Q4 2023 Butterfly Network Inc Earnings Call

Participants

Heather Getz; Chief of Financial and Operations Office; Butterfly Network, Inc.

Joe DeVivo; President, CEO, and Chairman; Butterfly Network, Inc.

Josh Jennings; Analyst; TD Cowen

Suraj Kalia; Analyst; Oppenheimer & Co., Inc.

Presentation

Operator

Good afternoon, and thank you for attending today's butterfly networks Q4 and fiscal year 2023 earnings call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. (Operator Instructions) I would now like to hand the call over to Heather Getz with butterfly network. You may proceed.

Heather Getz

Good afternoon, everyone, and thank you for joining us today for earlier today, butterfly released financial results for the fourth quarter ended December 31st, 2023, and provided a business update the release and earnings presentation, which included reconciliations 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 dot butterfly network.com. I'm Heather Getz, Chief Financial and Operations Officer of butterfly. Alongside Joseph. The Vito butterflies Chairman and Chief Executive Officer, will host this afternoon's call.
During today's call, we will be making 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 and the size and potential growth of our 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 and the slides visible within the webcast platform will also not play animations to access the animated versions of our slides.
Please visit the Events section of our Investor website and then under upcoming events, you will see today's earnings call with an option to click called presentation with animated videos on the same page you will also be able to access the webcast live and a replay once the call has been completed. I would now like to turn the call over to Joe. Joe?

Joe DeVivo

Thank you, Heather. Good afternoon and thanks for joining the call, everyone. I'm pleased to report that our 2023 revenue finished at $65.9 million worldwide above our expectations of at least $64 million. I was pleased to see each one of our channels performing well as we headed into 2024. In fact, our Q4 and full year direct sale revenues grew 10% and 11% year over year. Moving forward, we have every opportunity to realize growth across all of our channels and grow the company double digits in 2024, while investing efficiently over the last 18 months.
We removed over $170 million cash cost from the business yet continue to invest in our technology roadmap and our commercial team, 2023 was a necessary transition year for the Company. We chose to resize the business and focus our strategy. We've matured as a company and can now rely less and less on online sales and more on higher end hospital sales. The operational disruptions over for our sights are set today on growth of our existing business.
New products recently launched and building new market opportunities, only ultrasound on chip technology can deliver. During our first full call last year, I laid out what we would deliver in 2023 to set the foundation for growth in 2024. It was one introducing new ultrasound education offerings to make focus accessible to health care providers and grow our users to accelerate the easy use by increasing the availability of AI solutions, three, identifying new development partnerships to bring our core technologies into markets that are not competitive to butterfly, but will create value for shareholders by leveraging our core semiconductor investments and for introduced more products from our roadmap to drive top line growth.
I'm very pleased to say that we've completed each of these commitments, one for new education offerings, we delivered butterflies certified an expert lead education services, helping customers master point-of-care ultrasound with butterfly by training and certifying proficiency in certain scan time. This offering was operationalized very quickly. We've already seen Butterfleye certified revenue, and we've embedded education as a service into all of our quotations to health system, installing follow-up too on the AI. offerings.
We received FDA clearance and launched our AI-powered auto Beeline counter in the second quarter of 2023. It was a key FDA milestone for us we also launched butterfly garden, our AI marketplace. Since 2018, we've grown a leading customer base of over 143,000 probes. And now third party ultrasound, AI companies can build and sell new AI applications to them. These new AI tools, which will be compatible with Spotify devices, will be incredibly valuable to all Butterfleye users. We signed 13 partner to date. And our newest partner, DEEP Echo just press released the entrance into the program this week three.
We've announced previously that we delivered on the core technology partnerships by successfully launching our powered by butterfly program in 2023 and introducing for US Neuro tech and Deborah as initial partners. For Lastly, we delivered ahead of schedule on two key product launches, in-lab and IQ three, which I will review in more detail in just a bit. We butterfly employees are very proud of our accomplishments in 2023. We weathered the storm state together delivered on our restructuring goals while implementing our core priorities and investing in our commercial organization.
Thus, we've set ourselves up in 2024 to be laser focused on revenue execution. At this point, I'll turn the call over to Heather to walk through 2023 results in more detail before returning to our 2024 execution strategy pillar.

