Butterfly Network - UBS Global Healthcare Conference - BUTTERFLY NETWORK INC

Amazing. Okay, thank you. And welcome, everybody. It's Patrick Wood, obviously, on the EBS MedTech team. Appreciate everybody coming here and excited to have Joe DeVivo here from Butterfly as CEO. So thank you so much for joining us. Thank you very much for having us. I mean, just before we came up, we were having this discussion. I mean a lot has changed at Butterfly in the last five years or so, certainly since I've been looking at it. What might be helpful, I think, to level-set people is just to give a sense of, you know, very high-level big picture of the last few years, what's changed moving from just point-of-care ultrasound, which is still an amazing market, to the broader opportunity set. So, thank you for that. Really appreciate it. We're on this kind of lifelong journey to help democratize imaging. And our whole vision for Butterfly has been how do we use technology to reduce the cost, improve access to imaging for people around the world? And how do мы create the opportunity where every doctor and every nurse, you know, can have an imaging device just like they have a stethoscope? You know, we're the stethoscopes salespeople 40 or 50 years ago. You know, they used to literally, doctors used to put their ears on the chest, and then they had to be convinced by someone that it made sense to have a stethoscope to be able to hear it properly. And then what were the sounds and what did that mean? And, of course, we've learned that imaging inside the body is extremely valuable, but to be able to have the capability of imaging where the patient is, is we're seeing just everyday lives being saved because things are found early. And so we're in an amazing evolution. I think we're saying it's becoming more standard of care in emergency medicine. It's becoming standard of carer in the intensive care unit. And, you know, as the market embraces the concept of physicians and nurses having the ability to image where the patient is, you know, at the same time, the technology is evolving to make it easier and easier. The image quality is improving because our semiconductors are improving exponentially with Moore's Law. and we're now having new AI tools come out that make it easier for novices in ultrasound to be able to at least acquire or capture the image. So a lot of things are converging. And now when we look at the semiconductor technology and its improvements, we look at the ability of doing these large language models and creating automation with AI and then the compute convergence, it's kind of putting us at the center today of imaging because we are liberating our semiconductor for other companies to use. And that's really what's changed. So we maintain our focus for training doctors every day. We're going in with our salespeople into new facilities, putting in software and devices. We are educating through digital activation. And so we're on the journey of bringing point-of-care ultrasound to standard of care, but we've also now taken a few other paths along the way to diversify ourselves. Definitely want to get to those. But maybe starting with, you know, I have a soft spot for radiology, but starting with the point-to-care ultrasound. You touched on it earlier. The unique thing in some ways about ultrasound is the technical challenge for the operator, right? As Sonoma referred to, it can be a difficult thing. That's right. And these are emergency first responders and things like that. Could you maybe, for people less familiar in the room, walk them through some of the initial challenges, what that meant for the initial adoption of point-of-care ultrasound, and then you hinted at it with some AI solutions and things, but how you've managed to upskill those first responders to being able to use effectively, clinically, a POCA solution. Ultrasound's hard. I mean, if anyone's looked at an ultrasound image, it's not intuitive. uh black and white you know grainy and you know and it's difficult because first of all you have to have the ability of knowing you have mastering human anatomy and so when you place the ultrasound device on the body you have to actually find the organ that you wish to find and then when you get there you need to know what it is you're doing what it Is you're looking at and so those challenges are very hard there's only 82,000 ultrasonographers in the United States and so if you think about what it takes in order to go get an image. You have to be inpatient. You have to get a prescription. You know, you have to make an appointment and go to the hospital. Whereas, you know, doctors are now, what we're doing is we're starting to train them up a single use case. Like, look, let's just do a pulmonary scan. And if you just do this pulmonary scanning, you're looking for pneumonia, pulmonary wetness, then you're starting to reduce the significance of the learning curve. And then they We'll learn one use case after another. But truly, to expand our market and to get it into everyone else's hands, we can't wait for the evolution of everyone learning. You know, today, about 80% of the medical schools today teach their kids on butterfly. So they have them either in the lab or now medical schools. Just a month ago, I was on stage at a graduation for the Edward Villa College of Osteopathic Medicine. And where the dean of the school, after they received their white coat coming into their education, the dean of the School handed them a stethoscope, and I handed them a butterfly. 