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

Good morning, everyone. It is my pleasure to introduce you to Joe DeVivo, President and CEO, Chairman of the Board, who will be leading the presentation today; and Heather Getz, Chief Financial and Operations Officer, who will be joining Joe for Q&A. As a quick reminder, after the presentation, we will open up for Q&A. With that, I will hand it over to Joe. Joe, thank you so much for joining us here today.

Thank you so much to the organizers JPMorgan. It's an honor to be here. It's also been much nicer weather than it's been in years past. So it's been a very enjoyable conference. I haven't been able to fully escape with those. I have a little bit of a cough. So if I deal with that during this, I appreciate your kindness. Thank you for those who are here live, also those who are tuning in online. I'm very excited. I've been here now 7 months, and I've become very fond of Butterfly, of the employees, of the technology, of our customers and the opportunity. And I look forward to giving you an update on our progress. As a public company, of course, we're making forward-looking statements. You've seen these in all the presentations, I'm sure. So let me update you on where we are from -- for '23 and going into '24. We gave revised guidance in the middle of the year. That guidance was $64 million in revenue. And then also a negative EBITDA of $75 million to $70 million. We revised the guidance down as -- to remind you, over the last 12 months, Butterfly was on a great trajectory, but also was investing very heavily its resources. And we made a determination that it was better to be more cash efficient and be able to extend our cash runway. We accomplished that. We've taken $170 million of cost out of the business. And you can imagine that being disruptive. And there was no part of our business that wasn't affected by that new sense or that sense of marshaling our resources. What I'm very pleased to say is that's over. The team is lean. The team is motivated. The team has focused. The team has energy now at all phases of our business. And that's resulted in us delivering better than our expectations and better than the guidance that we have delivered. So we won't go into numbers today, but we will report when -- at the end of February, that we've exceeded our '23 guidance, not only on revenue, but also in the management of our expenses. So -- and I think what's more important than that is we're recapturing the energy of the business. Those difficult -- that difficult transition year of '23 is -- the difficult transition of '23 is firmly behind us. We are all now focused on execution, we're focused on revenue. And as all of you may have seen, we won a major FDA approval that's going to help us drive growth in '24. So for those of you who don't follow Butterfly or are new to Butterfly, Butterfly has very incredible technology of ultrasound on a chip, where we deliver our ultrasound energy through semiconductors and advanced MEMS technology. This allows us, and I'll show you in a bit, some of the incredible features as to what this provides, but this is modern, and this is the future of ultrasound imaging. With one chip, we can deliver all the different arrays. With one probe, we can do what all handheld probes do. Now piezo crystals are a very mature technology. And in making probes, you have battery, transducer, crystal. And there is a finite physics in the delivery of energy through those crystals. And there is a heat artifact. The more energy you put through them, the more heat created. And as humans, we can only tolerate so much of that heat. With semiconductors, of course, heat does exist. But the ability to deliver energy is much more sophisticated. The ability to process is much more flexible. And I've even recently learned as being a novice to hardware in ultrasound, I've only been here 7 months, but I've recently learned that piezo crystals are even toxic. They have lead in them. And in the European Commission, they passed RoHS standards around all electronics and the creation and disposable (sic) [disposal] of those electronics. And I've learned that our chip is RoHS compliant. And for the last 20 years, ultrasound technology has been given an exemption to these European -- EU standards. So Butterfly has recently petitioned the EU to no longer allow for these exemptions since Butterfly is equivalent to these crystals. So we'll report more on that. I doubt anyone -- I don't know how convicted they are to these standards and if it really will mean anything. But what it means to us is we have very modern technology, it's environmentally friendly, that one device can work across all different types of applications, and we're very proud of that and what that means for our future. So today, our business model as we sell hardware, we sell software, and we sell services. And we get revenue at each one of those revenue lines. And within '23, we added some additional ways to build revenue. First of all, we launched Butterfly Certified services. So we now provide certification courses because there's a big difference between your market size and your market opportunity. Market size is how many people are buying all yours and your competitors' stuff. Opportunity is who could potentially use it in the future. And a big part of that delta is training and education. And we only have 80,000 ultrasonographers in the United States. But we want to have millions of people with these devices, using them. And so we need to develop advanced AI. We also need to develop training courses that make it easier for them to be able to bring ultrasound at the point of care for patients. Also, we all know AI is the buzzword