Inmode Ltd

NASDAQ:INMD

Earnings Call Transcript 2020-Q1

[Operator]

Welcome to the InMode Limited First Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]Should you need assistance, please signal a Conference Specialist by pressing the star key followed by Zero.

After today’s presentation, there will be an opportunity to ask questions. To ask a question you may press * then 1 on your telephone keypad. To withdraw your question, please press * then 2.

Please note this event is being recorded.

I would now like to turn the conference over to Miri Segal of MS-IR. Please go ahead.

[Miri Segal, MS, Investor Relations]

Thank you, operator, and good day to everybody. I would like to welcome all of you to InMode’s first quarter 2020 financial results conference call. With us on the line today are Mr. Moshe Mizrahy, Chairman of the board & CEO; Mr. Yair Malca, CFO; and Shakil Lakhani, President of InMode North America.

Before we begin, may I remind our listeners that certain information provided on this call may contain forward-looking statements, and the Safe Harbor statement outlined in today's earnings release also pertains to this call. If you have not received a copy of the release, please view it in the Investor Relations section of the company's website. Changes in business, competitive, technological, regulatory and other factors could cause actual results to differ materially from those expressed by the forward-looking statements made today.

Our historical results are not necessarily indicative of future performance. As such, we can give no assurance as to the accuracy of our forward-looking statements and assume no obligation to update them except as required by law.

Moshe will begin the call with a business update and pass it over to Shakil to discuss our North American operations, followed by Yair with an overview of the financials. We will then open the call for the question-and-answer session.

I'll now handover the call to Mr. Moshe Mizrahy, InMode's CEO. Moshe, please go ahead.

[Moshe Mizrahy, Chief Executive Officer & Chairman]

Thank you, Miri, and thanks to all of you for joining our first quarter 2020 financial results conference call.

With me on the line today are: Dr. Michael Kreindel – our co-founder and CTO (Michael is also a Board member); Mr. Shakil Lakhani, (our President of North America); Mr. Yair Malka, our CFO; Dr. Spero Theodorou, our Chief Medical Officer; and Mr. Rafi Lickerman, our VP Finance.

I would like to start my address by presenting a quote that describes InMode’s philosophy in light of the COVID-19 pandemic.

“Never let a good crisis go to waste” said Mr. Winston Churchill - Prime Minister of Great Britain - in February 1945 at the end of World War II in the Yalta Conference where he himself, Stalin and Roosevelt decided on the formation of the United Nations as a framework for creating opportunities at the end of WW II.

InMode has adopted this belief. Although none of us ever hoped for anything like the COVID-19 crisis – we will not let this crisis “go to waste”. Our strategy is to turn it into an opportunity.

In this earning call, Shakil, Yair and myself will communicate to you our strategy during and post the COVID-19 event.

In the first quarter of 2020 – InMode generated revenue of $ 40.4 M, a 32% increase from the first quarter of 2019, and $12.6 M of net income on a non-GAAAP basis, a 20% increase from Q1, 2019.

In Q1’ 2020 we derived approximately 61% of our US revenues from our platforms engaged in minimally invasive and subdermal ablative treatments, 37% of our U.S revenues from our recently introduced proprietary Hands-Free platforms and 2% of our U.S revenues from traditional laser and non-invasive RF platforms.

Q1, 2020 was not a full quarter for InMode. Although we started working at full speed, the COVID-19 event was beginning to take its toll. The fact that our headquarters are based in Israel and that we have presence in China enabled us to realize early enough that COVID-19, which broke out in China, would soon spread to other parts of the world. This realization led our management to make a decision to tactically shift marketing and sales activity and focus on Europe and North America in a timely manner, and capture as much business as we can in the months of January and February. This decision turned out to be a wise one, since in the month of March – the entire world came to a stand-still.

Our non-GAAP operating margin for the first quarter of 2020 was 30% as compared to 34% in the first quarter of 2019. This decrease can primarily be attributed to the fact that our sales cycle in March was interrupted by COVID-19, and as a result – the marketing activity and expenses did not result in sales at the quarter’s end. So overall – our revenue in Q1 represents 2 months of sales and 3 months of expenses.

InMode management has many years of accumulated experience. What we learned from the 2008-2009 crisis is that every crisis eventually comes to an end. Therefore, we decided not to contract the company, and not to lay-off ANY of our employees, but rather to prepare ourselves for the day after COVID-19.

We immediately implemented 5 key initiatives: To enhance our marketing and sales network, to enhance our relationship with our physicians and with potential customers, to expedite our R&D activity, mainly for products that will “fit” the market post COVID-19; to strengthen our infrastructure of manufacturing, logistics, IT and financial; to develop marketing and selling programs that will motivate physicians to purchase InMode platforms as part of the recovery plan for their clinics.

