Butterfly Network, Inc.

Good morning. My name is Emma, and I will be the conference operator today. At this time, I would like to welcome everyone to the Butterfly Network Q3 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. Agnes Lee, you may begin your conference.

Good morning, and thank you for joining us today. Earlier this morning, Butterfly released financial results for the third quarter, which ended September 30th, 2021, 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. Dr. Todd Procterman, Butterfly's President and Chief Executive Officer, and Stephanie Fielding, Butterfly's Chief Financial Officer, will host this morning's call. During today's call, we will be making certain forward-looking statements. These statements may include statements regarding, among other things, expectations with respect to financial results, future performance, development of products and services, potential regulatory approvals, anticipated financial impacts, and other effects of the business combination on our business, the size and potential growth of current or future markets for our products and services, and the potential impact of the COVID-19 pandemic on our business. These forward-looking statements are based on current information, assumptions, and expectations that are subject to change and involve a number of risks and uncertainties 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 accompany these claims any obligation to update such statements. During this call, we will refer to non-GAAP financial measures, including adjusted gross margin, adjusted gross profit, and adjusted EBITDA. These financial measures are not prepared in accordance with U.S. generally accepted accounting principles, or GAAP. These non-GAAP financial measures are not intended to be considered in isolation or to substitute the results prepared in accordance with GAAP. The definitions and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures and a discussion of why we present these non-GAAP financial measures are included in today's press release and at the end of the slide presentation. As a reminder, this call is being webcast live and recorded. and we will be referencing a slide presentation in conjunction with our remarks. Because there is a short delay between the live telephone audio and the presentation being shown on the webcast, for the best experience, please use either the webcast for both audio and video content, or if you've dialed in by telephone, download the slides from our website and advance them yourself. To access the webcast, please visit the events section in the investor section of our website, and a replay of the event will be available following the call. I would now like to turn the call over to Dr. Fructerman.

Thank you, Agnes, and good morning, everyone. We appreciate you taking the time to join us and learn of our progress this quarter. There is much for our team to be proud of as we build our foundational strengths and make advancements towards realizing our vision of democratizing medical imaging and transforming care by enabling more informed clinical decision-making. And while we are improving every day, based upon our most recent experiences and the current healthcare environment, we must reset expectations for revenue for the balance of the year. While our revenues for Q3 grew 44% year over year, we are falling short of what's necessary to achieve the annual guidance provided by prior management one year ago and reaffirmed by me in May of this year with the information I had having just joined the company. For 2021, we now expect full-year revenue growth in the range of 30% to 34%. This represents good progress in our current commercial activities and mounting user enthusiasm about Butterfly, but is offset by healthcare logistical challenges and doctor, nurse, and medical technician fatigue concurrent with COVID conditions and its broad consequences. To understand our user base, it is important to recognize that there are multiple layers of Butterfly users. Many individual practitioners and early technology adopters are excited about our portability, affordability, and breadth of utility. We appreciate their early adoption, advocacy, and feedback. Many of them have been engaged in lifesaving, practice-altering work, and hold a deep understanding of how Butterfly can improve decision-making to both accelerate and enhance care delivery. A second group of users across multiple specialties is increasingly adopting Butterfly as we properly segment, educate, and integrate the power of Butterfly into their respective areas of practice. Here, we are focusing on specific capabilities of the system and helping users to rapidly incorporate it into their practices and workflows. Over the coming quarters, We will continue to roll out programs targeted at specific specialties and procedural use cases and are aligning commercial energies around doing so. Finally, because of the unique aspects of Butterfly, we are well positioned to increasingly engage a third group of users, large integrated health systems. Our value proposition reaches wide for the enterprise user. across many divisions, departments, and sites of care as we alone can integrate new clinical data and insights conveniently, cost-effectively, and at enterprise scale. We expect our journey with hospitals and health systems to be collaborative as we work together to practically unlock valuable clinical information that will fundamentally change the course of diagnosis and treatment of patients in a variety of care settings. Such enterprise engagements require close integration to optimize enterprise workflows and systems and ensure proper compliance, security, billing integrity, and continuity. Introducing Butterfly to the enterprise is less about sales cycles and more about partnerships. And we are pleased with our current momentum among this important user audience. Across all three layers of customers in all geographies, we need to recognize that we are early in our journey and that commercialization, development, and clinical advancement will be