Earnings Call Transcript - BFLY Q1 2024

Operator, Operator

Good afternoon. Thank you for joining the Butterfly Networks First Quarter 2024 Earnings Call. My name is Victoria, and I will be your moderator today. I will now hand the conference over to your host, Heather Getz. Thank you. Please go ahead, Heather.

Heather Getz, Chief Financial and Operations Officer

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'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.butterflynetwork.com. I'm Heather Getz, Chief Financial and Operations Officer at Butterfly; alongside Joseph DeVivo, Firefly'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 been completed. I would now like to turn the call over to Joe. Joe?

Joseph DeVivo, Chairman and Chief Executive Officer

Good afternoon, everyone, and thank you for joining us for our first quarter 2024 conference call. We’ve had a strong quarter and a great start to what promises to be an excellent year for Butterfly. We achieved 14% revenue growth, surpassing expectations, and are raising our revenue and earnings guidance for the full year. The launch of iQ3 has met our hopes and represents a significant enhancement in our competitiveness within the health system market. With the momentum from our recent product launches and a promising lineup of new offerings ahead, we are confident in our ability to maintain this growth moving forward. Our ongoing efforts to improve efficiency and streamline operations will continue throughout 2024, extending our cash runway into 2026. To provide more detail on the quarter, our revenue reached $17.7 million, which is 14% higher than last year's first quarter, accompanied by a 22% rise in probe volume, with contributions from all channels. These results follow our outperformance from the fourth quarter of ’23. Furthermore, our first quarter of ’24 marks the best first quarter in Butterfly's history, even outpacing 2022's revenue of $15.6 million. We achieved these outcomes through improved execution while using half the cash compared to last year. A 14% revenue increase, alongside the highest first quarter on record and reduced cash usage year-over-year, demonstrates our progress. In this quarter, we had several key achievements, particularly the early FDA clearance of iQ3 in January, which allowed us to launch ahead of schedule and gain additional momentum. Our operations team excelled in producing high-quality inventory, and our marketing team executed a flawless launch with numerous online activations throughout the quarter. I am extremely proud of our team for successfully delivering such a high-quality launch ahead of schedule. As a reminder of our 2024 priorities, we focus on iQ3-driven growth, which includes deeper penetration into health systems, global expansion, and promoting medical school adoption. We also see additional opportunities emerging. On February 13, 2024, we made iQ3 available to all our domestic channels. Our regions exceeded performance expectations, with U.S. revenue growth in the quarter at 19%, driven by an 18% year-over-year increase in probe unit volume. No large deals contributed to this; instead, we saw a consistent rise in individual orders throughout the quarter, which is a healthy sign. Internationally, we experienced 14% growth without the impact of iQ3 and prior to receiving EU MDR certification for iQ+. This growth stemmed purely from improved execution by our distributors and strong performance by our international direct team, even without new products for years. That situation is about to change, as we plan to release advanced features for our European iQ+ product later this month, which should further accelerate international growth. We are also set to launch iQ3 in Canada this month, followed by Europe later in 2024. After being available for just half a quarter in the U.S. market, the sales and interest in iQ3 have been impressive. Out of over 1,200 units sold, around half were to new users while the other half were upgrades from existing customers wanting the latest technology. In all environments, iQ3 has performed excellently. We have hosted numerous private demonstrations for key opinion leaders in all relevant clinical specialties. Previously, we often heard reservations about Butterfly from certain specialties, particularly cardiology, but those concerns have dissipated. At the most recent American College of Cardiology conference, our booth was overwhelmed with cardiologists eager to see if iQ3 lived up to the hype. Our product's reputation is spreading, and we are generating significant interest. Time and again, when we compared iQ3 with competing devices, our image quality stood out. We offer advanced automated tools at a fraction of the cost compared to competitive probes. Keep in mind, competitors typically require four probes, each costing between $5,000 and $7,000, to achieve a complete body image with an entry-level cart. We’ve published a white paper detailing how our advanced tools, iQ Slice and iQ Fan, can enhance diagnostic efficiency by reducing the number of scans needed during exams. Many existing ultrasound protocols are complex and demand significant probe manipulation. iQ Slice and Fan introduce streamlined protocols that improve the scanning process. This quarter also marked the beginning of offering iQ+ and iQ3 alongside each other. iQ+ continues to be the best-selling handheld ultrasound in history and remains a viable option. Generalists or price-sensitive providers may choose the iQ+ at $2,699, whereas specialists, such as those in cardiology, MSK, and vascular fields, may prefer the iQ3 at $3,899. Regardless of choice, Butterfly maintains an advantage with our low-cost all-in-one probes while delivering superior handheld image quality. Additionally, our probes are complemented by enterprise software and educational resources that facilitate scalable implementation. Our Butterfly Garden will continuously provide excellent AI applications. Health systems are beginning to take note, and our sales pipeline is expanding. We now have the probe, mobile app, enterprise software, and educational offerings. For point-of-care ultrasound directors serious about building a comprehensive program, Butterfly is the clear choice. We’ve received promising data from one of our largest probe and software installations at the University of Rochester Medical Center, highlighting the economic benefits of Butterfly’s offerings. Since implementing our system-wide solution, URMC has observed a remarkable 115% increase in hospital revenue from point-of-care ultrasound over just 1.5 years, alongside potential reductions in capital expenditures. Looking at our software and services revenue, it showed a slight decline, which we believe is temporary. Our enterprise software segment performed well, with upsells in existing accounts rising by 25% from Q4 ‘23, resulting in an overall ARR growth of 34% year-over-year. This quarter, we also rolled off revenue from a successful subscription promotion three years ago, but we have balanced that with new software from the all-in probe sales, setting the stage for continued growth over the next few years. As I mentioned last quarter, medical school programs are an important growth area for us. We’re observing positive trends here, including upsells to more than five schools in Q1, with two adopting one-to-one models that provide probes for all incoming first-year students. Our pipeline in this sector is strong, and schools recognize the value of one-to-one models, which is evidenced by our participation in AACOM, where we engaged over 30 decision-makers from DO schools in conversations about our offerings. The launch of ScanLab in Q1 significantly contributed to our success. The ability to have an ultrasound instructor working alongside a student is a valuable resource that many medical schools lack. Prospects have stated that ScanLab has made the one-to-one model feasible. ScanLab enhances students' coursework and hands-on training using AI-guided practices, positioning us at the forefront of medical education, where an entire generation will learn ultrasound with Butterfly. Beyond medical schools, we have partners and customers implementing training programs using ScanLab. Since its mid-January launch, thousands have downloaded the tool and various institutions are employing it in clinical research while schools integrate it into their curriculum. Customers now have access to an AI tool that enables both students and clinicians to practice scanning skills independently, which has proven to be a game changer for us. Additionally, we have witnessed growth in our Butterfly Garden AI partnerships. Following our launch of these partnerships about eight months ago, we continued to see strong interest. In Q1 2024, we added four new partners. Recently, on April 23, ThinkSono became our first partner to bring to market an educational app aimed at assessing deep vein thrombosis, showcasing rapid advancements in this direction. Before I hand things over to Heather, I’d like to provide a brief update on the European Commission's initiatives regarding hazardous substances in electronic devices, known as the RoHS directive. We have engaged with the European Commission about our chip ultrasound technology, which offers a cleaner alternative to traditional lead-based piezo handhelds. We were pleased to learn that the Commission has yet to review the lead piezo industry's request for an exemption; this is expected to commence at the end of this calendar year with a decision anticipated in 2025, which is great news for Butterfly. Being in this position allows us to be considered alongside our competitors. We are optimistic that iQ3 will be approved in Europe before this evaluation concludes, and we believe that even with our existing iQ+, we can compete effectively. With iQ3, we are confident that any independent assessment will affirm it as at least equivalent to other handhelds available. The EU's commitment to enforcing this directive appears robust, and as we invest more energy into this process, we believe our chances of success are increasing. This could lead to new sales of lead piezo handhelds being banned in the EU as early as 2025. While there remains work to be done, our confidence is growing. Now, I’ll pass it over to Heather for further insights on the quarter.