One, with regards to our marketing and sales network: in Q1 2020 we continued to hire experienced reps, including good reps that were laid-off from our competitors, and established a new marketing subsidiary for marketing and sales in France.

Two, with regards to enhancing our relationship with physicians – we established a live-stream virtual medical training framework through the InMode University platform, and we conducted over 50 webinars. We were surprised at the number of physicians and salespeople who participated. This initiative led to the creation of a library of training videos, which is a great asset moving forward.

Three, with regards to R&D activity – we focused on R&D projects for developing platforms and new procedures which we believe will become the standard of care post COVID-19. This focus has been mainly on 2 technologies: Minimally invasive procedures – we believe that this will definitely become the standard of care for facial and body reshaping, since we believe that patients will : stay away from hospitals and hospital procedures, stay away from full anesthesia and other shortcomings of full surgical procedures, and will prefer customized, clinic-based aesthetic surgical procedures. Hands-free procedures – once again – these procedures will be customized, private procedures that maintain social distancing in the privacy of the physician’s clinic.

Selecting the right product portfolio post COVID-19 is important since we believe that physicians will be looking for unique platforms that will enable them to recover and restart their business activity. Crisis always accelerates innovation adoption. Physicians will refrain from buying another traditional laser - they probably already have 4 -5 such lasers in their clinics - and the InMode product portfolio is an excellent fit to the new and dynamic demand post COVID-19.

Our current R&D pipeline includes 3 new platforms and procedures, which we will release to the market starting Q3, 2020. In addition, we are continuing our R&D activity for new medical communities to develop minimally invasive clinic-based procedures, mainly for ENTs, gynecologists and ophthalmologists.

Four, with regards to strengthening our infrastructure – as we stated before, we finalized the setup of an additional manufacturing facility. In addition, we expanded our network of vendors and suppliers. We have also improved our IT support for financial, inventory and supply chain management.

Five, with regards to developing marketing and selling programs for the day after COVID-19 – we understand that the physicians will face several difficulties once they re-open their clinics. We also understand that our platforms create a perfect fit for the recovery of these clinics. Therefore, we developed a sales program that includes packages that will motivate physicians to purchase InMode platforms as part of the recovery of their clinics. These packages include financial incentives, training and Direct-to-Consumer marketing.

Although the COVID-19 pandemic has caused a temporary halt in elective aesthetic surgical procedures, InMode is encouraged by the positive global developments. Namely: First - there is a decrease in new cases worldwide and this downward trend is continuing on a daily basis; second - social distancing has begun to be relieved and will continue to be relieved during the next few months, third - gradual return to work is expected to start in June, 2020; fourth - according to certain experts, the disease is expected to wane upon change in season; fifth - elective surgeries are gradually being permitted in the USA and other countries.

Based on these assumptions, InMode believes that starting June 2020 and throughout Q3 –business will gradually begin to pick up and return to normal. Therefore, InMode has remained positive with regards to its business prospects. We believe that the demand for body and face reshaping will increase post COVID-19 since people will want to get back to their normal lives and leave the feeling of quarantine and lockdown behind. As such, aesthetics and good looks will be a major element in re-generating the public morale. In addition, as I said before - we decided not to downsize the company and not to lay-off any of our employees. On the contrary – in Q1, 2020 we hired new direct salespeople around the world and enhanced our infrastructure outside the USA.

In addition, although we were approached by US government-sponsored fund providers to apply for the PPP program (Paycheck Protection Program), which would enable us to get funds from the government, we decided unlike other companies in our industry not to apply, and to leave the PPP money for our physicians who need it most. We believe that this is our social responsibility to our customers and vendors.

Since visibility of the future is low, InMode management has withdrawn the previously announced full year guidance and elected not to provide detailed 2020 guidance. Currently, based on the assumptions above - our revenue outlook for the full year of 2020 will not be significantly lower than our revenue in 2019, and we will maintain a gross margin of 84%-86%.

Last but not least, throughout this crisis we have taken good care of our employees worldwide, and have followed local and regional guidelines to prioritize the health and welfare of our employees and customers.

Now I would like to turn the call over to Mr. Shakil Lakhani, who will go into more detail on our activities in the North American market.. Shakil?

[Shakil Lakhani, President of InMode, North America]

Thank you, Moshe and hello everyone.

During the quarter, we continued to expand our sales force with the hiring of experienced talent in North America. We believe that in doing so, we will be able to capitalize once things return back to normal.

Although the industry has come to a standstill due to the pandemic, we have used this time to strengthen our relationships with our customers. We have also been able to use this time to further develop of our sales force, using multiple platforms for training and also through the establishment of InMode University, a virtual platform for the training of physicians and staff.

