InMode - Q2 2023
July 27, 2023
Transcript
Operator (participant)
Good morning, welcome to the InMode Second Quarter 2023 Earnings Results Conference Call. All participants will be in listen-only mode. 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 star, then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the call over to Miri Segal of MS-IR. Please go ahead.
Miri Segal (Founder and CEO)
Thank you operator and to everyone for joining us today. Welcome to InMode's second quarter 2023 earnings call. Before we begin, I would like to remind our listeners that certain information provided on this call may contain forward-looking statements. 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 go to 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.
With that, I'd like to pass the call over to Moshe Mizrahy, Chairman and CEO. Moshe, please go ahead.
Moshe Mizrahy (Chairman and CEO)
Thank youMiri and to everyone for joining us. With me today are Dr. Michael Kreindel, our Co-Founder and Chief Technology Officer, Yair Malca, our Chief Financial Officer, Shakil Lakhani, our President in North America, Dr. Spero Theodorou, our Chief Medical Officer, and Rafael Lickerman, our VP of Finance. Following the prepared remark, we will be available to answer your question. We're happy to report a record quarter on all front. We announced record revenue of $136.1 million, an increase of 20% compared to the second quarter of 2022. Sales from our platforms reach over 1,600 units and the numbers of disposable sold totaled over 270,000, the most in our company history. As part of our ongoing global expansion, during the second quarter, we established two new subsidiaries one in Japan and one in Germany.
Establishing subsidiaries in countries where we believe we should be selling directly and not through distributor, is our philosophy and strategy. Currently, InMode is one of the only companies in the space where its founder are still actively involved in the management and the ownership. I believe that our strong involvement and commitment is part of InMode DNA. InMode innovation support our growth and lead to a solid brand recognition within highly competitive aesthetic industry. To further secure our competitive advantage, in the next 12 months, we intend to invest heavily on product development and to launch a new minimal invasive technology and platform, upgraded Morpheus8 technology with new features, a new hands-free family of platforms for face and body and a new multi-application applicator platforms with new technologies. In addition, we plan to secure additional indication cleared by the FDA.
There are currently eight FDA studies in process. Within the next 12 months, InMode portfolio of platforms and indication will be completely new and upgraded. We will continue aggressively enhance and protect our IP and patent. Lastly, we are happy to report that just last month, InMode become part of the Russell 2000 Index. This index is most widely quoted measure of the overall performance of small cap and mid cap stock. Now, I would like to turn the call to Shakil, our President in North America. Shakil?
Shakil Lakhani (President)
Thanks Moshe and everyone for joining us. We are happy to report a record second quarter, while also seeing significant growth in consumable sales. Revenue from consumables and service reached nearly 44% year-over-year growth. This is a strong indication that our platforms are being used more frequently, signifying continued demand and increased brand recognition. Envision, our non-surgical ophthalmic platform, is gaining significant traction in North America. We plan to continue hiring product-specific sales reps to expand penetration into the ophthalmology market. Morpheus8 continues to be our leading technology. Overall, the branding, patient demand, and excellent results puts this product in a class of its own. Lastly, I'd like to thank our entire North American team for their continued hard work. I will now hand over the call to Yair for a review of the financial results in more detail. Yair?
Yair Malca (CFO)
Thanks Shakil and hello everyone, thanks again for joining us. InMode generated a record revenue of $136.1 million in the second quarter of 2023, representing a 20% year-over-year increase, with a gross margin of 84% on a GAAP basis. Second quarter sales outside of the U.S. accounted for $49.5 million, compared to $41.2 million in Q2 last year. We continue to see growth coming from different regions around the world. In Q2, sales from Asia hit a new record. To support our operations and growth, InMode now operates in a total of 92 countries with a sales team of more than 264 direct sales reps and 81 distributors worldwide.
Capital equipment in the second quarter represented 84% of total revenue, while consumables and service revenues accounted for the remaining 16%. Sales and marketing expenses increased to $51.1 million in the second quarter, compared to $39.7 million in the same period last year. This increase is attributed to the addition of new sales representatives, as well as investment in direct-to-consumer advertising campaigns and hosting in-person events to support the company growth projections. Share-based compensation accounted for $6.5 million in the second quarter of 2023, a slight increase compared to $6.4 million in the second quarter of 2022. GAAP operating expenses in the second quarter were $57 million, a 26% increase year-over-year.
