Conference Transcript - BFLY 2026-06-04

Andrew Brackman, Analyst — William Blair

Hi everyone. Good morning. Thanks for joining us here on the final day of the William Blair Growth Stock Conference. If you don't know me, my name is Andrew Brackman. I'm the Diagnostics Analyst here at the firm. Very happy to have the team from Butterfly joining us. We have the CEO Joe DiVivo and SVP of Finance Megan Carlson joining us here. We'll do about 30 minutes of presentation in this room and then we'll head to the breakout in Burnham A afterwards and then lastly for a full list of research disclosures please visit WilliamBlair.com. With that, I'll turn it over to Joe. Awesome. Thank you, Andrew, and thank you

Joseph DeVivo, CEO

to the organizers of the conference. Thank you so much for having us here. So, Growth Conference. So, generalist investors in general. Butterfly is a semiconductor-based ultrasound company. Now, what does that mean? That means that in existing ultrasound, does everyone know what an ultrasound machine looks like you've seen them before so you have you have the overall machine and then you have the different handles and probes and each of those probes are designed to see different parts of the body our founder in 2011 endeavored to build a chip and that chip instead of having multiple probes that use a crystal lens that chip would be designed to deliver ultrasound and it's the first semiconductor ultrasound in the world now from 1993 to 2005 this little company called nvidia was a video game company right you all remember that they made chips for video games they didn't make chips for data centers they didn't have on their plan the desire to create this for that market but what they did was they solved a foundational problem for themselves they went out and built a chip that had the processing to do multi-dimensional multi-dimensional calculation to do very sophisticated stuff and then even more chips to allow other gamers to come into this environment and this happens uh every once in a while where a company solves a problem that they have and then realize that everyone else has a similar problem you know you all saw that picture of Jeff Bezos sitting at his I think it was a folding table desk with his old CRT computer with the handwritten amazon.com on it well when he was at that table he didn't have a vision to build cloud compute they got to a point where their business grew so much that they they got to a point where they realized that in order to do online retail they needed to have a global cloud infrastructure and so they spent billions of dollars building a cloud infrastructure for themselves and when that infrastructure was completed they were only using 1% of it because they had to have all the fixed you know capabilities of it and what do they decide to do they decided to sell capacity and they became the that became aws which is the most profitable contributor to amazon today so my point is is that sometimes you solve problems that are that are bigger than the problem that you were trying to solve and i'll maintain to you today that butterfly has done that and what we've learned over the last several years is that the semiconductor that we've developed for ourselves is very valuable to other people and has many applications and that semiconductor now we partner with tsmc tsmc builds our chips they help us in development we have over 600 patents in this space and we have with mems now and with the ability to control all of our sensors have a tremendous ability and we're learning with the amount of inbounds we're getting that other companies would like to have access to this technology so we start off in our first application have the reason why we want the chip to do everything is because a lot of times doctors encounter patients and they want to be able to scan the entire body patients come in the emergency room you don't know what's wrong with them is it they have pump fluid in the lungs do they have a bowel obstruction do they have an appendicitis is it a swollen ovary endometriosis is it you know whatever and they the only way you make those diagnoses today is if you either order an ultrasound or you have the ability yourself to do an ultrasound and you're present with a machine. So in general, if you can have one device that has the capability of seeing the entire body, you now have a very, very powerful device. And today, when you just look at the medical need, two-thirds of the world doesn't have access to medical imaging. They don't have a nice radiology clinic to go in and sit with an ultrasonographer in rural areas and and also in remote areas. So on our primary, the business that we're developing organically, we're solving a major problem by having the semiconductor because they plug it into their phone and have the ability to select pulmonary, cardiac, MSK. And when they select a setting, the settings automatically change to deliver the array and the frequency that that clinical indication requires. So that initial need, we've now sold over 150,000 devices around the world. And we see that there is going to be a real significant uptake in the future of what's called point-of-care ultrasound. And just to show you how it works, you see on the left that animation, that it's a little vibrating drum. And I like to think of that as a pixel on a TV screen, right? So that one drum can create sound in a certain way. But our chip has the capability to control all 9,000 drums individually, right? So when we talk about us being a healthcare company today, it's like asking yourself, well, what type of programs do your TV, are they compatible with? Do you have a country-western TV? Do you have a TV that plays dramas? I say, what are you talking about? It pays all shows, right? Because each of those pixels are controlled individually. You change the color, change the color of all your pixels, now you have a picture. Well, with Butterfly, when you can control all 9,000 sensors individually, you can not only meet the three clinical use cases that you see up top being curvilinear, phased array, and linear, and we can also now do basically anything. basically anything. Again, ask me what program I can play on a TV, I'll tell you everything. Well, what can we do? And what type of an array can we put out? Well, I can control all 9,000 