Heather Getz, Chief Financial and Operations Officer

Thank you, and good afternoon, everyone. As Joe mentioned, we had a strong start to 2024 with revenue of $17.7 million in the first quarter, reaching a historic high for Butterfly and representing a 14% increase compared to the previous year. This growth was fueled by a 22% rise in probe volumes following the launch of iQ3, as well as higher average selling prices, reflecting strong demand for our products. Both U.S. and international markets experienced growth. In the U.S., we achieved total sales of $12.2 million, marking a 19% increase from the same period last year, driven by higher volumes, average selling prices, and a modest uptick in revenue from software and subscriptions. Total international revenue grew 14% to $4.2 million, attributed to increased probe volume, although this was partially offset by lower average selling prices due to a higher proportion of sales to distributors and reduced individual software sales through e-commerce. Breaking down our revenue between products and software, we saw a 28% increase compared to Q1 2023. This growth was due to higher volumes across all channels and increased average selling prices. Revenue from software and services amounted to $6.4 million in the first quarter, slightly down from the previous year. The software and services mix contributed 36% to total revenue, decreasing by approximately seven percentage points from Q1 2023. This decline was mainly due to fewer individual subscription renewals, which were mostly counterbalanced by a larger installed base of enterprise software subscriptions and renewals from existing software users. Our total annual recurring revenue, which is included in software and other services, grew by 4% compared to the previous year, particularly driven by an increase in our enterprise software, which now accounts for 42% of our total annual recurring revenue. Regarding gross profit, we reported $10.2 million in Q1 2024, representing a 12% increase from $9.1 million in the prior year. Although the gross margin percentage remained relatively stable at 58% compared to 59%, the slight decrease was due to a negative impact from higher software amortization and a lower share of higher-margin software and service revenue, which was partially offset by increased average selling prices. Turning to EBITDA and capital resources for the first quarter of 2024, our adjusted EBITDA loss was $13.2 million, an improvement compared to a loss of $22.3 million for the same period in 2023. The $9.1 million improvement in adjusted EBITDA loss was attributed to higher revenue, cost-cutting initiatives, and improved efficiencies that led to lower payroll, consulting, and external service costs. As of March 31, 2024, our capital resources comprised cash and cash equivalents, including restricted cash, totaling $117 million. After excluding $6.5 million in benefits and other nonrecurring expenses, our total cash usage in the first quarter was approximately $15 million. Over the past 18 months, we have eliminated over $170 million in costs and reduced our annual cash burn to about $60 million. Based on this, we believe our cash balance conservatively provides a runway into 2026, with plans to extend it further. Before we discuss guidance, I want to mention the notification we received from the NYSE. As noted in our release, we were informed that we are not in compliance with the NYSE requirement of a 30-day stock price moving average of at least $1. We view this as an administrative matter and are confident in our ability to maintain our listing. We have six months to regain compliance. Since we believe the market has undervalued our stock and is not reflecting our first quarter results or future growth, we expect to regain compliance as our stock price recovers through continued business performance. If the market and our stock price do not recover during this period, we will perform a reverse stock split. Our stock will continue to trade on the New York Stock Exchange during this time. Moving on to guidance, as Joe mentioned, we have been executing our roadmap laid out in August. We launched iQ3, ScanLab, and Butterfly Garden with 13 deals, added four new Garden partners in the first quarter, and in April, ThinkSono became the first Garden partner to commercialize, which we expect to contribute significantly in the future. We have invested in our sales team while also reducing our cash consumption and conservatively extending our cash runway into 2026. As we look into 2024, our commercial organization is performing well, and we are identifying further efficiencies to maximize our cash runway. Additionally, we are exploring various opportunities for nondilutive financing, such as grants and licensing deals, to provide maximum flexibility and a pathway to profitability. We will keep you informed on this front. For 2024 guidance, following the launch of iQ3 and its market acceptance, we can provide more concrete and higher revenue guidance in the range of $75 million to $80 million, indicating a 15% to 20% growth, along with an adjusted EBITDA guidance for the full year of a loss between $55 million and $50 million. As the year progresses, we will offer updates and further clarification. Specifically for Q2, which is our most challenging comparison due to a few large medical school deals from the previous year, we anticipate revenue growth around 10%, resulting in approximately $20 million in revenue. For Q2 adjusted EBITDA, we expect a loss of around $12 million to $13 million. In summary, we have had a strong start to the year and look forward to continued growth in 2024 while realizing additional efficiencies that will further extend our cash runway. We have maintained a solid cash position while investing in the business. We will continue to execute our plan, drive adoption of iQ3, and expand the use of our products across all channels. Butterfly is well-positioned to achieve its goals with a robust base of technological and organizational assets, supported by an energized team ready to seize this promising opportunity. Now, I'll turn the call back to Joe.

