Butterfly Network - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered solid execution: revenue $21.23M (+20% YoY), gross margin expanded to 63.0%, and adjusted EPS improved to $(0.04) from $(0.07) YoY.
• Results modestly beat S&P Global consensus: revenue +$0.07M and EPS +$0.045 versus Street; adjusted EBITDA loss stayed roughly in line with recent trend but improved YoY.
• Full-year FY25 guidance was reiterated (revenue $96–$100M; adjusted EBITDA loss $37–$42M); management added Q2 guidance: revenue $23.0–$24.5M and adjusted EBITDA loss $9–$10M.
• Catalysts: near-term enterprise hospital win, continued medical education one-to-one device programs, progression of Butterfly HomeCare pilot (early zero readmissions), and a pending Octiv generative AI partnership; Compass 2.0 targeted for 2H25.

What Went Well and What Went Wrong

What Went Well

• Gross margin expansion to 63.0% (from 58.2% YoY), driven by higher ASPs and improved software margins (lower amortization and hosting costs).
• Medical education momentum with a major U.S. College of Osteopathic Medicine committing to one probe per student; enterprise pipeline strengthened with a top-5 global hospital near signing.
• Strategic progress: Butterfly Garden reached 23 partners (DESKi HeartFocus FDA clearance), Octiv licensing delivered chips to a new partner, and HomeCare pilot showed zero rehospitalizations to date.

Management quote: “We’re pleased to deliver another quality quarter in line with our guidance of 20% growth and making meaningful profitability improvement with gross margins of 63%…” — Joseph DeVivo.

What Went Wrong

• Software and services mix fell to 33% as product growth outpaced software (pressure on margin mix despite ASP benefit).
• Global health opportunities experienced delays amid USAID funding uncertainty; management expects peak uncertainty in Q2 2025.
• Tariff risk scenarios modeled; while limited, a 10% tariff could add < $1M to annual costs and 36% just over ~$1.5M (mitigation underway).

Transcript

Operator (participant)

Good morning and welcome to the Butterfly Network first quarter 2025 earnings call. My name is Carla and I will be coordinating your call today. During the presentation, you can register to ask questions by pressing Star followed by one on your telephone keypad.

If you change your mind, please press.

Star followed by two. I would now like to hand you over to the Chief Financial Officer, Heather Getz to begin. Heather, please go ahead when you're ready.

Heather Getz (CFO and COO)

Good morning and thank you for joining us. Earlier today, Butterfly released financial results for the first quarter ended March 31st, 2025 and provided a business update. The release and earnings presentation, which include 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, Heather Getz, Chief Financial and Operations Officer at Butterfly, alongside Joseph DeVivo, Butterfly's Chairman and Chief Executive Officer, will host this morning's call. During today's call we will make 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, uncertainties regarding the potential impact of health care funding, 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. To access the webcast, please visit the Events section of our investor website. A replay will also be available on the page following the call.

I would now like to turn the call over to Joe, Joe.

Joseph DeVivo (Chairman and CEO)

Good morning.

Everyone and thank you for being with us on our first quarter 2025 call. We're pleased to deliver another quality quarter in line with our guidance of 20% growth and making meaningful profitability improvement with gross margins of 63% while improving adjusted EBITDA loss from $13.2 million a year ago to $9.1 million now. We accomplished this while delivering our strategic priorities and now a quarter into year two of our five-year plan. When I joined two years ago, Butterfly was selling an iQ Pro with a subscription software as well as an enterprise software program. Now today our portfolio includes two generations of probes with different price points which allows us to bring in more value for premium technology while keeping a lower cost probe on the market.

For more price sensitive customers, we've added an AI marketplace called Butterfly Garden, a chip licensing program called Octave, and now Butterfly Home Care. You heard about progress setting up each of these programs over the last couple years and now in 2025 we expect them to make headway and begin contributing revenue. We've upheld our commitment to R&D, helping us maintain our leadership in Focus Technology and stay ahead of the first mover status in digital cloud, connected Open Platform and EMR integrated systems. I'll share more on this, including the upcoming launch of Compass 2.0 towards the end of the call, I'm very pleased with how our company is maturing, diversifying to have many paths to growth. This will build upon our resilience and ability to consistently deliver our results.