Heather Getz

Thank you, Joe. As you noted, we accomplished a lot in 2023 to rightsize and reset the company and are now on what we believe to be a solid path for growth in 2024 and beyond. But first, let me cover the 2023 results. Revenue for the fourth quarter was $16.5 million, down compared to 2022 revenue of $19 million, driven by lower volume, partially offset by higher price. Lower volume was mostly due to lower e-commerce as well as large orders, including the deployment of gates and Africa and others from international distributors and to a lesser extent, the vet market.
These large orders occurred in 2022 and did not repeat in 2023. In the U.S., we realized $11 million in total sales, slightly higher than prior year. This was driven by increased ASPs and higher revenue from software and subscriptions partially offset by lower perm sales predominantly in e-commerce. Total international declined 24% over the prior year to $4.6 million. This was due to the previously mentioned large orders in 22 that did not reoccur in 2023. Partially offsetting the decline in global health and international distribution was a 27% increase in the international direct market.
Breaking our revenue down between product and software. Product revenue was $10.2 million, a decrease of 20% versus Q4 2022. This decrease was driven by lower volume spread largely across e-commerce, international distribution and vet due to the large deals in 22 that I mentioned. Software and services revenue was $6.4 million in the fourth quarter, flat to the prior year period. Software and services mix was 39% of revenue and increased by approximately five percentage points versus Q4 2022. This increase was due to a higher installed base of subscription software as compared to prior year renewals on the existing base of software users and software implementations completed during the quarter.
Our total annual recurring revenue, which is reported as part of software and other services, grew by 4%. This was led by an increase of 35% in our enterprise software which is now 41% of our total ARR versus 32% in Q4 2022, when looking at the full year 2023 versus '22, while total revenue declined 10% to $65.9 million due to lower sales in the e-commerce and distribution channels from the nonrecurrence of the previously mentioned large orders in 2022. Partially offsetting these declines were double digit increases in our direct businesses, both domestically and internationally.
As Joe noted in his remarks, excluding these large deals from 22 revenue. 2023 revenue was essentially flat year over year, and our direct market increased 11% at the end of 2023. We made additional investments in our direct sales teams, and we have begun signing new distributors in existing and new markets internationally. We expect these investments to gain further traction in 2024. Turning now to gross profit gross profit, excluding a noncash write-down of excess inventory totaling $21.9 million was $9.4 million in Q4 2023 compared to $10.3 million in the prior year period. On the same basis, gross profit margin was 57% for the fourth quarter of 23, which was higher by 210 basis points compared to Q4 2022.
This was driven by higher average selling prices, a shift in product mix, reflecting a higher proportion of higher margin software and other services revenue and operating efficiencies. Higher amortization reduced margin by 150 basis points to expand on the inventory write off during Q4 of 2023, we took a $21.9 million non-cash charge to our cost of sales for the write-off of excess quantities of our previous generation chips that are used in the manufacturing of our IQ plus curve, the number of chips on hand was higher than our updated forecast for future demand of the IQ plus our forecast was adjusted down as a result of the newly launched by two three.
While we continue to sell IQ plus worldwide, our previous forecast assumed usage of the chips based on 100% of our sales demand being attributed. So IQ plus. Moving to EBITDA and capital resources. For the fourth quarter of 2023, adjusted EBITDA loss was $15.7 million compared with a loss of $27.7 million for the same period in 2022. The improvement in adjusted EBITDA loss was driven by the previously announced cost reductions, which led to lower payroll consulting and other outside services. Capital resources as of December 31st, 2023 were cash and cash equivalents, including restricted cash of $139 million, excluding $4.4 million of severance and other nonrecurring expenses.
Our total use of cash for the fourth quarter was $11 million. As we have mentioned over the past 18 months, we have taken over $170 million of cost out of the business and have reduced our annual cash burn to approximately $60 million. Based on this, we estimate that our cash balance conservatively provides us with a runway into 2026. Moving the guidance, as Joe discussed, we have been executing against the roadmap we laid out in August. We launched butterfly garden with 13 deal sign completed and launched our education at scan labs. We invested in our sales teams and received an early approval and launched our IQ three, all while completing a reorganization that conservatively extends our cash into 2026.
While we have many exciting and potentially meaningful tailwind in establishing our 2024 guidance, we have not included in our forecast any material acceleration from either the launch of IQ. three or any new revenue streams or markets. We also need to respect the medium-term adoption cycle of large providers who could benefit greatly from wide-scale adoption of butterfly, but can't buy immediately as well as the fact that the company has, for the first time introduce a next-generation device, what's keeping the existing product in the market, thus creating segmentation for those customers who create ICU pluses, affordability and are not yet in a position or need to fully utilize the capabilities of ICU three.
As such, we are taking a prudent and conservative approach to guiding for the full year 2024 with low double digit top line growth and an EBITDA loss about $60 million to $50 million. As mentioned, we believe there is upside to this plan as the year progresses, we will provide updates and further clarification specifically, looking at Q1, we expect to see growth in the mid single digits as we ended Q4 higher than expected, and Q1 tends to be a tougher quarter for closing hospital deals. We do expect this growth to accelerate into the second half of the year as we ramp our Q. three and our newly hired sales resources continue to come up to speed. Our Q1 adjusted EBITDA with expenses related to the launch of IQ. three and payroll tax and the four one-time reset.
We expect slightly higher expenses and lower EBITDA in the first quarter relative to the remainder of the year. To summarize, this was a transition year and we look forward to growth in 2020 for the reorganization. And the investments we laid out are all completed, including investing in the direct sales force as well as launching butterfly garden scan lead and IQ three, while we are forecasting low double digit revenue growth for 2024, as mentioned we believe there is upside to this plan and additional efficiencies to realize. Furthermore, we have maintained a solid cash position and have extended our cash runway into 2026.
While continuing to invest in the business. We will continue to execute against our plan, drive adoption of IT. three and expand uses of our products across all our channels, butterfly setup to accomplish its goals with a strong base of technological and organizational assets that we will continue to invest in in 18 should energized to capitalize on this attractive market opportunity with that, I will turn the call back to Joe to detail 2020 for sales.

