Butterfly Network CEO Sees Chip Revenue Dwarfing Ultrasound Device Business

Key Points

• Butterfly Network expects semiconductor licensing revenue to dwarf its handheld ultrasound business over the next couple of years, while the core device business is also expected to grow. More than 12 partners license its chip or related software, with potential revenue from hardware, software and royalties.
• The company is expanding into new uses for its technology, including a community-care program that charges per patient and scan, and hospital software that connects device data with clinical and billing systems.
• Butterfly has sold more than 200,000 devices and has about 80,000 active users. CEO Joe DeVivo said the company has reduced its annual cash burn from roughly $160 million three years ago and is preserving financing flexibility for development and potential acquisitions.

Butterfly Network NYSE: BFLY is expanding beyond its handheld point-of-care ultrasound business by licensing its semiconductor technology to other companies, CEO Joe DeVivo said during a discussion with UBS MedTech team member Patrick Wood.

DeVivo said the company continues to sell ultrasound devices and software to clinicians and health systems while pursuing opportunities in community care and embedded technology. He expects semiconductor-related revenue over the next couple of years to begin to dwarf the point-of-care ultrasound business, although he also expects that business to continue growing.

Licensing the ultrasound chip

Butterfly has more than 12 partners licensing its chip and related software, DeVivo said, though he did not provide an exact count. Some partners are also licensing intellectual property to build their own products, and one has an exclusive agreement to use the chip for whole-body ultrasound.

The CEO said licensing arrangements could generate hardware, software and royalty revenue as partners commercialize products, while allowing Butterfly to participate in additional markets without developing each application itself. The company has begun talking with businesses that could incorporate the chip into existing products, which he said could produce commercial revenue more quickly than agreements with earlier-stage companies.

All of Butterfly’s embedded partners so far have been in health care, DeVivo said. The company is in discussions on a potential first non-health care agreement involving the use of ultrasound to monitor material stress. He also identified underwater, military and consumer applications as possible opportunities.

Butterfly plans to launch its fourth-generation semiconductor in the next quarter, DeVivo said. He predicted it would deliver better image quality than a conventional handheld piezoelectric device, while acknowledging that competitors could enter the market.

Home care and hospital software

DeVivo said Butterfly has started a commercial community care program with a nationwide provider responsible for the cost of care for patients in skilled nursing facilities. The program trains nurses to acquire pulmonary congestion images, which are sent to a remote cardiologist for interpretation.

Rather than selling probes and leaving customers to build their own programs, Butterfly deploys the technology at no upfront cost, integrates it into customer systems and helps develop clinical workflows. The provider pays Butterfly per patient and per scan, DeVivo said. The company is also meeting with other large payer-providers about the offering.

For hospitals, Butterfly sells a middleware product called Compass that connects device data with electronic medical records, imaging systems and revenue cycle management. DeVivo said Compass works with competitors’ devices as well as Butterfly’s, while giving the company an opportunity to bundle its own hardware.

Enterprise agreements are typically three- or five-year software deals, with many carrying total contract values in the six- or seven-figure range, he said. Revenue is recognized monthly after implementation, rather than arriving as a single capital purchase.

Adoption and investment

DeVivo said ultrasound’s learning curve remains an obstacle to wider adoption. Butterfly trains clinicians on individual use cases, while artificial intelligence tools can help less-experienced users position probes and acquire images.

The company has sold more than 200,000 devices and has approximately 80,000 active users, he said. He added that roughly 33 companies are developing AI tools that connect with Butterfly’s ecosystem.

Asked about future capital use, DeVivo said Butterfly had put a shelf in place to retain financing flexibility. He cited investment in organic development and potential acquisitions as options, and said the company had reduced its cash burn from about $160 million a year three years earlier.

About Butterfly Network (NYSE:BFLY)

Butterfly Network develops portable ultrasound technology for healthcare professionals. Its handheld devices use the company's semiconductor-based Ultrasound-on-Chip technology to produce ultrasound images and connect with compatible mobile devices, offering an alternative to larger, cart-based systems. The company's products include the Butterfly iQ line of handheld ultrasound devices, along with software and cloud-based tools for viewing, managing and sharing medical images. Its offerings are designed for use across a range of clinical settings and applications.

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