Inmode Ltd (INMD) 2020 Q2 法說會逐字稿

Good morning, and welcome to the Inmode Second Quarter 2020 Earnings Conference Call. (Operator Instructions) This event is being recorded. I would now like to turn the conference over to Miri Segal of MS-IR. Please go ahead.

Thank you, operator, and good day to everybody. I would like to welcome all of you to Inmode's Second Quarter 2020 Financial Results Conference Call. With us on the line today are Mr. Moshe Mizrahy, Chairman of the Board and CEO; Dr. Michael Kreindel, Co-Founder and CTO; Mr. Yair Malca, CFO; Dr. Spero Theororou, CMO; and Mr. Shakil Lakhani, President of Inmode North America.

Before we begin, I would like to 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 accuracy of our forward-looking statements and assume no obligation to update them, except as required by law.

Moshe will begin the call with the business update and pass it over to Shakil Lakhani, Inmode's President of North America, to discuss our North American operations; followed by Yair Malca, Inmode's CFO with an overview of the financials. We will then open the call for the question-and-answer session. I'll now hand over the call to Mr. Moshe Mizrahy, Inmode's CEO, Moshe, please go ahead.

Thank you, Miri, and thanks to all of you for joining us in our second quarter 2020 financial results. Before I start, I would like to congratulate the InMode family and all of our investors. Today, we are celebrating 1-year anniversary as a public company. Exactly a year ago this week, we did close InMode IPO.

In this earnings call, we will discuss the impact of COVID-19 pandemic on our business, our strategy during the crisis and our outlook going forward. With me on the call today, Yair Malca, CFO; Mr. Shakil Lakhani, our President of North America, and we will have Dr. Michael Kreindel the Co-Founder and CTO; and Dr. Spero Theodorou, our Chief Medical Officer, available during the Q&A.

In the second quarter of 2020, InMode generated revenue of $30 million -- $30.8 million, a 21% decrease from second quarter of 2019, $8.6 million net income on a GAAP basis and $10.1 million on net income on a non-GAAP basis. In Q2 2020, we derived approximately 53% of our U.S. revenue from our surgical platforms engaged in minimal invasive and subdermal ablative treatment. 46% from our recently introduced proprietary hand-free platforms and only 1% from traditional laser and noninvasive RF platform. Our 2 main technologies, minimal invasive surgical technology and hands-free technology have been well accepted by doctors during the coronavirus crisis due to the fact that they are clinic-based procedure, not hospital-based, and maintain social distancing. We believe that since the coronavirus is here to stay for the near future. These 2 technology will continue to be our main growth engine, and we will continue to develop additional applications for them.

Our business had a full impact of the global shutdown caused by the COVID-19 in March, April and May of this year as elective surgical procedure altered worldwide. As a result, all of our customers closed down the clinics, and our ability to capture new business was at a standstill during the beginning of Q2 2020. Although the crises halted business activity in our industry, and our competitors decided to contract their organization, we saw this time as an opportunity to invest in our organization for the future, and we decided not to downsize our operation. In fact, we continue to work business as usual in R&D, manufacturing, regulatory and marketing and position ourselves as best we can -- as best we could for the eventual return to normal business activity, which we outlined in our key initiatives last quarter.

As we mentioned, we took steps to enhance our marketing and sales network, further build relationship with physician and potential customers, expedite our R&D activity, invest in our infrastructure and develop marketing and selling program that will motivate physicians to purchase InMode minimal invasive and hands-free platforms as part of their recovery plan for their clinic. To maintain our strong customer relationship and keep employee engagement high, we trained our sales staff and our client position through our newly-developed virtual platform in InMode University. Once again, our decision to retain our workshop and invest in their professional development was driven by our long-term approach to our organization. We knew that a temporary downside in subsequent sales and marketing we built will set us back both financially and technically once elective surgery come back online worldwide.

As we anticipated, in the beginning of June, the market began to reopen in the United States allowing elective surgery across many states as well as elective surgery coming back internationally. During the month of June, we recovered significantly with sales close to pre-COVID-19 level.

