Okay, we're gonna continue down the morning track, day two of the 46th annual TD Cowen Healthcare Conference. I'm Josh Jennings from the TD Cowen Medical Devices research team. We are excited to have executives from Butterfly Network. Local trip for you guys. Still much appreciated. Thanks for participating in our conference this year and letting us host this fireside chat. We have CEO Joe DeVivo and CFO John Doherty. Gentlemen, thank you. Good to see you.
Good to see you. Thank you, so much for the invitation. Not only the conference is a fantastic opportunity for us, we're very appreciative for all your support at Butterfly. We wouldn't miss something like this for the world.
Well, we've been intrigued by Butterfly technology. Initially, the point-of-care-
Yeah, you came on early.
ultrasound. You came on early.
You came on early. You've paid your dues.
We've paid our dues. You know, the handheld ultrasound market-
Yep
... and your technology. As you've laid out recently, you know, you're not just a point-of-care ultrasound company, there's been some evolution that we'll dig into. Maybe to start, you know, just seeing you come into this conference room, I had a little flashback to 2024 and then that Investor Day event you held where you and your team laid out kind of the vision and the path. Over the last 2 years, you guys have delivered it and executed on multiple fronts. Pipeline Innovation, you know, this Octave now Butterfly Embedded initiative. There's a lot to talk about today. A lot of progress in 2025, and 2026 seems to be shaping up to be an even bigger year.
Congrats on all that progress. Maybe we can start on just Butterfly Embedded 'cause that's a hot topic. You guys announced a deal with partnership with Midjourney last year. Big revenue stream. You guys already talked about some of the contributions in 4Q and then on a go-forward basis. Maybe any updates? I know that they may be a little bit limited in terms of what you can share, but any updates on that Midjourney collaboration, maybe to start just on the technology front and the product that's being developed and through this collaboration?
Well, thank you for that. Thank you for showing up to the Investor Day meeting, and thank you for listening. 'Cause actually, if anyone's listening, they'll realize we're making amazing progress. We're very appreciative for the type of support that you've been giving us and other partners. We're onto something really special, guys. For, again, for anyone listening, you should just be aware of what's happening. You know, we, our founder, set out to create a technology that had flexibility, that had ubiquity, that had a concept where all the different imaging and ultrasound use cases could be generated within a single device, with a semiconductor that was infinitely programmable, that was low cost, that was durable, that was mobile.
Again, you know, we a lot of us put our context into big metal med tech. You know, especially the investor base is used to big metal med tech, and we are not big metal med tech. We are a technology company that is solving a healthcare problem. But we've learned that we've solved the problem in a way that is probably more foundational than we thought. The, the manner in which sound is been delivered over the last 40 years has been through delivering energy through a crystal, and then that crystal would vibrate based upon how it's cut into a certain wavelength based upon the frequency and the energy that's been put through it. That's kinda like it's like saying I've been taking a photograph with this glass lens for the last 40 years.
Our lens now is made out of 9,000 MEMS elements that can be controlled individually, and it was specifically designed to be in a handheld device that allowed for a clinician to say, "I wanna scan the carotid, I wanna scan the heart, I wanna scan the MSK," and it would just simply change the settings to allow a clinician to be able to make a clinical determination right then and there. That part of the business is growing, and the whole mission is strong, and what we are accomplishing is impressive. We were on Survivor the other night. I don't know if anyone watches Survivor.
Mm-mm.
Literally 3 nights ago. For those of you who have not.
Not as contestants.
Not as contestants, no. We, you know, for about three nights ago, the opening, the series premiere for season 50, one of the contestants had an Achilles injury. You know, you gotta remember there, that while this is a TV show, this is filmed out on an island in Fiji, right? You have this kid trying to wonder if he has a torn Achilles, and they pull out a Butterfly right on the show. They walk through, "Hey, this is a really potential serious injury. We need to scan this injury," et cetera. Many of you have already seen that we were on The Pitt-
Mm-hmm
on both the season 12 and season 13, where they use it in a mass casualty event. It was used in the space station recently. You've seen some news. Inspiration4 when the SpaceX astronauts were, it was a full civilian crew with a they used to be on the board of St. Jude. With a St. Jude patient, they had it on board there. you know, we've created this amazing technology that can be anywhere a patient is, and it can help them substantially. We've learned that that architecture or that chip can help other companies too, and reach their goals too. We've learned that that chip being infinitely programmable.
