The following discussion should be read in conjunction with our consolidated financial statements and related notes for the years ended December 31, 2025, 2024 and 2023, which are included elsewhere in this 2025 Annual Report. Certain information called for by this Item 5, including a discussion of the year ended December 31, 2024 compared to the year ended December 31, 2023 has been reported previously in our Annual Report on Form 20-F for the fiscal year ended December 31, 2024 under Item 5. “Operating and Financial Review and Prospects”, filed with the SEC on February 4, 2025. Overview We design, develop, manufacture and commercialize innovative, energy-based, non-invasive, minimally invasive surgical aesthetic and medical treatment solutions. Since 2010, we have launched 16 product platforms (BodyTite, Optimas, Votiva, Contoura, Triton, EmbraceRF, EvolveX, Evoke, Morpheus8, EmpowerRF, Define, Envision, IgniteRF OptimasMAX, Luxora, ApexRF and Solaria) that we market and sell primarily to plastic and facial surgeons, aesthetic surgeons, medical spas, dermatologists and OB/GYNs. As of December 31, 2025, we had a global installed base of approximately 30,900 product platforms capable of running various multi-use applicators and minimally invasive consumables. We anticipate that our quarterly results of operations may fluctuate from quarter to quarter due to several factors, including seasonality, unexpected delays in the introduction and market acceptance of our products, unexpected delays in our manufacturing operations, introduction of new and improved products by our competitors and the performance of our direct sales organization. Components of Our Operating Results Revenues We generate our revenues primarily from the sale of energy-based medical aesthetic products, which consist of platforms and non-consumable handpieces and hands-free applicators. To a lesser extent, we generate revenue from the sale of consumables and from the sale of extended warranties. For the year ended December 31, 2025, we derived approximately 78% of our revenues from the sale of medical aesthetic products and approximately 22% of our revenues from the sale of consumables and extended warranties. We expect our revenues from the sale of consumables and extended warranties to increase over time as our installed base continues to grow. We expect continued growth in sales of consumables as a result of, increased patient and physician awareness of our medical aesthetic products and additional sales representatives. We have expanded our sales and marketing organization as well as our number of platforms, to help us drive and support revenue growth and hope to continue this expansion. 64 For the years ended December 31, 2025 and 2024 we derived approximately $289.0 million, or 78% and $344.0 million, or 87%, respectively, of our total revenues from the sale of minimally invasive platforms, and we derived approximately $7.4 million, or 2% and $20.1 million, or 5%, respectively, of our total revenues from the sale of hands-free platforms and approximately $74.1 million, or 20% and $30.7 million, or 8%, respectively, of our total revenues from the sale of non-invasive platforms. This resulted in the year ended December 31, 2025 a decrease of approximately $55.0 million, or 15.9%, $12.7 million, or 63.2% in revenues from the sale of minimally invasive platforms, hands-free platforms, and increase of approximately $43.4 million, or 141.3% in revenues from non-invasive platforms, respectively. The decrease in the total revenues for the year ended December 31, 2025 was primarily generated by a decrease in the volume of medical aesthetic products sold by us as a result of the economic situation. In the future, we expect that revenues from the sale of minimally invasive platforms will continue to be a major contributor to our revenues. We sell our products directly in the United States, Canada, the United Kingdom, Ireland, Spain, Portugal, France, Belgium, Luxembourg, Italy, Germany, Austria, Japan, Australia, India, Thailand and Argentina, and indirectly through third-party distributors in other countries. The following table provides information regarding the breakdown of our revenue by geographic region for the years ended December 31, 2025, 2024 and 2023: Years Ended December 31, Geographic region 2025 2024 2023 Israel 3,398 3,746 2,898 United States 198,652 244,774 307,818 Europe 79,045 63,441 62,532 Asia 49,210 42,974 47,744 Other 40,190 39,883 71,056 Total 370,495 394,818 492,048 We believe that there are opportunities for us to generate additional revenue from existing customers who are already familiar with our products. We intend to continue to invest in research and development activities, increase the number of sales representatives in our sales and marketing organization and introduce innovative next-generation pipeline products to our customers. As a result, we expect that certain existing customers will be candidates for technological upgrades to enhance the capabilities of their existing InMode products. In addition, as we continue to grow our support services program, we expect to increase the number of customers that enter into service contracts and extended warranties with us, which would result in additional recurring revenues. We also plan to expand our current product line in order to reach new customers, such as ENTs, ophthalmologists, general practitioners and aesthetic clinicians, and generate additional revenue. Cost of Revenues Our cost of revenues consists primarily of the expenses we incur in connection with the manufacture and assembly of our products by third parties and the direct costs we incur for the materials, labor and overhead needed to manufacture and assemble our products. Our