On a non-GAAP basis, operating expenses were $51.1 million in the second quarter, compared to a total of $39.5 million in the same quarter of 2022, representing a 29% increase. GAAP operating margin for the second quarter of 2023 was 42%, compared to an operating margin of 43% in the second quarter of 2022. Non-GAAP operating margin for the second quarter of 2023 was 47%, compared to 49% for the second quarter of 2022. GAAP diluted earnings per share for the second quarter were $0.65, compared to $0.52 per diluted share in Q2 of 2022. Non-GAAP diluted earnings per share for this quarter were a record $0.72, compared to $0.59 per diluted share in the second quarter of 2022.
Once again, we ended the quarter with a strong balance sheet. As of June 30th, 2023, the company had cash and cash equivalents, marketable securities and deposits of $629.4 million. Before I turn the call back to Moshe to take your questions, I'd like to reiterate our increased guidance for 2023. Revenue between $530 million-$540 million. Non-GAAP gross margin between 83%-85%. Non-GAAP income from operations between $238 million-$243 million. Non-GAAP earnings per diluted share between $2.62-$2.66. I will now turn over the call back to Moshe.
Moshe Mizrahy (Chairman and CEO)
Thank you. Thank you Yair. Thank you Shakil and thanks to all of our employee around the world. I'm sure that most of them and some of them are listening to us today. It's important. Operator, we're ready for Q&A session.
Operator (participant)
We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question is from Matt Taylor with Jefferies. Please go ahead.
Mike Sarcone (Equity Research Analyst)
Good morning. This is Mike Sarcone on for Matt Taylor. Thanks for taking my questions and congrats on a nice quarter. Just first wanted to start with, you know, you continue to have very strong growth in consumables. Can you just talk about, you know, how you view the, the sustainability of that demand, particularly in the event of any macroeconomic headwinds, and maybe comment on what you're seeing so far through July?
Moshe Mizrahy (Chairman and CEO)
Well, hi Matt, this is Moshe. As far as consumable and the use of consumable, the beginning of this quarter looks strong. I have to say that we have seasonality in our business, and people sometimes do not like to do aesthetic procedure in the summertime. They do it before the summertime, this is why Q2 was very strong as far as users of disposable, which mean more procedure were done. As of now, almost the end of the month of July, we don't see a slowdown, we see it continue to grow. That mean that the doctors are still promoting the minimal invasive and the ablative, the Morpheus, very strongly.
It also depend on the numbers of Morpheus and minimal invasive system that we sell, which is growing as well. We might have a nice number in Q3, but I can assure you that Q4 will be much higher than what we see today.
Mike Sarcone (Equity Research Analyst)
Got it, thank you that's really helpful. You know, talking about the number of systems you sell, I was hoping you can also give us an update on, you know, how the capital equipment environment is holding up, maybe just comment on what you're seeing in terms of trends and demand. Do you see any changes on the margins in terms of, you know, doctors' ability to finance these systems, particularly as rates continue to increase?
Moshe Mizrahy (Chairman and CEO)
Okay. I will ask Shakil to answer for North America, and then I will add some on OW. Shakil, please.
Shakil Lakhani (President)
Yeah. Hey, good morning Mike. You know, we've definitely seen industry-wide, you know, that, that rates obviously they've increased. We haven't seen much of an impact on demand, which is good. We've gotten a little creative in terms of getting a couple of other sources. We tried to get ahead of the game. We've seen this happen, you know, every four or five years, something tends to come up like this, but it's how do we navigate around it? We definitely have looked at some other sources, which has not slowed things down dramatically.
Things are a little, you know, a lot of the financing companies are looking for a little more information, things that we wouldn't have done in the past, but we've already implemented a process so that we could kind of keep the ship sailing. With that being said, you know, I'll hand it over to Moshe. From our perspective in North America, you know, we've definitely seen some things, but we've been able to adapt to the environment.
Moshe Mizrahy (Chairman and CEO)
Okay. In OW, the numbers of doctors who buy a system with the lease package is not as high as in the United States. What we managed to do from the beginning of the year, we have one bank in Europe who is now working with country by country in order to put together a lease plan, lease package plan for each country. We started with Spain and we're going to Italy and to all of our subsidiaries, and we might help some of our distributors as well. You know, OW grew this quarter 21% compared to the second quarter in 2022. I believe that financing is still an issue, especially with the high interest rate, but we manage very well.