160 kids, you know, starting off their education with a butterfly device. And so that's happening more and more and more commonly now, that the stethoscoping of the device. And so all of these kids who are going to come out in 10 or 20 years are going to change the course of medicine. They're going to make the standard of care. Everyone's going to be required to have ultrasound skills, just like they do a stethoscope. But, you know, we're a public company. You care about every 90 days' worth of performance. You're not going to turn around and give me credit for what's going to happen in 20 years. So we have to do things to compress the adoption. And the biggest thing to do to compress to the adoption are there are many companies, 50 to 100 different independent companies who are developing AI tools that either help the acquisition of an image or the interpretation of an image. And so you can imagine now, as you said, in emergency services when they're in an ambulance and they're triaging a patient on the way who's in critical condition on theway to the hospital, you can actually do a cardiac echogram. You can do a pulmonary congestion scan. You can go to an abdominal scan and you can do these with AI tools that walk people through, place the probe here. And when you place the probe where the AI tells you to place it, the AI tool actually looks at the image. And then based upon the quality image will tell you, hey, move the probe to the left, move the probe the right, push down, you know, twist it. And so when you make it easier to acquire an image, then they'll send the imaging to the emergency room before the ambulance gets there. So when the patient now is being brought out of the ambulance, instead of being waited to be triaged, they go directly to care. And so there are thousands of use cases. We're working now where we've actually created a home business where we are helping at-risk providers with patients in nursing homes because these patients over time are not titrating or they're not getting a more frequent diagnosis. And if their disease is going the wrong way, they basically will crash and then have to go to the hospital for care. But we are teaching nurses who are not classically trained in ultrasound how to acquire a pulmonary congestion image. We send it over to a remote cardiologist who will read that image and then send them a diagnosis back. So their medication changes, and they're able to stay in sight. And so we're actually now actively doing it. We're seeing all the scans every day from our partner, and it's marvelous. But the whole concept is power every doctor, every nurse, allow them to have tools that make the image acquisition interpretation easy, be able to treat them or diagnose them at least in where they are in their home or in a clinic or in an remote area, and not have to travel and wait for one of the 82,000 ultrasonographers. So we're opening the world up. It's just very exciting. And in our home and community care example, you're also lowering hospital-acquired infections for the most vulnerable population. You just keep them out. 100%. We're keeping them out, also, while we're doing this pilot for pulmonary congestion, we're actually starting to see, even in the first few weeks, this tremendous desire to be able to scan other parts of the body, and you mentioned infection. And we had just one of the first 35 that were scanned at this nursing home this month as we started up our first commercial entry is, you know, they were worried about someone's bladder. And so they did a bladder scan, which was not on our protocol, and found that the Foley catheter was misplaced. And this patient would have been septic day or two if they had not found this. And so it's just the power of giving people the ability to see and to do it, not when they suspect something and then make an appointment to go do something in a higher cost of care, but have the ability to make immediate decisions that's going to make a great impact. That's one of the ways you bend the cost curve in health care. Could you take that, because you mentioned obviously home and community care business, could you give people a little bit of background of the genesis of how that came about? You've explained a bit about what you're doing there, but how do you grow that? Is that about interfacing with more and more centers, word of mouth? How does that grow that business? So today we're working with a nationwide at-risk provider who has a very high population of patients in skilled nursing facilities where they are completely responsible for the cost of their care. So every readmission, you know, let's call a readmission or admission a $10,000 incident, probably, you know, a little bit higher depending upon how you do it. But every time we avoid that incident, they save $10.000, and that goes right to the bottom line. And so the reason why we built this community care business is we had seen other providers, other large providers who were doing home care, in the past they would buy probes. and we'd find that those probes wound up in the closet because it's very difficult to run a program. It's very different. It's difficult to train all these people how to do it, very difficult to have the software to manage the data, manage the devices, and then manage the clinical workflow. And so we said to ourselves, in that whole adoption thing, you're not going to wait for me for 20 years for everyone to figure it out, so I have to do things early to accelerate the experience, accelerate the adoption. So we said, okay, we're going to eat our own dog food. We're not going to sell you probes and hope that you can build your own program. We'RE going to take our own capabilities. We'Re going to train all