Q2 2023 Butterfly Network Inc Earnings Call
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People have to find out what Q2 2023 and east coast. Each beginning shortly thank you for your patience.
Remind us if you would like to ask a question you may do so by pressing star one Nick I think he Pat.
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Ladies and gentlemen, Hello, and welcome to the Bos defined network Q2, 2023 earnings call. My name is Maxine and I'll be coordinating the call today. If you would like to ask a question you may do Super Frac Wingstop note by one I'm just kind of thank you Pat.
On Jake it's your haste I'd like to begin at the peak of ahead when you're ready.
Good morning, and thank you for joining us today earlier. This morning Butterfly released financial results for the second quarter ended June 30th 2023, 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 Dot butterfly network Dot com.
Heather Getz, Chief financial and operations Officer, a butterfly alongside they're supposed to do though butterflies chairman 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 among other things expectations with respect to financial result, future performance development and commercialization of products and services potential regulatory approval of <unk>.
<unk> and potential growth.
Of current or future markets for our products and services and the impact of these macroeconomic factors 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 known and unknown risks uncertainties and other factors that may cause actual results to differ materially from those contained in the forward looking statements.
And other risks are described in our filings made with the Securities and Exchange Commission.
Caution not to place undue reliance on these forward looking statements and the company disclaims any obligation to update such statements.
As a reminder, this call is being webcast live and recorded 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 Joe Joe.
Thank you Heather.
So I'm pleased to review our results for the second quarter of 2023 and share perspective for my first hundred days on the job.
I've done a complete review of the business over the quarter.
And they'll have a pretty good feel where we are.
But a part of the network is a great technology platform.
With leading point of care ultrasound with simply the best solution in the market.
Our ultrasound on chip technology.
How's us to tune our single probe for multiple parts of the body deliver into cloud streamline enterprise imaging world documenting and EMR billing management proficiency for physicians all at our competitive price point.
It has put us in a league of our own.
Now we will continue evolving how point of care ultrasound is used.
We will now be pushing the boundaries of our technology to reach new care settings, making it easier to use and empowering more caregivers to understand ultrasound.
I look forward to reviewing our complete roadmap when the time is right.
The butterfly team also quite honestly has been through a lot.
We've got three Ceos over the past five years hired in litho hundreds of people ship.
Shifting strategies multiple times.
And tried to do too many things at once in my opinion.
After my first 100 days I've grown very fond.
Of the people in this company.
And I'm really excited about what the technology can deliver.
I believe getting back to basics with smaller teams focusing on our strengths leveraging only.
What we can do to add value in healthcare will bring the bounce back in our step and return the company to organic growth.
Stakeholders need a healthy and successful butterfly.
Investors deserve better performance employees deserve stability in a place to grow and retreat.
And that's exactly what we'll do.
As I mentioned, we conducted a full strategy we evaluation this quarter.
And we made some tough decisions to create a focused in my opinion more impactful plant.
We ensured our new strategy is matched with the right cost structure to deliver on it.
We completed a reorganization to give us time to fund the plan.
We implemented growth initiatives for all phases of our business.
And have a revenue growth plan that will be powered by better execution and near term product pipeline that will rollout over the next several quarters.
With the reorganization, we extended our runway and reduced our operating expenses by an average of $2 million a month.
On top of that.
Two other cost cutting efforts over the past 12 months occurred.
But getting here was not all cutting in fact, we approved investment in our commercial organization.
Allowing a 50% increase in direct territories.
We hired a world class International sales leader based in Europe .
And we funded core technology innovation.
We now have a much more commercially driven team with great conviction towards our ability to deliver significant organic top line growth in the future.
So from today forward I'm going to be talking about our revenue in terms of markets.
And the products sold to them.
Not the channel in which it's sold.
You'll hear me refer to U S International and Beth.
Within each of these categories emails may sell directly or through distributors and e-commerce.
Into these markets, we sell product software mobile app subscriptions other services, such as implementation and education.
At the end of the day the mechanism for sale is less important than what.
To whom it is we're selling.
Our revenue in Q3 was down 3%, while taking out costs.
In keeping with the new revenue format, our U S team delivered 21% topline growth in the quarter.
We closed two large 500, plus pro deals into medical schools and launched our distribution relationship with Mckesson.
As you know in addition to selling probes enterprise software sales have been a big focus for this team.
In 2022, we added compass software to our enterprise offering for sales into hospitals.
Sales in this area have since been growing nicely as demonstrated by annual recurring revenue.
<unk> <unk>.
And that growth was 58% for enterprise software sales in the second quarter of 2023 compared to the second quarter of 'twenty two.
That's the result of a lot of enterprise software deals closing each quarter over the past year.
We sold it in the health systems, who both the use and don't use butterfly probes.