Joe DeVivo

Thank you, Heather. We discussed 2024 guidance of low double digit top line growth with an opportunity for upside. This will be driven by further penetration of health systems with the launch of IQ three and our investment in our commercial team, two global expansion three further medical school adoption and for alternative uses for our technology, including in the vet space. Some element of butterfly had tremendous success building relationships with doctors directly around the world. Today, we have a comprehensive and global online go-to-market strategy.
Each quarter, we sell more than 1,000 probes online directly to doctors in 18 countries around the world. This allowed us to build the butterfly brand quickly and reliably as we launched our inexpensive all-in-one ultrasound device for just a couple of thousand dollars, making ultrasound a daily fixture in physicians' hands for the first time. So but if I did not invent PowerCash, but we certainly accelerated its adoption. And in many countries, put it on the map by selling more handheld focused devices than any other ultrasound company in the world over 143,000 since 2018.
While individual doctors were way ahead in embracing focus, hospitals were slower to adopt emergency rooms led the way showing hospitals that bedside ultrasound for immediate diagnosis can be a potentially life-saving tool for patients. Early adopters of focus originated their hospital became deluged with either having to buy expensive cards to wheel around for focus for multiple PC-based handhelds, which together cost as much as a car. Then butterfly introduced the first all-in-one handheld device. And we did a very good job penetrating the ER that there was a criticism of butterfly. It was that the image quality needed to be even better to get into more places in the hospital with the launch of butterfly Q. three, we doubled the processing power from 4.8 gigabytes per second to 9.6 gigabytes per second.
Moore's Law proved true again, our exponential growth in processing power and image capability since the launch in 2018 is not just an exciting fact today is the principle for which we can set our sights on capturing the whole ultrasound industry in the future. As mentioned earlier, in January, we received FDA clearance of IQ three earlier than expected. On February 13th. We launched IQ three ahead of schedule. And now we have the tool that has at minimum equivalent imaging power to any other handheld on the market, all in one low cost device in our industry, image quality is often in the eye of the beholder, further validate our belief that IQ three image quality is best in class.
We commissioned a survey through a reputable third party vendor and asked 475 medical professionals across eight clinical specialties to do a blinded image review evergreen images from butterfly SIQ. plus butterflies new IQ three NGE.'s the scan air seal. On average, the majority of FLY's of participants responded that butterflies IQ three had a better image quality than G easily scan, CFO, other qualitative feedback from KOLs said that they believed IQ three had closed the image quality gap even compared to some hospital multipurpose carts for butterfly. The hospital market is now open to our approach like never before hospitals now may think twice about reordering the next multi-purpose card and instead consider giving an IQ three for each of their doctors.
So they no longer have to share the car, there will be minimal cost difference in a one-part versus a fleet of power plants. And on top of that, the benefit of our handheld portability could improve diagnostic time and patient care. The handheld benefits are validated by 1,600 clinical focus papers published in 2023 alone were butterfly was cited in nearly half. Not only do we have a world-class ultrasound device. We will continue to deliver the best ultrasound middleware in the market. Our Compass software, bolstering our health system strategy, user proficiency, quality assurance, automatic data transfer into the EMR impacts from billing and storage, reimbursement automation and more benefits.
Compass is the best ultrasound management software in the market. While we have been very successful with campus deployments with 123 new accounts in 2023 alone. Not many of those deals were bundled software and hardware with IQ. three and campus. We now have a killer one-two punch for health systems and today the best point of care health system offerings in the world IQ three checks the box on image and sets the stage for advanced digital tools to make image acquisition even easier. I'd like to share one with you today.
As you know, ultrasound is a hard image to get the operator investment. Italy approach to get that one perfect in it. What if we can make it easier well, had any of you had an MRI before the technician puts you on the table and ask you to watch your head that you're automatically slid into this big circular, Magna protect and leaves the room and starts and automated protocol over 20 to 30 minutes. The machine slices, the body into many cross-sectional images. It automatically captures images on a lesser scale. Of course, a new feature in our IQ three called IQ slice performs a similar task.