Let's jump in with our core Focus Business. The first half of our fiscal year is usually filled with medical school opportunities, and this quarter was no different. It's clear that students want to begin their medical training with a Butterfly of their own. The transformation from schools having a few probes in the laboratory for many students to share to a personal probe being purchased for each four year student is well on its way. During the quarter, we saw more schools sign up for student probe programs. Among them was one of the country's largest colleges of osteopathic medicine who placed an order for one probe per student and committed to this model going forward. Schools are also lining up through the creation of their own campus stores for students to buy, or just incorporating the device into the cost of tuition.

We've been building our strategy for years to target medical schools much like Apple has, you know. When students first got their Apple laptop, it opened the door to build a lifetime of brand loyalty. Similarly, when students start their ultrasound journey with Butterfly, it builds a path for loyal users for the future generations of our technology. To remind you, there's about 25,000 incoming first year students a year that start medical school. In 2025 we're going to see the first graduating class who's had four years of training on a Butterfly. When they go into residency, they'll be clearly distinguished and simply better residents than their peers without that training. This is how the flywheel turns. We are also making very good progress on our enterprise hospital selling program.

We're on the verge of signing our second hospital enterprise customer who plans to integrate our Compass software throughout every department and hospital in their network. They've amassed about 600 probes in circulation and have committed to Butterfly as their focus probe of choice for the future. We do not yet have permission to share their name at this time, but I will say they're consistently voted one of the top five hospitals in the world. This will be another tailwind for our enterprise strategy and, as you know, hospitals learn from each other and even more from the most respected. I am very pleased with this accomplishment and this will add momentum to the pipeline that we're working. On the international front, our focus remains on bringing iQ3 to more areas while continuing our expansion in Asia and Latin America as well as high potential global health markets.

I'd like to briefly comment here on some economic headwinds. First, on the global health front, as you all know, Butterfly partners with over 800 NGOs worldwide to bring imaging to low and middle income countries that historically had no access. This has been a growing part of our international revenue base. With USAID funding cuts, we've seen several opportunities get delayed this quarter while partners recalibrate. We're hopeful that this is a temporary disruption and that our growing ties with ministries of health and charitable organizations can help sustain the progress. Regardless, we're also closely monitoring discussions on broader economic pressures which if anything, can cause some deals to take longer to close. Heather will provide additional context on this, along with her analysis of the tariff impacts. Before I get into updates on strategic initiatives, I'll turn it over to Heather to walk you through the numbers.

Heather.

Heather Getz (CFO and COO)

Thank you, Joe. We started 2025 with 20% growth, or $21.2 million of revenue, for the first quarter. Our growth was primarily driven by higher sales volume in our US sales channels, the impact of the iQ3 probe's higher selling price after its launch in 2024, and the delivery of semiconductor chips to one of our newly onboarded partners. Breaking things down between the US and international channels during the first quarter, revenue was $16.6 million, which was 24% higher than the prior year, driven by strong demand, and total international revenue increased 9% over the prior year period to $4.6 million, largely driven by price. Breaking our revenue down between product and software and other services, product revenue was $14.2 million, an increase of 25% versus Q1 2024.

This increase was largely driven by the higher volume. Software and other services revenue was $7.1 million in the first quarter, up 11% versus the prior year period due to the higher enterprise software revenue and increased licensing and services revenue from our partnerships, partially offset by lower renewals of individual subscriptions. Software and other services mix was 33% of revenue. The percentage of revenue from software and services has decreased as our product revenue growth outpaced software revenue with the launch of our iQ3 early in 2024 as well as our geographic expansion. Our total ARR, which is reported as part of software and other services, grew slightly versus the prior year period led by an increase in our enterprise software subscription ARR.