Each relationship is an upsell opportunity and as I mentioned last quarter, we're a technology enabled software company.
Is this what software software sales add positively to the company gross margins and are increasing and product mix each quarter.
Our international business, which going forward will include global health.
Did not fare as well this quarter.
Sales were down 44% year on year.
We signed a number of new distributors in new countries in 2022 and.
And placed stocking orders that have yet to be replenished.
That said underlying sell through is growing but is not yet outpaced the inventory place last year.
As mentioned, we've hired a new sales leader based in Europe , and I'm committed to getting our business organized correctly.
We are direct into the UK and Germany and those teams have developed a really nice pipeline and I'm pleased with their progress.
Fixing international distribution is something that some four.
It takes continued focused execution and a commitment from our internal team to serve the needs of the international business one market at a time.
This should just be a temporary setback.
In our global Health work, we're proving that we can indeed make an impact by putting ultrasound in the hands of more mid level providers.
<unk> the way health systems deliver medicine and to ultimately improve outcomes for patients.
This becomes clear when you look at usage data from our large deployment and training programs in Kenya.
Credible to see how many mothers are receiving better gestational care because butterfly as in their community data shows that about 10000 butterfly scans are not happening per month across 224, Kenyan public facilities.
One month post deployment study that was sent to program participants 88% of the 377 respondents reported finding a high risk condition, such as brief presentation low fluid or fetal distress.
95% are using butterfly to decide on a treatment plant and for their patients and 81% use butterfly to determine if high level care is needed.
Our global Health program can drive real change across the globe and I'm thrilled to share that soon.
We plan to announce yet another big win for a global health team.
We're looking forward to sharing the details when they rollout.
So that was slightly down in the quarter. Unfortunately, we were down resources in the first half but have now been restored.
We expect that revenue to return to growth in the second half of the year.
To that end I'd like to discuss some recent activity.
So when we launched our auto beeline counter last quarter for human care, our vet business saw an opportunity to use it in production cattle.
There are $1 million.
It'll producers in the U S alone.
That's pretty much just about as many U S physicians there are.
They often re prophylactic would give their cattle expensive antibiotics to control disease spread and protect the hertz.
What if respiratory disease could be detected earlier to reduce antibiotic use saving time money and cattle.
Our auto Beeline tool can now help with that.
The butterfly team made it happen.
We tuned our beam.
C 30 centimeters into the chest wall of cattle to reach and scan their loans.
So cool.
That's how versatile butterfly it we can just adjust for human and animal anatomy of all sizes.
We're not an analog set of crystals like a fixed length on a camera, we have tremendous power and capability of the software to drive the right frequency through our Mems technology to get the desired result, without having to change the hardware.
As an outcome a prominent U S University of now researching the effectiveness of the <unk> launch counter.
The early disease detection and production cattle.
So that's where we are from a business perspective, and I'd like to turn the call over the Heather in a moment, but now I want to walk you through three near term opportunities for growth.
Our next generation provoke IQ3.
Butterfly Garden and.
And butterfly attached Saturday.
In the first half of next year pending regulatory approval, we will launch the third generation probe called Q3.
By Q3 is state of the art technology that improves performance at every phase of ultrasound deployment.
Powered by our new P for three chip, we have more than doubled our processor speed increased frequency, which allows for even more applications increased scan time battery life and many meaningful performance enhancing capabilities.
IQ3 closes to perceived imaging gap between us and our competitors building on top of our market leading value and superior technology.
There will be no need to have multiple handheld probes in the hospital.
Only one purpose handheld device will be needed.
This creates standardization ease of education fleet management and service for our customers.
Q3 will start opening doors to phasing out.
The need for a heavy poor battery poor connectivity P zero base handhelds.
Q3 software platform has also some very nice upgrades coming.
As we get closer to launch and receive a regulatory approval I look forward to showing you what it can do and why it will be a game changer for the market.
Q3 is next generation technology that will allow for images to be captured in an automatic way.
We won't go into how it works now.
But it will be the easiest image capture device for ultrasound in the world.
Instead of searching for anatomy like a flashlight in the case.
Press, a button and it will scan automatically.
This is a new feature that will be added to the current standard ultrasound imaging.
Butterfly performs.
We know as word gets out as it already has customers may want to wait for the new technology.
We're planning for this in our forecasting and also in making it easier for our customers to upgrade to IQ3.
They should continue to purchase IQ plus now so they can get in and get going with ultrasound.
And we will make it easy and cost effective for them to get into Q3, So there's no incentive to wait.
We will continue to sell our IQ plus alongside IQ3 for those customers, who want a lower cost alternative or who don't need the benefit of the next generation device.
I came to butterfly not to turn around another company.
But to have the pleasure to bring this kind of technology into health care.
