Yahoo Finance Butterfly Network, Inc. (NYSE:BFLY) Q1 2024 Earnings Call Transcript
Butterfly Network, Inc. (NYSE:BFLY) Q1 2024 Earnings Call Transcript May 1, 2024
Butterfly Network, Inc. reports earnings inline with expectations. Reported EPS is $-0.12 EPS, expectations were $-0.12. Butterfly Network, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon. Thank you for attending the Butterfly Network First Quarter 2024 Earnings Call. My name is Victoria, and I'll be your moderator today. [Operator Instructions] I would now like to pass the conference over to your host, Heather Getz. Thank you. You may proceed, Heather.
Heather Getz: Good afternoon, and thank you for joining us today. Earlier today, Butterfly released financial results for the first quarter ended March 31, 2024 and provided a business update. The release and earnings presentation, which includes a reconciliation of management use of non-GAAP financial measures compared to the most applicable GAAP measures are currently available on the Investor section of the company's website at ir.butterflynetwork.com. I, Heather Getz, Chief Financial and Operations Officer at Butterfly, alongside Joseph DeVivo, Butterfly's Chairman and Chief Executive Officer, will host this afternoon'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 results, future performance, development and commercialization of products and services, potential regulatory approvals, and the size and potential growth of current, or future markets for our products and services.
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. These and other risks are described in our filings made with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements and the company disclaims any obligation to update such statements. As a reminder, this call is being webcast live and recorded and we will be referencing a slide presentation in conjunction with our remarks. There may be a short delay, between the live audio and the presentation being shown.
On the same page, you will also be able to access the webcast live, and replay once the call has completed. I would now like to turn the call over to Joe. Joe?
Joe DeVivo: So good afternoon everyone and thank you for joining us for our first quarter 2024 conference call. We've had a really good quarter and a perfect start to what will be a great year for Butterfly. We delivered 14% revenue growth, which was above expectations and are now raising revenue and earnings guidance for the full year. Our iQ3 launch proved everything we were hoping for and marks a major shift in competitiveness for the health system market. With our building momentum from recent product launches along with a robust line of new products and services coming, we feel confident we will be able to sustain this growth, for the foreseeable future. Our ongoing efforts to streamline, and become more cash efficient will continue through 2024, extending our cash runway well into 2026.
So, leveraging further on the quarter, revenue came in at $17.7 million, or 14% over the last year's first quarter with a 22% increase in probe volume and all channels contributed. These results come on the heels of us overachieving our fourth quarter 2023 expectations. Even more, our first quarter of 2024, was the best first quarter in Butterfly's history, even beating 2022's of $15.6 million. We were able to achieve these results through improved execution, and do it more efficiently. We actually used half the cash we did last year. So, 14% revenue growth, highest first quarter ever, using significantly less cash year-over-year. Now, that's progress. We had a number of significant achievements in the quarter, the most notable of which was iQ3 winning FDA clearance early in January, and we were ready.
We launched iQ3 ahead of schedule, delivering even more momentum. Our operations team did a marvelous job producing high quality inventory. Our marketing team executed a flawless launch, with so many online activations occurring through the quarter. I'm very proud of the team for delivering such high quality launch ahead of schedule. So, as a reminder, as I laid out on our previous earnings call, our 2024 priorities for Butterfly are, one, iQ3 driven growth, including going deeper into health systems. Two, global expansion. And three, driving medical school adoption. In addition, we see further opportunities such as Vet. So, digging in further to the launch, on February 13, 2024, iQ3 became available to all of our domestic channels. Each of our regions then proceeded to deliver an above plan performance.
U.S. revenue growth in the quarter was 19%, led by an increase in unit volume of 18% year-over-year. There were no large deals, just a groundswell of individual orders increasing on a daily basis throughout the quarter, which in my point of view is very healthy. Now, international grew 14%. And this was without iQ3 and prior to even receiving EU MDR certification for iQ+. So, in other words, the growth was purely based on approved execution from our distributors and strong performance from our international direct team, despite no new product in years. Well, that's about to change for them. Now that we have EU MDR certification, we'll be rolling out a cadre of advanced features on our European iQ+, product later this month. International results should accelerate further.