In terms of R&D pipeline, we will continue to develop new platforms and indications and plan to introduce new platforms in 2020 and 2 new platforms in 2021. We are continuing our R&D activity to develop minimally invasive clinical-based procedure, mainly for aesthetic surgery, ENT, gynocology and ophthalmology. As a guidance, we expect that our revenue for the full year 2020 will be between $156 million to $160 million, and we intend to maintain gross margin of 84% to 86%.

Lastly, 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 employee and customers.

Now I would like to turn the call over to Mr. Shakil Lakhani, who will go and give you more details on our activity in North America -- in the North American market. Shakil?

Thank you, Moshe, and hello, everyone. During the quarter, we decided to keep all of our North American sales team in place and not furlough or lay off any of our employees in order to retain our top-quality talent for the post-pandemic market. We developed a new sales program to improve our sales team's marketing tools and sharpened our messaging while they deepen their product expertise through InMode University platform. These sales and marketing efforts were aimed at strengthening our brand and positioning us for success as business activity opens up again.

We anticipate the needs of physicians post COVID with regard to attracting consumers back into the clinic. We understood that patients would be resistant to treatments that required hospitalization in an effort to remain safe and socially distant. Therefore, we promoted our 2 main categories: minimally invasive and hands-free technologies, both which are in office procedures that maintain social distancing. The majority of our marketing in the month of June was focused on these 2 technologies, which ultimately enabled us to achieve the sales volume that we did.

The demand that we've seen in June and July confirms our original thoughts that the market will be uniquely attractive to InMode's minimally-invasive and hands-free technologies. The interest in our technologies that we saw in the first half of the year translated into record sales for the month of June, which we were able to capture due to vigorous preparation during the height of the pandemic.

We are proud of our actions throughout the COVID-19 pandemic and our ability to navigate the uncertainty. We were able to maintain the health and welfare of our employees and customers while positioning ourselves for success as the industry began its recovery.

Additionally, our continued work on the regulatory side was fruitful as well. In June, we received Health Canada certification for Evolve Tone, which now makes the Evolve Canada's first and only all-in-one hands-free device consisting of 3 unique remodeling technologies: trim, tight and tone.

Looking to the second half of 2020, we are optimistic, and as such, are preparing our sales force for the launch of a new platform. We expect this new platform to become a significant contributor in 2021.

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

Thanks, Shakil. Good day, everyone. Total revenue in the second quarter of 2020 contracted 21% to $30.8 million with gross margin of 85% on a GAAP basis. The decline was primarily due to the impact of COVID-19 in which the U.S. market had minimal activity during the economic standstill in April and May. Alternatively, InMode continued to gain traction in international markets, with international revenue growing 10% year-over-year.

GAAP operating expenses in the second quarter of 2020 totaled approximately $18 million, a 1.3% decrease from the second quarter of 2019. Sales and marketing expenses decreased 8.6% in the second quarter of 2020 compared to the second quarter of 2019. On a non-GAAP basis, operating expenses totaled approximately $17 million in the second quarter of 2020 compared to operating expenses of $17.8 million in the second quarter of 2019, a decrease of 4.8%.

GAAP operating margin was 26% in the second quarter of 2020 compared to 41% in the second quarter of 2019. Non-GAAP operating margin in the second quarter of 2020 was 30% compared to 42% in the second quarter of 2019. This decrease was primarily attributable to the fact that the sales cycle in April and May was interrupted by COVID-19. And as a result, sales and marketing expenditures did not translate into sales during those months.

GAAP diluted earnings per share in the second quarter of 2020 were $0.21 compared to $0.45 per diluted share in the second quarter of 2019. Non-GAAP diluted earnings per share in the second quarter of 2020 were $0.24 compared to $0.45 per diluted share in the second quarter of 2019.

We completed the second quarter with a strong balance sheet. As of June 30, 2020, the company had cash and cash equivalents, marketable securities and deposits of $203.4 million, out of which $70 million are net proceeds raised at the IPO in August 2019. During the quarter, as part of our initiative to strengthen our supply chain, we increased our inventory to adequate levels required by our business continuity plans in order to ensure uninterrupted delivery times in future quarters. Additionally, we recognize the higher-than-usual accounts receivable balance since the majority of our revenues were generated towards the end of the quarter and collected only in July.