We have the ability in a medical environment, but we have the ability to create an unlimited based upon our parameters, type of sound from a semiconductor. There are a lot of other companies who would like to use that concept. We're very excited for what that means. Midjourney has come up with a use case that they're very excited with that we cannot unveil until they're ready to unveil. We're talking to a lot of people on how the interface between technology, AI, and the human body can be bridged through the portal of sound. We're becoming a pretty important part of that. It's very exciting.
I think it's core to our founder's mission, which was the democratization of imaging to be able to bring imaging easier, lower cost to where everyone is. I think making sound in the interface with the body is gonna be an amazing use case as we see Cloud AI, you know, morphing into Physical AI.
Thank you for that answer. You just piqued my interest with Cloud AI translating into Physical AI. Can you help a layperson like myself, I'm not a tech guru, but just better understand that dynamic or that any more details you can share there on that transformation?
You know, you have OpenAI, you have Gemini, you have Grok, Claude. In many senses, going to a website and searching for an answer in the cloud is very quickly becoming generic. Now you see what's happened with OpenClaw, where you can create this agent, and this agent has all of this incredible capability. What's the first thing everyone wants to do with this agent? They don't wanna set it loose on all of our data. They wanna buy a separate, we'll call it a PC. They're actually buying these, what are they? These little Mac, iMacs, I think. Or Mac minis, I believe they are. They're creating this whole kinda closed environment and then creating accounts on that piece of hardware for the AI to live.
You're gonna I would say most AI players today are looking for, down the road, a way for a unique device to interface with a human. That is kind of the next phase. I mean, you know, Jony Ive over at Apple's come into OpenAI about a year or two ago to create this new device, and you're gonna see more and more AI-empowered devices, interface with a human in order to do a very specific use case. I was listening to that All-In podcast with Chamath Palihapitiya, and he was specifically talking about the reversal of cloud.
Now you know, because we've put all of our data into the cloud, well, now everyone's gonna wanna start pulling their data off the cloud and then compartmentalizing it and then running it with these agents that would interface with devices. It's really, really fascinating what's happening right now. To the extent that communicating through sound is an important portal, it leaves a massive opportunity for Butterfly to leverage its core technology for these use cases.
I appreciate that. It's helpful. We are anticipating, I guess, Midjourney's unveiling of, the use case and the integration of, Butterfly's Ultrasound-on-Chips semiconductor technology. Any timelines you can share just in terms of when that announcement could be made?
Whenever they're ready.
Understood.
We are, you know, we are their partners. It is their business. We are only here to empower them. When they're at the time that they wanna talk about this, man, I can't wait to talk to you, Josh. I can't wait to unpack it for you because it's just so cool. It's so impactful to humanity. It's this marvelous kind of compilation of what our capabilities are and what their extraordinary capabilities are and how they kind of amplify each other.
All right. A lot of anticipation building, so we're looking forward to-
Yeah, it's really cool.
to learning more.
It's really cool.
I mean, my understanding, and I think you've shared this publicly, just about, you know, working with Midjourney over the course of 2025, maybe even late 2024, in front of finalizing this collaboration. In that period, there are other potential partners around the hoop for what was once branded Octave, now Butterfly Embedded. Just this finalization of the Midjourney partnership may have catalyzed even stronger interest. Let me just talk about the pipeline. You referenced this on the recent earnings call last week, but within Butterfly Embedded, could we see more partnership announcements in 2026?
You know, what we're learning is the evolution of our partnerships usually start off as an R&D effort, a development effort to see whether our technology can interface with theirs. While we did have two early partners that were very far along with their technology that just looked for us as a bolt-on to amplify what they've done. One being Mendaera, which is a vascular robotics company, wicked cool if you see how that works. The other Sonic Incytes that has a fatty liver technology, and they wanted us to help them with one of their use cases. Those were amplifications of their thought, whereas some of these others are earlier, where they're really building them into the core architecture.