of probably the next 3 years or more. And we're all excited about what AI can bring to our society. What it brings to ultrasound is the ability to allow lesser-trained people to provide applications and to deliver imaging to those experts. Butterfly, while we develop our own AI tools, and our own AI capabilities, certainly cannot compete or equal the collective AI development and AI software out in the marketplace. But we have the largest installed base of point-of-care ultrasound devices of any company, dwarfing all the other companies. And so of course, AI developers would love to sell to our installed base and our customers. So we are now opening our platform. We are providing an SDK that allows third-party software developers to deliver their applications into the Butterfly environment. That's called Butterfly Garden, and Darius, our Chief Strategy Officer, has done a marvelous job launching this business, creating new partnerships and now delivering new revenue for us. And at the same time, we have Powered by Butterfly, it's Intel Inside. It's our chip helping other companies deliver applications Butterfly will never get into. And I'll just show you a couple of those in a moment. So we work in acute care hospitals, outpatient clinics and ultimately, our desire is to get to the home. We believe our technology is -- will enable automation and the ability to acquire imaging wherever the patient is. Whether it's in the home, whether it's in an urgent care clinic, a nursing facility and whether it's in a city or whether it's in a rural environment, whether it's in a great economy or a challenging economy, we believe we can democratize the ability of helping patients anywhere. And our market, you've probably heard, for those of you who follow Butterfly, that the desire is every doctor would have a Butterfly. That it would almost replace the stethoscope. We think that's very well in hand. We actually think that's inevitable. 60% of medical schools today are training their students on Butterfly. So what does that mean for 3 years down the road, 5 years down the road, 10 years down the road? It will be more than 60% next year. All medical students will be trained. And when they're all trained, Butterfly will be with them. It's inevitable. It's not a question. It's inevitable. But our market opportunity doesn't stop with doctors alone because nurses are treating patients in the home. Nurses are treating patients in all different care settings. And as our imaging tools get more sophisticated and our partners' AI tools become more sophisticated, they open the opportunity for nurses also to have Butterflies. And you can see how much it accelerates the size of our market. But it doesn't stop there because our technology, I'll show you in a moment, could potentially be in every chronic care patient home in the world. So our market is growing or our opportunity is growing, and we have to go, and we can go get it. So we have core technology in our probes. We have all different types of software to drive our probe. We have middleware that hospitals use to drive their workflow, to capture the images. And interestingly, only about 35% of ultrasound scans, based upon what we can see, are reimbursed. And it's not reimbursed -- are filed for reimbursement. They're eligible for reimbursement, but people take a scan, they don't bother to document, they don't bother to file, and that's revenue that those institutions lose. Why? Because historically, there's no middleware that makes it easy for the image to get into the pack for the record to get into the EMR and for that record to be filed simply. And some of these reimbursements are $50 to $120. And that might not sound like a lot of money. But for a 10-minute scan, it adds up. So, we have -- we're really focused on education, again, because education is the bridge from market to opportunity. Butterfly Academy is our University of Phoenix. You can go online, you can look at videos, take courses and take tests to educate you. Butterfly Certified on the other side, is our in-person training courses. So any of our accounts that want training, we can bring skilled, trained ultrasonographers to train them on site. And so much of this is didactics, doing it, showing it and building your comfort. Next week, we're going to launch a new product called ScanLab. ScanLab is an education-only tool that is focused on allowing students to refine their skill sets. It's a very powerful AI tool, and it will be available free to all Butterfly subscribers. So this is ScanLab. So you would choose which setting -- and we'll have 4 settings coming out and then each quarter, new settings come in. But what happens, and this is a loop, so I'm sorry, it's changing on me. What happens is once you choose your setting, it tells you exactly where to position the probe and then shows you a video of what you should be looking at. Then when you do it yourself and you place the probe in the right position and that image that you've now positioning is taken, the AI looks at the anatomy and tells you where the left ventricle is and what the right ventricle is and where is the mitral valve and aortic valve or any other type of -- if you choose different -- subxiphoid, for example, whatever anatomy you're looking at based on our powerful AI and our large database that's trained on our imaging, whatever organ you're looking at, our AI tool will tell you what it is. The biggest problem with ultrasound is the challenge of the initial orientation and what ScanLab does is it demystifies that ultrasound image. And it gives you a direction to say this is what you're looking at. And that gives you confidence to continue to scan instead of looking at a cloud