On the cash flow front, despite the negative impact from COVID-19, the company managed to generate $1.3 million from operating activities for the second quarter of 2020.

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

Thank you, Yair. Thank you very much. With that, we will pleased to take any question now.

(Operator Instructions) And the first question is from the line of Matt Taylor of UBS.

So the first question I wanted to ask you was about your assumptions for the year. You've been able to give guidance and guidance for flat to slight growth, which is a lot better than other companies in terms of the visibility you're giving. So I just wanted to understand 2 things. One is you mentioned June was close to pre-COVID levels. Are you still seeing good trends in July? And then what gives you the confidence to be able to put out that forecast?

Matt, this is Moshe. Thank you for joining us. Yes, you're right. A month ago -- a few weeks ago, when we published the preliminary results, we said that our revenue will not be less than last year. Last year, revenue was $156 million, okay? We decided to be more precise. So far in the first 6 months, we did $71.4 million in revenue. And in order to be on a $160 million, we need to make additional $90 million -- a little bit less than $90 million. From what we see right now in the -- from our 2 main technology and the revenue that we generated in the month of July, we believe that we will be above $156 million. So we decided to give the range of $156 million to $160 million, and we hope to give a better range or a better estimate after the third quarter.

As you know, summer, the summer quarter, which is July, August and September, usually, September is the strong month. But what we discovered this year, July was relatively much stronger than any July that we ever -- that we had in the past. So we believe that we will make the numbers above the $156 million that we did last year, and this is the reason why we decided to be more precise and give a range instead of saying that we will be at least as last year.

Got you. And my follow-up question would be, you've been seeing, it seems, like a lot of traction with the hands-free devices. I was hoping you can maybe cover that in more detail and just talk about how the value proposition is resonating versus the competition and the outlook for those for the remainder of the year.

Okay. I will suggest that Shakil will start the answer and then Spero will give you some of the clinical evidence that we see so far, which is also -- will enhance the answer. Okay. Shakil, please?

Yes, sure, Matt. Thanks for your question. So basically, what we've seen is with everything going on, we initially, as we talked about on the last call, we thought there'd be some pent-up demand. Luckily, that was fulfilled. We did see that, and we see it more and more, as Moshe mentioned, July was one of our record months as well. So we have seen it flow in from June to July, and a part of that is the hands-free technology that you're talking about.

So with Evoke, Evoke was -- it's one of a kind. There's nothing really else out there for it. And there are some people that want to handle that lower 1/3 of the face, and Spero will talk about that shortly. But when it comes to the Evolve, where we've seen a lot of traction as well is because we're able to trim, tighten and tone all on one modality rather than a physician having to go out and spend $300,000, $500,000 on multiple pieces of equipment, along with the decision that we made on the consumable side of things and not really having one there, it's definitely given us a one up industry-wide. We feel that the competitors are still out there selling, I don't know what they're doing right now. But as far as we go, we've seen success in both products. And the Evoke has actually been very well received initially. There was a bit of a lag period with everything going on, and now we've seen a lot of our physicians really want to embrace and bring this into their practice.

Matt, just to jump in, it's Spero here. Regarding Evoke, I agree with Shak 100%, but we have to explain, this is not just a face tightening device. Depending on your specialty, whether you're plastic surgeon or dermatologist or hard res if you want to get. You can actually remodel the fat and position it the way you want. So the lower 1/3 of the face, depending on the number of treatments, you're able to remodel that fat, remove the fat and tighten the skin, that's something that Coolsculpting has not been able to do. So that's like a big, big deal differentiator.

In the case that you do not want to have any fat loss or you're not in the mid face, you want to able to change the positioning of the device and actually get what you want. So it's customizable to the different types of faces and what you're trying to achieve. And this is in plastic surgery, this is definitely one of those revolutionary type of things, which no face is the same and having a device that has the versatility of what Evoke has. And that ability was given to us, of course, by Mishka, Michael Kreindel, and modifying the treatment according to what you want to get is a big, big deal. So this is not a one size fits all, and that's a big differentiator when it comes to the competition and what's been in the past. So you can you can melt that, you can tighten skin, you can preserve fat, you can tie and skin depending on what you're trying to do. So that's resonating big time on the -- depending on the specialty we're selling and what they're comfortable with and they're training.