Mike Sarcone (Equity Research Analyst)
Okay, great. Thank you so much for taking my question.
Operator (participant)
The next question is from Matt Miksic with Barclays. Please go ahead.
Matt Miksic (Equity Research Analyst)
Great, thanks for taking the question. Can you hear me okay?
Moshe Mizrahy (Chairman and CEO)
Yes.
Matt Miksic (Equity Research Analyst)
Terrific. A couple of questions, if I could. First, I'm interested to follow up on sort of the current tone of the market, but more specifically, kind of the seasonal cadence for the back half in terms of system sales. If you can maybe give us any sense of whether, you know, the strength in Q2 eases here in Q3 and, you know, rallies in Q4, or, you know, any color, either regionally or across your different systems that you could provide. As well as on some of the spending and investment that you're making in ophthalmology, for example, and sort of, you know, entering new specialty areas.
Is that a, you know, I'm not talking about 2024 in detail I'm sure, but should we expect those spending levels to continue through year-end and into 2024, or any color you can provide on that? I have one quick follow-up, if I could.
Moshe Mizrahy (Chairman and CEO)
Yeah. Well, the medical aesthetic and aesthetic surgical industry has some seasonality. Although in 2021 and 2020, just because the COVID, we did not see the same seasonality. For example, in 2020, the Q2 was a very tough quarter because of the COVID, and we didn't do well. Everything, when the market opened in Q3, which is relatively should be a summertime, which is slower, we saw, you know, a big jump. The same in 2020, 2022, just because of the COVID, we did not experience the same seasonality, and that's something we need to say. Overall, in 2023, I believe the seasonality will come back. The seasonality in medical aesthetic is Q1 is usually soft Q—Q2 is relatively strong. Q3, because of the summer, Europe and also the United States, is a little bit slower.
Although Asia and Latin America are not experiencing exactly the same seasonality. For them, Q3 is relatively strong, and Q4 is a strong quarter for everywhere, I mean, all the territories. In 2020 and 2021, we experienced increase compared to Q2 in the revenue. We don't have enough information to judge right now what will happen in Q3, 2023 worldwide. From what we see, we started very nicely with all the territories. What will happen in the months of August, which is usually the tougher month, is yet to see . Now, Shakil Lakhani, do you want to add something on North America?
Shakil Lakhani (President)
Yeah, sure. You know, as Moshe was saying, you know, Q3, typically, you know, once we clear our funnels, you know, the first couple of weeks of July and basically, the first two-four weeks of July are spent, you know, starting to build back up the pipeline. With that being said, as Moshe mentioned, it's a little hard for us to give you any indication of how things are going. This is what we've, you know, many of us on the management team have experienced for over 15, 20 years in the industry, so we're kind of used to it. You just, you know, like, as Moshe said, with COVID, we didn't know what to expect, and Q3 was stronger than Q2, which I don't think it has really happened in many places.
We feel like the demand overall, at least in North America, is stronger than ever. As I mentioned before, the product and brand awareness is definitely helping. You know, you'd asked a question in terms of Envision and continuing to spend, you know, Moshe doesn't like using the word spend. He likes using the word investing. It makes him feel better. With that being said, you know, we're definitely going to invest in that market and, you know, as I mentioned earlier, in hiring new talent as well, but also in penetrating more of those specific to that vertical itself. Does that make sense?
Matt Miksic (Equity Research Analyst)
Yeah. No, that's helpful. Just you know, it sounds like we should expect those things to kind of continue behind those businesses into 2024, understanding that.
Shakil Lakhani (President)
Absolutely.
Matt Miksic (Equity Research Analyst)
You're not giving any—
Moshe Mizrahy (Chairman and CEO)
Absolutely. Absolutely.
Matt Miksic (Equity Research Analyst)
Okay, great.
Moshe Mizrahy (Chairman and CEO)
Don't forget, the ophthalmology platforms were introduced in Canada and now soft launch in the U.S., but we have not started in ROW, not in the other territories. We're waiting.