that is difficult to interpret. So we're very excited about this, and we believe this is going to help accelerate the usage and the comfort of evolving into ultrasound. So how also are we going to penetrate the nursing part of the market? We're going to continue to develop AI tools. Now, the AI tools that we'll be developing into the future, will not necessarily need to replicate all the awesome work the AI ultrasound companies are doing today. There are so many cool companies doing work in OB-GYN, in cardiology, in DVT. And so I don't see the need to invest my resources to replicate that since now we have Garden. But there are things we do that are very unique that no other company can do. And we'll be developing our AI tools to leverage our unique capability. So we add true value to the marketplace. And as we do that, more and more nurses will be doing ultrasound and our market will simply grow. On the left, we have an FDA-approved B-line Counter for -- that shows pulmonary wetness, which probably right now, I have, as you can hear in my cough, and then also bladder volume. And we have a bunch of other things that are exciting in development. So Garden has only been around for 120 days. But we already have many partners. These are the ones that we've announced publicly. We have a lot more that you'll learn about in the near future. But these partners have AI applications, they have access now to our SDK. They will, we -- the way we monetize this is that there's an annual fee to -- for our SDK to be fresh for their applications. And then as they sell their software to our installed base, there's a revenue share. So over time, as this grows, this is a whole new revenue line for us, but more importantly, for our customers to have more and more applications on your hardware. I mean it's not dissimilar to apps on your phone, the more apps you have, the more valuable it is to you. So we're very excited about the progress of this and what it means. And also, we have, our chip is being used by, now by Forest Neurotech, which is a brain-computer interface, where they bore into the top of the skull. They put an implant there, and they use our ultrasound to scan the brain to look for abnormalities and then provide direct therapy for epilepsy patients. It's very, very exciting. And by liberating the chips that we've made, our investors have invested over $0.5 billion to develop semiconductor technology. So to capture that just in point-of-care ultrasound probably is not, we have a lot of other opportunity to monetize in other markets. And we've also -- Mendaera is a wonderful partner that can peripherally place needles in the vessels using robotics and advanced tools. It's really cool, and they use Butterfly. So we're going to continue to -- our Powered by Butterfly aka Intel Inside-type strategy to increase and monetize our platform. Now one concept that I'd like for, like to dwell on for a second is in 1995, the first digital camera was launched. It was actually launched by Kodak. And it had a 1-megabyte file. Some of you in this room are as old as I am, so you probably remember that digital camera, looked just like a film camera. But a lot of people thought it was a toy. The image quality wasn't good enough. And if you hear anything about Butterfly, we have 100,000 devices around the world for all different types of applications, but to get into -- elevate into the hospital and into subspecialties, people would also tell you that our image quality for that wasn't good enough. But what did -- why did this change? Well, in 1995, 1997, 2000, Moore's law helped these semiconductors improve, or the Moore's law was -- remained true, which is every 18 months the processing power doubles. And that's been consistent for the last 60 years. In 2003, when they got to 3 megabytes, 5 megabytes, 7-megabyte files, all of a sudden, imaging is now equivalent to film. And the moment digital is equivalent to analog, all the digital benefits -- digital wins because of all the other benefits, you don't have to develop digital, you don't have to develop photos that you don't want. You can store, you can repurpose, you can forward them, and all the reasons why you know. So digital -- so film photography today is a niche, is an art form. It's not necessarily the primary way that we capture our photos. And that's the same type of thing that will happen with semiconductors and piezo-based crystals. It may take 5 years, 10 years, 20 years, we'll see what that dynamic is, although we do sell more point-of-care ultrasound devices than anyone else today. So I'm very excited to talk about our iQ3. This is our third-generation probe. Four days ago, we received FDA approval for that fourth generation. And that third -- I mean, third-generation probe, and that probe has doubled the processing power of the current probe on the market. It's equivalent to 20,000 4K movies running simultaneously. That's how much power is in this device. And it allows us to now not only get tremendous imaging, but also do calculations and develop new tools that will now change how ultrasound is captured. The first phase of Butterfly was proving that we can compete in this market. The next phase of Butterfly is showing that we're going to change this market. So iQ+ is our second generation. iQ3 is our third. And to the trained eye, you can see the significant image quality in the variation between these 2 photos. In this slide, we actually show a pulmonary scan, those horizontal lines are called A lines for a healthy lung. If you remember those vertical B lines, that's an unhealthy lung like I have right now. But you can see the image quality from Vscan to Butterfly iQ3 is actually not even comparable today. You'll