Turning now to gross profit, gross profit was $13.4 million in Q1 2025, a 30% increase as compared to the prior year gross profit of $10.3 million. Gross margin percentage increased to 63% from 58% in the prior year. Gross margin percentage was positively impacted by higher average selling prices as well as improvements in our software and services margin due to a reduction in software amortization and lower hosting costs. Moving to Adjusted EBITDA and capital resources for the first quarter of 2025, adjusted EBITDA loss was $9.1 million compared with a loss of $13.2 million for the same period in 2024. The 31% improvement in adjusted EBITDA was driven by higher revenue, the previously mentioned improvement in gross profit and lower operating expenses year over year. These reductions and improvements led to a normalized cash burn of $6.7 million during the quarter after adjusting for bonus payments.

As we previously shared. In January we completed a secondary public offering of 27.6 million shares which generated proceeds of $81 million and net of underwriting costs and related expenses. This capital will enable us to maintain our current level of investment to sustain our revenue growth as well as the option to opportunistically invest in strategic initiatives that can expand our market. The capital raise, along with our continued discipline in our cash use, resulted in cash and cash equivalents at the end of the quarter of $155 million. Before touching on guidance, I would like to provide some additional color about our risks and opportunities for 2025. Our direct exposure to tariffs is quite small. As many of you know, our chips are manufactured in Taiwan and our probes are assembled in Thailand.

In the U.S. we have about six to nine months of inventory on hand in order to meet the estimated demand for the remainder of 2025. If the 10% or 36% tariff were to be in effect, we would incur a few hundred thousand dollars of additional costs to import our probes to the U.S. on an annualized basis. Had the tariffs been in effect for all of 2025, we estimate that at 10% the impact would be under $1 million and at 36% just over $1.5 million. We are looking at different mitigation measures that include alternative assembly locations. Other changes the administration has made or is considering making are more challenging to precisely model.

We know some of our customers face increased uncertainty on funding through the NIH, USAID or Medicaid programs, and while small, we did see an impact on our global health business in the first quarter. We believe the peak of uncertainty is likely to be in 2Q 2025 as institutions seek clarity on funding plans going forward. As such, we have factored this uncertainty into our second quarter guidance to the positive, both we and our customers are enthusiastic about Butterfly's medical and commercial value in home services and success in these initiatives may be quite impactful on an annualized basis. Furthermore, the pipeline of licensing opportunities at Octiv continues to build and while the timing of such transactions is difficult to pinpoint, this is a second source of potential upside.

When we weigh these risks and opportunities together, we feel it is prudent to maintain our full year guidance of approximately 20% growth in revenue and adjusted EBITDA loss in the range of $37 million-$42 million, while providing guidance for 2Q of $23 million-$24.5 million in revenue and $9 million-$10 million in adjusted EBITDA loss. We will continue to maintain our disciplined approach to expense control that has generated meaningful positive revisions to EBITDA but will also invest appropriately behind our growth areas to enhance our delivery capabilities should upside revenue opportunities crystallize. To summarize, we delivered strong results in the first quarter and while uncertainties exist around the impact of policy decisions that the administration may make, we have the strength in diversification in our business and are excited about opportunities in front of us enabling us to reiterate our full year guidance.

We certainly hope that healthcare providers receive appropriate funding going forward to best serve all patients. Nonetheless, should funding pressures come to fruition for domestic healthcare providers, Butterfly is extremely well positioned as our technology not only enables superior flexibility and strong image quality, but has allowed us to be a much more affordable solution at scale than the current cart based ultrasound solutions. In addition, our semiconductor development path will continue to improve this price performance advantage with each subsequent generation. Simply put, we see Butterfly as the long term winner in ultrasound in any macro environment. Thank you. With that I will turn the call back to Joe.

Joseph DeVivo (Chairman and CEO)

Thanks, Heather. I'll wrap up today's call talking through some of our strategic initiatives. First, Octave. We're continuing to make meaningful progress across growing our portfolio of partners and delivered strongly. In the first quarter, we're gearing up to publicly announce the biggest partnership yet. This partner, who I mentioned on our year-end call and I can't yet identify their name, is in the Generative AI space and is developing a groundbreaking technology that may not only have implications for ultrasound imaging, but for all medical imaging in general. This partner has already purchased our ultrasound-on-chip technology and will likely consume much more. We are excited to share this game-changing innovation with you soon.