This is what it's about.
This is the next step in making ultrasound easier for inexperienced health care providers to be comfortable with ultrasound.
All made possible by our ultrasound on chip technology.
Second.
Butterfly Garden.
Our technology has caught the attention of third party AI developers, who want to build novel applications that work with our imaging platform.
Already enabled a few of those partnerships and as a result of this interest I'm pleased to announce the launch of butterfly gardening.
Our garden will be the place.
We're ultrasound AI and software developers can access our proprietary software development kits or SDK and size.
That will allow them to build their applications and use our imaging platform to work in conjunction with tariffs.
Our first SDK, which is available today.
We will enable developers to place their app in Apple's App store.
And link that App to work with the butterfly IQ plus probes.
When they open their app and plug in butterfly the image captured.
Through the butterfly probe appears in their application and their software can do the rest.
We believe developers will like the easy to use kit and appreciate accessing to the largest install base of point of care ultrasound devices in the world.
For butterfly it allows us to continue to broaden our base as each of these companies who develop on our platform. We will have more of their customers buying butterfly, while existing butterfly customers will have access to even more capabilities. It's a win win win.
As mentioned, we currently have several partners that we're working with to this end charitable foundation pharmaceutical companies surgical robotics company as a cardiac AI company.
Responding to the unsolicited demand we've received to date butterfly garden Standardizes its activity and welcomes more partners.
Our next SDK plans to give developers access into our cloud and make it possible for third party apps to use the EHR integration and workflow.
Further monetizing our investment in enterprise software.
We're also in discussions to monetize our ultrasound on chip platform.
Butterfly investors have funded an incredible semiconductor chip technology, which warrants use even outside of focus for example, implantables medical devices and other diagnostic tools and we haven't had to monetize it for them.
The Intel inside these applications that use our ultrasound on chip technology will be quote unquote powered by butterfly.
And we'll be vigorously protected by our thousand patents worldwide.
Third.
I am pleased to announce that we're adding a full range of courses.
As well as butterfly certification to butterfly.
Academy.
As you May recall butterfly Academy has a companion.
Surgical training courses.
Training so important in point of care ultrasound, because ultrasound is hard to learn.
Making it more accessible to healthcare professionals increases the importance of training currently nearly 15000 users have accessed our butterfly Academy courses.
We're now adding in person modules, which can augment self training with virtual scan review and didactic training.
And partially offset by lower probe sales.
Total international declined 44% to $3 $3 million in international we are still working down initial stocking orders with distributors that occurred in prior years as we entered new markets. We also had the initial deployment of the gates Grant in Africa in the prior year quarter.
But in other revenue declined by $500000 due to two large sales in vet that occurred in prior year.
Breaking revenue down between product and software product revenue was $12 $3 million, a decrease of 9% versus Q2 2022.
Decrease was driven by lower volumes spread across all segments, except for the U S, where we had two large medical school deployment.
Software and services revenue was $6 $2 million in the second quarter growing by 7% over the prior year period.
Software and services mix was 34% of revenue and increased by approximately three five percentage points versus Q2 'twenty two.
This increase was due to a higher installed base of products would be accompanying subscription software renewals on the existing base of software users.
Software implementations completed during the quarter.
As Joe mentioned, we will start talking about our annual recurring revenue, which is reported as part of software and other services.
Total <unk> grew by 23%. This was led by an impressive increase of 58% and our enterprise software, which increased from 29% to 35% of our total a are.
Individual mobile software also grew by a respectable 7%.
Turning now to gross profit.
Profit was $10 $9 million in Q2, 2023 compared to $10 $6 million in the prior year period.
Gross profit margin was 59% for the second quarter, which compares to 55% in Q2 'twenty two.
This increase was primarily due to a higher average selling price. In addition to the product mix, reflecting a higher proportion of software and other services revenue.
Also contributing to the increased margin with higher manufacturing productivity and other efficiencies.
Offsetting these benefits was higher amortization, which reduced margin by 400 basis points.
For the second quarter of 2023, adjusted EBITDA loss was $17 million compared with a loss of $37. One for the same period in 'twenty two.
And adjusted EBITDA loss was driven by the increased gross margin dollars as well as the implemented cost reductions, which led to lower payroll consulting and other outside services.
Moving to our capital resources as of June 30th cash and cash equivalents, including restricted cash were $171 million. Our total use of cash in the second quarter was $27 million, if I exclude $3 million of expense is not expected to reoccur our monthly use of cash was down too.
$8 million in the second quarter.
Before turning to 2023 guidance I wanted to provide a heads up that shortly after filing our 10-Q, we will be filing an S. Three with a $300 million shelf. We are now eligible to register a shelf and believes that it is simply good housekeeping to give us optionality and the ability to raise cash.
