DOMA Perpetual Sends Letter Urging Board of Directors of InMode Ltd. to Immediately Execute Tender Offer followed by Share Buyback

Believes the Board Must Immediately Execute a Tender Offer for 30% of the Company

Lays Out Action Plan to Restore Investor Confidence, Including an additional 10% Share Buyback in 2025

Announces Intent to Fight for Shareholders Should InMode Not Take Appropriate Action

MIAMI, Jan. 15, 2025 /PRNewswire/ -- DOMA Perpetual Capital Management LLC, a significant stockholder of InMode Ltd. (NYSE: INMD) ("InMode") today sent a letter to the Board of Directors of InMode (the "Board") urging the Board to accelerate and increase its stock repurchase. 

The letter can be downloaded here

The full text of the letter follows:

January 15, 2025

To the Board of Directors of InMode Ltd.:

As you are aware from our previous communications, including our public letter of July 25, 2024ⁱ, we are among the largest shareholders of InMode Ltd. ("InMode" or the "Company").ⁱⁱ We are disappointed that the Company's stock price has not improved since our last public letterⁱⁱⁱ: in the wake of the Company's recent announcement of lower sales for Q4 of 2024, the stock price now sits at around $16 per share.^iv1 At the same time, InMode is clearly full of cash. At the end of Q3 2024 it reported $684 million in cash on the books, and we estimate it currently still holds about $640 million.^v The balance sheet has no debt and our analysis, based on the Company's extremely conservative 2025 guidance, indicates that the Company should produce about $150 million of free cash flow in 2025, if not more^vi. In less than three years, the Company's entire market cap as it stands today will be cash.^vii

According to our analysis, InMode's current market capitalization is trading at less than the cash on hand plus projected 3-year cumulative free cash flow.^viii This is the lowest valuation in the history of the Company and one of the lowest valuations we have ever seen for a company with InMode's margin profile and dominance in its niche.^ix The Company's board of directors ("Board") has no excuse not to act while the Company's stock is so historically cheap. The substantial cash on the Company's balance sheet belongs to its shareholders and should be returned to them without delay.

The Board should immediately execute a tender offer for 30% of the Company, to be followed by a 10% buyback for 2025.

InMode has no debt and maintains significant free cash flow.^x It is irresponsible and wholly inefficient to run a business with this margin profile while maintaining such an enormous amount of cash, hoarding shareholder money without making efforts to improve shareholder returns. The company must reduce its cash level to less than $100 million if it hopes to restore shareholder confidence in a Board that has apparently fallen asleep at the wheel.

While the announcement of lower sales for Q4 of 2024 is disappointing, the larger issue at hand is the Board's failure of oversight.^xi While the Board is failing shareholders on many levels, the three issues below indicate what we can only characterize as a clear-cut breach of its duties and responsibilities to the owners of the business.

First, recent actions of management – in particular, those taken by CEO Moshe Mizrahy – continue to create instability in the Company that we believe is driving down the Company's stock price. Notably, Mr. Mizrahy fired key senior executives ahead of the most important quarter of the year, including the Head of Sales for North America, a region which represents more than 50% of the Company's revenues.^xii Of course, making personnel updates and refreshing talent is the prerogative of the CEO, but this is not what Mr. Mizrahy has done. Instead, he has simply left this crucial position empty and apparently, arranging for the sales teams to report directly to him. No one should be surprised that sales are down under these circumstances. This strikes us as grossly irresponsible behavior for the CEO of a publicly-traded company, and yet the Board has allowed it to continue despite the obvious negative consequences.

Second, the Board and management have made no concrete efforts to diversify production away from Israel.^xiii We have encouraged this path on multiple occasions in our communications with the Company and have suggested the Dominican Republic or Costa Rica as possible locations. As we've expressed to the Board, this would lower costs and secure a portion of the supply chain outside of a country at war, and yet we've seen no movement to address these critical concerns. It is the responsibility of the Board to represent the true owners of the business, the Company's shareholders, and to provide appropriate oversight of that business, which necessarily includes awareness of and appropriate action taken with respect to key risks. Inaction in the face of these risks is, in our view, clearly a breach of those responsibilities.