Midjourney had been a partner of ours since November of 2024, December of 2024. We never talked about them because they purchased our technology, they bought a bunch of chips. They purchased the licenses to our software, which will let them tune the chips, and then they went on to go do their work. Just about a year later, they made a decision that they are onto something, and they wanted to license it exclusively. It's that exclusive license that turned into the commercial opportunity. We do have other partnerships that are occurring, and we are onboarding more that we are working on. I don't think, given the early nature of all of this, that we'll be press-releasing the individuals unless they decide they want to.
I just think it's important during that development cycle for us to maintain their confidentiality.
Can you share and just to help understanding just with the pace of these R&D initiatives with partners, you know, where you stand just in terms of potential? I mean, I don't know if you can quantify it or give some qualitative details, but just where you stood in early 2025 versus where you stand today?
I think the cool part about it is, we're not making at this stage hardware changes. We're not modifying our chip. The benefit of that is they're taking our existing chip, and then they're taking our software, which allows them to modify the settings and program the chip. Even before we sign a partnership, we may do a lab with them and show them what we can do, that we can meet, you know, we can be within the boundaries of their use case before they onboard. A lot of this is software development, and software moves quickly. If we had to then create this whole, you know, if we had to create a new chip, then that's, you know, how long that would take, and we haven't had to get there yet.
That's the other part of this that's so beneficial to Butterfly is all of this development is making Butterfly better and smarter. Even if we license a certain, say we give exclusive license to a certain subsegment of the market, we have access to that technology for all the other segments. It allows us to be more and more capable, and I think Embedded becomes a significant amplifier of value for the Butterfly shareholder.
All right. We've gotten a couple questions just around IP access to patents, you know, the moat that Butterfly has created. You know, my understanding is that there is a moat, and you also have this partnership with a Taiwanese semiconductor manufacturing company that is unique and also creates a moat in its own right. Maybe help us think about that competitive moat both on the manufacturing side and on the IP channel.
You know, you really know until you're, until you're tested, and I don't wanna tempt anybody to test us. I mean, we do have 600 patents and there's a lot of know-how in the development of the chip. We clearly couldn't have gotten this far without TSMC and their extraordinary valuable partner. Whenever we move the next chip to get taped out at the fab, they take a whole process of, you know. And depending upon some of the things we're working on, they may get in with us a little bit earlier, but they don't bring a chip into the fab until they, till they absolutely believe in it and know that it's gonna work. You know, it cost us $300 million to make our first chip.
we've kind of leveraged from that, we just pushed our fourth generation to the fab, and all of our engineers are actively working on the fifth generation that has a whole new AI capability to it. I think that's, you know, there's a lot of people who will make certain subcomponents. People make CMOS wafers, people make MEMS wafers. you know, we've been able to marry the CMUT with a CMOS and in a whole tech stack with our software that, you know, I'm sure some people can try to replicate, but they have to do it in a different way than we've done it.
We've got a question from the audience. Michael.
There are a handful of other producers of handheld ultrasound. There's two names that come to mind, EchoNous, the company Exo. I think they call themselves Echo.
Yep.
Two questions. One, have you assessed whether they infringe your IP? Two, do they even enter your mind in marketing or developing products?
Oh, sure. You're talking about both EchoNous and Echo. EchoNous is a company that the founder of Sonosite founded. It's a very nice technology. It's based upon legacy piezoelectric, it's very much a classic legacy ultrasound company. Great company. I think they're, you know, probably competing more with the bigs than we are since they're really focused a lot. They have handhelds, but they're focusing on carts right now a lot. We don't really encounter them on a day-to-day basis. Echo makes a piezo based chip. They're the only other company that's at least they've tried to commercialize a chip. They're on their first generation from everything that we know. They commercialized a product called Iris.
