Butterfly Network, Inc. (BFLY) Earnings Call Transcript & Summary

Hello, and welcome to Butterfly Networks First Quarter 2022 Earnings Call. My name is Alex, and I'll be coordinating the call today. [Operator Instructions] I will now hand over to your host, Agnes Lee, the Vice President of Investor Relations. Over to you, Agnes.

Good morning, and thank you for joining us today. Earlier this morning, Butterfly released financial results for the first quarter ended March 31, 2022, and provided a business update. The release and earnings presentation, which include a reconciliation of management's use of non-GAAP financial measures compared to the most applicable GAAP measures are currently available on the Investors section of the company's website at ir.butterflynetwork.com. Dr. Todd Fruchterman, Butterfly's President and Chief Executive Officer, will host this morning's call. During today's call, we will be making certain forward-looking statements. These statements may include statements regarding, among other things, expectations with respect to financial results, future performance, development and commercialization of products and services, potential regulatory approval, the size and potential growth of current and future markets for our products and services and the impact of the COVID-19 pandemic on our business. These forward-looking statements are based on current information, assumptions and expectations that are subject to change and involve a number of risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. These and other risks are described in our filings made with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, and the company disclaims any obligation to update such statements. During this call, we will refer to non-GAAP financial measures, including adjusted gross margin, adjusted gross profit and adjusted EBITDA. These financial measures are not prepared in accordance with U.S. Generally Accepted Accounting Principles or GAAP. These non-GAAP financial measures are not intended to be considered in isolation or to substitute the results prepared in accordance with GAAP. The definitions and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures and a discussion of why we present these non-GAAP financial measures are included in today's press release and at the end of the slide presentation. As a reminder, this call is being webcast live and recorded, and we will be referencing a slide presentation in conjunction with our remarks. Because there is a short delay between the live telephone audio and the presentation being shown on the webcast, for the best experience, please use either the webcast for both the audio and video content. Or if you dialed in by telephone, download the slides from our website in advance them yourself. To access the webcast, please visit the Events section in the Investors section of our website, and a replay of the event will be available following the call. I would now like to turn the call over to Dr. Fruchterman.