As far as the Evolve is concerned, I know Shak brought this up, but the fact that there no disposables is a big, big deal, not just the manageable aspect of it. But traditionally, noninvasive devices, if you look at the numbers in the past, it usually gives you about a 25% difference from before you have the procedure done. So 25% difference from before and after is not necessarily a result you want to write home about because it's not comparable to surgery, of course, right? However, 25% is a difference.

What we've seen is because of these numbers in the past with 25%, patients tend to come back and not be necessarily -- depending of course on patient choice, they're not -- they come back, they're not necessarily -- might want to warrant, right? So in the past, if you want to have more done, then the doctor would have to do an extra procedure and he would have to pay for extra disposable in order to get that patient happy. So because of Moshe's guidance and Mishka's guidance, we decided -- and because of the COVID, we realized that a lot of practices were shut down, not using disposables has also allowed on the clinical level to achieve that result. In other words, a patient comes in, has 5 or 6 treatments and wants a little more done to achieve what they want, that's not a problem. That only costs a little more time to the doctor, but it's not money out of his pocket. So they're very quick to be able to get that patient to the result they want by adding more treatments on, and that's critical.

The second aspect that's critical. Obviously, we are very familiar with tightening and we're very familiar with heat. But when it comes to EMS and to muscle, the biggest differentiator, Matt, is, in the past, right, muscle, we know that essentially, EMS is not very, very different in different types of machines. EMS is EMS. The muscle does not know the difference, whether it's being -- which way it stimulated. It's an all or nothing event. There's enough muscle fibers that get together, and they either contract or they don't contract. So what we've been able to do is we look really closely as to heating the muscle prior to treatment, and being able to heat the muscle and looking at the literature and looking at what's out there with the professional athletes, that the training and environment, which is heat prone, hot environment, hot yoga, as you probably know, all these sort of things increase muscle performance. So by increasing muscle performance, you're increasing the ability of the muscle that gets stronger and to be able to lift bigger weights and actually perform better. So we have the ability to preheat the muscle and then do the EMS. That's a big, big differentiator because it increases performance versus other companies aren't able to do that, plus it's a big barrier of entry, right? No other companies are able to actually preheat the muscle, which we are able to do because of our ability and our comfort level with the RF that we have. Hopefully, that answers your question on those 2 devices.

Yes. That's great color. Maybe I'll sneak one more in here. You've given some teasers on the pipeline and talked about new platforms coming this year and next year. Could you offer any additional thoughts on those? Are they line extensions? Are they totally new? Anything that would help us understand how to think about the contribution and the modeling?

Well, Matt, we have basically 4 new platforms on the R&D pipeline. One or 2 will be introduced to the market in the next -- until the end of the year and another 2 next year. I don't want to -- we're going to launch one of them length next week, which, again, it's part of our surgical platform. I don't want to give more information right? I want to keep it for the launch.

And the other 3 are one for the gynecologist market, one for the E&T market and one for the ophthalmology market. All of them are clinical-based procedures, platforms. All of them are basically actually private money and not code or reimbursement, individual platforms, and they're all based on the same bipolar RF technology, fractional and minimal invasive and noninvasive. But they will be unique. They are giving answers to an unmet need, all 4 of them. And hopefully, they will be well accepted. We did some kind of a focused group with some customers. We asked doctors about the features that we want to include in those platforms, and we do believe that they will be well accepted as the other portfolio of InMode.

The next question is from Kristen Stewart of Barclays.

I just wanted to follow-up on one of the comments you made in the prepared remarks just around the accounts receivables. You had mentioned that you did see increased receivables towards the end of the quarter and did make some collections heading into July. Is there any way to just kind of quantify that if they return to a more normalized level in July?