We have successfully hosted numerous virtual seminars through InMode University since the crisis began and experienced a great amount of interest. In the beginning of the year, we continued to credential ourselves by attending several aesthetic and medical conferences. Additionally, our team has four new studies that have been accepted by major peer-reviewed journals.

Coming out of the crisis, we expect to see a windfall of pent up demand for body and facial reshaping procedures. As consumers aim to return to normal life, this will include them looking and feeling their best. Furthermore, we believe that our minimally invasive, as well as our hands-free devices Evoke and Evolve, will be increasingly attractive to the post-pandemic population. Based on historic data, we believe that people will seek to avoid high dollar, invasive, hospital-based surgeries and opt for a minimally invasive experience in a physician’s office. We also believe that our hands-free devices will be appealing to surgeons and patients as well.

Currently, Evolve is the only hands-free device for the treatment of skin, subdermal fat and muscle toning, while Evoke is the first hands-free device for treating skin laxity on both the face and the sub-mental area.

Looking to the second half of 2020, we will be preparing our sales force for the launch of 2 new platforms, keeping up with our previous momentum. We expect these new platforms to become significant contributors going into 2021.

Now, let me hand over the call to Yair to review our financial results in detail, Yair.

[Yair Malca, Chief Financial Officer]

Thanks, Shakil. Good day everyone.

Total revenue in the first quarter of 2020 grew 32% to $40.4 million with gross margin of 85% on a GAAP basis. This growth was driven primarily by the continued expansion of InMode’s direct sales organization in the United States. Additionally, InMode continued to gain traction in international markets, with international revenue growing 49% year-over-year.

GAAP operating expenses in the first quarter of 2020 totaled approximately $28.3 million, a 72.8% increase from the first quarter of 2019. Sales and marketing expenses increased 63.1% in the first quarter of 2020 compared to the first quarter of 2019. On a non-GAAP basis, operating expenses totaled $22.3 million in the first quarter of 2020, compared to operating expenses of $16.0 million in the first quarter of 2019, an increase of 39.6%.

GAAP operating margin was 15.0% in the first quarter of 2020, compared to 33.0% in the first quarter of 2019. Non-GAAP operating margin in the first quarter of 2020 was 30% compared to 34% in the first quarter of 2019. This decrease was primarily attributable to the increase in sales and marketing expenses due to continued expansion of InMode’s direct sales organization in the United States, as well as an increase in research and development expenses.

GAAP diluted earnings per share in the first quarter of 2020 were 15 cents compared to 28 cents per diluted share in the first quarter of 2019. Non-GAAP diluted earnings per share in the first quarter of 2020 were 30 cents compared to 29 cents per diluted share in the first quarter of 2019.

We completed the first quarter with a strong balance sheet. As of March 31, 2020, the Company had cash and cash equivalents, marketable securities and deposits of $201.7 million, out of which, $70 million are net proceeds raised at the IPO in August 2019.

On the cash flow front, the company generated $6.1 million from operating activities for the first quarter of 2020.

With that, I will turn the call back to Moshe.

Thank you, Yair. With that, we will be pleased to take your questions

[Moshe Mizrahy, Chief Executive Officer & Chairman]

Thank you. Thank you, Yair. I will turn it now to the operator for questions.

[Operator]

We will begin the question-and-answer session. [Operator Instructions] Our first question is from Matt Taylor from UBS. Go ahead.

[Matt Taylor, UBS]

Thank you. Good morning and thanks for taking the question. So the first thing I wanted to ask you about was, you made some comments on recovery, which were helpful to understand how you're thinking about it. I guess, in talking with your customers, I'm curious to hear, if you've got any sense for how they're preparing to reopen in some of these places that are going to have the lift of the lockdown on elective surgeries? And if you could give us any color on what you think they're doing to get patients back into a funnel and maybe any insights on how long or what normally they would have in terms of surgical procedure scheduled?

[Moshe Mizrahy, Chief Executive Officer & Chairman]

Shakil, I believe you should answer that.

[Shakil Lakhani, President of InMode, North America]

Yes, sure. Hi, Matt. So after answering this, I'll actually pass it on to Dr. Theodorou who will also be able to -- these are numerous discussions as are why with physicians. So based on some of the people who've been opening up as the states have been opening up, we've actually seen more -- some pent-up demand, which we were expecting, but we didn't know for sure if that is indeed what was going to happen.

So we have actually seen that, people have been doing virtual consults throughout this entire time. And most of our physicians that are slowly returning back, I don't want to paint an overly rosy picture as things open up. However, in areas where they have opened up, we have seen that they've actually been quite heavily booked. Dr. Theodorou, did you want to comment on this please?

[Spero Theodorou, Chief Medical Officer]

No, I think, it's absolutely true, Matt. And thank you for your questions. They're always excellent questions. I think it's important to delineate the fact that the elective surgeries that are coming on board right now through the hospital system are stratified according to different levels typically, as to what has been prioritized prior to the pandemic opening.