Unfortunately for them, right at the time we launched iQ3. Our iQ3 was just next level to where that performed, and it hasn't had the type of traction in the marketplace. We think about them a lot because, you know, we're a CMUT-based chip, and they're a PMUT-based chip. There are different physics between, you know, the different MEMS of those chips. We have to be very respectful of what they could potentially create in the future. Yeah, we do think about them. We don't see them in the marketplace, but we know they're there. They just received a $100 million cash infusion from Samsung, almost one year now, maybe less, nine months ago.
You have to give tremendous respect to Samsung, and you have to give tremendous respect to them. I'm sure they'll do something at some point, and we do think about them.
We did spend a big clip of this discussion on Butterfly Embedded, but it's appropriate considering everything that's going on in the last couple of months. Thanks to Mike, we can pivot over.
Yeah. Please.
point-of-care ultrasound segment and iQ3, Butterfly iQ3 and the pipeline. Maybe just to talk about the market and your handheld POCUS business. I mean, it sounds like there's sustainable double-digit growth in play currently, but there are some building blocks that are creating a foundation for potentially an inflection in the market. Maybe talk about kind of market growth assumption rates, how Butterfly's positioned there, which it's very well positioned and is our view. Then, you know, can this market inflect over the next 3-5 years?
You know, I've joked many times, like, you know, Butterfly kind of had a fast start and then had to go through some kind of resetting of expectations. I've always felt our founder, and I've felt the prior CEOs before me, have always had the right strategy and always had the right vision, that empowering every doctor, every nurse, in the world with a device is an absolute possibility. I think the, probably the biggest difference I've had is simply in the thought that, you know, it takes 10 years to become an overnight success. In healthcare, you just have to be mindful of changes in practice and workflow and having to, you know, get into, how you change everyday clinical practice of medicine.
Well, that 10 years is coming up, and I think it's happening, to be quite honest with you. You know, right now, you know, about 80% of medical students to one way or another are getting trained on Butterfly. We've already won the game. The die is cast. It's a fait accompli. Ultrasound will be a part of clinical practice. I just don't want to wait 20 years for it to all of a sudden fully inflect. Now all of our marketing practices are on and what do we do to compress that back, so we're not just waiting for the next generation, but we're helping this current generation evolve. We've done everything from education tools, you know, we have our own University of Phoenix type training with Butterfly University.
We have our AI tools with ScanLab. We've done everything. Now we've launched Garden that are gonna have, you know, 20, 30, 40, 50 new apps over the next 5 years that come out that make it easier to do ultrasound. We've now invested in our next generation of our Compass, which is our enterprise SaaS-based software that allows us to help manage our data and manage quality and get patient records, images, and reimbursement files into their system. I'm feeling that hospitals are starting to wake up. You know, I remember a year ago, we went to a conference and sat with 14 CMOs and asked them, you know, about their point-of-care ultrasound program or their POCUS program. They said, "What's POCUS?" Chief medical officers. What's POCUS?
We're actually starting to see hospitals starting to coalesce around creating infrastructure, creating guidance, creating standards, because, you know, about 70% of the scans that are being done are uncaptured, are not reimbursed, are not compliant because it's not completing the patient record. This is happening. People are waking up, and I think the business is probably gonna be pretty lumpy because we're gonna see a health system all of a sudden go, and it'll be a big order. Will that happen next? I don't know. Bless you. I'm starting to feel that point-of-care ultrasound is going from being nascent to now starting to get into the four walls of the hospital. They're starting to think about it more. All the big companies wanna portray point-of-care ultrasound as a cart.
Over the next 18 months, we're gonna come out with a new technology that we've talked about that's gonna change the concept of every doctor and every nurse having their own device and change the concept of putting one-to-one in the hospital. I'm really bullish. I think our core business will see, you know, basically a double-digit growth, I think we believe. We think that the investments we just had, our POCUS Innovators Forum, which is 60 of the top POCUS leaders that came in, and we had a conference, and literally what they're talking about that they need for the future is all of our roadmap that we're working on. The convergence of the thought and where we are for the future, we think is right online.
