.

InMode's commitment to innovation extends beyond its core RF offerings. In 2025, the company plans to launch a fractional CO2 laser platform focused on facial rejuvenation and resurfacing. This FDA-approved technology is expected to gain traction, particularly when bundled with Morpheus treatments, offering patients noticeable results and smoother, more youthful skin with minimal downtime. While the manufacturing cost for laser products is generally higher than for RF, potentially impacting gross margins, this expansion diversifies InMode's technological footprint and addresses a popular market segment.

Furthermore, InMode is strategically venturing into new medical markets with specialized platforms. The Envision platform is dedicated to ophthalmology, targeting dry eye treatment and full face rejuvenation. A specialized sales team has been appointed for Envision, and while FDA indication for dry eye treatment using bipolar RF is still in process, the platform contributed 5-10% of U.S. system sales in Q2 2025. In the wellness space, InMode is introducing new platforms for the urology community, initially focusing on increased blood circulation and pain relief. These platforms, currently undergoing clinical studies for FDA indication for erection dysfunction, represent a significant long-term growth opportunity, with a full commercial rollout anticipated in late August 2025 and initial, albeit minimal, revenue contribution expected in Q4 2025.

For investors, InMode's continuous technological innovation and diversification are critical. These advancements not only strengthen the company's competitive moat by offering unique and effective solutions but also enable it to command higher average selling prices (ASPs) for its newer systems. The strategic expansion into wellness and ophthalmology markets broadens InMode's addressable market, reducing reliance on the core aesthetic segment and positioning the company for sustained growth as these new verticals mature.

Competitive Landscape and Strategic Positioning

In the highly competitive medical aesthetics market, InMode differentiates itself through its specialized focus on proprietary radiofrequency technologies. Direct competitors include major players like Hologic (HOLX) (Cynosure division), AbbVie (ABBV) (Allergan Aesthetics), Cutera (CUTR), and Alma Lasers (part of Sisram Medical (1696.HK)), all vying for market share in energy-based aesthetic treatments.

InMode's RF platforms offer a qualitative edge in applications requiring simultaneous fat reduction and skin tightening, or deeper tissue penetration for more efficient outcomes, which may provide more comprehensive results than some of Hologic's laser-focused devices. Strategically, InMode's emphasis on in-house development and a focused portfolio allows for greater operational agility and potentially faster innovation cycles compared to the broader, acquisition-driven strategies of larger conglomerates like Hologic or AbbVie. While AbbVie's Allergan Aesthetics boasts a powerful brand and extensive R&D in injectables, InMode's specialized, non-invasive solutions appeal to providers seeking streamlined, device-based options. Against laser-centric competitors like Cutera, InMode's multi-purpose RF platforms can offer greater procedural versatility.

Despite these strengths, InMode faces vulnerabilities. Its reliance on specific markets, particularly North America, exposes it to demand fluctuations, a challenge that larger, more diversified players like Hologic may mitigate through broader global reach. Furthermore, while InMode excels in RF technology, potential technological gaps in non-radiofrequency areas could necessitate higher R&D costs, making it vulnerable to competitors with more diversified portfolios.

The industry is characterized by significant barriers to entry, including stringent regulatory approvals, specialized R&D expertise, and the need for established distribution networks. These barriers work in InMode's favor, limiting new entrants and helping to defend its market position. The company's proactive stance against counterfeit products, evidenced by a permanent injunction against sellers of fake Morpheus8 devices, further protects its brand and intellectual property. InMode's strategic response to competitive forces includes expanding its direct sales force globally, as seen with new operations in Thailand and Argentina, to enhance local presence and customer support, thereby strengthening its market penetration against both direct and indirect rivals.

Financial Performance and Liquidity Amidst Headwinds

InMode's financial performance in recent quarters reflects the challenging market conditions, yet demonstrates underlying operational strength. For the second quarter of 2025, the company reported revenues of $95.6 million. While this figure indicates a slowdown, it's important to note that sales outside the U.S. accounted for $45 million, or 48% of overall sales, marking an 11% increase year-over-year. Europe, in particular, was a strong performer, achieving a record $23 million in revenue. This shift towards a more balanced 50-50 split between U.S. and international sales, compared to a historical 60-65% U.S. dominance, is a key trend built into the company's 2025 guidance.

Profitability remains a hallmark of InMode's business model. The company maintained a strong GAAP gross margin of 80% in Q2 2025, consistent with Q2 2024, and reported a non-GAAP gross margin of 79.98% for the trailing twelve months (TTM). This industry-leading margin underscores the unique value and efficiency of its platforms. However, gross margins in 2024 were impacted by a 20% revenue decline without corresponding personnel cuts, as the company chose to maintain its fixed costs related to intellectual property and R&D. Increased component and subassembly prices also played a role, as InMode opted not to raise prices in a sensitive market. It is worth noting that the gross margin on RF technology is generally higher than on laser technology, which could influence future margin profiles as new laser products are introduced.

Operating expenses saw an increase in Q2 2025, reaching $47.5 million for sales and marketing, reflecting continued investment in the sales team, including higher salaries, travel, and trade show costs. Despite this, the non-GAAP operating margin for Q2 2025 stood at a healthy 28%, up from 27% in Q2 2024. For the full year 2024, non-GAAP operating margin was 33%. Net income for Q2 2025 on a GAAP basis was $26.7 million, a 12% increase year-over-year, translating to GAAP diluted EPS of $0.42, a significant rise from $0.28 in Q2 2024. Non-GAAP diluted EPS for the quarter was $0.47, up from $0.34.