iterative. One clear thread that permeates all of our customer lanes is our commitment to consistently and persistently drive ease of use and simplicity. Delivering ease of use and simplicity in all we do is a North Star for our journey, will be a clear value differentiator in the market, and is a personal commitment from our team and from me as we support doctors, nurses, and technicians to help them more effectively transform the way they practice medicines. It's important to note that there has been a significant management evolution since projections were first made that included an aggressive back half 2021 ramp. While we have rapidly reoriented strategy teams and the company overall to adjust to the need to shift from a direct-to-user-led market approach to a more integrated commercial approach to health systems and specialties, our near-term performance has been negatively influenced by a confluence of factors. We believe that many of these factors are transitory and that our commitment to evolve and expand our commercialization approach while constructively supporting behavior change in clinical practice will be a long-term competitive advantage and one that Butterfly, with its innovative solution, is well-positioned to do. On a macro level, it is well understood that the healthcare community is suffering from exhaustion and severe human resource constraints resulting from the most recent COVID Delta wave, as well as overall labor shortages. Butterfly was specifically developed to support these very medical professionals in their ability to diagnose and treat more effectively, more rapidly, and more affordably. Amid these unprecedented times, however, we have seen prospects and customers alike have to shift their attention to the pressing issues of the times rather than focusing on deploying new technology or adopting large-scale behavior change. We expect that these conditions will pass, but we do not expect them to disappear during Q4. To further respond to the needs and opportunities of the market, We have strengthened our talent in areas to enhance enterprise customer and prospect engagement and augment solution ease of use. These changes have resulted in high-value workstreams that are currently active and we believe will significantly accelerate growth in 2022 and beyond. The leading indicators of this progress are the quality of the leadership team we are building, improving customer satisfaction, which is evident in our Q3 sequential uptick in net promoter scores, and our in-process discussions with large institutions to kickstart enterprise-level implementations, all of which give me great optimism about future business acceleration. We believe Q3 and Q4 revenues are a lagging indicator that reflect the transitory challenges I just described. Butterfly is digital health in practice. Our disruptive system is uniquely positioned to deliver the value of better clinical information at the time it is needed. And our evolution to emphasize enterprise-level commercial strategies carries with it our commitment to listen, learn, create, collaborate, and rapidly develop solutions that maximize not only the amazing utility of Butterfly but enhance its ease of integration for those who will implement Butterfly at scale. Our goal is not simply to replace larger, more expensive technology with one that is more affordable. That alone is a laudable and an obtainable goal but it falls short of our societal and commercial aspirations. The differentiated power of Butterfly is that it guides better clinical decision-making and subsequent care planning in a practical, cost-effective way. Butterfly has the technology and capability to fundamentally change the way medical information is gathered, decisions are made, and care is delivered. With Butterfly, clinicians can dramatically improve diagnosis accuracy and speed, inform the course of treatment, and provide an unmatched patient experience and better outcomes regardless of care setting. An important component of bringing Butterfly public and obtaining more than $500 million of funding was the understanding that maximum impact would be created through connectivity and collaboration with frontline healthcare professionals and industry thought leaders. You see our commitment to that in the leadership team we have assembled and the board members who have joined us. And in the coming quarters, you will see that confirmed by larger collaborations with institutions of scale who share our vision to dramatically improve the standard of care by deploying Butterfly as an advanced assessment tool throughout their institutions and systems. To further support our go-to-market approach, in only a matter of months, we have reoriented our technology group under the leadership of CTO Andre Stoica to include industry-leading best practices for enterprise and workflow software development to bring agility and speed to our enablement of larger-scale enterprise collaborations. This is not only reflective of the iterative journey of code development we are undertaking, but it is demonstrative of our perpetual commitment to emphasize ease of use and take more of the user burden onto the device and system, whether it be at the platform level, the solution level, or with our investment in AI. Furthermore, We understand that a component of enabling ease of use requires removing implementation barriers to facilitate behavior and practice change. And at the beginning of the journey, enhancing education is critical. This is why we continue to build and optimize our team around these critical priorities. We have augmented our clinical leadership under the direction of Dr. John Martin, to better participate in and drive expansive clinical conversations with prospective partners as a means to advance the evolution and incorporation of ultrasound information into clinical workflows. We have also revamped our sales organization under our Chief Commercial Officer, Stacy Pugh, to give us the human capital necessary to more deeply engage with our clients. and we have complemented our internal investment in AI