The active team is actively in discussion with over 25 other prospects including some of the leading medical device, pharmaceutical, surgical, robotics and implantable companies as well as a growing number of non healthcare opportunities across generative AI, blue chip technology, defense, aerospace and even oil and gas. We remain extremely excited about the potential and the growth of Octave and see this as a material driver of value as we look to realize our long term growth plans and unlock the value of ultrasound-on-chip for investors. On the Butterfly Garden front, we signed two more partners in the first quarter bringing the portfolio to 23 total. As I mentioned last call we expect our first partners to launch FDA cleared clinical applications this year and we remain right on track for this.

Our partner Desti just received FDA clearance for their Heart Focus app and aims to commercialize with Butterfly in Q3. Their app uses advanced AI that makes it simple for non specialists to perform cardiac echo studies. This will not only allow us to deliver yet another AI tool to Butterfly customers, it will provide a new capability to our home care business to more holistically help partners manage their congestive heart failure patients. For example, historically patients in a skilled nursing facility had to get transported to a hospital via ambulance and wheeled into a radiology suite or cardiology suite to receive a cardiac echo scan that can be a multi thousand dollar event for transport alone.

With Heart Focus and Butterfly, they will be able to get the echo scan at their bedside, no transport, by a Butterfly-trained nurse and have the scan read by a remote cardiologist for a fraction of the cost. Moving more on Home Care, in the first quarter our pilot activity increased as the program shifted into clinical execution. We have been scanning the identified pilot population of congestive heart failure patients and those discharged following an in-hospital setting. As you recall, it is reported that between 25% and 40% of patients that are hospitalized with congestive heart failure are readmitted within 30 days. While it remains early, we are pleased to share that still none of the patients in this category have had to be readmitted. We are more encouraged than ever that this pilot demonstrates the opportunity for repeatable, meaningful clinical difference and economic impact.

It is proving to be a real solution and we're able to deploy our technology, train nurses without previous ultrasound skills to do pulmonary scans using proprietary techniques and AI tools, and then monitor and remotely assist them with clinical diagnosis in a rapid, asynchronous fashion. Our confidence is building that we can move towards commercial terms this summer while targeting our first agreement in place by the end of the year. Once we sign our first commercial deal, we will prepare for expansion of this AI powered in home monitoring solution for congestive heart failure across the country. To wrap up, I want to circle back to what I mentioned at the start of the call. In the second half of 2025, we plan on launching our Compass 2.0 software which will have many new features, expedited workflows and new capabilities.

It'll fill a major unmet need in POCUS and provide us a new revenue stream to help hospitals reduce cost as POCUS continues to mature and our software becomes more and more essential. I share this as a reminder that Butterfly is shepherding a whole new area of clinical care and excellence. We're not just a POCUS device. We have developed the most groundbreaking solution in imaging and continue to develop delivery mechanisms that help it proliferate through device sales in AI, environment and service solutions. At the point of care, Butterfly is in a league of its own. We continue to innovate for customers and deliver results for investors. Today it's clearer than ever that the healthcare ecosystem is embracing Butterfly. We're seeing it be incorporated as the standard of care.

Not only that, but it's becoming viral and Butterfly is time and again emerging as the household name synonymous with POCUS. This quarter alone we saw multiple viral moments from the unpaid placement of Butterfly in HBO's hit medical drama The Pit. Go watch episode 12 and 13 and tell us what you think, to a social influencer posting her own real time gender reveal being scanned at home with a Butterfly by a sonographer friend, which got over 13 million views across Instagram and TikTok. The national coverage on CBS News featuring a Butterfly-trained Rutgers physician diagnosing a life threatening AAA at the bedside in minutes. Butterfly's impact is showing up everywhere. The momentum is now and we are crossing that chasm with that operator. Please open the call to question.

Operator (participant)

Thank you. We will now begin the question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. We will make a quick pause here for the questions to be registered. Our first question comes from Andrew Brightman with William Blair.

Andrew Brightman (Analyst)

Great.

Hi, Joe. Hi, Heather. Good morning. Thanks for taking the question. It sounds like you had some positive momentum with the second hospital enterprise contract in the quarter. Can you maybe just sort of talk about the process for success securing that and some of the key learnings there from the process that can be applied to some of the additional opportunities that exist in that area moving forward? Thanks.