So the plastic surgery, cosmetic surgeries and the things that we're involved in, are typically delegated or relegated to a different physician. However, the majority of what we do is office based and the majority of the cosmetic procedures out there are usually done in the offices efficiently and certainly in New York.

So it falls right into what we have always seen back in 2008 and 2009 that the demand is not going to go down. The patients want this really bad and we're getting e-mails and virtual consults steadily through this whole time, but having it done in the office, like 2008 and 2009, where the practices that have adopted technology and minimally invasive procedures did very, very, very well. So it falls back into our treatment gap population and it falls back into the fact that we have our technology positioned in such a way where these procedures have a short downtime, office-based, will come across very powerful. So we're quite optimistic.

In talking to physicians everywhere, I get calls constantly about local anesthesia, how to administer it, how to get better at it, because there is awareness out there at this point that was not present before the pandemic, as far as general anesthesia and ventilators are concerned.

The public now knows what ventilators means. They don't want to get stuck on one, which means general anesthesia is a lot more scarier now than it was before. As a result, the local anesthesia technology combination that we provide is becoming quite interesting and definitely a demand for learning how to do these things. And that's part of our virtual training program as well. I hope that answers your question, Matt.

[Matt Taylor, UBS]

Yes, that was a lot of great color. Thank you for that. And, I guess, as a follow-up to that on the same theme here, given you're seeing some pent-up demand, maybe you could tag team this again and just talk about both as a physician and an officer of the company. What do you think you'll have to do differently over the next coming months, as things kind of start to slowly reopen? Does your practices in New York are the ones that are harder hit places? Are there things you're going to have to do differently operationally? Is that going to be limiting? And/or we've also heard some practices saying, look, we're going to do more cases per day. We're going to run more hours. So, what do you think we could see for places like New York and for other places on different ends of that spectrum?

[Spero Theodorou, Chief Medical Officer]

Okay, Matt. Great question. Certainly, New York is probably going to be the last to open up regarding that sort of the feeling, I get regarding what's going on out there. But the American Society of Plastic Surgery has given up – so it has given recommendations as to how to structure things. Spacing appointments, where no one's in a waiting room. So the flow is different obviously you're going to have to extend the hours. That's one thing. Virtual consultation is definitely a big deal and be able to accomplish as many things as possible prior to coming in, right? They've given recommendations as well as to the types of anesthesia and how to be protected and – during general anesthesia intubations for patients. But again, that doesn't necessarily fall for us. The social distance spacing in the clinics is not just for plastic surgery patients, it's across the board. All clinics are being set up that way. So they're just going to have to stay open longer in order to accommodate that volume. And that's part of the discussions that are taking place.

As far as protection, masks and shields and also as it relates to testing discussed about just testing patients prior to elective surgery about two to three days prior to elective surgery, you have to do a COVID testing is what they're recommending. And as a result right after that to quarantine yourself prior to surgery. Some physicians have gone to the extent over in the West Coast about putting in the consent forms per surgery adding a COVID clause saying that, if you do have something done, it's not our responsibility as to if you got it or not.

So, certainly in some way, it's a different world, but we have to always remember that demand to look good it's not going away. You look back in the recessions or everything lipstick and cigarettes is what we always say. So, we're a strong believer that, we will overcome these things and it just has to operate a little differently.

[Matt Taylor, UBS]

Got it, got it. Maybe I could sneak one last one in there on that. I think that's a very interesting point and investors would be curious to hear more about the context that you had from your experience in the financial crisis. We all have to look good for our Zoom calls as the – I'll make. But what did you see in your practice? And what can you tell us anecdotally about some from your colleagues in terms of how they were able to grow during that period of time?

[Spero Theodorou, Chief Medical Officer]

Absolutely. So what we saw during that time was very, very interesting. We were a technology-based practice that at that time it was Cynosure and Smartlipo, which was a technology. And during that time what happened is, two things. The price cost for actual procedure was around – the magical number was between 3,000 to 5,000 for one area of liposuction and your average patient was doing 3.8 areas a year, during that time. But what was interesting was that the age dropped. So, the parents at that time were concerned to tighten their belts, but the younger patient population went from 36.4, our population down to 26.5. So the younger population was a lot more aggressive in seeking procedures plus they have a disposable income at the time that no generation ever had before. So $2500 for a laptop, $600 for a smartphone for them to spend $5000 for an area at the time which was Smartlipo was not a big stretch, especially because it was under local, they were awake, they could tweet their friends about it talk, about it, and it wasn't as scary.