Sure. Let's first take it in perspective. We went up from 2 weeks DSOs to 3 weeks. So it's still a very, very good number. As you know, usually, throughout the quarter, revenue tends to spread more evenly. But with the COVID impact, we -- as Moshe says almost in April and May, most of the revenue came in, in June, and we did see a collection of majority of it and return to normalcy back in July.

Okay. So that's nothing that you're seeing in terms of concerning trends? That customers are still growing, coming in?

Yes.

Okay. Great. And then you did get clearance in China. Could you just remind us how large of a market opportunity you expect that to be? And I would assume that's probably something that could maybe be more meaningful as we look out over the longer term?

Yes. Yes, this is Moshe. Yes, we received a CFDA approval for the body tight, face tight hand pieces and platforms, which we now start to market in China to the plastic surgery in hospitals. At the same time, we received the CFDA approval for InMode RF noninvasive like forma and plus only. We have not yet received for the hair removal, with the laser or the IPL. We're still in the process. It's a long process actually in China, but we decided that this 2 CFDA approval is good enough to start in the market. We do have now a company, as you know, a joint venture in China in Guangzhou, which is only for marketing and regulation. We opened an office with a partner, will be exclusive distributors in Beijing. The company that they established will be called InMode Beijing. They already started to do marketing activity. We had a great opening less than a month ago with many doctors online and many doctors in the hall, in the event. They already sold, I can tell you, 12 platforms even before they started. I'm very optimistic. The team is well dedicated. The team is doing only InMode. They are not allowed to sell any other product or any other brand. And hopefully, this year, we will do in China over -- in between $1 million and $2 million because we just started, and we're looking forward next year to expand the operation. You cannot cover China with 1 distributor or with few direct. You have to divide the country into territories. Each territory is different in the same -- and also, in China, there are different markets. The hospital market, the clinic market, which is now being developed and the spa market, which is the biggest market, but the spa market is not doing minimally invasive, and maybe not a deep ablative. And therefore, we need to customize some of our portfolio to the Chinese spa market like hair removal, skin rejuvenation, skin tightening, but with noninvasive RF devices and we're doing it right now. The market in China is totally different than the market in the western world. As far as aesthetic and as far as who is doing what and where. Most of the minimal invasive surgical procedure right now are being done in the hospitals, and not in the doctor clinic, although we see some development and some doctors are opening their own clinic and small hospital.

Dynamic in China is very interesting. We have an office in Hong Kong, and we have a base in Beijing, and we have a base in Guangzhou. So although we do not cover the entire the entire country. But in please in the main cities, we will have presence in and that will be developed in the next 6 months. 2021, we see a growth engine in China.

The next question is from Kyle Rose of Canaccord Genuity.

So I just wanted to follow-up a little bit on just the overall trends that you're seeing in the market. Obviously, it seems like June and July had terrific bounce backs. And the gross margins were strong. So maybe just help us understand what the ordering patterns from positions look like? Are you seeing more bundling or more purchasing maybe Evoke and Evolve rather than one system alone.

And then just overall, Spero, if you could give us a sense of what you're seeing as far as the health of -- or demand from patients, in particular, coming into practices? That would be very helpful.

Cal, it's Shakil. I'll handle the first part of the question, and then I'll pass it over to Spero. So in terms of trends -- we definitely saw -- you're absolutely right. We did see some major bundling opportunities. The one thing that we did coming out of the NDA. Obviously, there's a lot of psychological impact on both patients, physicians, everyone in general, right? So the one approach that we decided to take is we didn't want to be that company that went out there and just try -- these clinics are recovering, they're trying to get their cash flow back. We wanted to do the right thing and make sure that we cater to their needs.

So if someone was in the position financially where they want to capitalize on certain incentives, yes, of course, there were some bundles and bundle activity going on 100%. But 2 of them actually go quite nicely, and we have an incentive program internally to take care of our reps on that. But also, when it comes down to what the actual physicians were looking for and what they were looking to treat, many of them, as I mentioned before, did respond very, very well to the social distancing side of things and being able to get a treatment done while being left in a room without having to worry about much. So I'll let Spero kind of talk about the patient demand and what that kind of looks like there.