Matt Miksic (Equity Research Analyst)
Got it, super helpful. Now, the follow-up just is on, you know, you've talked before about the competitive environment, would love to get your, you know, an update as to sort of what you're seeing? What you expect to see, you know, if there's demand, are you having to sort of fight for it anymore or less than you did a year or two ago? You know, any color you share there would be helpful.
Moshe Mizrahy (Chairman and CEO)
Spero, I believe you should answer that.
Shakil Lakhani (President)
Moshe, I'm not sure if Spero is—I think he has a connection problem, so I'll handle that. In terms of, you know, competition—
Matt Miksic (Equity Research Analyst)
Okay.
Shakil Lakhani (President)
Yeah, in terms of competition, yeah, I wouldn't say it was ever easy, or I don't think it'll ever be easy. If that ever happens, I'm sure we'll all be pretty happy about that. You know, we've definitely, as I mentioned, in terms of us investing in brand awareness, things like that, it's, it's made it a little easier, I would say. You know, a lot of the competitors, you know, they're going to have different strategies and, and everyone's going to continue to sell. You know, competition breeds awareness, so we're of the philosophy that if everyone's doing well in our business, it's better for everybody, you know, rather than taking a different approach, trying to take down a giant, which a lot of the competitors, try to do. That's not how we approach things.
From our perspective, the better the industry does, the better it is. We feel like you know, consumer demand, but also coupled with physician demand for the need to actually incorporate some of these technologies into their practices, you know, for, for additional revenue, income, so on and so forth, is gonna continue driving this business. You know, it's on us to continue innovating and providing them with the appropriate tools and technology so that they're able to do that. You know, that's gonna differentiate things. We have a user meeting coming up in August in Chicago. You know, I think we have over 600 practices signed up. Every year, it's great.
We try to, you know, give them the ammunition that they need as part of their practices, you know, along with our post-sale support team, who've done an incredible job. Our goal is, you know, we try to equip our people with what they. Our customers with what they need from a technology perspective, but also from a marketing perspective and how to help them be successful. We try our best at it, at least. We can't guarantee anything. you know, as far as the competitive landscape goes, I think it's pretty strong right now, demand-wise. I don't know if some of our competitors have made some of the changes that they may have needed to in terms of financing, and how to handle that, you know, we're a few steps ahead, I believe.
Matt Miksic (Equity Research Analyst)
Okay, thank you.
Shakil Lakhani (President)
Sure.
Operator (participant)
The next question is from Caitlin Cronin with Canaccord Genuity. Please go ahead.
Caitlin Cronin (Equity Analyst)
Hi, everyone. This is Caitlin for Kyle Rose. Congrats on a great quarter. Just a couple questions. Starting with EmpowerRF, how's the continued launch going, and any updates to expectations? Have you begun hiring any EmpowerRF-specific reps? Where are we from an OUS launch and approval standpoint on that? I have a follow-up.
Moshe Mizrahy (Chairman and CEO)
Okay. Well, I believe the EmpowerRF is growing. The EmpowerRF sales is growing. We will not release numbers exactly because it's, it's not, we're not yet ready to do it, but we see some growth on the EmpowerRF platform as well. Regarding the indication for SUI, we have discussion with the FDA on the protocol. They ask us to do some additional proof of concept study, which we're doing right now in Colombia. We will come back to them with the results to finalize the protocol, hopefully before the end of the year, and then we will file an IRB to do the study in the United States with of course, approval of the FDA, we will conduct a study.
I believe we should not see, we will not see any clearance before sometime toward the end of 2024. We do have clearance on the VTone for all kind of women health indication on the platforms, and currently we're marketing the platforms with those indication. In addition, we're developing additional handpiece for the EmpowerRF, which again, now, we're doing some proof of concept study. After that, we will do a real study approved by the FDA. This is a little bit longer process with women health, we're spending a lot of money and investing in this technology.
Caitlin, just to add to that, to what Moshe was saying, you know, the one thing that we have noticed is that a lot of the competitors have, you know, and we've talked about this in the past, but they've kind of drawn out of the market. We do see this as a nice little opening where we're trying to, you know, capitalize on that, but again, doing it the right way, as Moshe had mentioned.
Caitlin Cronin (Equity Analyst)
Awesome. Then, just a quick question on Evoke. Have you launched the next generation of the product yet? Thank you.