So, what's more, the new Butterfly iQ3 international rollout is kicking off very soon. We plan to launch iQ3 in Canada this month, and then Europe will come next later in 2024. So iQ3 was available for a half a quarter in the U.S. market. Sales and selling activity has been electric. Of over 1,200 iQ3 units sold, about half were brand new users to Butterfly, and half were trade-in upgrades by existing users, who wanted the new technology. In every setting iQ3 shined. We have held many private iQ3 demos for KOLs in every clinical specialty relevant to ultrasound. We used to hear, "Butterfly is great but" from several specialties, especially cardiology. But there's no more but. That is now a thing of the past. At the most recent American College of Cardiology Conference, our little booth was swamped with cardiologists.
It was so gratifying, because we heard them say, "I just had to come by and see if iQ3 was as good as everyone says it is". Now, that's really nice to hear. Our message is getting out. There's a viral buzz around our new product, and customers are reaching for it. Time and again, we've put iQ3 up against the competitive devices, and our image quality is just much better. We have advanced automated tools, and our cost is still a fraction of the price of all competitive probes. Remember, you need to buy four of their probes, between $5,000 and $7,000 each to get to a full-body image. Together, that's a $20,000 to $28,000 purchase, about the same cost as an entry-level cart. We also published a white paper accessible at butterflynetwork.com/resources.
On the clinical utility of iQ Slice and iQ Fan, detailing how these advanced tools can enable more efficient care, by reducing the number of scans needed in an exam. Many ultrasound protocols are time-consuming and demanding on probe manipulation to get a series of views. With iQ Slice and Fan, we proposed new protocols that streamline the scanning process, and enhance diagnostic efficiency. This was also the first quarter that, we began selling two probes side-by-side. iQ+ remains the best-selling handheld in history, and the product has a lot of life. Providers who are generalists, or very price-sensitive may opt to purchase iQ+ at $26.99, while more specialized doctors, for example, those with cardiac, MSK, and vascular needs will likely opt for the iQ3 at $38.99.
No matter what, Butterfly wins, because we have the lowest cost all-in-one probe, and simultaneously the best handheld in image quality, capabilities, and cost. Plus, our probes are paired with enterprise software and educational tools to make deployment feasible at scale. And now, Butterfly Garden will be constantly bringing them the best AI apps in the world. It's just simply an unbeatable offering. Health systems are now taking notice, and our pipeline is growing. We have the probe, the mobile app, enterprise software, and education portfolio. If a point-of-care ultrasound director is serious about building an enterprise program, they will now truly have only one choice, Butterfly, the most complete solution. In fact, we're thrilled by new data coming out of one of our largest one-to-one probe and software installations at the University of Rochester Medical Center, which furthers the value story by demonstrating the economic benefits of Butterfly.
There's much more to come on this, but they allowed us to preview a highlight. Since putting Butterfly in place system-wide, URMC observed significant revenue growth, a 116% increase in hospital revenue from point-of-care ultrasound in just a year and a half, and they also reduced capital expenditures when deploying our devices system-wide. Looking at our software and services revenue, in total it was down slightly. This is temporary. Underneath that, we had great enterprise software quarter, with upsells in existing accounts growing 25% from Q4, '23 and overall ARR growth at 34% year-over-year. On the individual side, we anniversary the subscription promotion put in three years ago that was very successful. Much of that revenue rolled off this quarter.
I'm not worried about this at all, as we've reloaded the chamber with a bunch of new software from this quarter's all-in probe sales, which will roll forward nicely and set the stage for a lot of new software to amortize, over the next three years. I also explained last quarter that medical school programs would be an important growth driver for us, and we're seeing the momentum here, including upsell into over five schools in Q1, two of which were one-to-one models deploying probes to all incoming first year students. Our pipeline in this area is also growing strong, and schools are realizing, the value of one-to-one models. Look, each student wants their own probe. Just last month, we were at AACOM, the largest gathering of osteopathic medical school leadership in the country.
More than 30 DO school decision-makers showed up for a private session, to learn more about Butterfly's one-to-one models, and more came for conversations at our booth. ScanLab's launch in Q1, is a huge part of our success here. Its contribution to the quarter was also nothing short of amazing. Having an ultrasound instructor side-by-side, with a student to practice is a resource not all medical schools have. Prospects have cited ScanLab as the reason they feel a one-to-one model is now feasible. ScanLab amplifies a student's coursework and hands-on training with AI-guided practice tools. It has strengthened our lead in medical education, as a whole generation of students learn ultrasound, and do it with their Butterfly. Much like Apple built their iMac market decades earlier, when students learn on your platform, loyalty for years ensues.