Thank you, Agnes, and good morning, everyone. I'd like to start off by sharing that I'm joined by Heather Getz, our new Executive Vice President and Chief Financial Officer. While she will not be participating in today's call, I did want to briefly introduce her. Heather is a proven CFO with deep experience in delivering results and value creation. She brings 25 years of corporate finance and operating experience from both public and private companies as well as a strong background in the digital health and medical device space. Heather spent 12 years at BioTelemetry, a publicly traded remote medical technology company, where he served as Executive Vice President and Chief Financial and Administrative Officer. Before this, Heather held various leadership positions at companies including Alita Pharmaceuticals, VIASYS Healthcare and Sunoco. I have no doubt Heather will be a strong partner as we continue to execute our strategy and introduce unique value for the health care ecosystem and our shareholders. Now to set the stage for our first quarter results. I want to highlight the important progress we are making in building a mission-aligned culture throughout Butterfly. Our team has come together to not only realize but to accelerate the vision of Dr. Jonathan Rothberg and Butterfly's early trailblazing scientists who set out to make health care more effective, more accessible, more equitable and more affordable by enabling clinicians to accelerate diagnosis and care and to improve patient wellness and convenience. In today's discussion, we will not only hear how we are catalyzing care transformation across health systems, but also how we are enabling maternal imaging in Africa, facilitating emergency care in Ukraine, providing EMS teams with imaging capabilities and empowering veterinarians across the country to more quickly assess and address animal health needs. We are unified by a belief that our technology will dramatically elevate care across use cases and care continuum. And we are investing heavily in our people and product development to meaningfully capture our first mover advantage. From a revenue perspective, we opened the year with $15.6 million in quarterly revenues, a 25% increase versus the first quarter of 2021. This was an excellent start to the year and in line with our expectations. I'm immensely proud of our Butterfly team for their work this past quarter and throughout the pandemic, which has been a challenging and chaotic period in health care delivery. The commitment of our people to transform care by providing valuable clinical insights earlier in the pathway has never wavered. We endeavor to work as hardest clinicians and technicians have over the past several years and look forward to continuing to work alongside them in partnership to help them deliver the best possible care to all patients. I'd now like to touch on some overarching market activity that is validating the transformational role of Butterfly. In Q1, at the American Institute of Ultrasound in Medicine Annual Meeting, Dr. Abraham Verghese of Stanford University called out in a keynote speech that it was his hope that recent advancements in ultrasound technology would bring new life to the bedside exam and help foster greater connection between the doctor and the patient. Further, the Institute's President, Dr. Megerian, supported this sentiment by same resist the trend of commoditizing ultrasound as just another study that we read while seated in a dark room, understand the importance of getting up, scanning and interacting with patients. This is what Butterfly makes possible. It's about establishing connections with patients and being present with them at the bedside, maintaining a window into the body to see, and at times to even show what's happening. It's about using ultrasound information to inform clinical decisions rather than confirm that. This is a paradigm shift from how ultrasound has historically been used. We believe this shift has the potential to transform health care to improve the patient-doctor relationship, and in time to unlock multiple economic efficiencies and gains. With that, I'd like to shift to our business update. Our team continues to make progress against our core principles of making Butterfly easy, everywhere and economical. Let's start with an example of our principality. In a landmark study published March 28 in the New England Journal of Medicine Evidence, Butterfly was found to be an effective tool to estimate fetal gestational age just as accurately as a trained sonographer using a standard ultrasound machine. Dr. Joni Price at UNC, who led the study said armed with a pocket-sized Butterfly probe and a smartphone, a Zambian midwife with no prior training in sonography can assess gestational age as accurately as a certified sonographer using an expensive machine. This has the potential to revolutionize the delivery of obstetric care in settings like Zambia. The results of this study offer hope to millions of mothers when it comes to determining risk and ensuring good quality maternal care. Access to low-cost imaging devices and the expertise to perform scans has historically presented challenging hurdles to overcome in low-resource care settings around the world. Additionally, ultrasound, as part of routine care can demonstrate the benefits of a patient seeing their hub, whether it be a greater willingness to seek out appropriate prenatal care or to pursue proper vaccinations. This study reinforces the ease in which Butterfly can enter the equation and drive positive impact and reinforces our belief that all level of practitioners when armed with the right tool can meaningfully advance the standard of care. In addition to such external validation, we continue to strengthen and differentiate our educational [indiscernible], in-app guidance and associated services to take the burden off the user while increasing their confidence in standing with a Butterfly. Fifth, alongside our team's ongoing development of AI to enable and simplified bedside ultrasound for those not traditionally trained in it is core to making Butterfly adoptable at scale. Now let's talk about our second core principle everywhere. We believe Butterfly can be as you ubiquitous as a stethoscope, and can find a home in every practitioner's pocket and used for every