Moshe Mizrahy (Chairman and CEO)
Yeah. We developed the next generation with additional power and additional, I would say, energy, different energy. It's not yet on the market. We are now finalizing, the last, I would say, fine-tune of the product. Hopefully, it will go to production this quarter and we probably will launch it sometime toward the end of the year.
Operator (participant)
The next question is from Jeff Johnson with Baird. Please go ahead.
Jeff Johnson (Senior Research Analyst)
Thank you. Good morning guys. Just maybe if I could tick through two or three quick ones here. The international unit sales, that 966 number was definitely a strong number. Anything in there, one time in nature, you know, you went direct, and it sounds like Japan, and I think you said one other market that I wrote down, but I forget now. Did that have any stocking orders to it? Were there any new distributors that had stocking, or is that 966 a clean number? If it is, you know, we tend to think of fourth quarter being the peak every year, should we think that you could still sell more than 966 units as we get into the fourth quarter of this year? Again, a strong number here in the second quarter. Thanks.
Moshe Mizrahy (Chairman and CEO)
Well, you know, the international is not one market. On the international market, there are 27 languages and more than 27 regulatory bodies that we need to deal with. You know, some claim on one country are not applicable to another country, and some products need to do some modification because of regulatory issue. Dealing with the international market is country by country, territory by territory. We're currently heavily investing in Asia with a lot of marketing activity and a lot of training, and this is the reason why we opened a subsidiary in Japan, because we believe Japan should be a good market for us. It's usually a good market for medical aesthetic, and our distributor in Japan, they did well, but not as not according to our expectation.
Japan would be another country. In addition, China. China is opening up again, as you know, we have a company in China, in Guangzhou, which we have established before the COVID, but we did not operate it because of the COVID. Nobody could have gone and visited China. Now we are considering to see how we can go direct in addition to what we do with distributors. In China, you cannot use only one way of distribution. It's a very complicated country, depend on the territory. You know, even in China, you need to know five different languages and five different operator manuals. We're going closely. Latin America, again, we are investing in all the countries.
This year, we will have the first user meeting in Latin America, in São Paulo, in October, 500 doctors, which is very important. We're covering all the country right now, nine countries in Latin America. We signed the last contract a month ago, we're working on regulation, again, country by country, because the regulation in Brazil, which is Anvisa, is not the same regulation in Colombia. You have to deal with each regulatory organization or regulatory body by itself. In Europe, as I said in my speech, we just established a subsidiary in Germany, we intend to start operating the subsidiary sometime in the fourth quarter. We hired a managing director there, hopefully we will start interviewing some direct salespeople.
By the way, when we go direct, sometimes we don't sell more system, but we recognize twice as much dollars, because when you go direct, you recognize the full value and not the transfer price, and that's important. Also important, when you go direct, you feel the market, you talk with the doctor, you know what they want, what are their unmet needs, and it's easier. I'm not suggesting that we will go, we are selling in 92 countries, we will go direct in 92 countries. In certain countries, we have a distributor that is doing a good job. In the future, we might offer them to become partner 51% so we can work together. Slowly and gradually, we are improving our position in Latin America, Europe, and Asia.
Yair Malca (CFO)
I would like to add that it usually takes some time from the moment we open a subsidiary until the moment we start see a significant contribution.
Moshe Mizrahy (Chairman and CEO)
Of course.
Yair Malca (CFO)
Your question Jeff, there was no one-timer in the international market or at all in Q2. It was all normal course of business.
Moshe Mizrahy (Chairman and CEO)
Of course.
Jeff Johnson (Senior Research Analyst)
Good. Yeah no, that's helpful, both of you, thank you. Again, a very solid number, so congrats on that. You know, I don't know if Spero was able to reconnect or Dr. Kreindel, maybe this is for you, I'm not sure. I just wanna make sure I'm understanding the women's healthcare strategy here. I feel like my understanding has gone back and forth a couple different times on this. I thought when we spoke in Miami just a month or two ago, the focus was gonna remain primarily on kind of cash pay, women's healthcare on the non-reimbursed side. You know, I know you've got now this proof of concept study going on SUI.
You obviously acquired the Viveve patents, you know, one, I guess, Yair, for you, can we stay sub 3% R&D as a percentage of revenue if we go into these more formalized, maybe bigger clinical trials? Is that $3.5 million-$4 million a quarter, still the right run rate for R&D spend as we get into 2024? More importantly, Are you gonna pursue some of these maybe costlier, you know, I don't know if they're higher risk, but at least more reimbursed side of women's healthcare indications, or is the focus primarily gonna stay on kind of that rejuvenation, wellness, the non-reimbursed cash pay side of women's healthcare? Thanks.