Joseph DeVivo, Chairman and Chief Executive Officer

Thanks, Heather. I've been with the company for about a year now, and reflecting on our journey, I am proud of our achievements. It was easy to see the vast potential and opportunities for Butterfly, but the challenge was prioritizing the most impactful opportunities instead of trying to tackle everything at once. That's exactly what we've done. For those of you who have been paying close attention, you can see that the Butterfly team is performing exceptionally well across all departments. Our R&D and product teams have excelled, successfully launching new products this quarter. Our regulatory team consistently secures clearances globally. Our operations team reliably delivers quality products ahead of schedule. With reinvestment in our commercial operations and the addition of new talent, our sales and marketing teams have exceeded expectations globally. In corporate development, we successfully launched the Butterfly Garden with our Butterfly programs. Remarkably, we achieved all this while operating with a streamlined organization that utilized half the cash compared to the previous year, and we are just getting started. Looking ahead, we are set to launch iQ3 in Canada now that we’ve received our certificates recently. With the EU MDR certification this quarter, we will be adding advanced features, including post-weight doppler, to iQ+ in countries with CE Mark before introducing iQ3 there by the end of 2024. Globally, we remain committed to our mission of democratizing healthcare and aim to be the preferred device in all health contexts. Last month, we started Phase 2 of our initiative to deploy 1,000 probes in sub-Saharan Africa as part of the Gates grant we received in March 2022. In this phase, we are distributing 500 probes to enhance maternal care in South Africa. Our veterinary business continues to grow through new partnerships, including a recent collaboration with Chewy, who will utilize Butterfly in their first veterinary hospitals. We've partnered with leading names in pet retail like Petco, PetSmart, and Chewy, all of whom consider Butterfly essential as they expand into veterinary services. Positive results are also emerging from Kansas State's Beef Cattle Institute regarding the iQ+ Vet's effectiveness in managing respiratory diseases. Data will be presented at the American College of Veterinary Internal Medicine Conference in June. As part of our ongoing dedication to meet our customers' specific needs, we will soon introduce our first specialty product, iQ+ Bladder, launching this quarter in the U.S. This small card-based bladder scanner is designed with specialized software to enable nurses to quickly and easily measure bladder volume in a hospital setting. With the upcoming launch of iQ+ Bladder in the U.S. and the momentum we’ve already discussed, we are raising our guidance for the year. Instead of the previous low double-digit revenue growth forecast, we now anticipate about 15% to 20% revenue growth, which we believe is sustainable going forward. With this increased growth, we will continue to minimize our cash requirements. I would also like to address our stock price. As you all know, it has been a tough market, especially for smaller medtech firms. We believe our current stock price does not accurately reflect the true value of our business, our achievements, or the opportunities that lie ahead. With our efforts to rightsize the business last year and this quarter's positive results, we hope the market recognizes our return to growth and the promising future of our business. As we reignite growth and improve efficiency, Heather and I remain committed to optimizing the organization. We have several initiatives in motion for increased cost efficiency and are exploring creative opportunities for non-dilutive financing, both of which will help extend our runway and enhance our current plan. I would like to take a moment to recap our Investor Day held on March 18. I am very proud of our team and the clarity of our plans for the upcoming years. During Investor Day, we showcased new technology, conducted live demonstrations, highlighted new business opportunities, and received insights from KOLs on their utilization of Butterfly in