Operator (participant)

Appears that we are having some difficulties with the audio. Please stand by while we solve the issue.

[on hold music].

Hello everyone. We are back. The issue has been solved.

Joseph DeVivo (Chairman and CEO)

All right. Andrew, can you hear me?

Andrew Brightman (Analyst)

I've got you, Joe.

Joseph DeVivo (Chairman and CEO)

All right, great. Hey, I apologize for that. Not sure where that glitch came from, but Andrew, great question. We've spoken a lot about our work with the University of Rochester and that was a deal very early on in POCUS where there was leadership at the top who believed in the ability of this growing and made a top down decision to deploy technology. Since then, what's happened is thousands of doctors, tens of thousands of doctors have been purchasing Butterfly. Butterfly's proliferation throughout health systems, whether they know it or not, has actually been extending. What's occurring is there's this groundswell of activity.

What we've been doing is working with health systems to identify and show them not only what's happening in facility, but what's happening with their doctors throughout the facility. As that scale grows, they realize that for compliance reasons, there's a need to compile that data and from a responsiveness standpoint, they need to pull that data in for patient management, et cetera. A lot of this second deal is because of a groundswell, because doctors are selecting Butterfly and we're seeing that in institution after institution after institution. It's very much a BlackBerry to iPhone business case where while institutions are using a certain older technology, people are wanting to have the newest. This particular institution over the years has been seeing more and more Butterfly's proliferate.

They made a decision to institutionalize it to build the software throughout the network and then now make this prime vendor. That is the way, because of the proliferation of Butterfly, that we see ourselves, and we have a list of enterprise accounts that will go enterprise with our software, will continue or will then start buying more of our hardware and will commit to the education of their physicians to build the competencies to have ultrasound at the bedside. I hope that's helpful.

Andrew Brightman (Analyst)

Yeah, that's terrific. I think it's a great sort of case for the flywheel working here. I guess as I sort of think about the inputs to that flywheel, you called out momentum in more one on one, one to one models for student five programs. Can you just sort of talk about the funnel there for additional opportunities with schools?

Any conversations that sort of have picked up over the last handful of quarters? Thanks.

Joseph DeVivo (Chairman and CEO)

Thank you. We just had a conference a month ago, AACOM, which is a collection of osteopathic schools who have their annual meeting. At that meeting it was standing room only as schools were talking about the one to one programs that they were building. Whether it's being through a campus store program or whether being a single purchase where they'll have it as a part of their tuition. Medical students go in to school with a list of things that they're required to have. The beautiful thing is it's not a one time capital purchase. This is the type of thing where every year 25,000 new students come into medical education.

Every time we convert a medical school to a one to one program, we didn't just sell it one time into the laboratory. We've locked in now a program in perpetuity, creating a kind of annuity that's incredibly valuable. You know, continuing to sell hardware and growing it off of a business based business. You know, sometimes you struggle to get that recursive revenue to make it easier, you know, to go YoY. The medical school opportunity is going to create a recursive year after year and growing ability for us to improve our capital sales. We're now seeing from the meetings that we've had with schools, it's not a matter of if, it's when, it's can we do one to one this year? Do we have the budget to do this this year?

Do we do a campus store this year and build it in the budget for next? Those are the conversations. Whether or not they're building ultrasound into the program, that's now a foregone conclusion.

Andrew Brightman (Analyst)

Okay, that's great color. I'll keep it there. Thank you.

Joseph DeVivo (Chairman and CEO)

All right. Thank you.

Operator (participant)

Thank you. The next question comes from Josh Jennings with TD Cowen.

Joseph DeVivo (Chairman and CEO)

Hey, Josh.

Hi. Good morning. Congratulations. We can, we can. No glitch. It's great to see this strong start to the year here. I wouldn't follow up on the. On the hospital channel. I mean, you. There were publications by Rochester and Rutgers on the clinical benefits and economic benefits of adopting the Butterfly platform. Just how impactful has that been? And maybe tie that into just the hospital channel pipeline and anything you can share on just, you know, conversion that you've seen to date and how that's kind of informing the guidance reiteration here for 2025.

