Joining. I'm Daniel Markowitz. I cover life science tools and diagnostics and some med tech here at Evercore ISI. I'm joined today by Butterfly Network. With us, we have Joseph DeVivo, President, CEO, and Chairman of the Board, and we have CFO Megan Carlson as well. Thank you, guys, for joining.
Great. So I wanted to start off pretty high level. If you wanted to just give an introduction to the company, what does Butterfly do? How would you describe sort of the market you play in? That would be a helpful place to start.
So medical imaging is normally historically been something that's done in the hospital. It's done in the radiology suite. If there's an issue, you have an appointment, that gets booked, [audio distortion] and you go into radiology. And then you have that [audio distortion].
The last 15 years, especially starting in emergency rooms, doctors started to say, "I can be better if I had the opportunity to do the ultrasounds myself." I can do an immediate, especially in a trauma setting, instead of having to stabilize a patient, send them to radiology, or order a scan and wait either for someone to come down or to send someone up. So that initial thought kind of created this idea of, well, why doesn't everyone do ultrasound at the bedside? Now, ultrasound machines are big. They have multiple probes on them. Each probe has a different frequency and array for different parts of the body. So there's only 82,000 people in the United States today who are classically trained in how to do an ultrasound. And they're called ultrasonographers.
So over the last 15 years, doctors have started to say, and especially at Hennepin County up in Minnesota, the emergency room doctors said, "Hey, instead of buying the next one, you buy the next ultrasound machine. Give us your old one." And they started to scan people and learn certain cardiac scans and find that they can dramatically improve the course of care for those patients by simply looking and seeing. And so over the last 15 years, we've now seen emergency rooms, pediatric clinics, primary care, anesthesiology, intensive care, cardiology, OB-GYN, all different types of specialties build their own capabilities to be able to do this type of imaging right then and there as an earlier diagnostic step before just sending them to radiology. And especially when it's emergent, you can intervene care. You can see things sooner.
So companies started to cut the cord on each of those probes that are on the machine, put a battery on them, and sell them as a handheld ultrasound device. And also, ultrasound companies have started to make carts that aren't catch-all type of carts, but ones that have specific use cases. But then there's Butterfly. What Butterfly did was each of those devices that are currently in the market use something called a piezoelectric crystal. It's like a lead crystal that's pre-cut to deliver a certain array. And think of that as a lens on a camera that's not autofocus. So it's like, yeah, I can see far. I can see near. I put a new lens on. Or I have to pick up a camera with a different lens. And so you would need multiple devices that can look at different parts of the body.
So Butterfly came along and invented the first ultrasound on a chip. So it uses a semiconductor and then has a wafer that goes on top of the semiconductor with 9,000 little drums in a rectangle. Think of it like pixels on a TV screen. We can control each one of those drums and program it to deliver any type of array of sound that you'd want to do. So the benefit of that is instead of having multiple devices for different use cases, you now can see the whole body with one device. So our vision is that every doctor and every nurse in the world will have a Butterfly. 27 million doctors and nurses around the world. And everyone will have that. And over the last 10 years, we've been developing the semiconductor with more and more sophistication.
The first device that came out, the image quality was not at a cart level or at a level where people felt in subspecialty care they can make those clinical decisions. But Butterfly is on this rapid innovation path of Moore's Law and compute power improving dramatically. We are now on our third-generation chip, which has our image quality, we believe, as good as any other handheld on the market. Instead of having to have multiple handhelds, we are completely cloud-based. We're completely mobile. We plug into a phone or a tablet. Two-thirds of the world today doesn't have access to medical imaging. Now Butterfly is military-grade and is used in third-world countries. There's 1,000 of them in Ukraine where trauma medics are using them to stage and triage people who've been harmed in the war.
So we're providing a massive service and a massive market to democratize imaging, lower its cost. Our one all-in device is less expensive than the individual multiple devices you buy from other companies. And we're really leading the way.
Got it. That's all really helpful.
Getting better, but I still have it.
Sorry to hear.
That's all really helpful background. So if you could talk about the goal to, in the future, every doctor has one. I guess, what's the current paradigm? I guess, what % of ultrasound images today are taken on traditional machines versus handhelds? And do you see that niche being in those markets where you can't do the medical imaging, places like Ukraine? Is it more like niche applications? Or where do you see the adoption kind of evolving with time?
The adoption is that this is the stethoscope of the future. We're the stethoscope salespeople 40 years ago. "Hey, doc, it might be really beneficial to you if you can listen to the heart or if you can listen to bowel sounds or hear fluid in the lungs. You should carry this around your neck and have it with you all the time." So let's just replace the listening part with the seeing part. This is a stethoscope of the future. And it's not just, and yes, we provide low-cost access for third-world countries. But a doctor today can walk into their medical practice, which many of them do, pull out their Butterfly and look inside just to see, is it, let's look and see if you have fluid in your lungs. Instead of just ordering a chest X-ray, costing the healthcare system $500, just pull this out.