cost of revenues also includes shipping, handling, service and warranty expenses, as well as salaries and personnel-related expenses, including share-based compensation expenses, for our operations management team, which is comprised of subcontractor supervisors and purchasing and quality control employees. We expect our cost of revenues to increase in absolute dollars primarily as, and to the extent that, our revenue grows. Our cost of revenues as a percentage of revenues has been, and we expect it to continue to be, affected by a variety of factors, including the average selling price of our products, promotional prices being offered to existing customers for our new products, manufacturing costs, the maturity of our existing products, and to a lesser extent the sales mix between the United States and the rest of the world as our average selling price in the United States tends to be higher than in the rest of the world after accounting for differences in currency value. We expect to see pressure on our gross margin due to increase costs and sales of more expensive laser-based devices in the future. Research and Development Expenses Our research and development expenses consist of salaries and personnel-related expenses, including share-based compensation expenses, for our employees that are primarily engaged in research, development and engineering activities. Our research and development expenses also include regulatory-related costs and expenses, external engineering fees, materials and other overhead expenses incurred in connection with the design and development of our products. We expense all of our research and development costs as incurred. While we do not track our research and development spending by technology, product or application, we do expect that our overall research and development costs will increase in absolute dollars in the future as we develop more products and technologies. We expect research and development expenses as a percentage of our total revenue to vary over time depending on the level and timing of initiating new product development efforts. 65 Sales and Marketing Expenses Our sales and marketing expenses consist primarily of salaries, commissions and personnel-related expenses, including share-based compensation expenses, for our employees that are engaged in sales and marketing activities, which include marketing and public support of our products, participation in trade shows and industry events, promotional and public relations activities, and administrative functions in support of sales and marketing. We expect sales and marketing expenses to continue to increase in absolute dollars as we continue to expand our marketing organization to both drive and support our planned growth in revenue. General and Administrative Expenses Our general and administrative expenses consist primarily of salaries and personnel-related expenses, including share-based compensation expenses, for executive, accounting and administrative personnel, professional fees and other general corporate expenses. We expect general and administrative expenses to grow at a steady state as our operations will continue to expand. However, general and administrative expenses may vary over time, due to increasing legal and insurance premium costs and involvement in IP related litigations. Income Taxes We are subject to income taxes in Israel, the United States and numerous foreign jurisdictions. Our facilities in Israel were previously granted the status of “Benefited Enterprise” which provided us with a ten-year corporate tax exemption for undistributed income from 2012 to 2021. From 2022, our corporate tax rate under the Encouragement of Capital Investments Regulations (Preferred Technology Income and Capital Profits for a Technological Enterprise), 2017 and our Israeli subsidiary is expected to be approximately 7.5%. See “Item 10E. Additional Information-Taxation.” Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of our operations is based upon our audited consolidated financial statements as of and for the years ended December 31, 2025, 2024 and 2023, which have been prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, sales and expenses and related disclosure of contingent assets and liabilities. We base our estimates on historical experience, authoritative pronouncements and various other assumptions that we believe to be reasonable under the circumstances. On a periodic basis, we evaluate our estimates. Actual results could differ from those estimates. The following are our critical accounting policies and the significant judgments and estimates affecting the application of those policies in our consolidated financial statements. Revenue Recognition Product revenue, Net Revenues from product sales are recognized when the customer obtains control over our product, typically upon shipment to the customer. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues. Variable consideration includes price concessions related to installment sales contracts. We estimate variable consideration using the most likely outcome amount. Amounts included in the transaction price are recognized only when it is probable that a significant reversal of cumulative revenues will not occur. We do not grant any right of return, refund, cancelation or termination. From time to time, we participate in our customers’ marketing activities and deduct costs related to such activities from revenue. 