Great. Kyle, as you know, I'm a practicing plastic surgeon in New York City. So I'm not just speaking for all the doctors that I talked to across the country, but also for what we're seeing in New York, which, to be honest, we were quite surprised that it ended up following the pattern of everybody else because it was hit so hard.

Here is the bottom line. The patient demand -- COVID happened during high season for what is considered plastic surgery high season, which is usually from January till July. And the fact that in the middle of the spring when everyone wants to get ready for summer, especially for body contouring procedures more so than face, this demand came out in July, very, very, very strong. Initially in June, specifically for New York, started ramping up, but this has been the busiest July that I've ever seen in 18 years of practice. So the same demand that was across the country is also occurring in a city like New York, and that is a little surprising, I didn't expect it to be occurring in New York specifically, just because of the different factors involved there. Having said that, we have a huge network of doctors that we speak to every single one of them. And it's been hard to get him on the phone, to be honest. The demand is there.

However, what's morphed, and we made to a prediction early on that we thought the demand was going to be just like what happened in '08. Patient demand was still there, but not for the big -- procedures required hospitalization, a different price range and more office-based. And sure enough, demand is just right along those lines. It's for minimally invasive procedures. The hospitalization aspect, there's still -- people are still gun shy. They're still worried about it. The -- I think until the vaccine comes out, they're not going to be wanting those huge procedures that require overnight stays or require long amounts of anesthesia. So it falls right into our sweet spot.

That we've been advocating all along. So they're still coming in and we want -- aside from the fillers and the BOTOX and all those things, they still want minimally invasive procedures. And they want to have it done over the weekend. And they want to have an average of a 2-hour procedure in the office under local.

So the InMode physicians are doing extremely well, coupled with the fact that now the InMode doctor is able to control the ecosystem and no patient leaves the office because you have the noninvasive, which ushers them in, covers them in and they'll no longer -- the doctors no longer have to rely on other companies, other technologies. So controlling that ecosystem has been crisp, and not only in the sales pitch, but actually what happens in the real world. So if I'm a plastic surgeon, now seeing patients, and I really didn't see before, I was losing before because they were just scared to have it. So the standard for step 1, non-invasive. These are those patients that want to take it to the next level instead of jumping to fully invasive plastic surgery just straight up, they're going into clinic invasive. So it's an ecosystem that's self-sustainable and feeding itself, and I think that is part of the big success that we've been seeing with our products. So we are exactly where we need to be, and demand has not slowed down. Most of the clinics are booked through September, which is really unusual, especially during this months and we're trying to (inaudible) it's not the case. So hopefully, Kyle, that answers your question.

It does. And then, Shak, you talked about you continuing to invest in the commercial team over the course of the quarter. I just wanted to know, have you made incremental hires from the sales headcount perspective? And just the overall kind of talent you are attracting from a distribution perspective.

Yes. Sure. Great question. So we are now roughly around 140 people for North American distribution. We did hire some additional head count, but we were able to pick up from some of the new competitors that were contracting. But we were very selective with which competitors we obviously recruited from, but also the level of talent. So we did have some few people that fell off here or there that couldn't make it oddly enough during the intense training that we had during the lockdown. We were able to actually see some people just step up and rise up and some people that just weren't going to make it. So it really helped us get an idea of who's doing what. And again, I mentioned this before on the last call. But on the day-to-day, it's really hard to get this kind of training in place, and we were very, very bullish on the fact that once the training was done, we would come out stronger than we ever were. And looking at June and July, and I anticipate it will continue moving forward, we're starting to see the fruits of our labor there.

(Operator Instructions) The next question is from Jeff Johnson of Baird.

Just a couple of follow-up questions here for me, if I could. First, on the EMS side and being able to preheat the muscle. That was new to me, so thanks for that update on that. But any IP around that? Or is that just more the design of your system and company know how? Just wondering how that -- how sustainable that advantage could be versus competitive systems?