with an exclusive agreement with Caption Health, which I will discuss in more detail later in the call. I recognize that it is frustrating to the investment community and to our management team that you cannot see the full evidence of our progress in the revenue stream in the back half of 2021, but we believe we are making significant progress and are better positioned to capture the full potential butterfly moving forward. Despite our revenue shortfall, our adjusted gross margin and adjusted EBITDA are projected to exceed the original plan, and we continue to invest aggressively in products, people, and commercial expansion. Our underlying momentum is building, and we expect to see accelerating revenue growth in 2022. We will communicate our complete 2022 forecast to the investment community concurrent with our Q4 earnings release and investor call. However, I will share with you today that we are confident that our rate of revenue growth for 2022 will exceed our projected full-year 2021 growth rate. We have made significant and measurable headway in 2021, and our team is sprinting forward. As a true growth company, I want to reiterate my personal passion and conviction that we are here to invest, hire, build, partner, collaborate, and co-create across all aspects of Butterfly. We will enable superior image and data capture everywhere and anywhere, from assessment in traditional healthcare channels, alternative sites of care, the home, across specialties who have never had access to timely imaging information before and within geographies that have never had high quality medical imaging. We know that every version of success for Butterfly starts with building a highly talented, capable team to support our vision and growth. I'd like to share a few leadership updates from this quarter To support oversight on our growth and innovation strategy, we expanded our board with the appointment of Dr. Erica Schwartz. Dr. Schwartz brings a breadth of healthcare management and public health experience to the Board of Directors, most recently serving as Deputy Surgeon General for the U.S. Department of Health and Human Services, where she led the country's public health deployment in response to the COVID-19 pandemic. She also spent 24 years in the uniformed service with the U.S. Coast Guard, serving as chief medical officer and in other leadership roles. Dr. Schwartz will serve on our newly formed technology committee with Dr. Rothberg and Dr. Edelman, providing oversight of the role of technology in executing our strategy and supporting our business and operating requirements. As we continue to scale and expand the business, We have been adding executive leadership in areas that would support our strategy and initiatives to accomplish this. In the third quarter, we added Troy Quandor as our Senior Vice President, Regulatory and Quality, to lead this critical capability. He brings over 25 years of FDA and industry experience with a focus on regulatory affairs, compliance, quality, and post-market surveillance teams. Troy. previously held roles at Olympus, Roche, Becht & Dickinson, AuraShore Technologies, Johnson & Johnson, and BioMariU. With the addition of Troy to our existing regulatory and quality team, Butterfly further strengthens our ability to bring additional innovative solutions to market in a compliant and timely fashion. I am very happy with the rapid evolution of the leadership team, and with the addition of Troy, we have become even stronger to take us through the next part of our journey. We also find confidence and are encouraged by the growing evidence in scientific publications that demonstrate butterflies' use across different settings and phases of care. the New England Journal of Medicine published an article that talked about the growing use of POGUS and factors that have led to broader adoption being driven by the advent of smaller, more affordable ultrasound machines, combined with evidence that physicians without a radiology background can be competent and use them effectively in practice. Beyond publications, There are more and more stories spanning a variety of procedural areas being told by physicians who are using Butterfly in their practices and institutions. One that I would like to highlight was presented at Passera Biosciences' recent Investor Day. Passera is a specialty pharmaceutical company that creates therapeutics to manage pain. An anesthesiologist from a leading academic medical center walked investors through a timeline about the use of regional anesthesia during surgery. He then showed a picture of Butterfly as a disruptive technology that has enabled the broader adoption of regional anesthesia to improve patient care and post-operative recovery. Even with extensive training, it is challenging to administer regional anesthesia without complications. Butterfly changes that. With our solution and needle-vis technology, the anesthesiologist can see the targeted area and safely and effectively administer the anesthetic. This is what Butterfly makes possible. There is more to come as we meet the needs of our customers and innovate so that Butterfly is not just accessible but present in the pocket of all physicians and healthcare providers everywhere and anywhere. Another important enabler of behavior change is ease of use. In August, we announced an exclusive partnership with Caption Health. the creator of CaptionAI, the first and only FDA-cleared AI guidance ultrasound software, and a recent recipient not only of a technology add-on payment, or NTAP, from CMS, but also of Time Magazine's best invention of 2021 recognition. With an AI-powered butterfly and caption solution, we believe we can meaningfully enhance cardiac assessment. Specifically, our integrated solution will take on more of the burden of capturing and interpreting the ultrasound while providing practitioners with quick and relevant information about a patient's cardiac state. Not only is there significant opportunity to better manage identified cardiac conditions, but there is also considerable undetected disease in and across