Financial Highlights
BFLY | Despite Reviews, 2021 a Transition Year for Selling
Background
When we moved Butterfly Network (BFLY) down from an Active Long to the Long Bench on Nov. 9 (Stock Brief | BFLY | Moving to Bench | App Downloads Signal Lack of Cushion for Near-Term - CLICK HERE for the note), we cited the negative trend in app downloads as a key indicator of lower-than-expected adoption which would not only impact the current quarter but put pressure on the full-year guide as well. On this morning’s earnings call, where the company both missed and guided lower, we saw just that. Initially citing “health care logistical challenges” and provider burnout, management later marked the commercial weakness as a “lagging indicator” of the transition which is taking place within the company. Most notably, that transition is aimed at the re-engineering of the sales team to target large health systems.
Additionally, management expressed that the company did not plan to offer a holiday discount for its products, as they did last year, and were not modeling an acceleration in the DTC business through the rest of the year. Both would seem to imply that the model has all but transitioned from a highly efficient e-commerce platform to a sales productivity model.
Thesis
Although we updated our app download data again this week, there was no material change in downloads. For that reason, we are re-affirming our thesis from last week, now informed by the softness in 3Q21 that we expected, as well as a FY21 revenue guide that has been reduced by $17MM, or nearly 22%, at the midpoint. While we do believe the company could benefit from seasonally strong capital spending, without the discounting, we are now modeling units shipped for 4Q21 to be in-line with to slightly up sequentially over 3Q21.
The future for BFLY seems to be in the ability for their salesforce, which doubled to 26 in 1Q21, to complete their ramp and begin placing deals with large health systems. Unfortunately, such health systems don't seem to feel a sense of urgency when it comes to buying a cluster of handheld ultrasound devices:
- Field Notes I AMWL, BLFY I Another Large Health System CMIO on Telehealth / RPM & POCUS
- Field Notes I TDOC, AMWL, BLFY I Large Public System CMIO on Telehealth & POCUS
Valuation
Following the release and call earlier this morning, shares had fallen to 2.9x EV/NTM Sales, well below their original historical range of 6x-10x. Despite this descent, we believe shares could move lower from here. Based on our adjusted revenue numbers of $59.1MM and $111.0MM in 2021 and 2022, respectively, there is a risk that shares will drop below $5. The consensus is made up by one other sell-side firm covering the name, Cowen, and we suspect they will need to publish a negative revision to their estimates (if they haven’t already).
Catalysts and Risks
While the company again remarked that they have an advantage in access to semi-conductor wafers, demand needs to be there to utilize that advantage. For now, we will monitor provider capital spending evidenced in the healthcare macro series and continued looking for evidence of a large deal or partnership with a hospital system or medical school on the horizon.
Key Slides
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Thomas Tobin
Managing Director
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