If you're viewing our animated slides, you'll see this feature on the screen with a probe in a stationary place over a piece of anatomy. And in this example, here, it's a kidney. You press a button and like the burst mode on an iPhone 46 images are taken as the ultrasound building moves across the organ once captured the doctor simply flows through the images and chooses the one they wish to use centered in a different way. Iq slice enables capturing a series of images from the single position and gives the user the option of rapid assessment of the target organ or the ability to select the best image for annotation or storage IQ three, once positioned automatically takes the images for the user for this marks the beginning of a new era.
I once told you that when reviewing digital and film photography, that when digital equals analog digital wins, why for digital always has more unique features and capabilities in photography with digital. You don't have to develop pictures that you don't want. You can store it in a cloud and share them as you see fit for an ultrasound for digital benefits are all in one device for imaging, automated image capture from byline imaging, 3D in a handheld and more and more capabilities to come.
We also have a cool proprietary feature called IQ van, which you can see on this next slide, it fans along automatically without ever moving the world. The big movement is a profound new capability, which will remain a core differentiation to analog and will be core to our wearable strategy in the future. The hospital market is a big growth opportunity for us in 2024 but it's important to remain conservative in this early going as hospitals also have the longest selling cycle of our channels. The hospital market for ultrasound is over $8 billion, a year in the U.S. and butterfly now has greater access to it than ever. And as Heather mentioned, we hired more sales people and managers in our direct U.S. market who are now focused and outselling in 2020 for butterflies new IQ three is in addition to our current product offering, not a replacement to our second-generation IQ plus IQ plus is still the best-selling handheld ultrasound device in the world and priced at 26 99 for the Pro.
We will continue to sell this work course worldwide for the foreseeable future. Iq three is a premium product and it's priced at 38 99 per Pro Plus subscription for the hospital market where we compete, Kelly, with handheld devices priced between five and $7,000. Remember each meeting for devices to do what butterfly can do in one. We remain the lowest cost ultrasound alternative. By far the big companies charge 20,028 thousand for their for handheld devices priced at 5 to 7,000 each. That's the same overall price as a multipurpose car.
You see how that works for big ultrasound in comparison, 38 99 remains a fraction of the current hospital purchase cost today, and we hope will accelerate the adoption of a one probe per doctor model in the future. Our IQ plus will remain available for all health care practitioners around the world who want to have access to the best selling device in the world. Iq three is completely incremental the butterflies mission to democratize ultrasound for everyone. Our next major growth driver in 2024 will be our global expansion. Last year, we retooled educated and reinvested in our international distribution partners.
We hired a new senior commercial leader with clean house and set ourselves up for growth in 2024. So first, we will expand our footprint in Asia for the first time we are in the process of opening new markets in Indonesia, Philippines, Malaysia, Bangladesh and Singapore. While increasing our work and the impact that we have developed, the China strategy, which will take a couple of years to implement, but it's in flight, and we're working to expand into this important market. Also pleased to announce as of this month, we've completed our EUMDR. review of our butterfly IQ plus ultrasound system with a positive recommendation for certification from our notified body.
To put this in context, EU MDR certification has been and is one of the biggest regulatory milestones for numerous medical device manufacturers looking to enter the EU market and remains a struggle for many companies in search of the EU MDR certification for clarity, our IQ plus received CE mark with our first two set of features, then the regulations changed to EUMDR., and we've waited a few years for this approval and launching features our customers need. Our quality and regulatory teams are currently finalizing documentation and are expecting issuance of the finalized certificate very soon.
Having the certification will allow us to release additional features not yet available on the IQ. plus such as pulse laser Doppler in a number of presets, including abdomen as well as auto D lines in the one preset that our international customers have been patiently waiting for, and we'll be excited to access. This also sets the foundation for the launch of IQ. three in Europe later this year with its advanced tools like IQ slice and IQ seven. The IQ three is also currently under review with Health Canada, and we anticipate approval there soon along with several other international markets later this year.