Thanks. Really appreciate that. You know, the publication of the Rochester data was actually a seminal moment for us. It's taken us from, you know, an individual doctor sale or an individual department sale to start having conversations in the C suite of hospitals.

I think it's opened their eyes to realize, I think people are surprised. Like, you know, we literally will sit with a hospital. You know, I wish I could just, you know, rattle them through to you, but it's just, I don't have approval to mention hospital names. I mean, we sat with chief medical officers and then we'll tell them, you know, did you know that 200 of your existing doctors affiliated with your system have Butterfly's? They're blown away. They have no idea that this has proliferated like this. Then we show them the Rochester data and we say, look at this institution. Look at what's occurred with the captured scans, the economics.

Rochester is doing a wonderful job building all of their clinical impacts on how this changes the care pathways for patients to be getting diagnosed earlier and how that affects costs. Having that paper and having that line in the sand, plus just a simple groundswell that doctors are doing this without the institutions. We walk into institutions, we say, look, you have an enterprise program, you do not even know it. They cannot believe how many of their doctors have Butterfly. That kind of puts them a bit at risk if they are not compiling all that data. There is also a lot of leakage because those scans they are getting is not something that can be reimbursed, obviously, if it is not aggregated. Everything we have is in the cloud.

The moment we do an integration to their systems, they have access to all that data. It is a very, very powerful thing. I mean, we do not see health. There is not a health system out there that says, okay, what is my enterprise budget for next year? I mean, it is just not on their radar screens historically, but it is becoming on their radar screens now. When the second deal becomes public, it is going to raise eyebrows. It is going to be like, wow, this is happening. The conversations that we have with individual institutions become more and more real now. Again, these are not areas that are in the core budget. They have to, just like the medical schools, build room and figure it out.

Our pipeline is very large, but it takes a long time to get them across the finish line. You know, as Heather mentioned, there are some new things out on the horizon as far as, you know, people really looking at their budgets that slow things down a bit. We have Josh, as much of a talent behind Butterfly as I've seen in a business in my career. The positive energy, the fact that we're on the right side of history, the fact that our data is so clean and the fact that the economics point to all the favorable economics you need. Of course, you know, the most important thing, the impact to patients is just very clear. We're going to win this battle and we're just very excited to be doing what we're doing.

I appreciate the question, Josh.

Joshua Jennings (Managing Director)

Thanks for that answer and wanted to follow up on just, you know, how you guys are segmenting or what you're seeing in the market for iQ3 versus iQ+. Maybe a more affordable solution. I mean, our assumption has been iQ3 is more prominent in terms of how it's being adopted in the hospital channel. Maybe iQ+ a little more in the E- Commerce channel, but wanted to hear about the mix and just the strategy for continuing to have both platforms available for clinicians and hospitals and institutions.

Joseph DeVivo (Chairman and CEO)

Do you want to start on mix and then I'll do the second part?

Heather Getz (CFO and COO)

Yeah, Josh, we're actually seeing strong adoption of iQ3 across the board in all of our channels. Obviously most significantly within the hospital channel in Q1. Since we launched in Q4 of last year internationally, we actually saw a pickup in the overall mix in total of our iQ3 versus iQ+. iQ+ still does remain strong in the med schools and somewhat on e-comm, but overall we're selling more iQ3s than pluses.

Joseph DeVivo (Chairman and CEO)

Is that helpful, Josh?

Joshua Jennings (Managing Director)

Excellent. That is, and appreciate that. I'll just sneak one more in on. Great to hear that the new tariff policies are manageable for Butterfly, but wanted to just ask about how maybe currency is, with a stronger dollar, is impacting guidance, if at all. Especially we have just any exposure to the Taiwan dollar, which is appreciating greatly over the last couple of weeks, including today. Thanks. Thanks for taking all the questions.

Heather Getz (CFO and COO)

Sure. We have virtually no foreign currency risk, so that's not an issue for us. Obviously on the tariff side, while if the tariffs were in effect for the full year, they would have had an impact, we are still looking at ways of mitigating it. You know, what we're leaning more toward is seeing that 10% versus the 36% number.