patient every time. Our belief is materializing. The American Academy of Family Physicians is now recommending that family medicine resident featuring in point-of-care ultrasound. In curriculum guideline, AASP called out that point-of-care ultrasound will transform family physicians' ability to arrive at a rapid diagnosis for patients. This is a meaningful recommendation with 1 in 8 U.S. medical graduate entering family medicine residencies each year. It's this type of catalyst that our clinical education and commercial teams are prepared to quickly activate around and already have. Also this past quarter, I was reminded of the importance of our Everywhere principle as our team worked on caregivers who are aiding in the humanitarian crisis in and around Ukraine. True to our mission, we were able to equip care team on the front line of this crisis with Butterfly, and we're already hearing of the value it's bringing to this distressing situation. The use of Butterfly in such a backdrop reinforces what we are doing, innovating to inform better decisions so people everywhere get the care they need. It's moments like these that emphasize the great impact in utility of Butterfly and drive our team. If we take a quick look at our third principle, economical, one area where Butterfly is increasingly seen as becoming a standard of care with diagnostic assessment of the lungs. In Q1, the Journal of Ultrasound in Medicine featured a retrospective multicenter study of 479 patients that found point-of-care ultrasound to bring radiation-free, affordable and equivalent diagnostic accuracy to lung assessment as compared to chest X-ray. Given the magnitude and regularity of patients who present with respiratory distress, we're encouraged that Butterfly is being increasingly used by and adding value with a wide range of clinicians to inform decision-making, and in turn, to expedite treatment. Studies like this one demonstrate Butterfly's momentum in challenging health care's traditional point-of-care toolkit and workflow. As you have just heard, we have made progress in the first quarter in reinforcing the vision of being easy, everywhere and economical. I will now provide some updates in line with each of our 4 strategic pillars. Let's start with hospitals and health systems. We are pleased with our Q1 year-over-year growth in the hospital and health systems space, which benefited from solid momentum in software sales and from deeper penetration with current clients. Looking ahead, we believe the industry's growing interest to educate and train practitioners, to incorporate ultrasound information into the clinical workflow across the enterprise will help drive continued growth in our blueprint offering. In Q1, we began a number of installations in top hospitals across the country. We anticipate announcing additional partnerships in the near future. Our first enterprise-wide deployment with Rochester is the embodiment of our blueprint solution, utilizing Butterfly to advanced care delivery, medical education and clinical research. This project is fully on track, and we expect our device deployment to begin in Q2 of this year. Let's move on to our international pillar. We continue to make progress in markets outside of the U.S. I'm happy to share that in Q1, we solidified a distribution partnership with Novolog, a leading health care services group in Israel. This will enable us to bring Butterfly into Israel and introduce its value as part of primary care. Additionally, we have made a number of segment penetrate India. One of these comes from the U.K., where we've begun working with East of England Ambulance Trust, which provides accident and emergency services, covering an area made up of around 6.2 million people. This will allow us to further demonstrate the value of Butterfly in the hands of EMS teams, which represents a substantial opportunity for Butterfly in many markets. Also, as we previously announced, the Bill & Melinda Gates Foundation provided a $5 million grant to help bring Butterfly to sub-Saharan Africa to improve maternal and fetal health. This grant enables our teams to earn 1,000 health care workers with Butterfly iQ+. 500 probes will be given to mid-level practitioners in Kenya, and 500 probes will be distributed to health care workers in South Africa later this year. This work represents an important step towards improving worldwide access to medical imaging and advancing our commitment to global health equity. I look forward to sharing more progress on future calls as we roll out this initiative later in the year. Our third pillar is home-based care, in addition to the clinical evidence supporting Butterfly. The increasing prevalence of chronic diseases is spurring interest and use cases in in-home care. This presents us for the market opportunity as Butterfly can enable improved disease management and early detection of some diseases. As part of our clinical program, we are launching multiple studies to evaluate the use of Butterfly for bladder scanning, heart failure and dialysis. These are just a few of the scenarios where Butterfly could be meaningfully used for home health assessment. We believe this will reduce hospital visits, better manage conditions and, in some instances, replace a more expensive workflow or device. And finally, as I've covered on past calls, we are exploring markets adjacent to health care. One such market is veterinary medicine. I'm pleased to announce that we are welcoming Petco to butterfly customer ecosystem. Beginning this year, Butterfly iQ+ Vet used will be deployed and become standard across 200 Petco clinic locations in the United States. We are proud to be the first and only U.S. imaging provider to collaborate with Petco nationwide. And to lead the largest deployment of ultrasound into our practice group in veterinary medicine. Whether used as part of routine exams for early detection or for intervention, Butterfly iQ+ Vet will stand the services offered to Petco pet owners. And more importantly, will deliver valuable insights to veterinarians, elevating the care delivered in Petco centers. This partnership is driven by an aligned vision and a mission of Petco, a health and wellness company focused on creating a better world for animals and the people who love and need them. Our team maintained focus on deploying Butterfly i!