Butterfly Network, Inc. Q3 FY2026 earnings call

• Core Business & Enterprise Strategy: The U.S. core business is increasingly anchored in multi-year enterprise contracts. The company closed five seven-figure and ten six-figure Total Contract Value (TCV) deals this quarter. The pipeline for Compass AI software and hardware deployments is converting rapidly.
• Medical Education Partnership: A new partnership with VCOM involves providing Butterfly probes to approximately 670 new students annually across four schools, integrating devices into the curriculum via Compass AI.
• Federal Market Access: Achieved FedRAMP authorization, enabling scalable business with the federal government. The company is now included in RFIs for larger government efforts, marking a new catalyst for growth.
• International Strategy Shift: International revenue declined 5% YoY due to deal timing shifts and distributor inventory issues. Management is shifting from a distributor-led model to an enterprise-focused playbook similar to the U.S., expecting improved performance in Q4 2026 and 2027.
• Embedded Partnerships: Added three new partners in the Brain-Computer Interface (BCI) space: Merge Labs, Bridge Neurotech, and Still Stealth. Mandara launched its handheld robotic system using Butterfly technology. Development of the Apollo chip and wearable form factors is progressing on schedule.
• Home and Community Care: Completed all program approvals and moved to execution. Scanning begins in November with initial revenue expected in Q4 2026. Expansion to other markets is planned through 2027.
• Product Roadmap: Next-generation P5.1 chip (part of the Poseidon family) will launch in early 2027, introducing tissue harmonics to set a new standard for image quality. The company is preparing to enter the cart-based ultrasound market in 2028.

Total revenue was $32.6 million, a 52% increase year-over-year, beating the top end of guidance by 9%. The Core POCUS business generated $21.5 million in revenue (approximately 66% of total), representing a 5% year-over-year increase driven by volume growth in U.S. segments and Compass AI traction. Butterfly Embedded revenue was $11.1 million (approximately 34% of total), reflecting a massive >1,000% year-over-year increase due to partnerships with MidJourney, Merge Labs, and Bridge Neurotech. Gross profit reached a record $23.8 million, with an adjusted gross margin of 73%, up from 64% in the prior year period.

• Full Year 2026 Revenue: Raised to a range of $123 million to $126 million, representing an improvement of $4 million at the bottom and $3 million at the top compared to previous guidance. This implies Q4 revenue of $31 million to $34 million.
• Full Year 2026 Adjusted EBITDA: Raised to a loss range of $12 million to $15 million, an improvement of $8 million at the bottom and $7 million at the top from previous guidance. This implies a Q4 adjusted EBITDA loss of $3 million to $6 million.
• Capital Structure: Filed a new universal shelf registration (Form S3) allowing issuance of up to $150 million in securities over three years. Established an At-The-Market (ATM) equity program for up to $150 million as a proactive measure for future capital needs, emphasizing dilution discipline and no immediate cash requirement.

• Embedded Revenue Lumpiness: Embedded revenue recognition is tied to partner development milestones and contractual timing, leading to potential quarter-to-quarter volatility rather than steady growth.
• International Execution Risk: The transition from a distributor-focused model to an enterprise-focused global strategy carries execution risk, though management expects improvement in Q4 2026.
• Competitive Landscape: While incumbents are pulling back from certain markets, competition may intensify as health systems wake up to semiconductor-based ultrasound advantages. However, Butterfly cites a strong competitive moat built on patents and integrated hardware/software ecosystems.
• Macro Factors: Monitoring impacts from Middle East conflicts, tariffs, and AI-driven supply chain shortages, though currently described as minor.

Q: Josh Jennings (TD Cowen) asked about the 'physical AI' channel, wearables, and the international strategy rollout. / A: Joe DeVivo explained that the upcoming Apollo chip will enable on-device AI processing, eliminating cloud latency for critical care feedback. He detailed that wearables allow partners to target specific use cases (e.g., breast or cardiac imaging) without Butterfly developing those verticals independently. Regarding international expansion, he stated they are applying their successful U.S. enterprise playbook globally by empowering distributors with better infrastructure and marketing capabilities, viewing it as an evolution rather than a massive new spend.

Q: Bill Tlabanich (Analyst) asked about the revenue contribution timing of the 15 enterprise deals signed and whether the conservative Q4 guidance reflected uncertainty regarding the new P5.1 chip launch. / A: Joseph DeVivo clarified that enterprise deals typically start with software deployment followed by probe sales over 12-18 months, creating recurring SaaS revenue. John Doherty added that these are multi-year deals firming up the revenue foundation. On guidance, DeVivo emphasized that they guide only what is contractually secured and have consistently beaten guidance throughout the year; they do not anticipate negative impacts from the 2027 product launch but remain prudent.

Q: Daniel Markowitz (Evercore ISI) asked if MidJourney revenue could be quantified and how embedded growth in 2027 would compare to 2026 given MidJourney's lumpy nature. / A: John Doherty declined to break out MidJourney revenue specifically, citing partner privacy, but confirmed it is foundational. He reiterated that while MidJourney drives some lumpiness, the overall embedded trajectory remains strong with new contributors like Merge Labs. DeVivo added that they avoid guiding to uncontracted opportunities to protect partner roadmaps, noting that any deal of MidJourney's magnitude would trigger an 8-K filing.

Q: Aralem Kanatgazi (Freedom Broker) asked if Compass AI wins represent system-wide standardization or departmental deployments, and what the long-term recurring revenue structure looks like. / A: Joseph DeVivo explained that Compass AI is designed to solve health system-wide problems regarding data compliance and reimbursement, regardless of the hardware vendor used. Approximately 80% of scans on Compass come from competitors' devices initially. The strategy is to land via software integration and then expand into Butterfly hardware (including the upcoming IQ Station), leveraging the tight integration of software and hardware to capture the full ecosystem.