Moshe Mizrahy (Chairman and CEO)
Well, I will answer that, this is Moshe. Definitely, we want to go to some indication that we can use reimbursement, but it's a process. The reason why we're doing, we're trying to do, but it's a long process, to get FDA approval for urine incontinence, when all the companies until now failed, including Viveve, after $250 million of spending, they bankrupt, and we just bought their IP. The reason why we're doing it, is because this is the first stage toward getting a reimbursement code. In order to get a reimbursement code, you need to be FDA approved, you need to wait, you need to publish five studies, five independent studies, and you need to go and negotiate with the insurance companies. We are in the early stage of that, but that's one of our, I would say, strategic goal, long term.
Jeff Johnson (Senior Research Analyst)
Moshe, just follow up there, the $250 million that Viveve spent. I mean, again, you're spending, I don't have your model in front of me, but like $15 million a year on R&D. Is there a number that has to be a heck of a lot bigger than $15 million, even if it's not $250 to go after SUI, or it can just be done, you know, somewhere in that low to mid single-digit percent of revenue for R&D spend over the next few years?
Moshe Mizrahy (Chairman and CEO)
We do not save money on R&D. We spend as much as needed. I mean, hiring another 25 engineers will not give us more productivity. We have a great engineering team in Israel, covering electronic engineering, software engineering, clinical engineering, mechanical engineering, regulation, etc.. You know, you can judge by yourself. In the last two years, we have launched to the market more than the entire industry altogether, and we're coming with two platforms every year. As I stated in my speech, in the next 12 months, we will come up with four new technologies on existing technologies, upgrade or some new, and we will continue to do it. I'm not—I do not understand why people measuring R&D by spending or percentage of sales.
That's not the right measurement. The measurement of R&D should be on the productivity of the R&D, and I think that InMode proved itself in the last, I would say, four or five years, coming to the market with the best product. We did not fail, even with one of them, in the market successfully with the R&D that we have. Just say, "Hey, please increase your R&D from 3% of revenue to 7% of revenue," will not make a difference. It will create some kind of a mess. We know how to manage R&D. It's done in Israel. I believe we have the best R&D team in this industry, worldwide. Worldwide! The proof is in the pudding.
Look at, look on the product that we're coming with every year. Look at the success of them. Look how our people are happy with them. For example, fractional RF, Morpheus, four years in the market, 270,000 disposable in the last quarter. I mean, it will not happen unless you have good R&D team, productive, and the definition, what we want to develop is right. I mean, not just develop something. I'm looking on our competitors, and I see that the new products that they came to the market, some of them are buying products from Korea, just give it a new name and bring it to the United States, and some of them are repackaging old technologies in a nice box as a new product. We are coming with new indication year-over-year, either a platform, a handpiece, a combination, etc. That's the competitive advantage of InMode.
Jeff Johnson (Senior Research Analyst)
Understood, Moshe. I don't mean to get you on your soapbox, and it wasn't meant as a critique. I'm trying to understand where R&D is going long term, and then how you can continue to innovate at these levels. It's—
Shakil Lakhani (President)
Yeah.
Jeff Johnson (Senior Research Analyst)
It's more, you know, understanding that and applauding that, not critiquing that. Thank you for the comment.
Shakil Lakhani (President)
Yeah, Jeff. Yeah, Jeff, Moshe—
Moshe Mizrahy (Chairman and CEO)
One more thing I wanted to tell you.
Shakil Lakhani (President)
Go ahead, Moshe.
Moshe Mizrahy (Chairman and CEO)
One more thing I wanted to tell you, this is, I mean, coming with new products to the market, you need to take into consideration your existing portfolio. You don't want to cannibalize it too fast. It all depend, what do you bring and what kind of a new new indication or new procedure, how it will be in the full portfolio system. There's a lot of issues to be discussed and decide before you define what product you want to develop.