sensors. So we can do biplane, we can do 3D, we can actually, because it's a semiconductor, we can literally move the beam on the device without moving the device itself. Where a normal ultrasound device is like a flashlight, you have to contort it. So that is a very, very powerful set of circumstances. And historically, supercomputers used to be huge. Now, every one of you have is one in your pocket. Well, ultrasound machines used to be huge. And then the power of processing, every doctor and every nurse in the world will have one. And so we're very excited about what we've done in our core business and where our core business will grow. and we're just as excited about a lot of new opportunities that are coming our way because we are now starting to license our chip. In 2006, NVIDIA created a developer software called CUDA and that developer software was the first time that a third party can get inside the GPU of a NVIDIA chip, change the settings for its application. Well, we've replicated that. We now have software that allows third parties come in and modify our chips and i'll talk to you near the end of the talk about the types of companies that we've already partnered with and that while we're going to partner with but um butterfly you know we sell directly to the doctors we sell to ambulance companies clinics cruise lines, and of course, hospitals. And as we've built a brand, we've become pretty popular in the medical community. And just recently, over the last nine months, there's three different TV shows that have featured Butterfly, and we didn't place this product. Organically, there was an advisor on The Pit who was a big Butterfly point-of-care supporter, and they had about six different scenes where they showed using the butterfly. Season 50 of Survivor just started, and the inaugural episode, one of the kids, the kids, one of the contestants, I'm old, one of the contestants hurt their Achilles, and they, right on live TV, not live TV, but right there on the show, pulled the butterfly out. And then on Virgin River, which is my wife's favorite show, I've never seen an episode, but they have a scene where the patient's way well has lower right quadrant pain and she's diagnosing an appendectomy. But butterfly is now, especially in the medical community, becoming a verb, did you butterfly that patient? And it's really cool to have a brand that is popular amongst the doctors and nurses that is understood. And we have example after example of that type of overall acceptance. So we're the only, I think there's one software company but aside from that one software company, we're the only medical company in the world to actually receive an Apple design award. I have a big like titanium cube on my desk. Very proud of this award because we're architected in a very modern way. Our design is very simple, artistically done, and very powerful and fungible, which is very consistent with the Apple brand. When I used to run other medical companies in the past, and I had a piece of hardware in the hospital, if I wanted to update that hardware, I'd have to send a rep in the hospital with a USB stick. Right? Well, actually today, All 150,000 of our devices that we've sold have the ability to connect into our cloud. And just like your iPhone, every picture you take gets replicated in the cloud, right? And if you want that picture, then you have to sync up with the cloud. Well, every image that every doctor takes in the world comes in our cloud. We have over 25 million images today. And that is growing at just about 30 to 40,000 new images per day. So with 25 million images, growing 30 to 40,000 a day, that becomes a very potent AI warehouse to be able to develop new AI applications. Because you can imagine a developer of AI ultrasound coming up with a model, and now all of a sudden they need 5,000 kidneys to train their model. Well, where do you think they get those 5,000 kidney scans? They're not open sourced. And we don't sell that data, I'm saying they'd have to go do a clinical trial they'd have to go to some university and do all these scans very very high cost very complex we if we're developing a new renal model we can just simply pull in the anonymized image and build the model right then and there so we have the value of this is powerful but we also what's happened is we've now as our popularity has increased on the medical ultrasound side um we're getting you know we're it's creating a little bit of a an issue for hospitals because now um everyone's walking in the hospital with a butterfly and it's not linked into their emr it's not linked into their system and i get a phone call from the administrator yelling at me for selling all these doctors but we had you know one major hospital that you all know um was upset and we we went back and realized that in their town 140 of their doctors that bought a butterfly so we built an enterprise software system called compass and that enterprise software system takes all the data from all of those devices and pushes it into their emr of choice put pushes the image into their dicom and pushes a file into their revenue cycle management system so that when they're acquiring an image you know today uh hospitals that are using point of care ultrasound only capture 35 percent 30 to 35 percent of the images because it's just so easy to pick the device up you know record an image and then put it down to pause and do all the documentation um takes time and so it's a revenue loser and also it's not compliant you know you're required as a hospital to have all the data for that patient put into a record so when someone uses our enterprise software system they're able to acquire and we've now seen with our installations of probably about a couple hundred sites across the U.S. health systems across the U.S. have it and when they put the system in they get to about 70 to 80 percent compliance so it allows them to double their ultrasound scanning revenue the moment they put our software in place and then lastly we've built out just like thinking in the ecosystem and platform side we've compartmentalized all of our capabilities to be able to link into that not only the hospital's network but allow ourselves to link into third parties so if any of you have seen ultrasound ultrasound is hard you know it's easy if you look at an mri