Scan lab, which I'll talk about more in a moment, was also launched in many of our international markets last month, we have focused our quality and regulatory resources on growing our international markets. So we are so pleased to offer these new features continuing in Europe. Many of you may not know within 26, the European Commission implemented what is called the restrictions of hazardous substances directive for roll-offs. Real house was a sweeping directive banning hazardous materials to be added to electronic medical devices were covered by this directive and piezo electric ultrasound devices ran I follow the standards because crystals and analog ultrasound devices contain a level of lead contaminant that exceeds the Roadhouse standards to at the issuance of the directive.
The analog ultrasound industry lobbied for an exemption solely on the basis that there was no alternative to their lead crystal devices for the past two decades. They've enjoyed the exemption and are only meeting Roadhouse standards, digitize the commission's good graces well, big ultrasound has wasted 20 years in my view because butterfly sema semiconductor technology, which is Roadhouse compliant today. Shirley can do everything the piece or handhelds can do. There is no medical basis to claim piece of red crystals in handhelds do not have an alternative data. So I truly don't know what's going to happen here. I don't know how it's going to go.
Big ultrasounds lobby is quite powerful, gosh, two of them are in Europe with the European Commission have the courage to actually ban diesel handhelds for who knows. But it's good to know that butterflies on the right side of history, we filed two briefs with the EC, educating them on our position while asking them not to renew the exemption. The score out will stay focused on and hopefully remove this old hazardous and health technology from their market. Our third growth driver in 2024 will be to drive adoption into medical school programs. So as I mentioned previously, 50% of medical schools train on a butterfly, but not all use the one probe per student model. We will grow by converting more programs to butterfly while upgrading existing ones to a one to one model.
Things don't truly learn unless they practice and having their own probe is essential to fully committing to ultrasound. One catalyst in our medical school strategy will be scan Live Scan lab is another way users can practice their scanning skills. The AI. driven tool helps them with walk throughs on proposition and then actually labels anatomy using very advanced AI tools driven by the largest ultrasound image repository in the world. Again, that has been made available free to all subscribers in January and thousands of downloads have already occurred and lab has been added to our company's IQ plus and IQ three product offerings. We aspire to pitch every medical score this comprehensive offering in 2024.
On top of these primary growth drivers are additional opportunities. For example, our vet business continued pursuing use in the feedlot cattle market for detection of interstitial pneumonia, a primary cause of mortality in the feedlot cattle industry by using our custom AIROB. line tool for cattle. Preliminary findings from our research partners at Kansas State University are affirming the opportunity in sheet side, cattle treatment and management, which could be of use to the $1 million cattle producers in the US. If this hits, it's yet another growth driver and 200, 24 to butterfly I'd like to conclude by restating my belief that conservatively butterfly will return to double-digit growth this year.
I believe aside from tough comps in Q2, we will deliver accelerating revenue growth each quarter throughout the year, and it doesn't stop there. Butterflies well into development of our fourth generation chip with our long-standing chip partner, TSMC, the world's leading semiconductor foundry. And as I've discussed before, and Moore's Law is on our side. Our chip will continue to get faster, more advanced, more compact. This, coupled with our beam steering capability, will be core to our wearable strategy and a future analog ultrasound beware. Before I turn the call back to the operator for questions, I wanted to make sure that you're aware that we will be holding an Investor Day Monday, March 18th at the New York Stock Exchange. I'm very excited for this event or will unpack more of our innovations.
We'll have demonstrations and tables and discuss our pathway into wearables and home that we will begin introducing in the first half of 25, which will help drive growth past 24. The future of butterflies ultrasound on-chip is one where doctors monitor patients in their homes, which represents a sizable TAM when considering the more than 150 million patients globally living with chronic diseases. So thank you again. And operator, we can now open the call for questions.