The impact of ScanLab goes well beyond med schools. We have partners, distributors, and customers, hosting training programs using it. Since its launch in mid-January, thousands have downloaded it. Multiple institutions are using it in clinical research. Schools are incorporating it into their curriculum. Customers realize there is now an AI tool allowing students and clinicians, to practice their scanning skills on their own. And it's a proven game-changer for us. We also saw growth in Butterfly Garden AI partners. We launched these streams about eight months ago in August of 2023, and saw an immediate strong inbound. This pipeline continues to grow. In Q1, 2024, we added four partners. And just last month on April 23, ThinkSono became our first partner, to commercialize an education app for deep vein thrombosis assessment.
It's exciting to see the rate of progress in this area. So before turning it to Heather, I'd like to give a brief update on the European Commission's effort, to ban hazardous substances from electronic devices called RoHS, or Restrictions of Hazardous Substances Directive. I've mentioned that we've been in contact with the European Commission, about our chip ultrasound as a cleaner alternative, to incumbent lead-based piezo handhelds. We're pleased to have learned that they've not yet begun reviewing the lead piezo industry's request for the next exemption. Our contact that the commission shared, will most likely begin at the end of this calendar year, and then decide sometime in 2025. So that's terrific news for Butterfly. First, we are not late in the game.
Butterfly and our SEMA technology will be fully evaluated and considered in this next round. Second, we believe it's possible that iQ3 will be approved in Europe, before this evaluation process concludes. While we're very confident that even with iQ+ we would prevail, with iQ3, we feel certain that any independent evaluation against all other handhelds will conclude that iQ3 is at minimum equivalent, period. We have also further learned that the EU's seriousness in upholding this directive is strong. The more energy we are putting into this process, the more we believe the odds of prevailing in our favor, and new sales of lead piezo handhelds may be banned from the EU as early as 2025. The facts are simply in our favor. There is still a lot of work to do, but our confidence is growing.
So with that, I'll turn it over to Heather to report more on the quarter. Heather?
Heather Getz: Thank you, and good afternoon, everyone. As Joe noted, we started 2024 strong with revenue of $17.7 million in the first quarter, a historic high mark for Butterfly, representing a 14% increase, versus the prior year. This increase was driven, by a 22% increase in probe volume, with the launch of iQ3 and higher average selling prices, demonstrating strong demand for our products. Both the U.S. and international markets grew. In the U.S., we realized $12.2 million in total sales, 19% higher than the prior year period, driven by increased volume, average selling prices, and slightly higher revenue from software and subscriptions. Total international increased 14% over the prior year period, to $4.2 million. This was due to higher probe volume, partially offset by lower average selling prices, as a result of a higher mix of sales to distributors, which carry a lower average selling price, as well as lower individual software sales through e-com.
Breaking our revenue down, between product and software, product revenue was $11.3 million, an increase of 28% versus Q1, 2023. This increase was driven by higher volume spread across all our channels, and higher average selling prices. Software and services revenue was $6.4 million in the first quarter, down slightly versus the prior year period. Software and services mix was 36% of revenue, decreasing by approximately 7 percentage points versus Q1, 2023. This decrease was due to lower individual subscription renewals that were largely offset by a higher installed base of subscription enterprise software, as compared to prior year, as well as renewals on the existing base of software users. Our total annual recurring revenue, which is reported as part of software and other services, grew by 4% versus the prior year period.
This was led by an increase in our enterprise software, which increased to 42% of our total ARR. Turning now to gross profit. Gross profit was $10.2 million in Q1, 2024, a 12% increase as compared to $9.1 million in the prior year period, while gross margin percentage remained relatively flat at 58%, versus 59%. The slight downtick was driven by a negative impact of higher software amortization, and lower proportion of higher margin software and other services revenue, partially offset by higher average selling prices. Moving to EBITDA and capital resources. For the first quarter of 2024, adjusted EBITDA loss was $13.2 million, compared with a loss of $22.3 million for the same period in 2023. The $9.1 million improvement in adjusted EBITDA loss, was driven by higher revenue, cost reductions and efficiency, which led to lower payroll, consulting, and other outside services.