see that on time and time again, our image quality is at a whole different level. For a device, that's the lowest cost device on the market, single device, not multiple, easiest to use and very portable. And this is a 4-chamber apical Vscan on the left, our second generation in the middle and our iQ3 on the right. So we're very, very, very excited about the progress we made and what that will mean for us commercially. Also, there's a piezo-based chip on the left, and I think there's, it's a first generation for them, they have a while to go. Our image quality is just -- especially in this dynamic, it's incomparable. So what I want to show you, and I might show this a couple of times depending upon how much time we have. This is a kidney. And, if you look at how the piezo works is that the energy comes straight out, like a flashlight, imagine a flashlight, right? That beam comes straight out of that flashlight. What we can do -- because our semiconductor is like an LCD screen, we control all the pixels on the screen. So we control all the energy and how it's deployed. And we can direct that energy how we wish. So we're launching with this new product, a new capability that we haven't really shown yet publicly, and we are now. And this is called iQ Slice. So when we go down that journey of making it easier to do an ultrasound, instead of taking that flashlight in a cave and looking for that one thing that you're looking for, which requires a lot of skill and art, we can now take a complete automated scan of what that is. Now, before I start this, if you recall, many of you have been in an MRI, you know how an MRI works. Technician puts you on a bed. They then push you inside a magnet and that, and you're in there for about 20 minutes. And that magnet goes ba, ba, ba and it's slicing you, one slice at a time for that 20-minute period. Then the doctor gets a file and is able to go through that file and identify which image that they want to make their diagnosis on. So it's much easier instead of -- they don't have a technician looking for the one slice. That's ultrasound, right? Are you following me with that? So let me show you now what our new probe can do and how this is now generational. So our probe on the left is fixed. It's not moving, but the beam now automatically scans. And as you see the choppiness of that beam, it's actually taking individual sliced photographs just like if you take your iPhone out and use your burst mode, the burst mode goes zeert and take a bunch of photos, right? This is a controlled burst mode that allows you to scan through the tissue. So I'm going to run that again. So you can then look at the left side of -- or the right side of it. So as the beam is scanning through the kidney, you'll see on the iPhone on the right, the images actually taken. And at the bottom, you'll see all the images there the doctor can select now. So you see that it comes in, the image scans, you can see on the right, all the different images being taken. And then at the bottom of the screen, there they are. So now just like in an MRI, you can just choose which photo or which one of those best suits what you're looking for. So you don't have to spend all this time trying to direct and look for that one thing, making the patient uncomfortable and contorting yourself. You just place a probe over the kidney, you push the button, bam, you take all these photos. Now you have them there and you just choose the one that you want. So for an experienced user, it's like saying, "Okay, I'm an expert driver. I don't need cruise control." Why? Sometimes you're tired, you do. So this is not going to make an experienced user better at doing ultrasound. It's going to make it easier because you just place it over an anatomy. You're sending a nurse into the home to take imaging to manage a chronic patient, then they don't have to be this expert. They just place it over the lung, they place it over the kidney, place it over whatever anatomy that you're trying to monitor, press a button, and take all the images. And you can do it multiple times. Instead of sending 30 images, you can send 60 or 90 images. That is now -- no one else in the world can do this. So not only have we debunked the image quality negative that some of the, let's say, subspecialists would have said before, but we're now changing the way ultrasound is being done in the world. And that's just the beginning. Because not only do we do it automatically from taking all those slices, we also can just do a [ SEN-A ], which is a basic fan or a sweep that others would by just pressing a button. So again, less trained people can acquire image. Everything is about image acquisition and image interpretation. Now imagine the telehealth side, nurse goes in the home, takes the image using our automated tool, sends it versus (sic) [via] telehealth to a cardiac nurse or cardiologist. They say, "Okay, well, the lung looks good. Or maybe it's a little wetter than we thought, let's manage the diuretics." Every part of health care is managing health care in the home. Every part of health care, every part of health care in the world wants to evolve towards remote monitoring and managing patients in the home. And this is the beginning of that evolution and only Butterfly can do this. So what digital camera are you guys are all using today? Do you have a big digital camera that looks like a film camera in your pockets? Or do you have an iPhone or an Android? So, these have taken over digital photography, why? Why are we using this? We're using this because processing power doubles every 18 months. And not only are you getting the image quality you want, they've been able to miniaturize it. So the future of