Well, this is Moshe. I'll let Spero also answer your question. But yes, we have a special EMS technology, which is not the same as BTL and others, totally not the same as BTL and the other company that you're probably familiar with that doing EMS although it's the same electro muscle simulation, but we're doing it differently than the others. And we believe that our device is better from a technology point of view. Although we will not get right now into hardware/software combination and what exactly what we're doing because this is protected but to answer your question, yes, we do have something which is different than what the others.

This is Michael Kreindel about the IP. This is new technology less than 1 years old. So we do have patent application on this technology in EMS and heat, and heat can be generated in different ways. But because it only was applied about a year ago...

We don't (inaudible).

We don't have yet issued patent.

It's still in the stage of application.

Yes, understood. And then maybe help us size that Evolve/Evoke market. I mean, obviously, we know on the MI-RF subdermal market, you're maybe 10% penetrated in the aesthetic market, still have a lot of room to go there. I'm assuming on the Evolve/Evoke, does that go into the same kind of aesthetic and plastic offices? Does it go into other offices that increase even your market opportunity beyond aesthetics and plastics. Just help us -- I'm sure the penetration there extremely low right now and huge opportunity. But how do we think about sizing that total addressable market?

Yes. No. As regards to TAM, we we've barely scratched the surface. As you said, we have a lot of runway for penetration. But we -- when you're looking at it, we have seen kind of a combination of what we would define as core and noncore both being part of this, mainly because it's so easy to add into the practice. Patients like it. There's an immediate feeling of heat. So they know that it's working. It's not just something you strap on, and there's no result. We have before and after is now coming in on a regular basis that are actually very, very impressive. So when it comes down to who we're going after, as you know, we primarily focus on physicians, at least in the North American market. We're doing the exact same thing, but we've seen interest from everyone from your plastic surgeons, dermatologists, more traditional market, aesthetic surgeons down to family practice doctors, OBGYNs, depending on what they're looking at doing and what kind of fits into their practice. The same thing has not changed, and that's the fact that managed care is still not really -- it's not really doing what it needs to for a lot of these physicians. And so many of them are just looking for different ways to increase revenue streams. And they have their patient bases that they've worked years and years to build. So why not feed off it? So I do think -- and to answer to your question, there's a very, very -- like I said, we haven't scratched the surface, but there's a large -- the TAM on this thing is big, and we're seeing it grow more and more day by day, which is nice to see. So I think that will be sustainable for the next few years for sure.

Yes, this is Moshe. The Evoke and Evolve outside U.S. as you may know, we're in the process of registering these 2 platforms in many countries. We have received recently the clearance, the CE clearance for Europe, which we start to market in different countries in Europe. Right now, the majority of the revenue of Evoke and Evolve came from U.S. and also a little bit from Canada. But we see a lot of potential in Asia, Europe and South America. We're just scratching that at the beginning, it's very embryonic there. Therefore, the growth will come from there as well and not just from North America. Everybody wants to try, and everybody like it. We decided not to market these 2 platforms outside U.S. to spa market but only to doctors to keep it in a high price and with high value, and that's exactly what we will do in the next 6 months and also '21.

All right. That's great. And last question for you, Moshe. Just as you talk about the spa market in China. My only thought on that as you go in with some of those noninvasive products, does that at all impact your gross margin outlook going forward? You still feel comfortable in that mid-80s or higher gross margin even as maybe some of those noninvasive products start to grow a little bit in the portfolio?

No. I don't think it will affect the gross margin since the Chinese market is not 40% of our business. You're right, when you sell to the spa market, prices are lower than when you sell to the medical market. But basically, we will adjust and customize the product accordingly so the cost will be -- will enable us to exercise and to show the 85%. Just for example, in China, one of the procedures, which are very attractive to doctors, is to do drug delivery, and we're developing procedures like using Froctura to create some tunnels into the epidermis and to deliver drug into it, dry device combination. It's not a very expensive to produce machine, but there was a big market for it in China for whitening the skin, et cetera.

And therefore, I don't -- I'm not afraid that the gross margin will go down because we will not -- we'll not sell our product in a cheap price. There are many cheap products in China in the Chinese market, but the Chinese doctors and the Chinese medical spa will prefer to buy an Israeli high-technology product. It gives them some kind of reputation, and they appreciate that. Eventually, when the Chinese market will be very big, I would say, above $20 million, $30 million a year, we will start developing products to this market, and we will customize it accordingly to make sure that we experience the same gross margin.

