Butterfly Network, Inc.

The Butterfly Network Q2 2023 earnings call is due to begin shortly. Thank you for your patience. As a reminder, if you would like to ask a question, you may do so by pressing star followed by one on the telephone keypad. Thank you. Ladies and gentlemen, hello and welcome to the Butterfly Network Q2 2023 earnings call. My name is Maxine and I'll be coordinating the call today. If you would like to ask a question, you may do so by pressing staff below by one on your telephone keypad. I will now hand you over to your host, Heather Getz, to begin. Heather, please go ahead when you're ready.

Good morning and thank you for joining us today. Earlier this morning, Butterfly released financial results for the second quarter ended June 30, 2023, 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 investor section of the company's website at ir.butterflynetwork.com. I, Heather Goetz, Chief Financial and Operations Officer at Butterfly, alongside James DeVivo, Butterfly's Chairman and Chief Executive Officer, will host this morning'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, the size and potential growth of current or future markets for our products and services and the impact of these macroeconomic factors 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 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. To access the webcast, please visit the event 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 Joe. Joe?

Thank you, Heather. I'm pleased to review our results for the second quarter of 2023 and share perspectives from my first 100 days on the job. I've done a complete review of the business over the quarter and now have a pretty good feel of where we are. Butterfly Network is a great technology platform. We're leading point-of-care ultrasound with simply the best solution in the market. Our ultrasound on chip technology allows us to tune a single probe from multiple parts of the body, deliver in the cloud, streamline enterprise imaging while documenting in EMRs, billing, managing proficiency for physicians, all at our competitive price point. It has put us in a league of our own. Now we'll continue evolving how point of care ultrasound is used. We will now be pushing the boundaries of our technology to reach new care settings, making it easier to use and empowering more caregivers to understand ultrasound. I look forward to revealing our complete roadmap when the time is right. The Butterfly team also quite honestly has been through a lot. They've had three CEOs over the past five years, hired and let go hundreds of people, shifted strategies multiple times, and tried to do too many things at once, in my opinion. After my first 100 days, I've grown very fond of the people in this company, and I'm really excited about what the technology can deliver. I believe getting back to basics for the smaller teams, focusing on our strengths and leveraging only what we can do to add value in healthcare will bring the bounce back in our step and return the company to organic growth. Stakeholders need a healthy and successful butterfly. Investors deserve better performance. Employees deserve stability and a place to grow and achieve. And that's exactly what we'll do. As I mentioned, we conducted a full strategy re-evaluation this quarter. And we made some tough decisions to create a focused and, in my opinion, more impactful plan. We ensured our new strategy is matched with the right cost structure to deliver on it. and we completed a reorganization to give us time to fund the plan. We implemented growth initiatives for all phases of our business and have a revenue growth plan that will be powered by better execution and near-term product pipeline that will roll out over the next several quarters. With the reorganization, we extended our runway and reduced our operating expenses by an average of $2 million a month. On top of that, Two other cost-cutting efforts over the past 12 months occurred. But getting here was not all cutting. In fact, we improved investment in our commercial organization, allowing a 50% increase in direct territories. We hired a world-class international sales leader based in Europe. And we funded core technology innovation. We now have a much more commercially driven team with great conviction towards our ability to deliver significant organic top line growth in the future. So from today forward, I'm going to be talking about our revenue in terms of markets and the products sold to them, not the channel in which it sold. You will hear me refer to U.S., international, and VET. Within each of these categories, we may sell directly or through distributors and e-commerce. Into these markets, we sell product, software, mobile apps, subscriptions, other services such as implementation and education. And at the end of the day, the mechanism for sale is less important than what and to whom it is we're selling. Our revenue in Q3 was down 3% while taking out costs. In keeping with the new revenue format, our U.S. team delivered 21% top-line growth in the quarter we closed two large 500 plus probe deals into medical schools and launched our distribution relationship with mckesson as you know in addition to selling probes enterprise software sales have been a big focus for this team in 2022 we added compass software to our enterprise offering for sales into hospitals sales in this area has since been growing nicely