Butterfly is devices that you see in the bottom right corner of this slide. Because our processors get more and more powerful and more and more capable, we don't need this big headset anymore. And as I just told you about our ability to sweep through the body, and automate like Star Trek's Tricorder, you can just now take a device of this size, send it home with a patient, have them put it over their anatomy and press a button. They don't have to be an expert to acquire exactly what they're looking for. They just need to take the scan and all the imaging that they need. And then through telehealth, can send it to, as I mentioned, that nurse or that cardiologist. So semiconductor technology is here. We've invested a substantial amount of energy and time in Butterfly to be able to develop this technology. We're reaching equivalents in our imaging for handhelds. And if I'm equivalent today with my third generation, what do you think is going to happen with my fourth-generation chip which is already in development? What do you think is going to happen with my fifth-generation chip? What do you think is going to happen with my sixth-generation chip? I'm going to get more powerful, better imaging, smaller. I'm going to be on all kinds of devices in health care. And piezo crystals will be part of the past. So, two things are inevitable. One, all doctors will learn how to use ultrasound. They will use it in their practice, every doctor in the world. Just a matter of when. 10 years, 20 years, I can't predict. It's the biggest part of health care investing. We can all sit there and know what a great opportunity looks like, but we can't predict when it hits. But if students are all being trained on it today, you know they're going to have it in the future. Second thing that's absolutely inevitable. Semiconductors will replace analog crystals in ultrasound. Don't know exactly when but the physics and the technology are on our side. 2024 is going to be a great year for Butterfly. We are going to return to revenue growth. We're going to launch new products and get our mojo back and shed some of the bias and negative karma we've had. What got us here today was great vision and great leadership. We've invested heavily in the area. '23, we recalibrated and '24, we're going to kill it. Thank you, guys.

And congratulations on all the work that your team has accomplished.

Thank you.

We will now open up for Q&A.

Yes, sir.

So can you talk about what your sales force is? And how you're -- like obviously, you're trying to address a large number of doctors? And how are you in the large number of health care professionals across many different -- from at-home health and whatever, like you're a small company, how can you address so many different potential customers?

Yes, sir. So great question. Thank you. So we are currently organized. The company started building out an e-commerce engine. So we actually have a website that can accept orders in 16 different languages. We are all over the world with our e-commerce, and we invest a considerable amount in communicating to our customers through all different types of digital media channels. Through societies, through social media. And we have a pretty consistent business of online orders. So that's a way -- that's a way that has allowed us to continue building our brand and also to continue to have a direct communication with customers. And you know what's very interesting is we had a top 5 health -- you want to get rid of that microphone? You have to hold that? You're good? You look uncomfortable. Sorry. We've had a top 5 health care institution call us, very upset. I said, "You know what, all these doctors are bringing these Butterflies in the hospital. And we don't know what to do with these. They're not a part of our workflow. They're not a part of this and that." And then when we investigated it, 140 doctors within that institution had purchased Butterflies directly. And so we, little -- people don't really know how powerful our middleware is, but the company developed something called Compass, which is a software tool that helps port in ultrasound images and then helps push those images into [ EPIQ ] with a hard integration as well as helps them do reimbursement as well as helps them with proficiency management to understand the educational progress of their clinicians. We went and sold them our software and now they're a big enterprise account. We have a direct sales force that sells into hospitals between -- all heads included 15, 20 all included. So it's not a massive organization. We have an inside sales organization that works with leads that come in from digital that work with the ambulance companies and out of hospital and urgent care clinics and other nonhospital organizations. And then we have our e-com. And we do that in the U.S., and we do that internationally. We're direct in the U.K. and Germany, and we have distribution partners around the world. So we could certainly benefit from more scale. We certainly can benefit from having more people, and we're trying to balance our investment with our size of company. I think we actually cut a lot. We've cut some stuff in early '23, which led to some of our revenue distortion or revenue kind of slowdown. We've reinvested heavily in sales and marketing in the second half of '23. And I think that's starting to contribute to why we ended the year so strong. We'll continue to invest in sales and marketing. But yes, when we talk about getting in the home health care, we are also very open to partnerships. So like it is in Garden, we are talking to a lot of large third-party organizations that can help us get into those channels, too. Does that answer your question?