Question and Answer Session

Operator

(Operator Instructions ) Josh Jennings, TD Cowen.

Josh Jennings

Hi, good afternoon, Joe, Heather, thanks for the thorough update and congratulations on the progress was hoping to start off with just a question on IT. How are you doing this question on IQ. three, we're assuming that there's buzz already generated within the clinical community but was hoping you could just comment on any buzz generated within the sales pipeline, maybe on your customer base. And then just after that is there is an acute treatment and drive an acceleration in the potential replacement cycle or upgrade cycle within your customer base? And then what is the opportunity with?

Joe DeVivo

Thank you for you to go back to hospitals that have adopted the enterprise software solution, but not the hardware and some of those customers represent the low-hanging fruit as you're moving forward. This IQ three launch, sorry for that multipart question I have one follow-up. Sure. So I guess. And yes. So so the Tom, we're very excited about the initial reception of IQ. three.
We've had we've been in many demos. And I have not heard of one situation where we have been really impressed with clinical partners and gotten very excited that our pipeline. I mean, we don't normally comment specifically on pipeline. But since our launch, we've added a lot of opportunity into the pipeline. It's just the first couple of weeks that it's been out there.So we're very, very very excited about about what this means.
And now we know I can each know all of this pipeline work corporate and hospital settings, and we're talking to medical schools on larger deals. We're talking to health systems about, yes, about upgrades and conversions of competitive product. So a lot of very good activity. So we're excited. Regarding trade-ins. Yes, like them.
So we we have a trade Enpath for our health system partners and actually just today launched a trade in for our e-com business. So we do value on the I. Q's and IQ plus as we think there are other markets. And so if our if our loyal customers wish to upgrade them, we're allowing that.

Josh Jennings

That's absolutely. Thanks for that. And then just on just the build-out of the commercial team and the reorganization there. Hoping to just get some more details on how the sales direct sales to the United States focused on hospitals, how they how it's situated compared to last year and how it will evolve over the course of 2024. We'll continue to add sales reps and now can managers.