66 Service Revenue We also generate revenues from long-term maintenance contracts or extended warranties. Revenue from extended warranties is recognized ratably, on a straight-line basis, over the period of the applicable service contract. Revenue from repairs performed in the absence of extended warranties is recognized when the related services are performed. More information regarding revenue recognition is discussed in Note 2q in our consolidated financial statements. Income Taxes The provision for income tax is calculated based on our assumptions as to our entitlement to various benefits under the applicable tax laws in the jurisdictions in which we operate. The entitlement to such benefits depends upon our compliance with the terms and conditions set out in these laws. We are subject to income taxes in Israel, the U.S. and other foreign jurisdictions. Our effective tax rate is primarily impacted by the geographical mix of taxable income and loss. We record a tax provision for the anticipated tax consequences of our reported operating results. Changes in tax laws, regulations, agreements and treaties, currency exchange restrictions or the level of operations or profitability in each taxing jurisdiction could have an impact upon the amount of current and deferred tax balances and hence our net income. We estimate the degree to which deferred tax assets will result in a benefit, after consideration of all positive and negative evidence, and provide a valuation allowance for deferred tax assets that we believe more likely than not will not be realized. In situations in which we are able to determine that our deferred tax assets will be realized, that determination generally relies on future reversals of taxable temporary differences and expected future taxable income. Applying judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, we considered all available evidence, including past operating results, the most recent projections for taxable income, and prudent and feasible tax planning strategies. During the year ended December 31, 2024, we determined that the positive evidence overcame any negative evidence, primarily due to cumulative income in recent years, including the effect of permanent adjustments, and the expectation of profitability in future periods, and concluded that it was more likely than not that the United States net deferred tax assets were realizable. As a result, we released the valuation allowance of $60.1 million related to the United States net deferred tax assets during the year ended December 31, 2024, with $5.4 million used during 2024, and $54.7 million recorded as deferred tax assets. As of December 31, 2025 and 2024, we concluded that the deferred tax assets for certain jurisdictions would not be realized and therefore reserved valuation allowance in the amount of $4.8 million and $4.2 million, respectively, with respect to these deferred tax assets. Significant judgment is required in evaluating our uncertain tax positions. In evaluating the exposure associated with our tax positions, we record reserves for uncertain tax positions in accordance with US GAAP, based on the technical support for the positions and our past audit experience with similar positions. For those tax positions where it is more likely than not that a tax benefit will be sustained, we record the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. We believe our tax positions comply with applicable tax laws and we intend to defend our positions, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax reserves and accruals. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate. The liability for these unrecognized tax benefits totaled $4.4 million on December 31, 2025 (see Note 13 to our consolidated financial statements for additional information). 67 Operating Results The following table summarizes the results of our operations for the periods presented: Years Ended December 31, 2025 2024 2023 ($) (% of Revenues) ($) (% of Revenues) ($) (% of Revenues) (in thousands) Revenues 370,495 100 394,818 100 492,048 100 Cost of revenues 79,525 21 77,752 20 80,708 16 Gross profit 290,970 79 317,066 80 411,340 84 Operating expenses: Research and development 13,319 4 13,137 3 13,410 3 Sales and marketing 180,578 49 181,366 46 193,042 39 General and administrative 11,686 3 10,032 3 9,228 2 Total operating expenses 205,583 56 204,535 52 215,680 44 Operating income 85,387 23 112,531 28 195,660 40 Finance income, net 24,943 7 30,938 8 21,607 4 Income before income taxes 110,330 30 143,469 36 217,267 44 Income taxes benefit (expenses) (16,499 ) 5 37,806 10 (19,348 ) 4 Net income 93,831 25 181,275 46 197,919 40 Comparison of the Year Ended December 31, 2025 to the Year Ended December 31, 2024 Revenues Our revenues decreased by approximately $24.3 million, or 6%, to approximately $370.5 million for the year ended December 31, 2025, compared to approximately $394.8 million for the year ended December 31, 2024. This decrease was attributable to a decrease in sales of our minimal invasive platforms worldwide in the amount of $55.0 million, a decrease in the sales of our hand free platforms worldwide in the amount of $12.7 million, offset by increase of $43.4 million from non-invasive mainly from introduction of 2 new products in 2025, ApexRF and Solaria. The decrease in the total revenues for the year ended December 31, 2025 as compared to the prior year was primarily generated by a decrease in the volume of medical aesthetic products sold by us during the period as a result of decrease in patient and physician demand due to economic situation. Our revenues in the United States decreased by approximately $46.1 million, or 18.9%, to approximately $198.7 million for the year ended December 31, 2025, compared to approximately $244.8 million for the year ended December 31, 2024. This decrease was primarily attributable to the overall slowdown in the demand for aesthetic procedures, in addition to challenging financing market in the United States. Our revenues outside of the United States