+ Vet to the more than 250,000 veterinarians and vet types globally to give benefit from having Butterfly in their pocket. I'm excited about the progress we have made and will continue to make in the veterinarian market as we evolve and expand our footprint. I hope this recap illustrates the progress of our journey. As we stated at the beginning of the year, we believe that Butterfly can be as ubiquitous as the stethoscope across all specialties, species and care settings. Over the past year, we've empowered the use of ultrasound where ultrasound is not traditionally utilized, and where ultrasound expertise is not traditionally found. As we introduce more caregivers to the benefit of seeing inside the body at the bedside and as the industry's understanding of the value of imaging to inform first confirmed care decisions continues to grow Butterfly is proving itself. And with that, I will now turn to the financial results. Revenue for Q1 2022 was $15.6 million, a 25% increase versus the prior year period and in line with our expectations. Product revenue was $11 million, an increase of 15% versus Q1 2021. This increase was driven by higher average selling prices and volumes in both our U.S. and international health care channels as well as in the vet market. Partially offsetting this increase was a reduction in e-commerce or direct-to-user sales as our business model is evolving to enterprise sales across health systems. Subscription revenue was $4.6 billion in the first quarter, growing by approximately 60% over the prior year period. Subscription mix of 29.3% of revenue increased by approximately 6 percentage points versus Q1 2021. This increase was due to a higher installed base of products with accompanying subscription software as well as increased renewals. Turning now to adjusted gross profit. Please note that a reconciliation of our adjusted numbers to GAAP can be found in today's press release and at the end of the slide presentation. Adjusted gross profit was $8.8 million in Q1 2022 compared to $5.9 million in the prior year period. This increase was primarily due to product mix, reflecting a higher proportion of subscription revenue in addition to higher device prices and volumes. Also contributing to the increased margin was higher manufacturing productivity, partially offset by the increased cost of manufacturing materials. Adjusted gross profit margin was 56.3% for the first quarter, which compares to 47.8% in Q1 2021, reflecting the positive mix, higher product ASP and manufacturing efficiencies. For the first quarter of 2022, adjusted EBITDA was a loss of $40 million compared with a loss of $26.5 million for the same period in 2021. The increase in adjusted EBITDA loss of $13.5 million was driven by investments in our commercial and R&D functions as we build out our commercial operations and products as well as investments in future revenue streams. These investments were partially offset by increased adjusted gross margin dollars, driven by the aforementioned positive product mix, ASP and volume. Moving to our capital resources. As of March 31, 2022, cash and cash equivalents were $359.9 million. In addition to our operating expenses, our Q1 cash position was impacted by fiscal 2021 annual bonus payout, capital expenditures for the build-out of our headquarters in Burlington, Massachusetts and the annual renewal of insurance premiums. We have a solid cash position, and we plan to continue to invest in 2022 to maintain our momentum and continue to capitalize on this attractive market opportunity. Looking at our 2022 guidance, given the strong start to the year, we are reaffirming the previously issued annual revenue guidance of $83 million to $88 million and the adjusted EBITDA guidance for a loss of $175 million to $195 million. As a reminder, we expected about 40% to 45% of 2022 revenue in the first half of the year and 55% to 60% in the second half. This translates to approximately 25% to 30% growth in the first half and approximately 45% growth in the second half. The increased growth in the second half is due to strength in our international channel in addition to the evolution of our business model from the e-commerce sales to institutional purchases and deployments. This evolution will be driven by the industry's building awareness of and appreciation for Butterfly's practical application of ultrasound information into the clinical workflow. In time, we believe this shift will not only accelerate our growth but will also allow for more predictable growth expectations. For some additional color, as mentioned, we are expecting 25% to 30% growth in the first half of the year and approximately 45% growth in the second half. We expect our gross margin percentage will fluctuate quarterly along with the change in mix between product and software subscription sets. The first quarter tends to be the lightest in terms of product sales. As such, we anticipate it will be our highest in terms of subscription sales as a percentage of revenue and gross margin percentage. We do, however, anticipate that our subscription sales as a percentage of revenue and gross margin percentage to increase for the full year 2022 versus 2021. For operating expenses, please remember we are doing 2 things simultaneously: one, we are building a domestic and international commercial organization to support our current revenue base; and two, we are investing in R&D resources to create future revenue streams. Because we are investing significantly for the future and expecting operating leverage on these investments in subsequent years, we believe at this time, adjusted gross margins are the best predictor of our future profitability. In closing, time and time again, Butterfly's unique ability to surface valuable clinical information quickly and easily, where otherwise does not exist, is winning the hearts and minds of practitioners and leaders across health care. Butterfly is the practical application of ultrasound information in the clinical workflow. This is not about doing more ultrasound, but about using the valuable information from ultrasound to better inform care decisions everywhere. Thank you for joining today's call, and thank you to the Butterfly team for the amazing and important work you continue to do. Now we'll open up for Q&A.