Next question is from as (inaudible) of Oppenheimer.

Just 2 questions here. We didn't notice any install figure mentioned on the call or in the press release. If we could just get the 2 numbers for U.S. and international? And then the international growth of 10% was really impressive. Is there anything driving that growth? Is that kind of resilience? Is there any difference between direct, the indirect market? Any particular geography, product mix? Any color there would be helpful.

Yes, (inaudible). Welcome on board. I hope to see you here in our office next week. I will give you all the answers, but I will answer your question. Outside U.S., we have some subsidiaries in some countries, and the rest are exclusive distributors. We have subsidiaries in France, which we just established during the COVID crisis; U.K.; and Spain. In Asia, we have a subsidiary in Australia, in India, which we just established and also an office in Hong Kong. All the West are exclusive distributors. Yes, there is a difference between the way we recognize revenue between distributors and subsidiaries. Subsidiaries, we recognize the full value. And with distributors, we recognize the transfer price.

Now the combination of all the direct and the transfer pricing to distributors, the average is 85% to 86% gross margin. Now prices in Europe and in Asia are a little bit less than what we can sell in North America even the distributors. And therefore -- and again, there was another issue, which is exchange rate of all currencies. We sell in Euro, and we sell in dollars and we sell in Canadian dollars and we sell in Australian dollars, we sell in different currencies. And again, we're trying to get much less -- we're trying to minimize the exposure as far as currency on our revenue recognition, but it's also -- a bit also an effect. The growth outside the U.S. are faster, a little bit than the U.S. because in the outside U.S., which started after we started in the U.S. and it took us some time to get the approvals, and we're still getting registration and approval in different countries, and this describes the growth.

I would say that the growth in outside U.S. will be at least 10% higher than the growth in the U.S. in the next coming years. And this is because I'm not saying that in North America, we are already mature market, we will continue to grow. But as you can see in the last few years, our growth was, except in 2020, was about $50 million a year. And we hope that starting 2021, we will go back to those type of numbers, combination between North America and outside U.S.

We have, outside U.S., we have 4 growth engines, which we believe we will see the results next year. One is China. The second one is Brazil, which is a big market for us when we just started. We just received the visa regulation in Brazil a few months ago, and we already shipped 5 systems to them.

But unfortunately, Brazil is not in a good shape as far as the corona crisis. This is -- but this will be the second growth engine. The third growth engine will be countries -- in India. India can be a growth -- a very, very strong market. Once again, they will overcome the coronavirus, and this is why we decided to establish a subsidiary in India. India, they have 46,000 gynecologists, and they don't have good product there, although all the companies are -- have some data -- important. And the fourth one will be countries around France and Spain, which, again, we're in a very early stage there, but this also will be a growth engine for us. So between those 4 engines and the rest of the countries, including U.K., Australia and the other exclusive distributors, we believe that the outside U.S. market will be a big success next year. Did I answer your question?

Yes. Yes, very clear. But just a number on the installed base.

Yes. So it's 5,600 globally, and 3,200 of those are in the U.S.

You may want to take a look at the presentation, the corporate presentation. We uploaded this morning to the website, you have all the information there.

And this concludes our question-and-answer session. I would like to turn the conference back over to Moshe Mizrahy for any closing remarks.

Thank you, operator. Again, thank you all for joining us today. It was a very tough quarter for us. I would say the toughest we ever had. Two months out of this quarter, basically, our business was on standstill. We saw a little bit in April and very little in May. But due to the fact that we kept the organization full and we did not downsize it, once the market start to open in the month of June, it was like a bullet train. All of our salespeople hit the street, and we made 30 -- almost $31 million, most of it in the month of June. Most of it in the month of June. So it was encouraging and big success. The month of July was also surprising and good, and therefore, we believe that we will continue to see regenerating the momentum that we had pre-COVID-19 crisis. Again, I'm thanking all for joining and hope to see you again within 3 months. Thank you.

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