your nurses, and then we'Re gonna deploy the technology at no cost to you. We are going to integrate it into your systems. We ARE going to develop the clinical workflow and pathway. And then you just pay us per patient, and you pay us for scan. And we now have a program. We have a nice revenue stream that's starting for the company. But more importantly, this is an effort of us teaching the marketplace that this can be a significant reduction in care and a significant – a reduction in cost of care and a significantly amplifier. And now, we are meeting with other very large payer providers, and we think this is going to be a big business for Butterfly. Would it be fair to say, as per that example, you know, the system as a whole is generally tending to move towards capitated care as a concept. And anything that's upstream in the diagnostic side, like you guys, is a way to take costs out downstream. The better you know, the more you can clinically differentiate and take costs out. Is that fair as a summary? Yeah, I think, and one of the things that's so exciting about now licensing out our chip is that we're working with so many other companies, but they all have the same objective, which is, first of all, how do we intervene earlier? So how do we create diagnosis earlier so people understand progression of their health and how does that work towards their health journey? And then also not having to rely in facility, which was the high-cost environment. And so how do we provide care or diagnosis? We sell to ambulance companies. We're in cruise lines. We are in all these different places where people are, even helicopter transport, where they'll literally do a lung ultrasound or a cardiac ultrasound while they're transporting an helicopter. But in all of these locations, how do we push out the capability of getting an image where these patients are so they can get care faster? And it's all amplified by a low-cost device, a low-cost device that can image the entire body, and image the entire body with the tools around AI that can help acquire the image or even diagnose the image rapidly at a low cost. And so these are all accelerators. They're all amplifiers to being one of the it's all about pushing care outside of the facility, getting to the patients earlier, obviating the need for disease progression, and then reduction of costs or increasing costs, et cetera. One thing that struck or at least jumped out to me, the key three was the number of large enterprise deals that you guys had signed recently. Could you give us a sense of the genesis of that? And do those larger deals look different from some of the smaller you're doing? Is that more compassable than how they're structured? Well, so we have two different aggregate channels. We either sell directly to a doctor. And when we sell to a doctor, they have a device and they have our subscription to our software and our cloud. But when a doctor practices in a hospital, the device needs to sync into the EMR. You need to be able to capture the record. You needs to be to capture the image in the DICOM. And you also need to bill for it. And so push it in the revenue cycle management. We've had many hospitals where they would call us and a bunch of their doctors own butterflies, and they'd be upset with us because they don't port into their system. They're like, why are you bringing these devices in? It's not our protocol. So what we did is we built a middleware called Compass that allows all the data from the devices to port into the EMR, the DICOM, and revenue cycle management. And so we've been selling enterprise for a while now. It's been about three years. But it seems like the marketplace has actually woken up because as doctors want to do point care ultrasound, historically, only 30% of those images ever make it into their systems. And so they are, A, noncompliant because there's patient data that's being acquired in their facilities that are not getting into the patient record. And so that's really the biggest motivator. And then second, of course, there's 70% of the images that are being acquired that are those point of care ultrasound images are not only not being documented, but they're not being paid for. So the whole concept of our enterprise is to shore up not only the butterfly usage in the hospitals, but our enterprise middleware works with all of our competitors' devices. We built a platform to solve the problem for our customer. And then now it's a growing awareness across health systems that they need an enterprise middlewear to capture all this data. And historically, we'd go and talk to the C-suite, and the chief medical officer, you know, wouldn't even know what point-of-care ultrasound meant. And so now, though, IT, the CMOs, I think they're more aware to it. So we're building out our software team. We're selling software. We're doing the implementations. And then on top of that, of course, it works best with our device. And so we then bundle our devices in it, and then we pull it through with solving the point-of-care ultrasound data problem for hospitals gives us a whole position on the hardware. That's our whole strategy. I was going to say, I think I had underappreciated the degree of software integration from your side. It's almost like the network in your name is, yeah. It's a lot. It is a lot, and it's hard to get, you know, into the workflow of IT because they're doing so many projects. And so to get this even be enough of a priority for them to work on is a big deal. It's a whole other selling process. And what's really fun about Butterfly is we have this ability to build our digital brand and