our communities. As a recent study from Circulation Heart Failure showed, 46% of heart failure patients diagnosed in acute care settings had potential heart failure symptoms during primary care clinic visits in the previous six months. We believe that advanced diagnostic solutions like the one we'll bring to market with CAPTION may be able to help identify undiagnosed heart failure earlier and bring people to therapy sooner before they get sicker, resulting in fewer unnecessary acute care visits and decreased medical costs. Butterfly and Caption Health are expected to introduce the combined platform on Butterfly IQ Plus in the United States later this winter. Another way to expand access to information is through unlocking new markets. As we evolve as a company, global expansion will become a greater focus as the demand for butterfly grows everywhere. We are excited to share continued momentum in the growth of our distributor relationships, a key mechanism to expand our reach. You'll recall that last quarter, we shared our entry into the Hong Kong region with a partnership with Chindex Medical. True to our mission to democratize care around the world, I'm pleased that through partnerships we entered into this quarter, we will make Butterfly available in Chile, in Pakistan, and through a more recent strategic partnership with Abdul Batif Jamil Health, we will bring butterfly to the Middle East, North Africa, Turkey, and India. With these activities, we are helping to address global health equity needs by introducing butterfly to markets that need better, more advanced technology and information to deliver a higher standard of clinical care. And this is not just about creating access. One focus area for Verizons, our partner in Pakistan, will be on improving health outcomes for expectant mothers, leveraging the affordability, portability, and capabilities that are unique to the butterfly solution, such as the new OB tools, including the gestational age calculator that we launched last quarter. They will be partnering with provincial governments to aid healthcare workers to take butterfly devices into the homes of pregnant mothers and provide access to care that otherwise is just not available. Another important driver of our growth is organic innovation. This quarter, we released a new product for the veterinary market. We launched Butterfly IQ Plus Vet, our second-generation veterinary ultrasound device, which is designed to bring more valuable information and capabilities to veterinarians in a variety of clinical settings. The IQ Plus Vet has many new features, comes with color Doppler sensitivity, a needle Viz tool, and notably was designed with a 15% smaller probe face and a 10% shorter probe for easier overall use and maneuvering. With the introduction of IQ Plus Vet, we have also expanded our market reach. The product is now available for purchase in 19 new international markets, and we continue to grow with large-scale partnerships and distributor relationships in the US and now the UK. We are very excited to bring value to the veterinary market in parallel with our work in human health care. Additionally, we announced a large-scale partnership with Rare Breed to bring Butterfly to all of their veterinary hospitals. This adoption reflects an important change in the perception and deployment of Butterfly that is different from traditional ultrasound use in veterinary medicine. Rare Breed had several experiences with Butterfly that catalyzed their decision to adopt across their hospitals. There is one instance that I would like to share with you. A veterinarian at a rare breed hospital worked with a dog with two reported new lumps by the owner. The veterinarian performed a physical exam and used butterfly to perform a quick ultrasound of both lesions, where the vet noticed marked sonographic differences between them. This led the vet to perform a quick fine needle aspirate, which led to a diagnosis of a tumor. The vet then used butterfly to ultrasound the liver and spleen to look for metastatic disease. All of this occurred during one appointment. Rather than waiting to obtain insight by referring out to a specialist, the veterinarian was able to acquire valuable information to guide an accurate diagnosis and provide information immediately to the pet owner, reducing the stress associated with waiting for diagnosis and allowing the owner to focus on the wellness of the pet. I hope this story helps to illustrate yet another flavor of what Butterfly makes possible. Before I turn it over to Stephanie for a more detailed financial discussion, I want to reiterate a number of points that I think are crucial to understanding our direction. Butterfly's great potential is to reimagine healthcare by enabling more informed care decisions. The differentiated power of Butterfly is that it unlocks ultrasound information in a practical, cost-effective way Through the confluence of a transformational device that enables information acquisition and innovative software that makes the information usable, we are creating an entirely new clinical experience. And we know changing behavior requires hard work, and we are now well positioned to drive this positive change. We will relentlessly pursue simplicity and ease of use to enable Butterfly to be used in the broadest number of locations by the broadest number of users across a broad range of clinically meaningful and impactful applications and settings. We don't just want to make clinicians better sonographers. We want Butterfly to make practitioners better clinicians. We are already in the process of changing clinical behavior, and we are continuing to see proof points that acknowledge the use of ultrasound to establish a clinical diagnosis or to guide a procedure. Even with the challenges of the current environment, we continue to build momentum and are still seeing strong demand for Butterfly. And finally, in my eight months at the company, my commitment and excitement have only grown stronger. I will now turn the call over to Stephanie for a review of our financial results. Stephanie?