It'll quickly should the need arise.
Moving now to guidance.
On the last call, we committed to providing an update and I would like to touch on that now.
As Joe discussed he spent his first hundred days learning the business and evaluating our strategy.
This process is not a drastic change in what we need to do more on how we got there. This process culminated in a more specific tactical roadmap and plan for a reorganization that will allow us to further extend our cash and reinvest in our direct sales team.
This exercise is expected to reduce our ongoing operating expense by an average of $2 million per month or about $60 million through the end of 2025.
While a significant amount of work has been accomplished and we are excited about our ability to expand revenue with our new focused offerings. We are cognizant that our strategy and additional direct sales resources will take time to ramp.
As such I'm going to conservatively guide to revenue numbers that are based on our existing run rate with resources and product offerings, assuming no large one time deals occur for the remainder of the year.
Based on these assumptions, we are expecting full year 2023 revenue of at least $64 million. This is lower than the prior year revenue of $73 million by about 10% to put this in perspective.
Large initial orders primarily into the international markets as well as some other one offs that occurred in 2022 are expected to decline by about $10 million and 23 when compared to the prior year. In addition, the market is expecting us to deliver a next generation prove at some.
Point in 2024.
We believe this is contributing to a sort of Osborne effect, where purchases may be delayed pending the launch of a new product.
These factors coupled with the disruption caused by the reorganization and reduction in resources is leading to this estimated decline.
That being said over the past year, we have taken a $170 million of annualized expenses out of the business and as a result, we are able to provide an adjusted EBITDA guide for the full year of a loss of $50 million to $75 million, which is an improvement of approximately 10 to 15.
$15 million versus our previous number.
To summarize.
While our overall revenue was facing some headwinds we are seeing strong underlying growth in the U S and in enterprise software. There is upside to this plan, we have ever seen and no large deals in the second half no impact from our investments in the direct sales force butterfly gardening or butterfly Academy.
Even with these headwinds and conservative assumptions, we have maintained a solid cash position and has further extended our cash runway, allowing us to guide to an improved EBITDA loss, while going through this process has been very difficult. The outcome is that we are a company right size to accomplish.
The schools with a strong base of technological and organizational assets to build on and the people who are re energized and excited about the future of butterfly with that I will now turn the call back to Joe for closing remarks, Joe.
Thank you Heather.
We feel it's important to create a revenue baseline for the business without all the noise of larger initial deals.
Manage the expenses accordingly for sustainable top line growth.
As I mentioned earlier, we've leaned the business out while maintaining a robust R&D pipeline and increased sales and marketing focus and investment.
We're mindful of our hardware sales in the face of a new platform launch and we're being cautious.
Some cuts in the business through the year have hurt our top line and that's it and I commit to you will get it back.
Butterfly has many levers for growth.
Over the next several quarters, we will continue announcing initiatives that take advantage of butterflies unique capabilities.
Our desire to build new markets and only reconsider.
You'll hear more about our Q3.
AI applications and other capabilities that are novel.
I am intent on completely leveraging the technology investments that we've made.
Flexing the muscles of ultrasound on ship can bring.
Frankly, piso Crystal based imaging will become increasingly irrelevant and ham.
Handheld ultrasound in the future will at a minimum relegated to niche use cases with.
The physics of energy imaging and she has been maximized and these analog handhelds.
Over the past several years butterfly has built the largest installed base in the world for handheld point of care ultrasound selling more than any of the biggest companies.
But ultrasound on a trip is still in its infancy.
Moore's law is on our side.
And that will be evident when you see what our next growth can do.
Butterflies started by disrupting handheld ultrasound it introduced unprecedented capabilities to clinicians throughout the world.
We made handheld ultrasound affordable easy to use and it helps patients everywhere received care at the point of care.
And I'll close by reminding you that purpose is here to stay.
Two thirds of medical schools and growing have focus in their curriculum.
42% of first year residency positions across all specialties in the United States have a requirement to learn poker.
Meeting these program requirements.
Our education offering is not only timely for the next generation of doctors, but critical to the older generation that must keep up with new standards of care that results from this change in training.
Butterflies proving time and again that we have the product software and services to not only make the transformation feasible.
Practical at an accelerated rate of adoption.
We are reorganizing our sales and marketing strategy shifting more of our spend towards commercial efforts.
And we will return to double digit organic growth into 2024.
It's a very exciting time for the company.
So thank you so much for the time today and operator, please open it up for questions.
Thank you.
I would like to ask a question. Please press star followed by one on your kind of thank you Pat now if you would.
So you changed your mind. Please press star followed by team runs the parents Ross. Your question. Please ensure that your line is muted.
Our first question today comes from Suraj Kalia from Oppenheimer. Please go ahead. Your line is now open.