engage consumers directly and customers and doctors and nurses directly. So we're building a brand. And then what happens is that creates this local groundswell. We had a call from one facility that was very upset at us, and they were like, you guys, is this a Trojan horse? Why are all these butterflies in our hospital? And we looked, and in the one city that this one institution practices, 140 of their doctors had bought butterflies. And so we told them, look, you have an enterprise program, you just don't know it yet. And that's turned into now a nationwide deployment of our software, and this one health system now has over 800 devices. I haven't seen an order bigger than 20. So they're just buying all the time as this is building across. So I do think point of care ultrasound is coming of age. How should we think about some of those, the impact of those larger enterprise deals flowing through into sales? Is this something that is sort of structured over five, 10 years? You've got gateways and how does that work? It is. So historically, we would sell to a department. Department would put it in. and then we go to the second department, the third department. Now the deals are starting to look multi-departmental and larger. And when we sign a deal, it's normally either a three- or five-year software deal. So our TCV for a lot of these deals are six, seven figures now. And it's really nice to see the size of these deal. But from a revenue standpoint, we have to go through the implementation. And then once we get started, each month is one-twelfth of that revenue. And so it takes time. It's not like you get this capital purchase and it just hits, but we're building up this annuity now of larger software deals that should prove very good for our revenue. I'd love to pivot to embedded. This might be the single largest change that I've somewhat been sleeping on, but it's kind of interesting. Maybe, again, just to level set everybody, give a little bit of background. I know you touched at the start, but what's happening there with your platform sort of essentially being licensed out in a way? So with our semiconductor, the legacy ultrasound industry uses crystals, and crystals have to be cut to a certain geometry to be able to deliver a sound array. Our semiconductor is infinitely programmable. So like a TV screen, you have a bunch of pixels, see an image. You don't have a TV just for a country western. You can see anything on the TV, right? Well, that's what our chip is like. So we can program our chip to beable to deliver sound in any manner, any function. And so when people are looking to develop new technology, to have to go and solid state it every time you want to make a modification is burdensome. So we've learned, we've actually had inbounds. We had a very large consumer product company four years ago that does $2 billion in fish finders come to us and say, hey, you know, can we use your chip for fish finding? And, you Know, our brilliant scientists at Butterfly had said, no, we're in the point of care ultrasound business. But we learned with having almost 700 patents now, we've learned that the utility of this chip is sometimes companies solve problems for themselves that everyone else has, like Amazon Web Services. They're never in their business plan to be a web services company, but they needed global cloud compute to do online retailing. So they built it for themselves at excess capacity, outsold that capacity. and now it's the biggest profit center for for amazon nvidia from 1993 to 2005 was a video game company you won't find anywhere in their business plan that talks about ai talks about data centers it's not there but they launched a developer development software and because they have enough people saying hey these chips are really powerful we use them for other purposes and so they created a development software called cuda that allowed third parties to come in and change the settings. So what we've done is taken a page out of that book where we realized is 700 patents, $300 million for a first chip, a relationship with TSMC that can build it at scale, that we have something very special. And there's many people who are developing applications for ultrasound and robotics and orthopedics and brain-computer interfaces and whole-body imaging that would, instead of creating a platform based on an analog crystal, If they create a platform based upon a semiconductor, it's infinitely programmable, meaning that you can get the sound, you can then you can view it, you Can run it through your models. And then if you want to modify, you modify it. So you have this closed loop of rapid improvement. And And then if you have software updates, and this happens for Butterfly all the time, just like your iPhone, when you have a new operating system that comes out or a new update to your software every couple months, you know, they push it, and all of a sudden, all the devices in the world are loaded up with that software. So for us, we have our people constantly improving our presets. So we'll push updates out to all the Butterflies around the world. Next thing you know they're imaging better because we've done something different because we can change the settings to it. That's infinitely programmable. So we have over 12 different partners, 12 or 14, I forget, different partners today that are all licensing our chip. They are all licensed in our CUDA-like software. I guess we've got to give that a brand name. But they're licensing our software. They're buying our chips. And some partners are licensing our IP to be able to build their IP on top of ours so they can stand on