[Operator Instructions] Our first question for today comes from Josh Jennings from Cowen.

Todd, I wanted to just start off on just the hospital capital spending environment. I think there's some medtech companies that have relayed kind of a slow start to the capital purchasing or capital budgets for U.S. hospitals for systems like robots. But Butterfly iQ is in a different category, being a couple of thousand dollars per device versus $1 million plus per robot or high ticket other capital equipment. I just wanted to better understand the lower capital purchasing environment impacted your business at the start of this year?

So first of all, good morning, Josh, and thanks for the question. Look, I think, in general, it's a challenging environment across health care, right? And I think we see that as it relates to a number of factors coming together coming out of managing the pandemic, a whole bunch of dynamics with how care is being delivered, a whole bunch of things within society, employment, et cetera. That said, we think we're actually in a fairly good position because we think we're not seeing a lot of challenges as -- a lot of objections to working with Butterfly and exploring the solutions for health care systems. So we're not getting the initial resistance. We're working through the challenges that are going on in the health care system. And I think part of that is because Butterfly is more part of the solution. So if you put together a Butterfly solution and you have the ability to look at how you go about deploying, how you step into the software, how you step into deploying probes, it actually becomes economically beneficial. So I think as systems get educated about it, as they understand the utility of Butterfly in helping them provide more efficient, more effective care and workflows across the health system, I think they see that as something they want to explore as a positive. So economically, I think it's been -- I think we don't benefit from the challenges, but I think we benefit from where we position as a solution moving forward in this environment. So people are willing to talk to us and we haven't seen upfront objection due to the capital environment in health care today.

Great. That's helpful. And just on the supply chain constraints. I know historically, you have this great relationship with the Taiwanese semi-conductor manufacturing company. But just wanted to check in on semiconductor chip supply, but also in the other supply chain constraints that you're facing. And it sounds -- it seems like you're navigating through this -- these macro challenges effectively on the supply side, but just wanted to candidly check that thought.

So right now, our relationship with TSMC is great, and we haven't had any issues as it relates to the semiconductor components of our device. And as we've spoken to you before, and I think that's an advantage for us as we've gone into this. As it relates to overall supply chain, I think everybody is having challenges with increased prices, with the challenges on supply. We have done a good job. We have good relationships with our supply partners. And so we've been able to work with them to ensure that we're getting what we need to be able to produce product and to be able to keep things moving forward. So I think that's been an advantage for us by being in the market. I think when people look at the landscape of devices, we're here. We're working with our suppliers. We have the relationships, we're in this mix, we're partnering. And so we're getting access to components. We have access to semiconductors, and we've been able to keep our supply chain and our product moving.