Great. Can you just build out on that product you're referencing that within the next 18 months that you're gonna introduce that's gonna potentially be transformational?
The product is called iQ Station. Basically, you know what, we see in the hospital are carts, and there's carts everywhere, and there's carts for this use case, that use case. You show up to the cart and you kinda have to deal with the experience that that cart gives you. You know, everyone today has their own phone and... Let me just ask, if you were using your phone, would you create a PowerPoint presentation on your phone? Would you create an Excel on your phone? No, you don't do that. You go back home, you sit at your docking station, you got your two screens and your laptop, and then you have this environment where you're gonna sit there for a long time and do that kind of detailed work.
On the one-to-one side, everyone's gonna have their own device, but it's gonna be amazingly powerful, and it's gonna have the image quality that you need to be able to do the types of scans that you need. When you go inpatient to the hospital, you can actually dock the device, and then your whole experience, all your presets, all your patients, all your workflow now gets expressed on this device. The device may even know who you are before you walk in the room and when you walk in the room and ask you, "Do you wanna pair?" It takes your Butterfly experience, but takes your Butterfly data and know-how and gives you an inpatient experience.
This will be less expensive than the carts out there, and it'll allow us to tap into the capital equipment budgets of all the hospitals to completely summarily take out all the low-end carts and turn them into one-on-one models.
Appreciate that. That deepens our understanding of that initiative. John, sorry, I've been leaving you on the edge there, but love to just touch on 2026 guidance and just some of the different drivers that get you to the revenue growth and anything you wanna share just on the gross margin levels expected in 2026.
Yeah, sure. The guidance we put out, just in case folks weren't paying attention, for the full year is $117 million-$121 million. That's up 20%-24% year-over-year. We do believe the core business should grow at high single-digit to low double-digit, and the rest of that will come through embedded. We got gross margin to north of 67%. We're comfortable there. You know, the embedded business is throwing off a really solid, you know, margin level overall. We also gave Q1 guidance. Q1, we do tend to trade down a little bit. Certainly we'll be up year-over-year, but from a sequential perspective, we expect to be down. It's, it's typically a weaker quarter. We have 401(k) resets.
We have other tax, you know, income tax-based things that reset as well. From that perspective, we got it to a -8% to -10% net loss. Will likely be the worst quarter that we have from that perspective. What we're just more generally, what we're trying to do within the business is really build operating leverage. We're in a really strong cash position. We have over $150 million in cash. We can fund the business going forward. In addition, you know, we're working ourselves to be, you know, a cash flow positive company over the period of time. We've been out there talking about by the end of 2027. I think we're certainly on track for that.
If you look at the guidance overall, just to fine-tune it a bit, you have 20, give or take, revenue up $20 million in absolute dollars. Our net loss improving by about $5 million, so we are continuing to also invest in the business. With our cash position, if we see opportunities to accelerate the top line growth, we're gonna be in a position to do that.
Just thinking about the core handheld business and that enterprise channel that you guys have been attacking, the pipeline seems to be flourishing. There's been some puts and takes on the capital equipment spending environment in 2025. You know, hard to forecast how that's all gonna pan out in 2026, but is that a fair assumption that just the enterprise pipeline in terms of potential customers that are moving forward potentially with contracts and either on the Compass software side or the handheld hardware side, or a combination of both, we're in a better place than it was at the beginning of 2025?
Yes, it is. Yeah. We feel it's let's just say it's back to normal plus, you know, another year of market awareness and involvement. We're pretty excited about where our core business is and we're pretty pumped about 2026.
Excellent. I think this is a good place to stop. I know there's a lot more to address, and we're gonna do that down the line as looking forward to tracking continued progress throughout this year, and maybe we'll hear from Midjourney and then get some more learnings on this Butterfly Embedded partnership soon.
You'll be the first phone call.
Oh, thanks, John.
I'll call you once it's out there, we'll do it.
All right. Well, great.
You deserve that.
Thank you guys for participating again this year. Have a great rest of the day. Good luck on your meetings this afternoon.
Appreciate you, my friend. Thank you for having us.
Thank you, Josh.