Good morning, Joe Heather can you hear me all right.
Yes, yes.
Good morning.
Perfect.
Jos.
Fresh at you here are clear.
Plan of attack here.
Especially given everything going on.
Few comments caught my attention Joe I was wondering if you could.
You could give some additional color.
So first and foremost.
Mentioned in your prepared remarks perceived image gap that would be bridged by Q3.
Can you help us understand.
How do you how should we think about objectively measuring this gap has been closed.
And specifically on Q3.
How do you think about the competitive landscape.
You bet.
Its market share.
Initial uptake.
Some additional color there would be great.
It's a great question and I appreciate it.
Yes.
It's funny because.
What you see is something that is of an individual preference.
And so.
Certain levels of imaging and clarity.
Presentation.
It can be very subjective and I actually.
It was asking myself. The same question when do you think about a digital camera.
You think about if I told you something was one megapixel, where I told you something was three megapixel or seven megapixel return you would know.
That you.
You don't have to see the image initially to know that it's going to be greater clarity to simply you have greater proximally fictional concentration.
And that is kind of the trend that you saw in digital cameras.
Initially had the one megapixel image and always people thought that the film image was so much clearer, but then as again Moore's law perpetuated.
You saw that that ability to bring on greater level of pixels.
The ability to to pack in the image and create that type of clarity things would become more empirically evident to translate into what would be a perceived benefit same thing is happening in ultrasound and we will be talking specifically in the next launch around those things that drive image.
Quality and one of the things that drives image quality is processor speeds.
And the faster you can process the image the faster that you can get in and bounce that sound off so the architecture of the bed.
That image will be.
And then also the frequency and the ability to tune the frequency as well. So there are going to be numeric ways that over time people are going to see that these these computational capabilities translate into imaging performance.
But that said we have looked at our Q3 image we have every other competitive device.
We have experts we have clinicians on our staff and we have experts on consultation.
And our team is excited with what they see.
So from a subjective evaluation of side by side imaging.
The IQ plus as a <unk>.
IQ3 is a step function in greater clarity to IQ, plus which is obviously, where the 100000 units out in the marketplace and growing is an incredibly accessible technology, but as you.
The sound and to compile the image in a manner, that's that's clearer and more pleasing to the eye.
Does that help.
Got it.
Fair enough.
To your point, Joe Heather I'll, just give you my other two questions and hop back in queue.
So Joe for you.
Comments about embedding U C.
In Implantables caught my attention I can think of a couple of examples just weird, but I'd love to understand you did through that comment out there by chance.
Through that.
And it does it is it would be a first of its kind left for you to give you just an additional peak inside the tent.
Thinking about it any initial applications and Heather if I could the 50% increase investment increase in commercial activity, maybe just set the baseline for us.
At least in the U S. How many reps rep productivity territory coverage, just if we could.
Give us some guideposts would be great folks. Thank you for taking my questions.
Yeah.
Sure. So so first of all.
The.
As far as when I look at our chip technology again, we are the first company in the world to sort of create a semiconductor wafer with a mems technology to deliver shop.
There's the butterfly investors have invested a significant amount of capital and creating this technology.
And this technology has the most sophisticated supply chain and the best chip manufacturer in the world behind it.
And when I look at the cost to develop this technology and I look at the.
The use of the technology.
So we are using this technology, specifically the translate sound for imaging inside the body for the use to democratize care and allow all caregivers to build it into everyday practice.
The desire and need to be able to take this imaging capability exists across health care.
And then it exists and endoscopic surgery it exists in Implantables and instead of.
Encapsulating.
This technology for ourselves alone.
Areas, where we don't have distribution channels.
We are willing to partner with people, who can leverage the technology for their benefit and then and in turn.
Benefiting the butterfly investors. So we've ring fenced the markets that we believe that we will pay them individually.
And we've allowed ourselves.
Two.
To talk.
We've allowed ourselves to talk with partners, who we believe and a marketing perspective are noncompetitive, but will benefit as the chips very small and the chip can be embedded.
It's the size of a fingernail.
It can be embedded in technologies that if they wish to.
<unk> C and do things if for different applications.
I'm coming into this company looking at the investment that investors have made and I want to leverage that investment.
And I want to find ways to create and increase the <unk>.
Breadth of it because it's an incredible discovery by our founder Dr. Ralph for again.
And it probably deserves.
To be in society beyond the marketing channels that we have.
Now I'll turn it over to Heather, but we don't specifically talk about number of territories.
But heather can maybe.
Answer the second part of the question.
Yeah, Hi, Suraj.
The way I would think about it is that in the latest reorganization.
We reduced expenses within R&D, but within sales and marketing we've reallocated them. So we had some indirect.
Bank within sales and marketing that were now reallocating.