the growing point-of-care ultrasound market. I encourage you to watch the replay available on our investor website. There are three key takeaways I want to emphasize from that day. First, we are leading the transition to digital ultrasound. We boast the largest handheld user base and device deployment worldwide. Our successful iQ3 launch has granted us double the processing power, and we are committed to investing in higher power semiconductors. We presented the advanced capabilities of our next P5 chip, which significantly enhances mechanical impedance and showcased the Apollo chip, expected to deliver ten times the processing power of iQ3. Each chip represents a significant technological advancement, and together they broaden our market by providing sophisticated capabilities in a compact device. Remember how supercomputers used to take up entire rooms? Now, everyone carries one in their pocket. Soon, every doctor and nurse will have a powerful imaging device from Butterfly with cutting-edge features. Second, the Butterfly Garden and Powered by Butterfly programs have over 15 contracted partners, which will generate substantial revenue for us over the next five years. Butterfly is the largest repository of ultrasound data, with over 20 million images and over 30,000 new images uploaded daily. Ultrasound AI developers will increasingly want to collaborate with Butterfly for both development and commercialization. Our Garden is becoming a hub for independent ultrasound AI development worldwide. The Powered by Butterfly program, which licenses our chip technology, also has a promising pipeline of interested partners. Successfully closing these deals will bolster Butterfly's balance sheet through non-dilutive capital, expanding our revenue potential to new markets previously seen as non-core. Third, Butterfly will assist patients at home with the introduction of Butterfly Home Care, aimed at supporting at-risk providers in managing congestive heart failure. We will also enable people with bladder insufficiency to better manage their catheterization by calculating bladder volume at home. Both initiatives present significant new revenue prospects for Butterfly starting in 2025. In summary, over the past year, we have prolonged our cash flow strategy and have plans to further extend it. We have reignited revenue growth and will continue to drive commercial success as we capitalize on new market opportunities for accelerated growth. Our ongoing product and market launches will serve as catalysts for growth. This aligns with the investment thesis we believe investors are seeking, and we are eager to fulfill it. Now, operator, let’s open the floor for questions.

Operator, Operator

Our first question comes from Suraj Kalia with Oppenheimer & Co.

Suraj Kalia, Analyst

Congratulations on a great start to the year. It’s been a long wait, and I wish you ongoing success. Joe, there were many metrics mentioned, and I want to focus on a few. Approximately 1,200 iQ3 units were sold in the quarter; I hope I'm correct with that figure. If I were to chart the adoption curve of iQ, iQ+, and iQ3 over the same timeframe, do we have any insights into how the adoption curves compare?

Joseph DeVivo, Chairman and Chief Executive Officer

Yes, that’s a tough calculation to make because the timelines are different, and this is our first launch where we are introducing it on top of an existing product in the market. I’m not sure if there’s a direct correlation with past experiences, but I can check with Heather. What I do know is that we are launching a new product at a 30% to 40% higher price while still providing another product at a lower price, and the response has been overwhelmingly positive. Heather, is there anything you can share from previous experiences?

Heather Getz, Chief Financial and Operations Officer

Yes. I think it's, to your point, having the two products out there, and we've really only had half a quarter under our belt. It's a little bit difficult to say, other than the reception has been tremendous as Joe talked about. So we'll probably have a little bit more information as we start to see some other trends and launch internationally and in Canada. But for right now, I don't think I can draw any conclusion. Joe?