Finally, as we've expressed above, the significant amount of cash on the balance sheet belongs to shareholders and should be returned to them. In its latest earnings release, the Company reported $685 million in cash on the balance sheet at the end of Q3 2024.^xiv Per our calculations, even if the Company completed its announced buyback, there should be about $640 million remaining on the balance sheet.^xv Assuming 70 million shares after the completion of the buyback and a price of $16 per share, the market cap of the Company would now be $1.1 billion.^xvi If the $150 million in free cash flow we estimate based on the Company's 2025 guidance is indicative of the future trend, in less than three years the Company's entire market cap would consist of cash^xvii – an absurd outcome for a company like InMode that could only come about through gross balance sheet mismanagement and failure of Board oversight.

To correct these issues, InMode should immediately:

1. Name new Heads of Sales for all relevant regions and present them to the market. On a quarterly basis, the Company should disclose to investors improvements in sales by region. It is unacceptable to attempt to run a business without proper sales teams, and the announcement of new Heads of Sales and these ongoing disclosures are critical to restoring investor confidence.
2. Address crucial business risks by moving a significant portion of production outside of Israel. This is critical for security and stability and will allow the Company to lower costs.
3. Announce and execute a 30% tender offer of stock in Q1 2025, immediately followed by a 10% buyback for 2025. With massive piles of cash on the balance sheet and the Company's valuation at an all-time low, this is the best and most accretive way to allocate capital.^xviii
4. Open a small dividend of no more than $15 million in 2025 to start. Bringing the Company's yield to 1 to 2% a year, with small annual increases to follow, will bolster shareholder returns and create a path for shareholders who only invest in dividend-paying stocks to participate in the business.
5. Bring cash levels down of the Company to less than $100 million and obtain a large revolving credit line in the event there is an urgent need for cash. Hoarding hundreds of millions of dollars in cash in case of an emergency, such as disruption of production caused by the war, is not the right way to address this risk and only harms shareholders. The Board has duties to its shareholders to appropriately steward their capital, and it is time to start acting like it.
6. Strategically allocate capital until cash balances reach an efficient, effective level. Additional buybacks in Q1 2026 may be required, if many hundreds of millions of dollars remain on the balance sheet due to the business's strong free cash flow. If the valuation still remains low, the Company should execute another minimum 10% buyback in 2026.

InMode possesses superior intellectual property, to which its high margins and enormous free cash flow are testament.^xix The recent destabilizing actions by its CEO, the failure to address key business risks, and the mismanagement of the Company's balance sheet have all contributed to a significantly depressed valuation and loss of investor confidence. But the Board still has an opportunity to correct course by taking advantage of the current valuation to return the Company's tremendous pile of cash to the shareholders to whom it belongs.

The Board has a legal and fiduciary responsibility to its shareholders. The path to honoring that responsibility is clear, and in the absence of corrective action by the Board, we intend to take whatever steps we believe necessary to hold the Board and management accountable to protect our rights. To that end, we have retained Olshan Frome Wolosky LLP as legal counsel in the United States and Barnea Jaffa Lande & Co. in Israel to advise us in the event we are forced to take action to fight for the Company's shareholders and its future.

Regards,

Pedro Escudero

CEO & CIO
DOMA Perpetual Capital Management LLC

About DOMA Perpetual Capital Management LLC:
DOMA Perpetual Capital Management LLC is an asset management firm based in Miami, Florida. DOMA Perpetual strives to achieve great investment results by identifying attractive, uncorrelated companies with sustainable competitive advantages, while limiting exposure to downside risks. It employs an opportunistic, fundamentals-based strategy that invests in companies across a variety of sectors and market caps throughout the globe.