the shoulders. not have to reinvent it. And then even we have one partner who signed an exclusive deal where they're the only ones who can do whole body ultrasound with our chip. And those fields you're signing, they scale with the volume of the customer and so you're kind of in it together in a win-win? Yeah, so if you go back and look, here we talk about point care ultrasound, it's a big lift. We have our direct sales force, we have all of our marketing, all of her education tool, all the development to to keep up with it and if we now want to go into whole body imaging you got to replicate all that cost and then if we want to goes into HIFU you got to replicate that cost. And if you want to bring computer interfaces you not only have to replicate all that costs but now you're doing clinical trials and all sorts of stuff. But if we create a licensing arrangement with a partner who will embed our chip into their product forever and we We have a forever hardware revenue stream. They use our IP. We have our forever royalty stream. And then, of course, if they're using our software, we have that forever. So now for the investor, we create a lot of leverage because we can participate in a lot of markets without risk and without our having to develop the cost, but then participate in the success of it. So it's turned into a very big multiplier for us. and we've initially had relationships with earlier stage companies that were very visionary in their ideas and we're working with them. But we're now starting to talk to some companies that already have businesses and we might be able to move our chip into their existing products. And if we sign those types of deals, the commercial revenue will be larger and will happen quicker. So I think over the next, you know, couple years, the revenue that we bring into the company will actually start to dwarf our point-of-care ultrasound business, although that'll continue to grow. I just think our opportunity is semi-conventional. Things like HIFU, I think people have no idea how big that could be eventually. But if I think of all those agreements you have, you obviously mentioned there's, you know, one on the consumer side, BCI HIFI obviously on the healthcare side, you Going forward, looking at the potential applications, is there more in industrial or consumer or healthcare? Do you see a preponderance of the kind of partnership deals you're seeing today, and is that going to look different in the future? Well, so everything has been healthcare so far just because of the proximity and the awareness that we've put into the healthcare part of the business. But we are close to signing our first non-healthcare deal. And it has to do with material stress. So you have airplane wings that are under stress. You have bridges that are unter stress. And you can actually place, and they do place ultrasound devices that can see inside the composition of the material, see the material change under stress, and can back the stress off before you have a permanent failure of that material. So we are in, hopefully, final discussions with one partner. But then we've also done our market research work, and there are opportunities in underwater work, in underwater drones for oil discovery. There's opportunities in the military for security, and I think there might be some very big military opportunities in future. Then there are – there are opportunity opportunities in consumer products. So I think we've just brought on some salespeople who are only selling this, and they're being paid to go and discover. All the partners we have so far have all come to us. We haven't picked up the phone and called someone and said, hey, do you want to do this? They've approached us saying, can we have availability or tech? We're now going to be in the next phase over the next year where we're going to start having salespeople call people cold and start creating opportunities. And I think, you know, all of these markets are, you can do it yourself, but I've done like a Gen AI search, what are all the possible uses for ultrasound? And that response comes back and it's like, look at all these industries that use ultrasound today. And all we're doing is we are the digital to the photography's film. You know, so if anyone's using ultrasound today in their products, we go and say, well, why don't you do a digital part of it? here's all the benefits and and so it's early on but i think the opportunity is large for us it's a potentially pretty awesome mousetrap what protects you from somebody trying to rip you off and and steal the idea yeah you know a lot of people ask that and especially i think there's especially those who are very experienced in the semiconductor industry is that you know you feel you have this lead and then someone comes in and copies this and that and i don't think we'll be without competition. And I think as this market gets more and more valuable, I think there will be other entrants. But we will be launching next quarter our fourth-generation semiconductor. And that fourth-generational semiconductor will actually, for the first time, have a better image quality than a normal handheld PISO device. And you start asking yourself, well, why would you buy like if i have a digital camera that can produce a better image than film but now you have to develop that film you have to why if we have a better digital image now in ultrasound why would you use that legacy product and so i think probably our biggest protection is our evolution i mean we've been doing this now for 15 years and we're on our fourth generation someone someone's first generation will not be