Joshua Jennings (Managing Director)

Great, thanks so much.

Operator (participant)

Thank you. The next question comes from Suraj Kalia with Oppenheimer.

Suraj Kalia (Managing Director)

Morning, Joe. Heather, can you hear me all right? Yeah, we can. Hopefully you can hear us. Perfect. Yep. I’ll throw in both my questions here, guys. What is the split between price and volume, specifically in the U.S. and product sales? Also, Joe, maybe if you could shed some light on how should we think about competitive displacements, if any, with iQ3, you mentioned the top five hospital partner. Was that sort of a de novo get? Was that a competitive get? Any additional color to help us assess the landscape would be appreciated. Thank you for taking my questions.

Joseph DeVivo (Chairman and CEO)

Let me answer that first. This is a very new market to build a POCUS program. I don't believe it is a displacement because that would denote there was a program to begin with.

I think it's a choice of a winner. They'll have a bunch of vendors or a bunch of technologies in the hospital. They decide to build a program and then they choose Butterfly. On the hardware side, I believe that's more the selection of the winner than taking an incumbent out. Having an incumbent for an enterprise program denotes that there was one to begin with and there wasn't. There is a winner and that's Butterfly. On the software front, there are smaller companies who have, you know, certain products that are focusing on data aggregation that have been around a while. Typically in an enterprise win, we first win the software deal, we win software to go throughout the enterprise, and then we win the hardware.

That is kind of a two step process because remember that our software works with other platforms. If you have point of care ultrasound, and you have a bunch of different products, when you put our software in place, it now can pull all the data from all the devices and then help you. The bridge to data management, the bridge to PACS, and the bridge to revenue cycle management. That is very competitive and that is very contested. We win well more than the majority and we are displacing a lot of older, say more limited technology. When we look at the dynamic, it starts there and then when they decide to go throughout the hospital, you know, they choose, you know, who is the best and most fungible and that is where we win.

Heather Getz (CFO and COO)

Suraj, on the price, volume, when we look at the curves, it's about 80% volume, 20% price. Where we really saw the pickup on the price was in the international market. If you recall, we launched iQ3 in Q1 of last year. We didn't have the pickup domestically, but we did internationally.

Suraj Kalia (Managing Director)

Thank you.

Heather Getz (CFO and COO)

Yes.

Operator (participant)

Just as a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad. The next question comes from Ben Haynor with Lake Street Capital.

Ben Haynor (Senior Research Analyst)

Good day folks. Thanks for taking the questions. Just first for me on the Octave partnerships that you have signed. It sounds like we're going to hear a lot more on one of them in relatively short order, but was wondering if there's any more color on the ones that maybe haven't been talked about more prominently like the Forest Neurotech one where you can maybe share a little bit more about the applications, you know, potential launch timing, anything else you can share on that front.

Joseph DeVivo (Chairman and CEO)

You know, if you humor me, I'll just tell you an anecdote. I'll tell an anecdote from Forest. This is a five year research project for brain computer interface, very similar to Neuralink, but it's not using wires to go in different parts of the brain. It's using ultrasound to see and then ultimately potentially intervene.

There was this one use case just a month ago where they've been searching for patients who actually have an open skull due to some other injury. There is access to the brain and so they were able to place the technology directly onto the brain for someone in a coma. You would be able to see the brain activity. In this particular setting, the brain was dark. When they would ask the patient a question, a specific question, they would see brain activity through ultrasound. Think about that. That is a patient who is in a coma and the family does not know if that patient can hear them. The family does not know if they are awake or not.

With having the ability of using Forest advanced algorithms and on top of our core technology, they found out that that patient was actually present in that coma. Those are the types of things that they're doing. That is why when we talk about Octave, our technology is foundational. It is not point of care ultrasound, that is just the first application of our technology. The ability to tune it, the ability to program it, the ability to miniaturize it, and then the ability to learn from it and for it to dynamically cycle on its learning through AI makes it probably one of the most important imaging innovations. Our partners are all developing on this platform. I believe one of our partners, Mandera, will be commercial in the near term. We are going to see another partner be commercial. This is going to.