Actually, it's more specific and it's a better image than a chest X-ray. Then they can go to a clinic. Then if they see a patient in the hospital, they have their Butterfly with them like they'd have their stethoscope. We really think that every doctor in the developed nations and, of course, third-world countries, if they can afford it, will have a Butterfly. Every nurse also. Because what's also empowering this, there's a reason why there's only 82,000 ultrasonographers. It's because while ultrasound is the lowest-cost imaging modality, it's the hardest to capture the image and the hardest to read. It's like you could be in a dark cave. Now, if you have a flashlight and you're looking for something specific, you have to know where it is, right? You have to be able to locate it.
And then once you find it, you need to know, well, what are you looking at? So ultrasound's hard. What's going to liberate this and allow this to get to the 27 million people around the world is AI. So we created the Butterfly Garden. And we're developing, as well as 27 other companies, are developing advanced AI tools to make it easier to identify something, easier to find it. And we have automated tools that you'll be able to place the ultrasound device on the body in the future, and it'll just simply find something and tell you what it thinks it's there. And that is how we'll get past the learning curve and how we'll see mass adoption. Just like for those of you who are old enough to remember when the iPhone came out, which I don't know if you are.
You look pretty.
You don't remember that. Remember when you had a BlackBerry? Did you have a BlackBerry?
Brick Breaker, yeah, of course.
Yeah? Everybody have a BlackBerry? Well, your institution has told you you had to have a BlackBerry because that was secure and it was locked down. But what happened? A new app would come out. Oh, I can test my blood pressure with this. Oh, I don't need my TomTom on the dashboard of my car. I can do GPS with this thing. I can take the alarm clock off of my end table, and I can have all these different things. The iPhone has obsoleted hundreds of devices, and that's what Butterfly will do to the ultrasound industry. Because as every new app comes on, now I can do a DVT, and I can open up a DVT app, and I can scan for deep vein thrombosis, or I can scan for pulmonary, or I can scan for cardiac echo, or I can do fetal monitoring with it.
As each of these apps come out, the device will become more and more popular. People will carry it more and more than anything else. And then there'll be a tipping point where it captures the entire market.
Great. Great. So what percent of the market today is in handhelds versus traditional? And I guess, what's the friction to getting that number higher?
The friction, so from a specific number, we'd have to look at a market research report. I think the overall handheld market today is $300-$400 million. Now, from a unit volume standpoint, I'd have to see that against carts and all the other stuff. But ultrasound's a $10 billion global market today. So the actual revenue, but we're charging $4,000 a device. And let's say the average selling price is between $5,000-$6,000 for our market, whereas the ultrasound carts go from $30,000-$150,000. And so from a unit standpoint, I don't know what that market share would be. But obviously, from a revenue, you can figure out from the numbers I gave. But what's happening, though, is as each new semiconductor comes out, go back and think about digital photography. Now, let's go back to photography. In 1995, Kodak launched the first digital camera.
They had 80% market share in film. They launched the first digital camera. Two years later, they shut the program down. They shut it down because they only had one megapixel image. So it was a very pixelated image. It's almost like saying, "Hey, when I get Netflix versus going to Blockbuster, well, I go to Blockbuster. I got a 4K movie. It works like that. Perfect." Whereas my early Netflix buffered all the time. Whether it was my internet that wasn't good enough or the software wasn't good enough, watching a movie that stops and then buffers like five or 10 times, no matter how good the idea is to stream, you're not going to do it. Just like in digital imaging, when the images weren't as good. But the moment digital is equivalent to analog, it always wins. Because now I have I know how to develop film.
I can store it in the cloud. I can store it in forward. I know how to develop images I don't want. I can modify them. All those same benefits are what Butterfly are doing to the classic ultrasound industry. Because they're using these lenses that can't be tuned and changed and improved. They can do things so you could do things with software on the back end and push different signals. But those lenses, you can't change. And so for us, as each new semiconductor now comes out, what the photography industry learned was as I got the three megapixels and five megapixels and seven megapixels, all of a sudden, I got to image equivalency. And that's when the market in 2003 sold more digital cameras than film cameras. And they haven't looked back.
Now the cameras that we have are, I think, Apple just launched a 48-megapixel camera the other day or a few months back. It's not just about the image getting better and better and better, which it is, but it now only takes up about 10%, 15% of the real estate of your phone. It gets smaller and smaller and smaller and smaller. The imaging device of the future is going to be this big. This will be the ultrasound device of the future. I'm holding up an AirPods case. You'll just give it to a patient. They'll just place it on the body, press a button, and it'll scan inside to take the image. It'll either send it to someone remotely or it'll have the AI in it to be able to identify something and specifically pull out what that is.