Shakil Lakhani (President)
Hey Jeff, just to add some color here, it's Shack. You know, obviously, you could tell that Moshe's got a lot of passion for this because he's an engineer by trade. What he's saying, essentially, is that we'll do what we need to do in order to get, you know, what we need to get. However, the measure, as you mentioned, shouldn't be from a, you know, how much we're going to spend. It's more about what are we going to do? What do we need to do? I think there's a lot of companies that get into this and you know, there's a reason that we were able to scoop up some of the IP from Viveve, right? Because they're no longer here.
I think for us, we've always been about staying power and longevity, and so, you know, our engineering team is obviously strong, but we're not going to just, you know, multiply spending. I tried to warn you guys earlier that Moshe has a problem with the word spending versus investing. Moshe will wholeheartedly invest when something makes sense, and that's what we plan on doing in the women's health and wellness market.
Jeff Johnson (Senior Research Analyst)
Thanks, guys.
Operator (participant)
The next question is from Matt excuse me, Mike Matson with Needham & Company. Please go ahead.
Mike Matson (Senior Analyst)
Yeah, thanks. Just on Envision, I think you talked about the dry eye FDA clearance coming in the third quarter. Can you just give us an update on that? You know, how important is that to driving sales of Envision?
Moshe Mizrahy (Chairman and CEO)
Well, you're right. We thought that we would start the study on the third quarter. I hope it will be. We're in a very loud stage of the FDA approval of the protocol. We did a pre-submission to the FDA, with where we suggested this is the protocol. We had a long, we had a long Zoom call with all the team in the FDA ophthalmology department. We agreed on a few things. They asked us to send and and a second version of the protocol, which we're preparing right now, and hopefully by the end of this month, it will be filed with them, and then doing an IRB.
Sometime in the middle of this quarter, we already have the doctor that will do the study. Pilot study was done in Israel and other countries. We know that it is working, and we'll take it from there. Once we finish the study, we'll submit to the FDA, hopefully before the end of the year.
Mike Matson (Senior Analyst)
Okay, got it. I mean, do you think that that's an important feature to the ophthalmologist when they're considering whether or not to buy the product? I mean, are they willing to kind of, you know, buy it now with the knowledge that that's, you know, going to happen at some point, you know, in the 6-12-month period or something?
Shakil Lakhani (President)
You know, so what we've typically seen in the past with all of these technologies, not even just specific to the ophthalmology community, is that if you have physicians who are getting good results, they have happy patients, and they're generating some good revenue from it, they do the selling for us. And it's just simply because they believe in it, they're doing well, as long as they're getting the results, which we are seeing 100%, they will do the job for us. Seeing that it's a little earlier, we do anticipate continuing some of the revenue growth and, you know, using it as a driver obviously here.
That's kind of the most important thing when you, when you think about this is: okay, if we do launch something before, you know, a study like that, that we were talking about, you know, we're in the process of working on getting going, do we have those other check marks, you know, that we can put into place? As of this point, and I only see it getting better, we do.
Moshe Mizrahy (Chairman and CEO)
One more thing I wanted to add here, which is important, at the end of the day, we are an aesthetic company. Every platform, including the Envision, will have some hand pieces to do aesthetic. The ophthalmologist can do periorbital wrinkles with Morpheus. It can do skin tightening or full skin rejuvenation with Lumecca, which are approved indication by the FDA. For him, he has one modality to do dry eye and two or three more modalities on the same platform to get more money from the customers, private money, on, you know, skin rejuvenation, full face rejuvenation, periorbital wrinkles, etc.. At the end of the day, it's a money machine.
Mike Matson (Senior Analyst)
Yeah. Okay, I understand. Then just, one of the things you called out in terms of the increased sales marketing spending was, DTC, you have a DTC campaign, I guess. Can you maybe just talk about that and kind of where, you know, where you're spending? I mean, is it kind of social media? Is it, you know, I guess, celebrity endorsements? Is it—I don't think you're doing any TV advertising, but maybe I missed that.
Moshe Mizrahy (Chairman and CEO)
Everywhere, everywhere. All the way from billboard to social media, website, B2B, B2C, meetings with doctors, seminars, conferences, doctor conferences, you know, study publication, everything.
Mike Matson (Senior Analyst)
Okay.
Shakil Lakhani (President)
Brand ambassadors and no TV advertising.
Mike Matson (Senior Analyst)
Yeah.