Joe DeVivo

Yes. So so I won't go into the specific numbers of salespeople and managers, but we've increased the size of that 30% to 50% and Broom 23 and through 23, probably were training them. We were getting them up to speed. They were on guarantees, they were and on ride-ons with other reps, we were bringing people in and getting up to speed and now in January or they've all come off their guarantees, they all have to eat what they kill and then they're out there aggressively going in. One of the things we've also done as we have an e-comm channel we have in our hospital channel and inside sales that deals with our hospital.
And then we have a direct channel that focuses in hospitals. But one of the things that we've done different this year is to make sure that all three of them work together towards the leads come in e-com, whether someone's everyone who buys a product online in the U.S. as a part or affiliated with some health system. And so now we link telecom sales to our direct rep for they know which doctor doctor at a major institution have purchased a product that all of a sudden now they're looking at that strategically saying, okay, we have another champion who's come into the fold and interestingly.
At times, when we look at our health system strategy and we and we amalgamate the amount of doctors who are affiliated with that health system who have butterflies sometimes it creates a tipping point. And we've seen that in the past. We've seen where all of a sudden we take inventory of how many individual doctors that a health system have purchased their own product and wanted to use it in the hospital that typically has led to and the software deployment because in the hospital say, hey, um, we have always guys bring in this. This also found in that we didn't sanction or buy.
And we said well that that was your doctors were buying them individually and let us put software in place to help you manage it. We can integrate their images into the EMR. We can let them document to the EMR. We have automated tools to help file for reimbursement. We have tools that can help automate and allow us to manage the proficiency so they can be educated properly. So there really is a one-two punch there, and we're really excited about how while in all those 127 or 123 account, we creative software throughout 2023. They were really the type of we have deals I would have liked to have seen that were bundled with hardware and software.
It was a lot of software kind of allowing health systems to manage all the butterflies that have been put in the market, but now it's different because now I have two, three minutes. So many of the needs of the subspecialists. We've done very well in cardiology. We've done very well in other specialties, critical care and of course, in the emergency room. So not a matter of making sure that we can capture those and capture that reimbursement.
We can now walk in the hospital with a desire to standardize the wife of four different handheld programs such so counterintuitive. A handheld probe should walk with the doctor, not all of a sudden have won nearly 25% of what they could do. Now they've got to go run the another handheld and all those for handheld cost. The same amount as a multipurpose card, it just makes no sense. So we think butterfly brings true. Our efficiency in point-of-care, we believe in our sales force is actively advocating for every doctor to get their probe. And you only need one probe in order to perform that, that point of care.
And then everything gets integrated into a middleware and the data gets captured and it's right now, we see private tour middleware going in hospitals on average are only getting around 30% to 40% of the scans that they take or actually make it all the way to being are claimed for reimbursement. And that's because so many of the individual also signed devices that have are not tied into their EMR and are and are properly documented we've seen that when people implement Compass and implement our middleware that our middleware is not just clarify.
It works for all the other, all the other devices as well. So it's not just a proprietary thing for butterfly. When we put our middleware in the hospital, we see the amount of scans that they file for reimbursement go up. They go up because they feel more comfortable than Europe because it's easy. It's integrated into the phone where they're looking at the image and the whole process allows hospitals to grow their revenue. So as we go into 24, our sales force is out now talking to all these accounts saying we have this middleware.
We have this killer of all in one product that now has this awesome image quality that that can live inside the hospital. Let's talk about larger deals. Let's talk about standardization, but it's talking about converting out your existing products because this is the true weighted in point-of-care ultrasound.

Heather Getz

And Joe, can I just add to that, but to Josh's question and Josh around, we added we added people mostly in the second half of the year. So when one of the data points that we talked about was the increase in revenue related to our direct sales force. And we saw a nice bump both on in the fourth quarter and the full year around 10% and 11%, respectively. And for those areas, and that's the place that we've invested in are the ones who are calling directly on these hospitals and systems. So as we go into 2024 and those folks become fully efficient and ramp, we expect to see a benefit from that. And as the year progresses. We plan to look at each of these areas and territories and add resources where appropriate. We just don't want to get ahead of ourselves and we wanted to be efficient with our use of capital is as we're investing.

Josh Jennings

Appreciate that.Heather Thanks, Joe.

Operator

Suraj Kalia, Oppenheimer.

Suraj Kalia

All right? We'll have to rush you this fine. Suraj. Sorry, I was having technical difficulties. So Joe, on rural costs, how would you gauge the probability of various outcomes and the goalposts being changed now to require some comparative assessments between analog and digital devices?