Great. And I just want to ask about the balance reiteration revenue guidance range intact. I understand the balance in terms of how we should be thinking about growth in the first half or the second half that was very helpful. Are you able to share just any other incremental color just on what's giving your team confidence that you will see this acceleration over the next 3 quarters, but particularly in the second half? And how -- I mean, I think you -- we're thinking that the sales pipeline on the enterprise channel is building up nicely then the funnel is full. But what's giving you the confidence in the back half, but any other details you can share would be super helpful.

So I think you're getting more familiar with the story, and I would start there, Josh. I would say that we see confidence in our sales pipeline building as we've gone through. We've been in a number of conversations, and we continue to have things working through our pipeline as we've evolved our value proposition into the enterprise channel. I think also, it's an evolution of the story, right, as more time goes on, we're able to enhance our product offering, which is creating more value, which is helping us to be able to move through and be more aggressive as we move through the pipeline. And we sign more deals, those will help us in the back half of the quarter. We see external trends supporting our value proposition where we're going at some of the guidelines and recommendations that have come around. We continue to produce clinical evidence. So things are really starting to come together as people have the awareness to it, the guidelines are supporting it. Our evidence continues to reinforce it. And we're getting out there and we're building this pipeline and working with people to implement things. So our natural cadence in the business and as we see things kind of evolving and coming together, we see the back half really pulling together nicely. And I think it's a much more balanced year -- a much more balanced picture than what we had last year.

Great. And just thinking about them, you laid it out here in your prepared remarks, in your presentation, just it seems like you're making nice progress in all 4 pillars. But enterprise channel, international that -- and then even kind of start kicking off some of these clinical trials in the home channel. But is that the way to think about the progress -- as you continue progress throughout the year, that it's going to be balanced through each of those channels? Or should we be thinking that one of those channels, either enterprise systems, international or event will outpace the others and drive the acceleration through the end of 2022?

I think this is where we're kind of balancing where we are in the story, which is the early part of the story, Josh. And that's how I think things will over a little bit of time here coming through a more predictable pattern. But right now, given where we were and how we started out, we're seeing a lot of our efforts materializing in health system. We're also moving in our geographical expansion, but that's coming. Right now, we've done a lot of work in our pipeline and our solution that we're offering. So we see right now a good momentum in the health systems piece. We're starting to get momentum in our international geographical expansion, and you've seen that in some of our global health initiatives, and we want to stay committed to our global health equity initiatives both here in the United States and around the world. That continues to do well. And so that's -- we continue to do well there. And we believe that really the embodiment of our strategy as we've talked about in the health systems is important. But what we've been all about is the utility of information from ultrasound and we believe that path to home as you think about where care is going, how information drives that care and how standard of care across different settings to be equal in order to maintain a high quality of tariff in alternative settings is really important. We see the path to home has been very important. So that's the one that we're really developing right now. And we see health systems international as more active and really home as more developmental in driving growth in the future.

Great. And maybe just a follow-up on home, if I could. Just you guys are kicking on clinical studies. It sounds like you are scaling heart failure and some other indications. And how you think about the home channel evolving in front of, I guess, data? And then when should we be expecting results from some of these trials? And I assume that the follow-up would be pretty short follow-up period. But I mean, could we see some outcomes from some of these clinical development initiatives or trial initiatives in 2022? Or should we be thinking about results coming in 2023? And just in front of results, sorry, keep the question, but how do you see kind of revenue from the home channel evolving prior to kind of reestablishing the evidence?