as good as our fourth and i think as long as we keep developing we maintain our part we have the best partner in the world at tc and tsmc i think our lead and then they're going to have to figure out how to do it in a manner that we haven't done it and i'm sure people will i'm i'm surer people will innovate but um i think we have a very big head start and we're just going to keep our our foot down hard on the on the accelerator you guys have pretty good margin structure on the gross margin side and as this flows through presumably the cash generation is pretty meaningful. What are you going to do with all the money? Oh, just continue to grow. Well, we've been using investment capital for many years, so it'd be nice to return that capital to shareholders, right? But there's so much for us to invest in. We actually just put a shelf in place just to have the optionality in the event that we needed cash. I don't think it's inconceivable that we would continue our organic development in new markets. I also don't think it's inconceivable that with a better balance sheet, that M&A, we can continue to find things that help accelerate our ability to grow on our strategy. So it's amazing to see, because just three years ago, we were burning about $160 million a year and had less than a year's worth of cash. And now we've gotten our burn down. We have a very strong balance sheet. Our revenues are wonderfully growing. And, you know, as you get to each summit, you kind of pause and look around and say, okay, what do I do next? And the opportunities are bright. Yeah, it was a good question when you're getting that question. It was three years ago. It wasn't very comfortable, let me tell you. Yeah, no, I totally understand that. I mean, if you think of adjacent technologies that could make sense, would it be the kind of thing that, you know, first responders, they're already there, they'RE getting used to Butterfly, other diagnostic-based equipment that would be used in a similar manner? Is it a core point-based thought process or like a technology or any and all of the above? Anything that helps us service our customers better, anything that helps US accelerate our flywheel. I think, you know, on the POCUS side, there are a lot of different digital tools that are used in conjunction for certain use cases. And they also all would like to port their data into a single place that can capture it. And so we definitely see some synergies on that part. We see synergies on AI tools that we might want to not just have a part of our ecosystem, but maybe have inside of our system. And there are things that can help us accelerate. So you can do it, and it's a build versus buy decision. You can do things organically or if someone's really solved a problem. We have today about 33 garden partners. The 33 companies are building AI tools that will then link into the Butterfly ecosystem and have availability to the, you know, we have sold over 200,000 devices now, have probably 80,000 active users. And anyone who has software would love to have access to the ability of selling software to those people who are already ready to go. So, you know, one of the beautiful things about the whole garden is if we see something that is really extraordinary, then we could always insource it. You do a chunk of these meetings, you do all your earnings calls, you see the sell side note and you meet with the buy side. From your perspective, what's something that gets a lot of external focus that doesn't internally or vice versa? Like, what's a big deal internally that you find it's surprising you don't get asked about as much? Or if you like, another way is like, what do you think people may misperceive or underestimate about the business? That's a good question. I do think we've made a lot of progress on educating investors on the semiconductor part of the business and the opportunity that's arising. I think, you know, investors for each of these, there's this, like, challenge between short-term and long-term revenue. Each partnership we sign is a whole new TAM that we have access to. And, you Know, everyone's just focused on, well, what does that mean for revenue over the next 90 days? I don't think people really realize how big. And it's difficult because we can't, we're in such a hard spot because our partners that we sign and embedded don't want us to tell the world about our business models, their self. Like when mid-journey, one of our partners found out that we had to file an 8K, they were mortified because they didn't want the world to know that they were doing this yet. And so we're caught between signing up partners that we know are going to be massive opportunities with the partners not wanting us to telling anybody. And I think, you know, when you truly, like I told this story, I have a friend of mine who runs a biotech and they're, they're doing 5 million in revenue and they have a $2 billion market cap because, and it's one product, but they look at it as what can be. I have 10 of those and people don't fully understand how big these can be, but that's a, that's a great place to be. I'm fine with it. You know, I'll deal with the quarterly, what's your, how many deals are you gonna sign next quarter. And, you know, and as these partners start rolling out commercially and people can see the revenue, it will still be a show me story at that point in time. But I think, I don't think people truly understand how the revenue can layer and how much opportunity with each new deal we sign. I like that. Awesome. Joe, thank you so much. Thank you. Appreciate it. Appreciate you very much. Thanks for having us here.