So the practices that did establish and did adopt technology in this respect did very well. We published our experience in – after those years in 2012 the article came out and we had done about 1,000 cases in under 18 months. So in this respect, minimally invasive in this type of environment is uniquely positioned to do well. And if you correlate that together with injectables and the companies that are pushing injectables and BOTOX and fillers, as a minimally invasive in their respect they did as well also. So the numbers that dropped were the major operations Matt, the ones that required hospitalization, because it was a lot more expensive to pay for general anesthesia and a hospital fee.

So in line with the democratization of plastic surgery like you always mentioned and we also have adopted, I think we're perfectly positioned for these types of procedures in the office. And obviously, the recession and now a little different, but we see those trends continue as the majority, a lot of the patients calling are also young. But that's just not limited to them. There's a different element here, where we have two groups of patients that one group would be the young group, who is going to go and do this regardless. And then the second group which is different than before, it gives you – so exasperated because of the quarantine, they're going to want to come out and do something. We're practically getting a lot of time to think in this respect.

So this group will come out and do it. However, they will not engage in large procedures because of the fear of basically surviving a pandemic and end up getting – will end up getting something that will give them a nice result in 48-hour downtime done in the office and they can go back to their homes. So those are the patterns we're predicting which are a little different but very similar along those waves.

[Matt Taylor, UBS]

Got you. Got you. Well, then thanks for all those thought. A lot of interesting point. I’ll have some others jump in here. Thank you.

[Moshe Mizrahy, Chief Executive Officer & Chairman]

Welcome, Matt.

[Operator]

Our next question is from Kristen Stewart from Barclays. Go ahead.

[Kristen Stewart, Barclays]

Hi. Thanks for taking my question. I was wondering if you guys could just remind us about the payback on the capital equipment component for most practices and just what the general timeline looks like and just the number of procedures that one would have to do in this environment?

[Shakil Lakhani, President of InMode, North America]

Sure. Hi, Kristen. This is Shakil here.

[Kristen Stewart, Barclays]

Hi.

[Shakil Lakhani, President of InMode, North America]

So typically – hi, so during a normal – during normalcy I should say and not at a time of pandemic. We've typically been able to see some physicians who've paid off the equipment in two to three months and others that take 18 months. It depends on the physician the practice and what they do and obviously their staff. However – and how aggressive they are in marketing.

However during this time, of course it's going to be a little different. Now, overall as an average, we typically see people pay these things off anywhere between six to 12 months on average. And the reason for that is most of the technologies that we have, whether it's our hands-free or minimally invasive, typically are within those price ranges that Dr. Theodorou just mentioned. So somewhere between $2500 all the way up to $7000 or $8000. Hence the equipment cost is then easier to pay off for the physician. Does that make sense?

[Kristen Stewart, Barclays]

Yes. That's perfect. And then just a question on the gross margins. I was pretty impressed with the ability of gross margins to remain in that 85% to 86%. Is that even despite what might be kind of a fall off, which I would expect to see in the second quarter. Is there anything to kind of think about just in terms of like absorption or any sort of fixed cost or overhead? Or is that just representative of maybe some of the contracting that you have with some of the contract manufacturing partners that you use?

[Moshe Mizrahy, Chief Executive Officer & Chairman]

Okay. This is Moshe. I will answer that. 85% gross margin for us is a must. It's not nice to have. So basically every product or every platform. So every hand piece of indication that we will develop from the drawing board, we have our own formulas we know exactly what will be the gross margin.

Since we do some focus group to understand, what are the needs, what will be the price of this platforms, how much will cost us to manufacture it and therefore, we know what is the gross margin. Furthermore, we are very lean and mean company. So we don't have a huge fixed cost.

We walked through outsourcing company who manufacture for us. And therefore, we have only three, four people in our organization, who are managing the entire logistics, supply chain and manufacturing. Some of the manufacturing we do in-house, we have a small facility, mainly for special laser and optical-based hand pieces. But most of the other electronics and medical electronics we do outside.

Regarding fixed cost, I'm sure you noticed that our G&A is very low compared to competitors. We are less about $5 million a year. And if you look at Cutera, they do $24 million a year on G&A. So fixed costs are very low we're – most of our cost is not fixed cost. And an 85% gross margin basically we have three levels to ensure that.

One, we manufacture in Israel in a very high sophisticated facility and I'm sure that manufacturing in Israel is a little bit cheaper than manufacturing in the United States. Second, when you generate RF energy compared to optical energy and I'll give you an example if you want to generate 20 joules of laser energy compared with 20 joules of RF energy, it costs about 50% to produce the RF compared to energy on the same level of energy. So this is another thing.

And second, we have a lot of experience in designing and development of Bipolar RF equipment. I believe that we are the most experienced and have all the knowledge and the IP to manufacture such equipment. The second thing that determines the gross margin is of course the pricing of the system. Since our platform average cost in the U.S. is between $120,000 to $130,000, if you compare that to a laser equipment, which is about $70,000 to $75,000. And the reason why we are able to charge high price is because once the technology is protected with several patents, second it took us six years to get FDA approval.