This Octave creates an exponential flywheel because every time our partner succeeds, we succeed. You know, we do everything to help them. As they succeed in the marketplace in the future, that amplifies our technology through and through. Literally, you know, Octave, I think I've mentioned this, you know, could be bigger than Butterfly. Butterfly could be a division of Octave in the future because the technology is so core, is so fungible, and has such an incredible tan.

Ben Haynor (Senior Research Analyst)

Excellent. Thanks for the color there and the anecdotes. You know, just following up on kind of the foundational aspect of the technology. Any, any more updates you can kind of provide on the, you know, future chips, the iQ Station, form factors, whether it's wearable, anything of that nature.

Joseph DeVivo (Chairman and CEO)

It's all moving. You know, we have, you know, the flywheel is continuing to turn.

I think by the end of 2025, sometime by the end of 2025, we'll be in production on the P5 version of our technology and able to then, you know, start the regulatory process and validations, you know, for us to be ready, you know, by the end of, you know, 2026. We are, you know, everything there is proceeding exactly the plan. We are in development of all the other items that you mentioned. I think there's going to be a few surprises, you know, around that time frame as well. We are trying to show our roadmap without, you know, completely showing our hand.

Ben Haynor (Senior Research Analyst)

Makes sense. Lastly, for me, just following up on an earlier question on these medical schools kind of making the decision to, you know, adopt POCUS and go, you know, potentially one probe per student.

Is there kind of a general cutoff in terms of, you know, when they would need to make that decision for a given school year?

Joseph DeVivo (Chairman and CEO)

Yeah, actually. Great question. Their fiscal year ends June 30, and then they have new budgets going forward. Typically, whenever they are making a decision for the next school year, it occurs either at the end of our first calendar quarter or mostly in the second calendar quarter. That's why, you know, if you look at our historic phasing quarter to quarter, our first quarter is usually kind of the slowest. Our second quarter is usually, you know, up there as either the highest or equal to our third or our fourth quarter. Our third quarter is usually, you know, like the first.

We go, you know, we're kind of at baseline, we go up and then down and then up. That's just because the medical school business pulses in that second quarter. That activity, like literally our team is very active with customers right now. Literally all the conversations are, you know, how do we get there? Can we do it now? You know, do we budget it for next year? How do we get this in? Another interesting anecdote is several of the most progressive medical schools with POCUS are graduating their first four-year class in 2025, Rochester being one of them. There's several other schools that those kids are graduating now. When they go into residency, they're going to have a, they have a completely different, incredibly valuable skill set that their colleagues and their mentors on average don't have.

They are going to be distinguishing themselves and the ability to do better diagnosis and deliver care. That again is going to be just one more step in the flywheel of mass adoption of Butterfly's ultrasound.

Ben Haynor (Senior Research Analyst)

Make all the other residents jealous

Joseph DeVivo (Chairman and CEO)

And get them into Butterfly and get them into our training courses and we will get them there as fast as possible.

Ben Haynor (Senior Research Analyst)

Excellent. Thanks a lot for taking the questions, guys. That is it for me.

Joseph DeVivo (Chairman and CEO)

Appreciate it, Ben.

Heather Getz (CFO and COO)

Thanks, Ben.

Operator (participant)

Just as a final reminder, if you'd like to ask a question, please press star followed by one. As we currently have no further questions in the queue, I will hand back over to Joe DeVivo for any final comments.

Joseph DeVivo (Chairman and CEO)

First of all, thank you for joining us this morning. We continue to make progress on all the fronts. As we mentioned, we continue to believe that we have core market tailwinds in our adoption and we're building the right businesses that are going to get us to the right place. You know, we know that we are entering in some uncertain times and, you know, we have a lot of shots on goal and if one thing slows down, another thing will speed up. We are focused on hitting our objectives and delivering for our investors. We appreciate your support and look forward to continued success this quarter and then our next updates. We thank you very much for joining the call.

Operator (participant)

This concludes today's call. Thank you, everyone, for joining. You may now disconnect.