Joseph DeVivo, Chairman and Chief Executive Officer

The other thing I'll mention, Suraj, is that a significant portion of our revenue came from online sales, which included new orders from customers, new customers, and trade-ins from existing customers. Our pipeline for the hospital business has really expanded, although those sales cycles are longer. We're excited about the changes in the competitive landscape on the health system side, and that portfolio is developing well. Seeing the sales come in over the last six weeks of the quarter at such a healthy pace has been encouraging.

Suraj Kalia, Analyst

It seems that according to our calculations, it appears to be a little over 25% for iQ3 and beyond at a very rapid pace. Joe, in your opinion, when do you think we will be able to conduct an objective evaluation comparing iQ3 or iQ4 or the next generation against cart-based systems? I'm trying to understand how and when you are planning for the next generation in relation to cart-based systems.

Joseph DeVivo, Chairman and Chief Executive Officer

I believe we will gain significant insights in the next six months, as we now have a handheld device that can be utilized across all hospital specialties. The key question for ultrasound experts is whether they would still use a cart if they had a device in their pocket that was as powerful as a cart. Many would still prefer using a cart because the current hospital workflow involves bringing patients to specialized ultrasonography rooms. This technology does not threaten the jobs of ultrasonographers; instead, it empowers them to be more mobile rather than confined to a single location. However, it's uncertain how quickly hospitals will adapt their workflows to this change. The ability for doctors to obtain any image from anywhere in the hospital and make quick clinical decisions is already being demonstrated by our customers, where decisions are being made at the point of care. This innovation is transforming healthcare for the better. The unanswered question remains whether ultrasonographers who depend on specialized equipment would still choose to stay in their rooms if they could carry a cart in their pocket. I don't know the answer to that, but it's a question we frequently contemplate. We are excited to be part of this significant shift in the industry.

Suraj Kalia, Analyst

Fair enough. I'll throw three quick your way, and I'll hop back in queue. One is for iQ3, what have been the initial key areas of uptick, i.e., cardiology, OB/GYN? Just kind of give us a lay of the land there. Second question, you talked about and you have been emphasizing for some time, from yesterday about home care. Obviously, you guys have seen something that maybe The Street hasn't caught onto. If you can walk us through what makes you believe so strongly about TAM expansion. And Joe, the final thing is RoHS. I didn't catch that commentary completely. Sorry, I threw in a lot of things. Hopefully, you got those.