I think if you think about home as a journey and as the site of care, no, I think that home is a destination. So today, people are delivering to in home. Butterfly provides benefits to people -- to practitioners who are going out in the home setting and delivering care to patients. So that's really kind of the start because remember, at its core, Butterfly is about information, right? It's about getting information and informing care decisions. So we're demonstrating the value of that in a different care setting today by getting it in the hands of practitioners for going out of the hospital to the home to deliver care. And we're already doing that. And what we want to do is then expand that utility so we can bring more efficiencies to care. And that's the next step, right? Today, you use that information in managing disease, identifying disease and then continuing to do that in a broader and more expanded way to getting patients more involved in their care, getting that information last as point in time but more as a continuum to practitioners. And that's really the evolution. So Butterfly is going in the home today with practitioners. We then want to bring it in the hands of patients so that information flow can continue so we want to ultimately evolve it to other form factors where we can have that information more seamlessly coming. So it's really about bringing information and evolution of care in different settings. That's what the home is all about. So we're already there today. It's just that we're starting that journey, and we're going to continue that evolution as we go on. So we're proving that. So we have some of that data with practitioners doing that evidence. Now some of those studies are going on, and we hope to see some of that data towards the end of this year and at the beginning of next year. And then we are also starting studies to help this walk with patients becoming involved in their care and then some of the evidence that we need to continue our form factor evolution and how we can get the continuation of the flow of information into decision-making. So we'll start hopefully having evidence as part of that journey towards the end of the year and then into next year. And then this story is just going to keep evolving, and we're just going to keep telling the story.

Great. And maybe just a 2-part or just maybe 2 last questions. Just thinking about enterprise contracts, the big University of Rochester win and then how we should be kind of incorporating those enterprise wins into our models. Just from a revenue standpoint, it looks like Butterfly iQ device deployment will start in the second quarter as a multiyear agreement, thousands of devices being deployed. But any help just thinking through how revenue would kind of flows through and is recognized as you deploy these Butterfly iQ devices over the next couple of years?

So I think, Josh, this is the part where we're working on and Heather coming in will help us as we continue to test the revenue. I think what it demonstrates is that our revenue is multicomponent and so that there's different elements to how we're going to be building, which hopefully will also give some comment, there has some confidence as we continue to move through. Because upfront, actually, we look at some elements of the software, which enable the deployment, right? So there's a capital element to the subscription. There are services elements to that. There are services elements to how we deploy. And then there's obviously the capital acquisition of the devices. So I think what it does is it helps us as we're evolving our business model to bring diversification into our revenue and it's also helping us understand how we can bring greater value faster into the health system. And so right now, we're at the phase where we're bringing software up to speed and understanding the services component and to maximize the deployment. We're going to be bringing devices onboard with time, already doing that. But that -- but what I would caution you is we look to -- look it as a predictor, right now, it is an enabler. And so this is really what we're learning with them on how we can package this so it could be more -- it can be more scalable and done faster and more segmented out to other institutions so we can accelerate their path onto the journey. And so I think these big deployments early are a huge advantage for us because they're allowing us to absorb and learn the multi-elements that are required to actually do something completely different, which is to bring in counter-based workflow with ultrasound into clinical care. And it's an evolutionary change. And so we're in it right now. And we're going to package it, and then it will be more predictable as we go through and then understanding how it impacts revenue moving forward into the future. So that's how we're approaching these larger enterprise deployments right now. And then as we do some of the smaller ones, we're taking elements of it and bringing that together.

Excellent. And lastly, just thinking the Bill & Melinda Gates grants, it was $5 million. Just how do we think about recognizing how that $5 million flows through the P&L or onto the balance sheet? Is that -- are you generating revenue as you deploy these devices out into Kenya, and I think South Africa? Is that -- how should we think about that $5 million run in the P&L 2022?

Yes. So I think you're thinking about it exactly correct, Josh. As we deploy the services element and the devices into Kenya and to South Africa over the course of the year, will be recognized in the revenue. So it will be recognized over the -- majority will be recognized over the course of the year.

Thank you. [Operator Instructions] Okay, we have no further questions for today. That concludes today's conference call. Thank you for joining. You may now disconnect.