Capital resources as of March 31, 2024, were cash and cash equivalents, including restricted cash of $117 million. Excluding $6.5 million of bonus and other non-recurring expenses, our total use of cash in the first quarter was about $15 million. As we have previously discussed, over the last 18 months, we have taken over $170 million of cost out of the business, and have reduced our annual cash burn to approximately $60 million. Based on this, we estimate that our cash balance, conservatively, provides us with a runway into 2026, and we have a plan to extend it further. Before moving to guidance, I want to touch on the notification we received from the NYSE. As you may have read in our release, we received a notification that we are out of compliance with the NYSE standard that requires a 30-day stock price moving average of at least $1.
We are viewing this strictly as an administrative issue, and are confident we will maintain our listing. We have six months to regain compliance. Since we believe the market has undervalued the stock, and is not factoring in our first quarter results, or future growth, we believe we can regain compliance with a recovery in our stock price through continued business execution. In the event that the market and our price does not recover in that time period, we will perform a reverse stock split. During this time, our stock will continue to trade on the New York Stock Exchange. Now moving to guidance. As Joe discussed, we have been executing against the roadmap we laid out in August. We launched iQ3, ScanLab, and Butterfly Garden with 13 deals.
We added four new garden partners in the first quarter, and in April, ThinkSono, became the first garden partner to commercialize, an example of what we expect to be a meaningful contributor down the line. We have invested in our sales team, all while reducing our cash consumption and conservatively extending our cash runway into 2026. As we look into 2024, our commercial organization is humming, and we are continuing to find further efficiencies to extend our cash runway even further. In addition, we are exploring a number of opportunities for non-diluted financing, for example, grants and licensing deals, to provide us with maximum flexibility and a pathway to profitability. We will keep you updated on this front. For 2024 guidance, after launching iQ3, and seeing its market acceptance, we can provide more concrete and higher revenue guidance in the range of $75 million to $80 million, or about 15% to 20% growth, and adjusted EBITDA guide for the full year, of a loss of $55 million to $50 million.
As the year progresses, we will provide updates and further clarification. Specifically looking at Q2, which is our toughest time for the year, due to a few large medical school deals that occurred in the prior year, we expect to see revenue growth around 10%, bringing us to approximately $20 million in revenue. For Q2, adjusted EBITDA, we expect a loss of approximately $12 million to $13 million. To summarize, we have started the year strong, and we look forward to continued growth in 2024, as well as to realize additional efficiencies that will further extend our cash runway. Additionally, we have maintained a solid cash position while investing in the business. We will continue to execute against our plan, drive adoption of iQ3, and expand uses of our product across all of our channels.
Butterfly is set up to accomplish its goals, with a strong base of technological and organizational assets, and a team who is energized to capitalize on this attractive opportunity. And with that, I will turn the call back to Joe. Joe?
Joe DeVivo: Thanks, Heather. So I've been here about a year now, and looking back, I'm proud of what we've accomplished. It was easy to recognize the enormous potential and opportunities for Butterfly. What was hard, was not trying to do everything all at once, and instead focusing on opportunities with the greatest impact. But that's what we've done. For those of you following closely, you know now that the Butterfly team is delivering at all levels. Our R&D team and product teams just crushed it, by hitting the mark on our new product launches this quarter. Our regulatory team, delivers constantly with clearance after clearance worldwide. Our operations team consistently delivers, quality products ahead of time. With the reinvestment in our commercial engine and some new talent combined into the organization, our sales and marketing teams are delivering globally, and exceeded plan by a wide margin.
In corporate development, we created the successful Butterfly Garden and powered by Butterfly programs. We did all of this with a streamlined organization that used half the cash it did in the prior year. And we're just getting started. As we look ahead, we will next launch iQ3 in Canada, now as we've received our certificates just a few days ago. And then with EU MDR certification this quarter as well, we will add Pulse Wave Doppler and other advanced features to iQ+ in all CE mark countries, followed by iQ3 in those countries, before the end of 2024. On a global front, we also remain dedicated to our mission to democratize healthcare, and continue to be the device of choice in all global health contexts. Just last month, we initiated Phase 2 of our 1,000 probe deployment to sub-Saharan Africa under the Gates grant, we received in March 2022.