That's the future of imaging. And that's where Butterfly is today. We just launched our third-generation technology. And we just did that a year ago. And now our fourth-generation chip is going into production. And that fourth generation will be out at the end of 2026, beginning of 2027. And we're starting the development of our fifth-generation chip. And the power and the ability to do edge AI is going to be insane.
Yep. Got it. So pardon me if my quick math is off. But it seems like of the $300-$400 million market, you probably have about a quarter of that within the handheld. So correct me if my math's off there. But I guess, can you just describe the competitive landscape? Are you mostly trying to go after business that's currently in traditional, or are you trying to win from other handheld parts of the market? And what do customers care most about? Are there certain specs that they're looking for? Is it data? Is it convenience? And then what key areas are you focused on? You already touched on the pipeline and new innovations there.
So I think your math is pretty correct. Now, there's a Signify Research report. And in that report, it has, for example, GE as number one in revenue by a few million. But they do about $15-$20 million in China. And we're not in China. So if you pull out China and you look at the markets that we compete, and also if you look at it from an ASP standpoint, from a unit volume standpoint, we're between 40%-50% market share from a unit volume standpoint. From a revenue standpoint, of course, we don't charge as much as all the other competitors do. So we give up on that part. And if you look at the U.S. alone, I think we're probably almost double our next competitor.
So in the developed markets that have been really focused on this, we're pretty dominant in our space.
Got it. And I guess, with the selling strategy, do you sell to hospitals, medical schools? How's the sales force structured? And is there a market that's a greater level of focus right now?
Yes. We sell to all of them, and so it starts off all with online sales. So over 1,500 doctors a quarter will buy their first Butterfly online using a credit card. So we build a brand directly with the actual doctor, and so we have our online sales. And then those who abandon their carts or don't complete the sale online, we have inside salespeople who call on them. We then have another inside sales team that calls on anyone who's not a hospital. So ambulance companies, large physician practices, clinics, et cetera, urgent care organizations. We have an inside sales team that calls on them, and then we have a direct sales team that knocks on the front door of the hospital, walks in, and tries to sell them not only probes, but our enterprise software. And then through all of those channels, we sell to medical schools.
Medical schools is probably where we're most dominant just because of our pricing, our ubiquity. And we're in about 70% of medical schools today. So that's why this is a fated to complete. This is done. The die is cast. The future of healthcare is every doctor and every nurse having their own ultrasound device. We're now graduating kids who've had their own device for four years. And they're going into their residency. So as all these kids come out and come in, they now have a skill set that everyone else or many others don't, which distinguishes them. And so we're just doing everything possible with AI and everything else to compress that timeline to not wait for the next generation, but to do it now.
Got it. That's all really helpful. And then I know you guys have given a longer-term ambition for $500 million in revs by 2028, which you can run the math on what that implies. But I think there are some macro dynamics right now between global health funding, hospital budget constraints. Can you just talk to those and how I think that lands us at somewhere around 20% growth for this year?
We certainly expected going into the year that the hospital business would be a little more robust. With some of the changes, first of all, with the NIH grants and then USAID, things just changed for us. I think that's over. The USAID stuff is not. That's going to be more. We'll have to lean on more private donors. I think the hospital side, it was a temporary budget kind of. We're just not as important a sale in the hospitals and pretty easy to push us off. A lot of the big projects we had definitely got pushed. I think that's going to be over. I think our fourth quarter will represent that. I think 2026 will be a better year. Our global health stuff is definitely slower.
Got it. Great. And then at the last second, Megan, one for you just on profitability. Can you just lay out where we stand today versus a couple of years ago? And what's the path to profitability from here?
Sure. So I guess to start with cash, we ended Q3 with $148 million in cash after our capital raise earlier this year, as well as we've been making a lot of progress on managing our expenses. We used about $45 million in cash last year. This year, we're expecting closer to $40 million or in the upper $30 million. Our adjusted EBITDA loss for this year, we're expecting to be between $32 million-$35 million, which is an improvement over the prior year. So we're continuing to make strides. And we're continuing to really analyze where we're spending and where we're investing. But that being said, we're not going to hesitate to invest in areas where we see an opportunity to accelerate some of the growth that Joe was talking about.
Got it.
The last thing I'll mention is in order to get to that $500 million, we are stacking on top of our core business new business opportunities. One of them is creating partnerships where other companies can leverage and use our chip. And so we just signed a deal, which is a $65 million deal over five years with a generative AI company that does text-to-imaging for them to build a new product using our semiconductor. And that's going to bring in more revenue that'll be not only the licensing revenue, but the development revenue and then a revenue share. And we have a lot of other deals that we're working on in the pipeline. So for us to get there is not just an organic scaling.
It's having the optionality of our core business growing, but then having our licensing business, which we call Octave, as well as a home care business and other objectives that should really get us into some hyper growth.
Great. With that, I think we're out of time. But Joe, Megan, thank you so much.
Thank you. Appreciate it.