Joe DeVivo

Eventually we have the roadmap to phase out analog, I guess rather than having a purist stick view of LED versus non-LED. Can the goalposts now be changed? How are you all looking at the various outcomes and when do you think we would know more about what's next on the horizon? Well, thank you for that question, Suraj, Amp'd and I just don't know on what I do know is they it received two sets of exemptions. What I do know is that there is they are up for an exemption now and we are trying to intervene on the if you look at the and we can debate numbers, but you can handle ultrasound in Europe, that's the big fraction of the overall based on ultrasound and overall revenue, the political blowback for the European Commission I believe would be very low.
If they said, we are taking PISA handhelds off the market and we are going to only allow those who meet real high standards to be on the market or else, what's the purpose of having a standard if there's equivalents in a device and it meets the standards, then why have a standard in the first place. But truthfully, we are actively and retaining lobbyists. We are there. We don't have the resources to fight big ultrasound, but I think there is not going to be a very good argument on why a piece of base handheld device that's compatible to our device.
There's not going to be a good scientific or clinical reason why they should. So if it stays on, it will purely be political. But if it stays on, it won't be based upon I mean, we'll go through whatever evaluation and assessment. But I would love to see that the standards upheld, of course, it's in our favor, and that's consistent with what we believe on. But honestly, I don't have a read on the politics if you read the regulations, if you read the intention to preserve the environment, if you read the desire to hold of all types of electronics who use raw material, earth materials or you have either manufacturing toxicity or disposal toxicity on the legacy piece of crystals.
And they have not proven scientifically meet the threshold of that directive or we did. So I guess the question really is how serious are they on the directive and we look forward to educating them and advocating our position.
And the other thing, TJ, Rogers, like, let's say, they do Dealer Association. I'm asked if you're buying if you're buying devices, are you going to want to buy a device that meets the standards now? And are you going to be willing to buy a device that doesn't meet the standards and potentially you have to remove that from the market, right? So so I think it is regardless of what they do a phase-in or if they do an absolute removal of the exemption of benefits Butterfly.

Suraj Kalia

Fair point. Joe, on your in your prepared remarks, you mentioned you highlighted the results of the survey and IQ. three. So Joe, admittedly, it's just been two weeks since you all have commercially launched it. So I don't want to go into how many sold and accounts and whatnot joined what point and how many quarters down the line would you say we would have enough visibility to quantify IQ three, whether it's in terms of velocity of sales systems per account. How are you thinking about it at this point in time?

Joe DeVivo

IQ. three, this should give us a real good idea that what we are seeing qualitatively now we are seeing quantitatively also thank you for taking my question. Yes, thank you. A very good question. And I have personally, I believe by the end of the second quarter when we have a full quarter, it will give us the opportunity to see how much our pipeline has grown, how many of those deals we were actually able to convert into revenue on and it will also be a full full cycle on the beginning.
There's obviously a lot of noise and it takes time. I think the difference with IQ. three is we're pricing it at 38, 99. And so it is more of a hospital product. And it's a product that, as I had mentioned, is still far less expensive than any of the handheld platforms that are there in the hospitals today have a piece of crystals, but it is a higher price point. So it is a sale of that we don't believe is as robust an online sale and one that will be a very robust hospital sale.
But there are we know how long those sales cycles are. I'm hopeful that we can see in through the second quarter how that ferrets out. We are we have already seen our pipeline grow lot. We've seen the a lot of deals come into the pipeline, a lot of opportunities that we didn't have before.And so we're very excited about that.
And so we'll see over time how quickly do they convert? What is the process. And as you know, as you're getting into larger and larger numbers, there's more people who have to sign off and make that happen. But I think by midyear, we're going to know what we have.

Suraj Kalia

Thank you.

Operator

Thank you. There are no further questions waiting in queue. (Operator Instructions) There are no further questions in queue. I'd like to turn the call back over to Joe DeVivo for concluding remarks.

Joe DeVivo

So thank you very much, everybody, for joining. We're very excited about now having 20, we had a lot of accomplishments in 23 on 23 was a year where we went through a lot of changes and a lot of restructuring. And we're just in such a good place right now. We have a lean team. We have a very clear strategy and our conversations on a daily basis, our execution revenue opportunity, not restructuring and other types of things that really really a significant amount of effort.
We have a great team, a great strategy, a market that's growing and a wonderful product that allows us to be very excited about our future. And then on March 18th, we're going to get together. We're going to unpack a little bit more of our roadmap. We're going to talk more about the longer-term strategy, and it's just a very exciting time. So thank you for your attention, and I hope you all come to our Investor Day. So thank you so much, everybody.

Operator

That concludes today's conference call. Thank you for joining. You may now disconnect your lines.