Joseph DeVivo, Chairman and Chief Executive Officer

I did, my friend. So key areas of uptake. So right now, we're seeing a lot of cardiology. And that's where a lot of our new orders are coming from is that we're seeing cardiologists saying, 'All right. I wanted to have a high-quality image probe, but I don't want to be limited.' And now they don't have to be. So that's an area that we've seen a lot of uptake. We are seeing more uptake in the emergency room where we've always been strong, and then we're seeing updates in critical care. So in those areas, we're doing really well. And we're doing really well in the specialized areas that we hadn't served as well in the past. And amazingly, our iQ+ sales are still quite vibrant. So we're meeting more needs of more customers, which is very positive. Around home care, we've gotten really good at teaching people how to do ultrasound. We have the tools in Academy, we have the tools with our certified program, and we have the tools with ScanLab. And about 80% of hospitals were penalized last year due to congestive heart failure readmits. And we believe that there's a lower-cost way to manage discharges and keep patients in their home by checking their pulmonary congestion. We've done a study at a major health center that is being concluded this year. And it will show that using our pulmonary application, which is an AI-powered B-line counter, that makes it very easy for a health care professional to use our probe to manage those patients in the home. That will have the opportunity to help providers, at-risk providers to keep congestive heart failure patients in the home and manage the progression or subsiding of their congestive heart failure symptoms based upon diuretics in the home. So there is a pathway where a nurse in the home can do it. There's a pathway where through telemedicine, the patient can do it themselves. And then there's a pathway, of course, to wearables as we've discussed, which is in our future and a good part of it. So sometimes in order to move the market, you've got to wipe yourself off, stand up, and go do it yourself. And we've been able to train people in the past, and we're very confident that we can provide some services, help take on some risk, and drive a key part of the health care economy and health care market. The third on RoHS is basically this, Suraj. We've had much more dialogue with the European Commission this quarter. We've gotten feedback from them. And the feedback is this. One, they haven't even taken up the exemption, the refreshing of the existing exemption for the lead piezo ultrasound industry. So what that means is that we are in the game. We didn't miss it. They're not at the tail end of it, and then we're just budding in. They haven't started. So that's great news for us, Suraj, because it means that we are now in the game, and we will be fully evaluated. We were not fully evaluated during the last time. We were not as a company aware of it, of this exemption process. Now that we are, we've already submitted data that we refute any claim that we are not equivalent. And so we feel very good because we're a part of the process, and the probability of success is much higher. Second, because they're going to be evaluating at the end of '24, that means like if everything goes the way we expect it to go regarding CE Marking clearance or EU MDR clearance of iQ3, then iQ3 will actually be the technology that we'll be comparing against the older lead piezo handheld ultrasound devices. So given the fact that, a, they haven't even started, and b, when they do, it's a good possibility that iQ3 will be a part of the evaluation. We've gone from being kind of, hey, this is some possible upside, but we don't know where it is. And we've also learned that they're very committed to this directive, and they've made tough decisions in the past and are not afraid to make tough decisions in this area in the future. It's given us the confidence to feel, you know what? We actually think based upon an appropriate independent review and their conviction on this law, that it's more probable that we'll see them suspending sales of handheld lead piezo devices than not. And they had said that they would start the evaluation process at the end of '24, and they would hopefully conclude sometime in '25. So I mean, just looking at those if you're willing to be positive in the future, I think the probability is a little bit more in our favor that they may take those off the market with our measure of equivalency.

Suraj Kalia, Analyst

Great. So congrats on the progress.

Operator, Operator

Our next question comes from Josh Jennings with TD Cowen.

Joshua Jennings, Analyst

Congratulations on the great start to the year and the strong early demand for iQ3. I wanted to begin with a question regarding Suraj's inquiry about the home care initiative and home admitting. Considering 2025, when revenue might start coming from that home channel, I was hoping you could clarify the business model a bit more. How will Butterfly generate revenues? Will it involve sales of probes or iQ+ or iQ3 to home care services, or could there be a recurring revenue model or a click model? I would like to gain a better understanding as this issue is expected to kick in next year.

Joseph DeVivo, Chairman and Chief Executive Officer

Terrific. Thank you, Josh, and thanks for the question. Yes, we're focusing not on device sales. We are focusing on service revenue and some potential taking of risk or success based upon the delivery of the clinical objectives. So again, hospitals are penalized due to these readmissions. There's a very finite cost of those readmissions, and we envision everything from either there being a service revenue that we would charge for the delivery of that service or a combination of service revenue and success based upon minimizing the risk and keeping those patients out of the hospital.

Joshua Jennings, Analyst

Great. And I just wanted to follow up on the University of Rochester report about the significant increase in the revenue capture for POCUS exams. It sounds like this may be a stake in the ground. I know there's been a theoretical potential revenue capture channel with Butterfly Compass. Does this put the formal stake in the ground and allow you to mark this more heavily? Or is this just a well-understood metric that has already been in play? And I guess then the second layer of the question is just are there even more revenue capture potential? If possible, you're using like Rochester using Butterfly probes along with the Compass software?