So competitors will -- if they found a way to overcome the IP and develop something different for the same application, it will take them a long way and long time to come even close. And the third element is of course the market share. Everybody now knows what is the body type what is safe type will be very difficult for others to come close. So it enable us to charge higher prices for our system. We know how to design a system. We manufacture in a very lean and mean, I would say operation. And we will continue to maintain the 85% gross margin.

Even in the first quarter when we had the difficulties finding sources for several subcomponents and subassemblies since the Chinese operation shutdown in January, we managed to get 85% gross margin. And I can tell you that just to make sure that the facility will continue to run, we bought components for higher price. But even with that, we went down by 1% in the first quarter. And I'm sure that that's -- once we go back to normal, we will get this 1% to our gross margin again. So did I answer your question?

[Kristen Stewart, Barclays]

Yes. That's very helpful. Thank you so much.

[Operator]

Our next question is from Kyle Rose from Canaccord. Go ahead.

[Kyle Rose, Canaccord]

Great. Thank you very much for taking the questions. So I just had a couple of follow-ups on some of the previous commentary you provided. I appreciate all the extra color on this earnings call given some of the uncertainty out there. So maybe just help us understand just a little more information, specifically around the packages or the focuses you've put together to help develop the sales and marketing programs for the physicians. I think you talked about three of them that have -- one has a DTC advertising component, a financial component, a sales trading component. Maybe just help me understand what kind of programs you had in place prior to this? And then how these will actually structurally change, I guess the recovery for the physician customers and what the early feedback was on those programs?

[Moshe Mizrahy, Chief Executive Officer & Chairman]

Shakil?

[Shakil Lakhani, President of InMode, North America]

Sure. Hi, Kyle. So essentially what we've done -- you asked about what we did historically. So we would have certain things in place third-party partners of ours who would help physicians generate business, lead generation, open houses in order to get patients through the door, educate them. During this time, what we've had to do is we've had to pivot and do a complete 180 by going virtual like many other companies of course. So in doing that we've actually created similar platforms that we were using before which were very successful, but we've had to bring them over to the E-Experience or the virtual platform. So when it comes to virtual consults with patients or virtual open houses, these are things that we're working on with our third-partner parties in order to actually help these physicians get back and up and going.

Now in terms of packages, we are going to help some of our physicians out. As we start and continue to distribute equipment. It will take some time as they open up. We definitely want to go in and make sure that we take care of our physicians. And let them know that we're here for them as we always have been. But now more than ever, there will be certain things that we put together from a package type of situation to help them get up and going. A lot of people are suffering with cash flow issues right now, because they've been closed for so long. So it's our job and we feel it's our duty in order to actually assist them with this especially because they are our customers.

So for those who are going to be looking at incorporating products like Evolve or Evoke, for example, that are hands-free we're going to have certain things as there are patients that want to get these things done. There are people that are, obviously, waiting to get out there once things return back and Dr. Theodorou mentioned the psychology of being pent up, we are seeing -- are being held up. We have seen that.

So we do plan on incorporating these things. The response from our physicians so far is good. We are in the early stages of this but we look forward to continuing to move along that line. Does that answer your question?

[Kyle Rose, Canaccord]

It does. Thank you. I appreciate it. And then I also wanted to talk about -- when you look at the U.S. business in the Q1 particularly the 30% of revenue is coming from the hands-free, that's a great start out of the gate. I guess, help us understand maybe what you -- what surprised you with that launch? What went positively versus negatively? Obviously COVID impacted but just trying to understand what stage of that launch we're in? And how big of a runway you think that could be from a 2020 and 2021 perspective?

[Shakil Lakhani, President of InMode, North America]

Yeah, that's a great question Kyle. So we actually did an official launch at our sales meeting, which happened towards the end of January. So frankly we really only had technically about a month. That was with the Evoke. So Evolve we, obviously, launched last year in the latter part of 2019. And we had some tremendous success.

As I mentioned earlier, it is the only device that addresses skin, it addresses fat and it tones a muscle all-in-one device. So typically if a physician has to purchase that from a competitor or a number of different competitors, they're looking at double or if not triple the price. So we've been able to put that into one platform, which we believe is the reason that we saw so much great success with Evolve in a short period of time. So we really on Evolve we just scratched the tip of the iceberg. We certainly saw that there was a tremendous amount of interest initially. And then we saw in March as practices started closing up and elective surgeries were no longer allowed in many -- majority of the states. We did see a drop there.

