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Shares of Israel-based InMode (INMD) are in sell mode after the maker of minimally invasive and non-invasive medical devices for cosmetic treatments missed 1Q25 EPS expectations and revised its FY25 EPS guidance sharply lower. Two weeks ago, the company cut its Q1 revenue guidance to $77.2-$77.5 mln, but it didn't adjust its EPS outlook, setting the stage for a mixed performance relative to analysts' expectations with earnings falling well short of expectations on in-line revenue.

Although INMD is experiencing strong international growth, especially in Europe where the company achieved record revenue, weakening consumer demand in the U.S. is weighing on top-line growth and margins. Specifically, the company estimates that challenging conditions in the U.S. resulted in a 4-5% decline in operating margins.

• The company, which implements a "razor-and-blade" business model that's similar to Intuitive Surgical (ISRG), was previously benefitting from resilient demand for consumables and services. However, in Q1, revenues from consumables and services fell by 10% yr/yr, reflecting a drop in procedure volumes as consumers hold off on elective procedures amid rising macroeconomic uncertainty and high inflation.
• In addition to softening demand in the U.S., tariffs are another headwind that will negatively impact margins and profits. With U.S. tariffs at their current levels of 10%, IMND estimates that gross margin will be negatively impacted by 2-3%. Tariffs could also pressure sales of capital equipment even further if INMD choses to pass the higher costs through to its customers. Some clinics are already delaying new equipment purchases, which will also eventually hurt sales of consumables.
• On the positive side, strong international growth helped mitigate the overall 3% revenue decline. International markets accounted for a larger share of total revenue in Q1, led by robust demand in Europe.
• Additionally, INMD is optimistic that the recent launches of its Optimus Max and Ignite RF devices in December will help to offset the macro-related headwinds. Optimas Max, an aesthetic platform designed to address various skin concerns, could attract a larger range of patients due to the comprehensive suite of procedures it offers, boosting revenue for clinics and INMD.

INMD's business model is well-positioned to benefit from a secular trend favoring minimally invasive procedures, supporting resilient recurring revenue streams from consumables, but soft capital equipment demand and a pullback in elective procedures in the U.S. are creating near-term headwinds.