Direct salespeople.
And what Youll see is that at least initially.
The sales and marketing number may go down a little bit.
But it'll be restored as we add additional sales reps to do that and obviously, we believe that that will help accelerate our top line revenue number.
Yes, Suraj if you look at from August of last year to this year.
Butterfly management has taken out a $170 million cost.
Run rate cost.
When you do that it's it's sometimes not perfect and.
I believe in the beginning.
23.
It's indisputable.
So we've needed to recover that that spend and then also come up with a very focused strategy ultrasounds.
Is complex and that it can be used there everywhere.
Go through every clinical specialty M S K women's health cardiac pulmonary.
Any type of liver gallbladder and you can't fund the study in every Oregon, you can't say you do everything because when you do everything you do nothing even though you can and so we focused our investments where we know we can win where we know were better than the competition.
Use cases, and we're going to we're going to drive a truck through it.
And then of course, all the other applications are going to get pulled along with it but.
And being in robotic surgery early late nineties.
There was one focused on robotic surgery and that was on urology for the robot used everywhere, yes, but it was until there was a five year prospective randomized trial in prostate that that showed that robotic surgery was actually better than the laparoscopic surgery and standards surgery that all of a sudden tip. The scales and then everything went.
If that wasn't done at that time, they didn't focus on that one use case.
And then that adoption wouldn't have occurred and so they're as I mentioned on my last call. How excited I was to join the team because when I see everything that R&D has worked on and I see all the things that they created theres. So much now to bring the market. It's just the focus was necessary.
Fair enough. Thank you.
Yeah.
Thank you. Your next question comes from Neil Chatterji from B. Riley. Please go ahead. Your line is now open now.
Maybe just on the on the new guidance.
Two questions Here's one.
And how pursuing those types of deals might be different in the back half and beyond.
And then secondly.
Could you just maybe talk about the dynamic of customers kind of waiting for the nexgen.
IQ3 launch next year versus ways to incentivize them to continue to purchase.
IQ plus.
Easy to upgrade.
How did you take the first I'll take the second.
Okay. Okay. So you know when you.
When you looked at last year, we had a pretty big push into international markets through distributors.
And they occurred throughout 2022.
And they had their initial stocking orders and what we're seeing is that they're continuing to south Korea those initial stocking orders.
We haven't had those large initial.
Orders repeated in 2023.
So we would have expected it.
Sent that we stay in those markets that we would see that pick up at the point in time in which they sell through.
And the part about 20.
23, I'm not quite sure I understood your question.
Okay.
And at the end of 'twenty, Frank well I can I think I can take I think I can take that second part so.
What we wanted to do is to provide guidance of where we saw the business run rate was today.
No don't don't get us wrong, we love large deals and we want to close large deals.
But also we didn't want to guide to something that we didn't have control over the over the timing there are some things that we're working on and we actually even just mentioned a large global health win which will be another large deal, which we love.
It's just the predictability of them and then when you have them in your in your run rate. They are hard to anniversary because it's not a consistent deployment of large deals. So.
What we wanted to do is just present to you hey, Here's where we're going to come in if things just go as it is and we don't close the next large steel and then truthfully as we and as I have greater comfort with the business as I have more of a track record and I can see more of the pulse I've only been here 100 days and so I haven't I haven't I haven't had enough time.
To see the length of our sales cycle and to understand how to trust metrics to predict the future and so I wanted to create just a baseline.
Just to be conservative, but yes, we're going to be we're going to be a hunting a lot of things and I actually think there is an opportunity to build a large farm with enterprise strategy, but.
It's not mature enough, it's not enough time for me to be able with credibility to tell you what will happen when.
So I hope that's helpful and I'm happy to try to continue to elaborate if I didn't really answer your question.
Sure I mean, maybe just on that kind of a second part of that question just in terms of the.
The Q3 launch next year and.
Customers are waiting I think you also kind of in that.
To make bad debt.
But you have great easier and there'll be able to purchase that you booked now so just maybe.
Maybe just elaborate on that.
Yeah sure so usually our fourth quarter sales are pretty robust and so.
But as we got closer to Q3, there is risk that people may.
If someone has purchased something for a particular value that value can be play.
Make it really simple for users to upgrade so.
Just a normal.
The normal thing that capital equipment companies go through and when Theyre getting close to those launches so.
We just wanted to address it head on and not react but actually plan.
And I think that's what we're doing.
Great maybe just one quick follow up here just in terms of.
Just in terms of kind of getting back to basics here and in terms of commercial strategy and execution.
Kind of curious what that means for a few things so one on the E Commerce strategy.
The enterprise software strategy, and then lastly, I don't think we've touched on as much today, but just kind of the the.
The butterfly IQ in the home or self scanning.