In this phase, 500 probes are being distributed to improve maternal care in South Africa. Our vet business also continues to strengthen with new partnerships. In Q1, Chewy became the latest corporate partner who will leverage Butterfly in their first ever veterinary hospitals. We've now partnered with the biggest names in pet retail, namely Petco, PetSmart, and Chewy, who all view Butterfly as a key part of their toolkit as they move into the veterinary services space. We also continue to see positive findings from Kansas State's Beef Cattle Institute researching the use of iQ+ vet for shoot-side respiratory disease management. Data will be presented at the American College of Veterinary Internal Medicine Conference in June. Now, as a part of our continued efforts to best serve the specific needs of our customers, we will also soon introduce our first specialty product, iQ+ bladder.
It will launch this quarter in the U.S. iQ+ bladder is a small, cart-based bladder scanner with purpose-built software, to make it quick and easy for nurses to get bladder volume in a hospital using our proprietary tool. With our new iQ+ bladder in the U.S. coming soon and all the momentum already discussed today, we are increasing guidance for the year. As Heather mentioned, instead of our previous guidance of low double-digit revenue growth, we are guiding to about 15% to 20% revenue growth, which we believe is sustainable in the future. With that increased growth, we will continue to reduce our cash needs. I would also like to touch on our stock price. So, as you're all aware, it's been a challenging market, and in particular for small medtech.
As Heather mentioned earlier, we do not believe our current price accurately reflects our business's value. What we have accomplished or the opportunities ahead. With the work we put into right-sizing the business last year and this quarter's strong results, we hope that the market acknowledges our return to growth and the great future of this business. As we have reignited growth and became more efficient, Heather and I are committed to continue to optimize the organization. As mentioned, we have several initiatives underway for further cost efficiencies, and are looking at creative opportunities for non-diluted financings, both of which will extend our runway even further and deliver upside to our current plan. So, now I'd like to end with a brief review of our Investor Day, which was held March 18.
I'm very proud of the team and of the delivery of our plans for the next several years. At Investor Day, we showcased new technology, provided real-time demonstrations, communicated new business opportunities, and heard from KOLs on their deployment of Butterfly for the growing point of care ultrasound market. I encourage you to revisit the replay, on the Events page of our Investor website. The URL can be seen on the current slide. There were three takeaways I'd like to reinforce from the day. First, we are winning the race to digital and ultrasound. We have the largest handheld user base, and device deployment in the world. We now have double the processing power in a very successful iQ3 launch, and we're continuing to invest in higher power semiconductors.
We showed the new capabilities of our next P5 chip, significantly increasing the mechanical impedance, while showing the Apollo chip, which will produce 10 times the processing power of iQ3. Each chip has an exponential leap in capabilities, and each dramatically expands our market, by offering more cart-like capabilities in the palm of a doctor's hand. Remember, supercomputers used to be huge. Now, each one of you carries one around in your pocket. Every doctor, every nurse in the world will carry a super imaging device from Butterfly, with capabilities of the most sophisticated carts in the world today. Second, Butterfly Garden and Powered by Butterfly are two programs with over 15 contracted partners, which will generate meaningful revenue for the company over the next five years.
Butterfly is the largest data repository, with over 20 million images, growing at over 30,000 new image uploads a day. Ultrasound AI developers will want to partner with Butterfly for development as well as commercialization. Our Garden will become the epicenter of independent global ultrasound AI development. Our Powered by Butterfly program, which licenses our chip technology, also has a major pipeline of partners interested. If we're successful in closing these deals, Butterfly's balance sheet will improve by adding non-dilutive capital through licensing. So our Powered by Butterfly program can bring us capital while generating revenue, from markets never contemplated as core to Butterfly in the past. So third, Butterfly will soon be helping patients in the home, by introducing Butterfly Home Care.
Butterfly Home Care will focus on helping at-risk providers manage congestive heart failure patients, by empowering in-home nurses to test for pulmonary congestion. We also intend to help people with bladder insufficiency manage their catheterization at the right time through calculating their bladder volume in their home. Both of these present large new revenue opportunities for Butterfly starting in 2025. In conclusion, over the past year, we extended the cash runway of the business, and have plans to do so even further. We've reignited top-line revenue growth, and will continue to drive commercial success as we begin to harvest new market opportunities to grow even faster. New product and market launches will continue to power growth. So this is the investment thesis I believe investors want, and we're excited to deliver on it.
So with that, operator, let's open it up for questions.
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