technician you know their biggest their biggest worry actually is that the patient's got metal in them because they're concerned about that metal being pulled out by the magnets but then you know once they they take care of the patient they they initiate a standard protocol for image acquisition so it's not they're not you know it's very difficult in ultrasound because if this room was perfectly dark and i was trying to look for you know a button on your shirt you know i'd have to sit there and look and scan and i'd have to know in what direction i was looking at but then i'd have to understand and interpret well there are now we were developing we are developing ai models and have received a major fda approval recently but we've opened up our ecosystem and we now have 30 development partners who are building ai ultrasound into an sdk of ours and so when they launch it into the app store the customer can buy the keys from that company they plug it into a butterfly now the ai can tell them how to diagnose a dvt how to look at a cardiac echo how to be able to do a pulmonary scan you know how to do an aortic scan or a fetal monitoring scan so the power of this ecosystem is insane and as these apps come out and more and more applications what's going to happen to legacy ultrasound especially on the lower end is similar to what apple did to blackberry you know blackberry didn't have an ecosystem, didn't have apps, you were all forced to have a Blackberry because your enterprise managers at the time told you that this was the safe and locked down system. But then over time when you know Google came out with Google Maps and you can now navigate on your phone you're like wow I gotta have one of these iPhones. It does all these things and all these cool apps. Well we're architected that way and there's going to be all of these AI apps that come into our ecosystem and it's a very very very powerful way and the one of the first ones heart focus a cardiac echo app came out about six months and at some point as these apps come out this this whole thing is just going to explode um and then also you know it it takes it's now that this this market has been around for point of care for about 15 years and it takes a village um you have to make the device you have to train on the device you have to have these applications and then you also have to have services so we do do implementation services for our software we do services for training and then now we're building a home business to work with at-risk providers to keep their patients in the nursing homes and not in a revolving door to the hospital and we'll have a lot more to talk about that on our next earnings call but ultrasound is having a moment if you just look at all the different papers you know there are and this is normalized because we have from a growth perspective normal ultrasound has a consistent amount of papers point of care ultrasound from a relative percentage standpoint is doubling the amount of papers but there are now a lot of things in transcranial ultrasound neuromodulation brain computer interface sonoporation blood brain barrier opening these are all things now that are being studied for the first time and there's a lot of new applications and that's why we are starting to open up our platform and what that does for us is you know we have you know just about a 20 billion dollar TAM for core butterfly but the moment we start licensing our chip to other markets it expands our TAM from about 20 billion to about 350 billion and we think this is just the beginning and I'll show you in a moment a list of companies or a list of areas that are starting to work on our chip so we've created a program called butterfly embedded looks a lot similar to an intel inside logo and you know we are creating this concept that now we have a cloud compute now we have apps now we have a lot of apis and sdks to each of our individual systems and we're making it very easy now to start partnering with third-party companies that that not only dramatically increase our TAM but also increases our own intelligence that as we help solve their problems we're learning more about our capabilities and where that market needs to go so when we look at that overall TAM and that overall opportunity point of care ultrasound itself was our entire world that's what we have spent the last 15 years focusing on and it is an exciting time because in that world of point of care ultrasound our fourth generation semiconductor will be out next year and that fourth generation semiconductor is a profound technological shift in the ability to acquire images and the that will in my view if you know probably one of the biggest analogies for our business is digital photography so if you know the story of kodak back in 95 they they launched the first digital camera and every business school uh studied the fact that in 1997 they shut that program down they shut the program down because it was a one megapixel image so you know whenever digital equals ultrasound or district was also whenever digital equals analog digital wins you know in the beginning when netflix launched what was the biggest problem you know you had buffering your hospital your your home network um wasn't as powerful to to run the bandwidth or it was too big a file to push across your home network and so regardless of it being a cool idea you still want the blockbuster because you want to see the thing whatever but the moment netflix performed as well with blockbuster and you're they were able to compress it and multi dimension it then now it became a benefit well in 2003 all the other great imaging companies said no this digital photography is a great idea and when it got to about five to seven megapixels digital photography took over film well we are the digital photography part and we we now have seen our processing power um double and our ability to do harmonics is now significant through our mems capability so the next version of our probe will be better than any other probe that's out there and there won't be a need for the other companies to even even sell their product because our you know right now you look at your phones um the apple just launched a phone with a 42 megapixel image so that's not going to stop the capabilities of semiconductors aren't going to stop in its