How does the IQ3 maybe change that or is there or are there other things in the pipeline. Thanks.
Yeah.
Big fan of our ecommerce strategy.
It's been able up to help us build the brand very quickly.
You know, who we're competing against and so there's no. There's no you know.
Misunderstanding in the marketplace, who these companies are and so ecommerce allowed butterfly to go Big and go fast and has allowed us to communicate and continue to communicate relationships with our customers.
By having more to offer in more products offer is going to make the.
The overall effect that e-commerce more potent you can only sell the same things for so long over and message it over and over so as you come up with new value propositions that channel and that ability to.
Connect directly to the customer is very powerful.
Regarding enterprise software enterprise software to winter.
The team did a great job and the pivot and the product is excellent.
And where were selling each account for 100 $200000 in accounts, so to get to $7 7 million, there's a lot and actually each one of those accounts as they add departments grows and their overall revenue. So we're increasing our accounts and then as they are having success with the software they are adding more and more departments.
And then that prices going up higher so and if you look at the IRR chart, it's not lumpy and it doesn't you know it's a very very good upward sloping straight chart, because we're booking revenue.
In period not at one time, so our enterprise sales as our software gets more and more adopted.
And are now focused on linking our software with our hardware and other services and continue to sell bigger and bigger deals I think we've gotten past the credibility Mark of Hey, It's just software really creating value now we're going to be wrapping it with hopefully larger deals and health systems.
Thats, where were certainly encouraging our team.
So regarding our Q3 Q3 is next generation I think it's gonna be water rises.
A product that can do it all.
And I think not only kind of do it all but it can do some things that nothing else has been done before in ultrasound.
A kind of a doctor Spock.
You have.
You have to be able to do.
Have that flashlight in the cave to find exactly what you want to get and then you have to know what it is that you've found and so.
Be able to acquire that image because with our teller guidance capability, we can move that image to a remote caregiver, who immediately can diagnose and so when we talk about getting into the home.
If we can have an auto capture capability, where theres not this this arch of having to search for the anatomy, but if it's easy for a patient in the home that just place a device on on.
Wherever it is her abdomen their chest et cetera press a button.
Just like we talked about that I mean normally it's up to 10 centimeters of depth that you are scanning in the human body, but to get to 30 centimeters.
A whole different game and so our software tools that are in sensitive to energy into that and so the probe and creates that type of image. So we are going to get into the home. We are going to get into skilled nursing facilities nursing homes, we are going to get into the battlefield, we are going to get into places where.
Where the injury or the patient is and not just has to come into a hospital and then have a cart and then go through.
As time laden process.
Every single health system is looking for ways to reduce readmissions and looking for ways to manage chronic care patients in the home and remote patient monitoring is a massive business thats fully reimbursed and has been growing and we will continue to grow because it works and it allows patients to be managed in lower cost care settings.
And so as as we go with our IQ3 and with this new type of easily to scan technology, that's also going to transfer and translate into our wearables.
And as our Wearables come in then people can place devices and do the same. So this is a part of a multi pronged strategy.
Butterfly has been investing in technology for years, and I see that and as I mentioned on my first call I was just so giddy when I sat with the team and so they created.
I'm very excited about the focused strategy now we've played in their game we've come into this market, which is a mature ultrasound market competing against big companies, who have wrap around GPO contracts, who have ways to bundle and leverage and price and do all these different things and so.
To get into the hospital setting alone as a little company.
We have to do things differently and better and we've proved.
That we can get into a mature market and we can win.
Now we're going to continue to win in that mature market, but we're going to build the market.
Especially as we just mentioned in the home with remote patient monitoring in Wearables and self scanning.
They can't do that because Christmas can't do this.
Only the type of technology, we have done so we're really aren't orienting ourselves, we're focusing on our technology, we're going to win in this mature market and then we're going to build point of care and then as we do that we're going to build new markets that only we can serve.
Great I appreciate that color that's it for me thanks.
Thank you Ken that you have to take more questions.
Your next question comes from Josh Jennings from TD Cowen. Please go ahead. Your line is now open.
Okay.
Yeah.
Hi, Good morning, Joe and others wanted to just start off on the butterfly.
Q3, just to make sure we're clear on where that development program stands.
No.
I didn't seem to catch my understanding from this call is that you've already kind of cross the threshold, where this image imaging quality improvement is in hand or is there still.
Do you think could that I was won't affect last into 'twenty four as we think about updating our models on our out year estimates.
Or is this is this in early 2020 for launch.
So the the last state will be determined by regulatory clearance everything's done.
Excellent.
So is that submission.
Hum.
It is.
The submission.
We will be place shortly.
With internet within the quarter the submission will be placed.
Key opinion leaders or your customer base have you are you able to.
Market this in front of approval.