increased by approximately $21.8 million, or 14.5%, to approximately $171.8 million for the year ended December 31, 2025, compared to approximately $150.0 million for the year ended December 31, 2024. This increase was primarily due to increase in sales in Europe and Asia. Our revenues from the sale of consumables and extended warranties for the year ended December 31, 2025, increased by approximately 3% compared to the year ended December 31, 2024. This increase was primarily attributable to turnaround and increase in demand for aesthetic procedures. Cost of revenues Our cost of revenues increased by approximately $1.7 million, or 2%, to approximately $79.5 million for the year ended December 31, 2025, compared to approximately $77.8 million for the year ended December 31, 2024. This increase was primarily due to an increase in freight costs in the amount of $2.2 million. Our gross margin decreased to 79% for the year ended December 31, 2025, compared to approximately 80% for the year ended December 31, 2024. This decrease was primarily attributable to an increase of freight costs and a different sales mix between the United States and rest of the world. Research and development expenses Our research and development expenses increased to approximately $13.3 million for the year ended December 31, 2025, compared to approximately $13.1 million for the year ended December 31, 2024. This increase was primarily attributable to an increase in salaries and related expenses in the amount of $1.3 million which was offset by decrease in share-based compensation in the amount of $1.1 million. Sales and marketing expenses Our sales and marketing expenses decreased by approximately $0.8 million, or 0%, to approximately $180.6 million for the year ended December 31, 2025, compared to approximately $181.4 million for the year ended December 31, 2024. This decrease was primarily attributable to decrease in commission for sales in the amount of $6.1 million and, decrease in share-based compensation in the amount of $3.7 million, which was offset with increase in salaries in the amount of $3.6 million and employee-related expenses in the amount of $3.8 million. 68 General and administrative expenses Our general and administrative expenses increased by approximately $1.6 million, or 16%, to approximately $11.6 million for the year ended December 31, 2025, compared to approximately $10.0 million for the year ended December 31, 2024. This increase was primarily attributable to the increase in professional services in the amount of $1.4 million, increase in salaries in the amount of $0.6 million which was offset with decrease in product liability provision in the amount of $0.5 million. Finance income, net Our finance income, net was approximately $24.9 million for the year ended December 31, 2025, compared to approximately $30.9 million for the year ended December 31, 2024. This decrease in finance income, net was primarily attributable to decrease in interest income from our portfolio of investments in bonds and corporate debt securities, short-term bank deposits and highly liquid investment classified as cash equivalent in the amount of $12.0 million. This decrease was offset by increase in exchange rate income of $5.6 million due to fluctuations of USD to foreign currencies during 2025. Income taxes benefit (expenses) Our income taxes expenses increased by approximately $54.3 million, or -144%, to expenses of approximately $16.5 million for the year ended December 31, 2025, compared to result in a benefit of approximately $37.8 million for the year ended December 31, 2024. This increase was primarily attributable to recognition of a NOL deferred tax asset in amount of $55.6 million during 2024. See “Item 10E. Additional Information–Taxation.” Liquidity and Capital Resources Historically, we have funded our operations primarily from cash flows from operations, from private placements of our ordinary shares, from our initial public offering in August 2019 and from exercise of options. Since inception in January 2008, we have not received any debt financing from banks or issued any preferred or debt securities. We have received aggregate net proceeds of approximately $111.2 million from issuances of our ordinary shares, including approximately $69.8 million from our initial public offering. As previously disclosed, on February 3, 2025, we approved a share repurchase program of up to 10% of the Company’s outstanding ordinary shares in accordance with the terms of Rule 10b-18 of the Exchange Act, to be purchased out of our cash reserve. On April 4, 2025, we completed the repurchase of shares. In total and as of December 31, 2025, we purchased 6.95 million ordinary shares at an average price paid per share of $18.337 under the repurchase program. As of December 31, 2025, we had working capital of approximately $627.9 million, and our primary source of liquidity was approximately $555.3 million in cash and cash equivalents, marketable securities and short-term bank deposits. Our major cash requirements are obligations to support our ongoing operations which consist primarily of salary and commissions expenses for employees, and contractual obligations for our subcontractors and lease agreements. We expect our working capital to be sufficient for the Company’s present requirements. If existing cash and cash generated from operations are insufficient to satisfy our liquidity requirements, we may seek to sell equity or debt securities or obtain a credit facility. If we raise funds by issuing equity securities, our shareholders would experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt financing or equity that we raise may contain terms that are not favorable to us or our shareholders. Financing may not