development and we have been rapidly developing which now allows us to participate in a lot of new markets and so we're talking to companies today in patient monitoring we're talking to pharmaceutical companies today about how ultrasound can do drug activation there are some bone healing opportunities endoluminal hifu which is high frequency high frequency ultrasound that will allow you to focus a beam to do some type something interventional or clinical catheter based we have a deal with a robotics company now neuromodulation and bci and that's probably one of the biggest most explosive ideas that are coming out that they're looking to put our chips in the brain and because our chip can move and the beam can move you can put one chip in a lobe and see the that entire load of the brain so and by doing so you can see blood flow you can see electrical activity and if you wish you can actually push thermal to an area of blood ischemia to try to stimulate it so it's what people are now trying to do is look we've solved the problem for ourselves we're building a point of care ultrasound business but we now have a lot of very big shots on goal and we probably have now 40 to 50 different companies we're in active discussions with to license our chip and because our moat's so big a lot of this has all been inbounds or and because of our ip and because of people's desire to do this um most of this has been inbounds but we've now in the first quarter started to build a team that is now proactively marketing to certain industries because um this is not just um healthcare applications as you see around the circle if you look in that box there's actually ways to keep batteries fresh by delivering you know pulsed ultrasound energies I even had, on the material stress side, I just met with a company that's putting, trying to build sensors for drone wings to ensure that with the amount of pressure they're under, they don't snap in air. And you can see with ultrasound, material stress changes before it gets cataclysmated and it breaks or even cracks. so there's and there's even an application that someone's working on that allows for if you have this massive window you can put our chip on the window and you can touch the window and when you touch the window the chip knows exactly where your finger is so think about that you know you can have a spot on your window that's a light switch or a keyboard or you can have a refrigerator with a keyboard and things that you just dynamically touch just like those movies where you see what was that thing oh I can see it in my mind anyways whatever but you know the computers that you can you can see in there so anyways a lot of really cool things that are happening for the company and so today this is kind of our pipeline so what's active are the ones that we are now signed so we have a robotic surgery product we have a BCI neuromodule three BCI companies Diagnostic imaging, a tomography company, which is fascinating. We have an interventional company, a wearable company, augmented reality, and in the pipeline, you can see all the different businesses that we're speaking to. Our chip licensing business, well, first of all, you can see I'm very excited about our point of care ultrasound business, and that's going to be a wonderful growth and very exciting for us into the future. um the chip part of the business is going to be a much bigger part of our business it's going to it's today maybe 20 of our revenue uh after one year or after two years and it'll it'll very quickly um not only grow past that business but be a major profit driver for us and a major annuity for us because all of these partnerships that we are doing are all incremental it doesn't require any capital capex investment from our side we just continue to develop our chips and then we now can license them out we can sell get the revenue for selling them and also there's revenue associated to them if they want us to do any individual work and so our revenue now is coming from point of care ultrasound and we what we call embedded we have our core business we will now in in 2020, the end of 26, start seeing revenue from this services business and home. I'll talk that more on our conference call. And then Butterfly embedded the way we make money is through a licensing fee, chip purchasing and revenue share or a royalty. And so, you know, Butterfly started off as a SPAC, went out really hot and heavy, you know, and realized that in healthcare, you know, my view has always been in healthcare, it takes 10 years to become an overnight success. But you know, as you look at any of these companies, any of these large tech companies, first 10 years are hard. You know, you're really, you know, having to create a lot of foundational work, but then the marketplace gets it and it completely explodes. Look at any of the bigs right now. I think even SpaceX was private for 20 years, before now they're going public. So it takes a long, long time, but we've gotten this thing turned around. We came, you know, I came here in 23. We reduced the size of the business. We focused on launching our next probe and consuming a lot less cash. And now, you know, we should do between 117 and 121 million this year, dramatically reduce our cash consumption and set ourselves up for real serious growth in the future. And so last quarter, we grew 25%. And you can see our gross margins improving. You can see our consumption of cash reducing. And this is just the beginning. I think we are near that 10 year overnight success mark. I think a lot of people are waking up now to see who butterfly is in the context of the tech world um a lot of the tech community are we're talking to now at the highest levels guys um we're having conversations with and i think this company uh is poised over the next three years to do some crazy fun things also we did a deal with a company called midjourney it was a 74 million dollar licensing deal and that's one of the reasons why are we're seeing this type of revenue growth this year just stay tuned because a lot of people want to know what they're using our chip for it's a gen ai text to image company that's an extraordinarily creative company and i'm very excited about what they're going to unveil when they're ready, but hopefully it'll be soon. All right, guys. Appreciate your time.