With Evoke, Evoke is the only device as I mentioned earlier that's able to do facial reshaping but from a hands-free standpoint. So as Dr. Theodorou mentioned, physical distancing, social distancing, people will be in that mindset for some period of time we believe. And I think this sets it up where they can go in, they purchase the treatment, they ship down and do some -- how to strap it on or their staff will and then they have this procedure done.

That procedure, that product as I said, we really only launched it in the latter part of -- in January. So we really haven't even seen what type of runway we have with that. However, knowing that it's first of its kind and the history that we have in the industry. Typically when something is new and novel and it excites physicians, which we've seen very early on it's actually a very, very powerful thing.

[Kyle Rose, Canaccord]

Great. And then I'll just sneak in one last one here. I know that you guys tend to keep things tight to the lift just given competitive purposes, but you talked about a couple of launches in the second half of the year. Any insights you want to give as far as the anatomical focus or some of the technologies we might see there? Then I'll hop back in the queue.

[Shakil Lakhani, President of InMode, North America]

Sure. So I'll leave it at this. It'll be minimally invasive is one of the products. And the other one is a build up on something that we already have, but taking it to a totally different level. Sorry to be vague, but for the reasons that you mentioned. Hopefully that gives you enough color though. It will be minimally invasive, addressing a treatment that people have tried to address for years that have not had very much success, but we will take a different approach to it using our minimally invasive expertise in specialty. And for the other product it'll be -- let's just say it'll be a building on our RF micro name.

[Kyle Rose, Canaccord]

Great. Thank you.

[Shakil Lakhani, President of InMode, North America]

Sure.

[Operator]

Our next question is from Jeff Johnson from Baird. Go ahead.

[Jeff Johnson, Baird]

Thank you. Good morning, guys. Moshe maybe start -- just haven't heard yet anything there much on the international markets. Especially what have you been seeing maybe in Brazil, India, we think is a big opportunity but obviously they have been dealing with some COVID issues there, so maybe how to think about India in the near to intermediate term? And also any update on plans to enter China? Thank you.

[Moshe Mizrahy, Chief Executive Officer & Chairman]

Okay. Well, it depends on the territory. Brazil right now is just because the COVID-19 started in South America a little bit later than in the rest of the world, all the countries in South and Latin America are now almost close Argentina, Brazil, and others.

I'm sure we announced last earnings call that Anvisa has approved minimally invasive product and the minimally invasive platforms. And we plan to do an introduction and launch with a big event in June, which of course, we will delay. Right now there was nobody there is operating.

By the way in Brazil, there are more plastic surgeons than in the United States and they're all waiting for that. We did all the training. We have the luminary doctors. Dr. Spero Theodorou and other doctors were supposed to be there for the opening to do training, but everything is delayed like in Argentina and other countries in South America.

I would say that South America right now is in the same stage that Europe was -- have been in the beginning of March or during the second week of March. It will take some more time to get -- to see what will happen there.

So, in Brazil, everything is ready. The registration, the approval of the Anvisa, the training of the salespeople of the distributors who are not going direct in Brazil, and not in Argentina. The same in Mexico and other countries in South America, everything is ready. We sold a little bit in the fourth quarter. But then in the first quarter, Brazil still -- stands still.

In Asia, the situation is a little bit different. China we see some opening right now and the fact that we just received two CFDA approval will help us hopefully this quarter. But the third quarter, I believe in China will be a great quarter for us.

For the first time, we have two approval we can sell to hospital, we can sell to private clinic, which we can cover all medical communities right now, plastic surgeons, dermatologists. We have several American doctors who will help us who are well-known there like Dr. Ward [Indiscernible]. And then our well-known in Texas and in the United States, the plastic surgeon, Spero will help us, Dr. Erez Dayan and others. And we're putting some plan right now how to launch the InMode RF, the minimally invasive which is the major part of our sales all over the world right now in China.

In countries like Korea we're doing well. We even sold a few systems in the first month. The pandemic is well-controlled there and we will continue. Hopefully, the second wave of pandemic in Japan will end soon and we will continue to sell there. Those big -- we started a big momentum there with a lot of marketing investment. We don't want to lose it.

India, as you know, we opened a subsidiary late 2019. Right now India is in the complete curfew up until the 14th of May. We are following the situation there. We have four salespeople. We have an office, we sold nicely on Q4. And hopefully, sometime from the middle of May until the end of June, we will do a couple hundred thousand dollars there as well.

The same is in Australia. We opened a company last quarter. And we have the complete infrastructure including training, salespeople, technical, office, inventory control, et cetera. We try to keep it right now lean and mean and not to spend a lot of money. But hopefully, this quarter sometime towards the second half of this quarter, we will see some revenue from there.

In Europe, it depends which country U.K. we believe -- U.K. and Spain are coming out. And sometimes during May and June, we will see some revenue generation there. In Italy, we don't know yet. It depends what -- how fast they will go out of the curfew and the lockdown. But we also believe that the month of June, something will open there and we will see some activity as well.