No we don't market in front of a regulatory approval.
What we do do is we have thought leaders that we have mdas with we do have.
Let's call them demo IQ3 probes that we can do.
IRB protocols with under appropriate FDA guidance so.
Yes, we are actively in front of thought leaders, we are working through our internal wave of robust internal clinical team.
And.
We'll make sure that prior to launch those thought leaders are helping us understand the message in and the capabilities of the product so yes.
Excellent well, that's great to hear and one of the reason I ask I think I believe from our consultants feedback on the <unk> plus <unk>.
The potential for image quality improvement may not have just clear that expectation hurdle, but it sounds like Q3, you've already cleared that hurdle.
The closing of the perceived imaging gap has been accomplished and now it's just a matter of giving getting regulatory approval and launching.
Just to be Andrew Sinclair.
Yeah.
Thats, what we believe and that's what our interpretation of the improvement of imaging again.
Our processor speed has doubled our frequency has increased.
All of the metrics that you have to pump through a semiconductor chip have improved.
And in a level that is.
Is consistent with image.
And.
That's not stopping we have the next generation technology.
Onto our RFP for three chip already out in development and what's great and the way that I Q3 is designed as a we can continue to enhance the software and release new software.
Capabilities to the existing product dynamically.
That's one thing that we're going to even continue because we're not stopping here.
We're gonna grab our surfboard and ride the Moore's law wave, we're continuing to test the boundaries of the technology that we have.
But then also we're continuing with the next generation chip technology.
And we will be able to insert that next generation chip technology right into this hardware platform, we won't have to.
Next generation really cool thing behind this that I'll talk about hopefully in early 'twenty four mid 'twenty four.
It's a 25 year lease.
But we're going to be able to continue to improve our chip, we're gonna be able to continue to improve our software and we can insert it into our current hardware form factor and increase our power increase our capability.
Two to image and this is just the journey, it's we're going to go from one Meg.
Film and we're gonna do to and handheld therapies are crystals what.
What happened to the film industry. So.
That's what we believe.
And their drive to.
It gets pretty clear that this should enhance the replacement cycle or pull it forward but.
Any just high level thoughts for 2425 about the replenishment placement cycle contributions to revenue growth.
I honestly don't we haven't modeled that out I can't honestly give you a specific answer obviously.
New technology comes out with greater capabilities, I think I think for us.
The current IQ plus users are using <unk> plus very happily.
The people, who are not using IQ plus because of specific whatever specific additional <unk>.
The reason they have are going to be in my view more enticed or associated now to be able to get into Q3.
So I'm, hoping I'm sure there'll be some operators are cool factor.
But it's not like those who are using it today arent getting value, they're certainly getting value, but the increased capabilities and increased imaging capabilities are certainly going to.
Meet the needs of certain markets that we haven't participated so I think the base just widens.
And then as I mentioned in my in my prepared remarks.
As hospitals start looking at standardization.
If they can get out of the bundled agree.
Agreements that that the big companies.
Put the Golden handcuffs on them.
We have the ability to standardize because we meet.
So that's our thought and that's our point of view.
Great. Thanks, so much for that answer the questions.
No problem.
Thanks Scott.
Thank you. Our final question today comes from Daniele <unk> from UBS. Please go ahead Danielle Your line is now open.
Hey, good morning, guys. Thanks, so much for taking the question.
Joe you touched on this a little bit with Gotcha question, but just any color you can give on the go to market strategy for Q3 is this something you'll go to your existing customer base with first is it something that youre going to try to win new accounts with <unk>.
That's all for me thanks.
We're going to go out to everybody.
And we're gonna go in.
Into hospitals, we're going to go everywhere.
Filing for our international clearances in sequence. So no we are intent on this being.
And what was the last thing that you mentioned.
What was the last question you said.
Just on.
I know you guys saw in pricing.
Yes, just on price.
Yeah.
Yes, we haven't finalized we have a little bit of time, we have a bunch of thoughts on pricing, but we don't we do think the price.
Has the possibility of being higher than the current but I don't want to peg it at a particular price, but it will certainly be higher and that also plays into our segmentation strategy.
We'll have we will have now two probes on the market and we'll have a lower a lower priced probe into higher price growth.
Thank you so much.
Thank you Keith our Q&A session, so I'll hand back over to Jay for any closing remarks.
So just wanted to thank all of the butterfly employees for their loyalty over the last year.
And we have a lot of people who are.
Or even no longer with us and they're awesome people and my we're going to return ourselves.
So a really nice growth we're gonna. Please our investors we're going to continue to be a great place to work continue to be a way where we're solving problems.
This is <unk>.
But we're still in our infancy and.
I'm just very excited about the next 12 months. So I really appreciate your time and look forward to giving you the next update.
Thank you ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.
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