be available at all, or in amounts or on terms unacceptable to us. If we are unable to obtain financing, we may be required to delay the development, commercialization and marketing of our aesthetic medical products. Cash Flows The following table represents a summary of our cash flow for the periods indicated Years ended December 31, 2025 2024 2023 Net cash provided by (used in): (in thousands) Operating activities $ 85,257 $ 132,664 $ 176,826 Investing activities 186,032 162,206 (136,064 ) Financing activities (126,059 ) (282,771 ) 5,504 Effects of exchange rate changes on cash and cash equivalents 1,984 (1,181 ) 605 Net increase in cash and cash equivalents $ 147,214 $ 10,918 46,871 69 Net Cash Provided by Operating Activities For the year ended December 31, 2025, our net cash provided by operating activities was $85.3 million. The primary reason for net cash provided by operating activities was the net profit of $93.8 million, increase in accounts payables of $4.1 million and increase in other liabilities of $2.1 million. The outflow from operating assets and liabilities in the amount of $24.3 million was primarily due to an increase of $7.5 million in accounts receivable due to an increase in sales through distributors and increase in inventory of $14.5 million and other receivables of $3.7 million. Additionally, our net profit for the year ended December 31, 2025, included $11.1 million in non-cash expenses primarily comprised of share-based compensation expense. For the year ended December 31, 2024, our net cash provided by operating activities was $132.7 million. The primary reason for net cash provided by operating activities was the net profit of $181.3 million, decrease in accounts receivable of $5.9 million and increase in contract liabilities of $5.4 million. The outflow from deferred tax income in the amount of $55.2 million was primarily due to release of valuation allowance in the U.S. and increase in inventory of $14.5 million and other receivables of $5.7 million. Additionally, our net profit for the year ended December 31, 2024, included $16.6 million in non-cash expenses primarily comprised of share-based compensation expense. As we expect our revenues to continue to grow, we anticipate our accounts receivables, inventory and accounts payable will similarly continue to grow, including our available working capital. Net Cash Used in Investing Activities For the year ended December 31, 2025, net cash provided in investing activities was $186.0 million, which primarily related to investment of short-term bank deposits and marketable securities of $314.0 million. These outflows were partially offset by inflows of $500.5 million related to proceeds from short-term bank deposits and marketable securities. For the year ended December 31, 2024, net cash provided in investing activities was $162.2 million, which primarily related to investment of short-term bank deposits and marketable securities of $504.4 million. These outflows were partially offset by inflows of $667.3 million related to proceeds from short-term bank deposits and marketable securities. Net Cash Used in Financing Activities For the year ended December 31, 2025, net cash used in financing activities was $126.1 million, which consisted of $127.4 million outflow as part of our share repurchase programs. This outflow was partially offset by inflow of $1.4 million related to proceeds from the exercise of options. For the year ended December 31, 2024, net cash used in financing activities was $282.8 million, which consisted of $285.4 million outflow as part of our share repurchase programs. This outflow was partially offset by inflow of $2.6 million related to proceeds from the exercise of options. Research and Development, Patents and Licenses, etc. For a description of the Company’s research and development policies, see “Item 4B. Information on the Company–Business Overview–Intellectual Property.” Trend Information Other than as disclosed elsewhere in this Annual Report on Form 20-F, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2025 that are reasonably likely to have a material effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations or financial condition. Strategic Considerations The Company’s Board of Directors regularly evaluates the Company’s strategic direction and considers alternatives with a view to enhancing long-term shareholder value. The Company may from time to time receive unsolicited inquiries or proposals from third parties. It may also consider a range of potential strategic transactions, which could include, among others, mergers, acquisitions, divestitures, strategic partnerships or other business combinations, as well as continuation of the Company’s existing business and strategy as discussed in this report. 70 Evaluation of any strategic alternative or unsolicited inquiry is subject to a number of factors, including market conditions, the Company’s financial performance and prospects and the interests of the Company’s stakeholders. Of course, any such process is subject to a legal and regulatory process. There can be no assurance that consideration of any such matter would result in the Company entering into a transaction nor if a transaction were to come to pass can there be any certainty regarding the likelihood, timing, structure or terms of any such transaction. The Company does not intend to disclose developments regarding the evaluation of strategic alternatives or unsolicited inquiries unless and until it determines that such further disclosure is appropriate or required under applicable securities laws. Recently Issued Accounting Pronouncements Certain recently issued accounting pronouncements are discussed in Note 2 in our consolidated financial statements.