Joseph DeVivo, Chairman and Chief Executive Officer

That's an excellent question. It relates to our vision for the future. When we sold Compass, we discovered that hospitals are not fully capturing their ultrasound revenue. Typically, we find that, especially for point-of-care scans, they are only capturing about 35% of the potential reimbursement. This is often due to a lack of processes or software designed to capture that revenue, along with training issues. When hospitals implement Compass, they manage to capture significantly more revenue, well beyond the 35%. While I can't provide specific numbers due to restrictions, we're seeing figures around 60%, 70%, or even 80%. This demonstrates rapid return on investment from our software deployment, which is encouraging. In Rochester, they have adopted a one-to-one model, deploying around 700 to 800 probes across their health system. The Compass software actively monitors the proficiency of new users, alongside their strong educational initiatives, which has led to increased revenue in traditional point-of-care ultrasound departments. Interestingly, even nontraditional departments that are just starting to use ultrasound are now capturing additional revenue. In the first year, this has resulted in a significant revenue boost. Previously, critics claimed that point-of-care ultrasound takes revenue away from radiology, but I can't share detailed figures. However, radiology as a specialty has seen healthy revenue growth on its own. Point-of-care ultrasound has actually enabled URMC to make better clinical decisions more quickly. I've heard about cases where immediate scans led to urgent surgeries, like for a child with chest pain or a patient with bladder issues. Point-of-care ultrasound is about enhancing the ability to diagnose early. The doctors at URMC are very enthusiastic, even though the transition has been challenging. They are now able to see conditions they weren't able to before, which allows them to assist their patients much sooner. I have sought both anecdotal and broader trend data, and consistently, empowering doctors with earlier diagnostic capabilities proves to be more rewarding for them and significantly better for patients.

Joshua Jennings, Analyst

Excellent. For my last question, can you elaborate on the nondilutive financing options that you and Heather mentioned? Also, during the investor meeting, you discussed the goal of reaching profitability by 2027, while indicating the need for financing to achieve this. Could you remind us of the path to profitability and explain how the nondilutive financing might affect that pathway?

Joseph DeVivo, Chairman and Chief Executive Officer

Thank you, Josh. Our Powered by program is centered around our substantial investment of over $0.5 billion in our semiconductor initiative, primarily targeting the point-of-care ultrasound market. We're developing known products alongside chip technology that is significantly enhancing performance over time. We've discovered that our semiconductors, paired with our MEMS technology, are relevant in additional markets. For instance, you've seen developments in brain-computer interfaces with Forest Neurotech, and we're observing positive contributions from that partnership. Moreover, we're exploring interesting opportunities in drug activation using ultrasound. Researchers are often disassembling ultrasound machines to adjust them for various therapies they're investigating. Because our ultrasound technology is chip-based, we can easily adapt through software modifications to alter frequencies and power settings for different clinical uses. It's not unrealistic to expect that we could achieve $3 million in licensing revenue from our Forest Neurotech collaboration. Should there be a significant market demand for our technology, we could potentially generate more licensing revenue. By leveraging our Powered by initiative alongside our current investments, we aim to establish new markets for these applications. If we fulfill our objectives, we believe we can reach profitability without diluting our shares. We are committed to this focus, and our excellent team is actively engaging prospective partners, which is something investors should recognize. The notion that we are running out of cash is unfounded; we are increasing our revenue and minimizing our cash burn while identifying numerous monetization opportunities. Our priority is to enhance shareholder value without resorting to dilution at current prices. We are diligently working to extend our financial resources and generate value for shareholders during these challenging times. Our R&D team has regained momentum, and we believe we can successfully shape our future.

Operator, Operator

Thank you for your question. There are no additional questions waiting at this time. I would now like to pass the conference back to Joe DeVivo for any closing remarks.

Joseph DeVivo, Chairman and Chief Executive Officer

All right, everyone. Thank you for being with us on this call. We continue to be very excited. As I mentioned to you many times, this is going to be a great year for Butterfly, and we're off to a good start. So thank you for your support.

Operator, Operator

That concludes today's call. Thank you for your participation, and enjoy the rest of your day.