Consumables and services, a crucial recurring revenue stream, accounted for 20% of total revenue in 2024, an increase from 16% in 2023. However, the volume of disposables sold has seen a decline, with approximately 237,000 units in Q1 2025 compared to 240,000 in Q1 2023, despite a significant expansion of the installed base by nearly 9,000 systems globally. This indicates a roughly 30% decrease in the average number of treatments per doctor, a direct consequence of reduced consumer spending. Encouragingly, management noted that the decline in consumables appears to have plateaued, suggesting a potential stabilization in patient demand.

InMode maintains a robust financial position, ending Q2 2025 with a strong balance sheet, including cash, cash equivalents, marketable securities, and deposits totaling $510.7 million. The company generated $24 million in cash from operating activities during the quarter.

This substantial liquidity has enabled InMode to pursue an aggressive capital allocation strategy focused on returning value to shareholders. Over the past two years, InMode has repurchased $508 million in shares, including $127 million in April 2025, representing approximately 27% of its total capital. While the company is exploring further capital returns, including potential dividends, it acknowledges that additional share repurchases or dividends in Israel would incur a 20% dividend tax. Management has indicated a cautious approach to further buybacks in the near term, citing the stock's performance relative to the average repurchase price and a desire to preserve capital for potential strategic acquisitions.

Outlook, Guidance, and Risk Assessment

InMode's outlook for 2025 reflects a pragmatic assessment of the persistent market challenges. Following two consecutive quarters (Q1 and Q2 2025) that fell slightly below internal expectations, the company revised its full-year 2025 guidance. It now anticipates revenues between $365 million and $375 million, a reduction from the previous range of $395 million to $405 million. Non-GAAP gross margins are expected to remain strong, between 78% and 80%, consistent with prior guidance. Non-GAAP income from operations is projected to be between $93 million and $98 million, and non-GAAP earnings per diluted share are guided to be between $1.55 and $1.59. This revised guidance is predicated on the assumption that the industry slowdown will continue and interest rates will remain at current levels.

Management has adopted a conservative stance, acknowledging past misjudgments regarding market recovery timelines. They do not foresee a significant market improvement in early 2025 but remain optimistic about the long-term potential of the market, believing a rebound will eventually occur. The company expects a return to more traditional seasonality in 2025, with Q1 being the slowest, Q2 strong, Q3 soft due to summer vacations, and Q4 being the strongest. Initial revenue contribution from the new wellness platforms for the urology community in Q4 2025 is expected to be minimal.

Several risks could impact InMode's ability to achieve its guidance and long-term objectives. A significant concern is the ongoing shareholder class action lawsuit, filed in February 2024, alleging false or misleading statements. While a court order in September 2025 dismissed 19 of 24 statements with leave to amend, the company is unable to estimate a range of loss, if any, and intends to vigorously defend against the claims.

U.S. tariffs on Israeli imports also pose a financial risk. While temporarily reduced to 10% from an original 17%, these tariffs are expected to impact gross margins by approximately 2% to 3% annually if they remain at the current rate. The situation is fluid, with uncertainty surrounding the final tariff rate and its application, and management has opted against raising prices to offset this impact in the current sensitive market. Furthermore, the macroeconomic headwinds, including high interest rates and soft consumer demand, continue to be a primary challenge, directly affecting capital equipment sales and procedure volumes. Although the war in Israel caused some manufacturing delays in Q1 and Q2 2024, InMode's dual production facilities and diversified supplier base have largely mitigated long-term supply chain disruptions.

Despite these challenges, InMode's strategic decision to continue investing in R&D and its sales force, coupled with its expansion into new medical and international markets, positions it to capitalize on an eventual market recovery. The planned promotions for upgrades of older systems in 2025 also aim to stimulate sales within its existing installed base.

Conclusion

InMode Ltd. is a technologically driven leader in the medical aesthetic and emerging wellness markets, demonstrating strategic agility and financial resilience in the face of persistent macroeconomic headwinds. The company's core investment thesis is anchored in its proprietary radiofrequency technologies, which offer differentiated, minimally invasive solutions, and its continuous innovation pipeline, including new platforms for urology and ophthalmology. This technological leadership, combined with a robust balance sheet and a commitment to shareholder returns, positions InMode for long-term value creation.

While the current market slowdown has necessitated a downward adjustment to 2025 guidance and presents ongoing challenges, InMode's strategic decision to maintain investments in R&D and its workforce underscores its confidence in an eventual market rebound. The company's ability to expand its international footprint and diversify its product portfolio into new medical verticals will be crucial in mitigating market concentration risks and driving future growth. Investors should monitor the trajectory of consumer spending, interest rates, and the resolution of tariff uncertainties, as these factors will significantly influence InMode's path toward realizing its full potential in a dynamic and competitive industry. The company's blend of innovation, operational efficiency, and disciplined capital management suggests it is well-equipped to emerge stronger from the current cycle, leveraging its aesthetic edge to rejuvenate its growth trajectory.