Surprisingly, the East block, Russia and other countries, we got some orders already in the first quarter and also in the month of April. Hopefully, it will continue since -- although, we don't know exactly the situation there, because they are not publishing the real numbers. But hopefully, that will generate a little bit -- some of the revenue for the European part.

Middle East is again depend on the country. Israel just started to pick up again. We sold a few systems in the last few weeks and also in the first quarter. Right now elective surgery, aesthetic surgery, et cetera, is allowed in Israel. They opened it. And also hopefully, we will see some reigniting the momentum in this country.

Overall, outside U.S. and Canada, we believe that in Q2 things will start gradually to pick up again during the second half of the quarter. How much the revenue will be? Visibility is very low. We don't know what will happen with the second wave of the pandemic. Hopefully not as bad as the first one, but we're still optimistic.

[Jeff Johnson, Baird]

Very helpful. But Dr. Theodorou, I want to go back to a point you made about testing patients maybe a few days before procedure, given where we are as a country from a testing perspective. Do you think that could be a rate limiting step number one in some of these procedures coming back? Do you think all doctors are going to require that for an aesthetic procedure?

Number two, can you just remind us the penetration rate of InMode technology in the plastic and aesthetic surgeons office? My gut feel is that even if patients are somewhat slow to come back, they'd still have interest in your technology, or in the InMode technology, because of the marketing advantage it might bring things like that. So even if patients are slow to return, there's still an opportunity to go in and sell systems to these offices, because they're going to be looking to increase their visibility or competitiveness in the field. So I just would like to take your temperature on that as well. Thanks.

[Spero Theodorou, Chief Medical Officer]

That's a two-pronged question. Thank you for asking, Jeff. Excellent questions. I'll start with the second part first. I think it's very important to delineate that we're not just a technology company that sells boxes or systems. We develop new operations that require our technology to do it.

So in this respect we're very unique, and thanks to Moshe and his support and then thanks to Mishka to be able to develop an idea that's on the napkin and to hit the street to be able for the distribution to take place. It's eight to nine months on average. So that's unheard of.

So those advantages are very, very significant, because we use a lot of our surgeons as almost in a crowd-sourcing kind of way. We get our feedback. We know what problems are out there that need to be solved in plastic surgery, that haven't been solved and we go after that, and that's been our model.

So in a way, if you're selling a new operation as a physician addressing a problem that was not addressed before, immediately you have a huge advantage over anybody else who doesn't have that technology. So that's sort of our core DNA and the ability to do R&D and innovate so quickly and deliver a product. We'll put physicians that have our equipment in a very good position to take advantage, and especially delivered in a way that we deliver it.

As far as testing, I don't think it's going to be an issue. Remember this is not the first time any physician office is involved in testing product procedures. You go back to the days HIV. We require that for testing and that never really limited anything. It just made sure that the doctors were careful. Initially it might have been an issue, but most of the doctors basically have adapted to that and it never comes up anymore other than the fact that there's recommendations as far as protective gear and what to wear and double glove and things like that.

So I anticipate the same thing to happen here, initially, the recommendations for face masks and clear shields and all that's in place. And as we move along, I think those standards will be sort of loosened up, but they're no different than the universal standards we all practice as surgeons.

Patients refusing to have surgery, because they need to have COVID test, I see that highly unlikely. I think at least remember, I'm in New York. So it's a little different. But from the physicians I have talked to across the country, they don't see this as a rate-limiting factor, because there's been so much education about that from the government that most patients are okay with it. I have yet to speak to physicians saying, my patient is refusing to have this done, or is not aware of it, or does not want to do it. So does that answer your questions?

[Jeff Johnson, Baird]

It does yes. Yes, thanks. Very helpful. And then last one just Shak or Moshe, do we have a U.S. and Canadian sales force updated count? I think you were at 110 coming into 2020, just where that's gone with some of the new hires? Thanks.

[Shakil Lakhani, President of InMode, North America]

Yeah, sure. So we're actually now at approximately 135 and that's Canada and the U.S.

[Jeff Johnson, Baird]

Thank you.

[Operator]

This concludes our question-and-answer. I will now turn the conference back over to Moshe Mizrahy, Chairman. Go ahead.

[Moshe Mizrahy, Chief Executive Officer & Chairman]

Hi, everybody. Again, thank you for joining us today and thank you for your question. You know how to reach us. If you want to continue discussion or question to us we will -- please e-mail to us anything that you need, any clarification or information either myself, Shakil, Yair, Dr. Michael Kreindel, and Dr. Spero Theodorou will be happy to answer. I hope that everything is okay with you and your families. I wish you well and safe. Thank you. Thank you for joining again. Thank you all. Bye-bye.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.