Contact:
DOMA Perpetual Capital Management LLC
[email protected]

Disclaimer

This letter has been prepared by DOMA Perpetual Management LLC and its affiliates ("DOMA").  The views expressed herein reflect the opinions of DOMA and are based on publicly available information with respect to InMode Ltd. ("InMode, Ltd." or the "Company"). DOMA recognizes that there may be confidential information in the possession of the Company that could lead it or others to disagree with DOMA's conclusions. DOMA reserves the right to change or modify any of such views or opinions at any time and for any reason and expressly disclaims any obligation to correct, update, or revise the information contained herein or to otherwise provide any additional materials.

For the avoidance of doubt, this press release was not produced by any person that is affiliated with InMode Ltd., nor was its content endorsed by InMode Ltd. This press release is provided merely as information and is not intended to be, nor should it be construed as, an offer to sell or a solicitation of an offer to buy any security nor as a recommendation to purchase or sell any security. One or more funds managed by DOMA currently beneficially owns shares of the Company.

Some of the materials in this press release contain forward-looking statements. All statements contained herein that are not clearly historical in nature or that necessarily depend on future events are forward-looking, and the words "anticipate," "believe," "expect," "potential," "could," "opportunity," "estimate," "plan," "once again," "achieve," and similar expressions are generally intended to identify forward-looking statements. The projected results and statements contained herein that are not historical facts are based on DOMA's current expectations, speak only as of the date of these materials and involve risks, uncertainties and other factors that may cause actual results, performances or achievements to be materially different from any future results, performances or achievements expressed or implied by such projected results and statements. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of DOMA.

¹ All references to $ are USD.

ⁱ Doma Perpetual Capital Management LLC., (2024, July 25). Doma perpetual sends letter to the board of directors of InMode urging the execution of a 40% tender offer. PR Newswire. https://www.prnewswire.com/news-releases/doma-perpetual-sends-letter-to-the-board-of-directors-of-inmode-urging-the-execution-of-a-40-tender-offer-302206114.html
ⁱⁱ Bloomberg Database, DOMA Perpetual Internal Calculations
ⁱⁱⁱ Bloomberg Database
^iv Bloomberg Database
^v InMode Company Filings, DOMA Perpetual Internal Calculations
^vi InMode Company Filings, DOMA Perpetual Internal Calculations
^vii DOMA Perpetual Internal Calculations
^viii DOMA Perpetual Internal Calculations
^ix Bloomberg Database, DOMA Perpetual Internal Calculations
^x InMode Company Filings, DOMA Perpetual Internal Calculations
^xi InMode Ltd., (2025, January 8). INMODE to report Fourth Quarter & full year 2024 financial results and hold conference call on February 6, 2025, expects Q4 revenue between $97.0m-$97.5m. PR Newswire. https://www.prnewswire.com/news-releases/inmode-to-report-fourth-quarter--full-year-2024-financial-results-and-hold-conference-call-on-february-6--2025---expects-q4-revenue-between-97-0m-97-5m-302345003.html
^xii InMode Ltd., (2024, October 1). INMODE announces departures of president of North America, chief medical officer and VP of sales USA as part of a global reorganization strategy. PR Newswire. https://www.prnewswire.com/news-releases/inmode-announces-departures-of-president-of-north-america-chief-medical-officer-and-vp-of-sales-usa-as-part-of-a-global-reorganization-strategy-302263201.html, InMode Company Filings, DOMA Perpetual Internal Calculations
^xiii InMode Earnings Calls and Conference Presentations
^xiv InMode Q3 2024 Earnings Release
^xv InMode Company Filings, DOMA Perpetual Internal Calculations
^xvi DOMA Perpetual Internal Calculations
^xvii DOMA Perpetual Internal Calculations
^xviii InMode Company Filings, DOMA Perpetual Internal Calculations
^xix InMode Company Filings, DOMA Perpetual Internal Calculations

SOURCE DOMA Perpetual