Shakil Lakhani (President)
We typically, you know, we typically choose to diversify when we do these things, and then we get a metrics based on, you know, where we try and attempt to track what's being successful and where, you know, money is not being spent the right way, and then we double down in areas where we're seeing a good return.
Moshe Mizrahy (Chairman and CEO)
Yeah.
Mike Matson (Senior Analyst)
Okay, got it. Thank you.
Moshe Mizrahy (Chairman and CEO)
We do have brand ambassadors as well.
Mike Matson (Senior Analyst)
All right. Okay.
Operator (participant)
The next question is from Ryan Barokas with SVB Securities. Please go ahead.
Ryan Barokas (Equity Research Analyst)
Hey, this is Ryan Barokas from UBS, on for Danielle today. Thanks for taking our questions. First one from us here is on capital allocation. Congrats on the recent acquisitions of IP patents. Just wanted to get an update on your capital allocation priorities as a whole. Is your appetite still as high as it's been in recent quarters, despite these patent acquisitions? Can we expect more IP and smaller type deals, or is it still possible we see a larger size deal in the near future?
Moshe Mizrahy (Chairman and CEO)
Well, I would say, two things. One, if the opportunity will present itself to buy more IP, which relates to our business and enhance our IP portfolio or position, we will do it. We did one license with the University of California on something which also relate to women health. We bought the entire portfolio of Viveve, not for big money. I mean, it's not something that we need tens of millions of dollars. We will not that spend that kind. Now, regarding capital allocation, we are exploring all the time M&A opportunities. We're currently working with few banks, none of them exclusive. We open it to every bank who can come up with something.
We do a quick check, and if something looks okay to us, we will continue to search and explore and do some diligence. I cannot report on something that will happen in the next months or two, but this is the plan.
Ryan Barokas (Equity Research Analyst)
Great, thanks Moshe. One last one for me on the capital environment and potential upgrades for new technology for your customers. We've heard from other capital-intensive companies highlight a higher mix of leasing as a percentof their system placements. Just curious if you're seeing the same dynamic. With the new technologies for your customers on these leasing arrangements, are there technology obsolescence clauses that would allow customers to upgrade to your new technology over the next 12 months? Or would this just be a simple software update on existing systems in the field for customers to access this new technology? Thanks so much.
Shakil Lakhani (President)
Sure. You know, we haven't, you know, as far as the, the environment goes, I touched on that earlier, from a leasing perspective, nothing's really changed in terms of what percentages, finance or leasing companies versus, you know, cash deals, so on and so forth. It's pretty much status quo. Hopefully that handles that there for you. When it comes down to the actual, the actual leasing side of things, you know, your average lease is about five years on average. By that time, because, you know, as, as Moshe mentioned earlier, we introduced, you know, we're trying to introduce at least two, you know, platforms or upgrades to the market every year. We're well ahead of that.
In terms of devices that physicians currently own or currently leased, we've actually been the one company that, you know, at least to my knowledge, that's gone in and several times we've provided certain upgrades for software at no cost, things like that. You know, if there's hardware, we might have a certain cost to it, but we're very fairly priced, I believe, based on, you know, the history of this market. From that perspective, when you look at the leasing side of things, you know, these thankfully, the way that Mishka and his engineering team design these things, they're pretty stable. You know, at least from a service standpoint, it's not an issue. In terms of obsolescence, there's always a way for us to upgrade or add on.
As I mentioned, by the time a physician is done with their five-year lease, they're ready to move on to another piece of technology. Our goal is to obviously, as I mentioned earlier, provide them with the tools and new technologies and innovations that they can actually add into their practices to better their treatment outcomes and revenue results from these devices. Does that make sense?
Ryan Barokas (Equity Research Analyst)
Yeah, great. Thanks so much.
Shakil Lakhani (President)
Sure.
Operator (participant)
This concludes the question and answer session. I would like to turn the conference back over to Moshe Mizrahy, Chairman and CEO for any closing remarks.
Moshe Mizrahy (Chairman and CEO)
Thank you operator. Thanks to all the team that were with me in this call. I want to thanks again to all of our employees and their families around the world. I want to thanks all of our shareholders, some of them been with us for many years. We really appreciate that. I want to thanks all of our suppliers, subcontractors, everybody that work with us, that bring us to this success. Without them, we cannot do it. Hopefully, we'll see all of you in the next earning call. Thank you and goodbye.
Operator (participant)
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