as demonstrated by annual recurring revenue, or ARR, and that growth was 58% for enterprise software sales in the second quarter of 2023 compared to the second quarter of 22. That's the result of a lot of enterprise software deals closing each quarter over the past year. We've sold it into health systems who both use and don't use butterfly probes. Each relationship is an upsell opportunity. And as I mentioned last quarter, we're a technology-enabled software company. As is with software, software sales add positively to the company's gross margins and are increasing in product mix each quarter. Our international business, which going forward will include global health, did not fare as well this quarter. Sales were down 44% year on year. We signed a number of new distributors in new countries in 2022 and placed stocking orders that have yet to be replenished. That said, underlying sell-through is growing, but has not yet outpaced the inventory placed last year. As mentioned, we've hired a new sales leader based in Europe, and I'm committed to getting our business organized correctly. We are direct in the UK and Germany, and those teams have developed a really nice pipeline, and I'm pleased with their progress. Fixing international distribution is something I've done before. It takes continued focus, execution, and a commitment from our internal team to serve the needs of the international business one market at a time. This should just be a temporary setback. In our global health work, we're proving that we can indeed make an impact by putting ultrasound in the hands of more mid-level providers, changing the way health systems deliver medicine and to ultimately improve outcomes for patients. This becomes clear when you look at usage data from our large deployment and training programs in Kenya. It's incredible to see how many mothers are receiving better gestational care because butterfly is in their community. Data shows that about 10,000 butterfly scans are now happening per month across 224 Kenyan public facilities. In a one-month post-deployment study, that was sent to program participants. 88% of the 377 respondents reported finding a high-risk condition, such as brief presentation, low fluid, or fetal distress. 95% are using Butterfly to decide on a treatment plan for their patients, and 81% use Butterfly to determine if high-level care is needed. Our global health program can drive real change across the globe. And I'm thrilled to share that soon we plan to announce yet another big win for our global health team. We're looking forward to sharing the details when they're allowed. So that was slightly down in the quarter. Unfortunately, we were down resources in the first half that have now been restored. We expect that revenue to return the growth in the second half of the year. To that end, I'd like to discuss some recent activity. So when we launched our auto beeline counter last quarter for human care, our vet business saw an opportunity to use it in production cattle. There are one million cattle producers in the US alone, and that's pretty much just about as many US physicians there are. They often leave prophylactically, give their cattle expensive antibiotics that control disease spread and protect their herds. What if respiratory disease could be detected earlier to reduce antibiotic use, saving time, money, and cattle. Our auto beeline tool can now help with that. And the butterfly team made it happen. We tuned our beam to see 30 centimeters into the chest wall of cattle to reach and scan their lungs. It's so cool. That's how versatile Butterfly is. We can just adjust for human and animal anatomy of all sizes. We're not an analog set of crystals like a fixed lens on a camera. We have tremendous power and capability to use software to drive the right frequency through our MEMS technology to get the desired result without having to change the hardware. As an outcome, a prominent U.S. university is now researching the effectiveness of the Auto B-Lines counter for the early disease detection in production cattle. So that's where we are from a business perspective, and I'd like to turn the call over to Heather in a moment, but now I want to walk you through three near-term opportunities for growth. Our next generation probe, IQ3, Butterfly Garden, and Butterfly Academy. In the first half of next year, pending regulatory approval, we will launch the third generation probe called IQ3. IQ3 is state-of-the-art technology. That improves performance at every phase of ultrasound deployment. Powered by our new P4.3 chip, we have more than doubled our processor speed, increased frequency, which allows for even more applications, increased scan time, battery life, and many meaningful performance enhancing capabilities. IQ3 closes the perceived imaging gap between us and our competitors. building on top of our market-leading value and superior technology. There will be no need to have multiple handheld probes in the hospital. Only one POCUS handheld device will be needed. This creates standardization, ease of education, fleet management, and service for our customers. IQ3 will start opening doors to phasing out the need for heavy, poor battery, poor connectivity, PZO-based handhelds. Our IQ3 software platform has also some very nice upgrades coming. As we get closer to launch and receive our regulatory approval, I look forward to showing you what it can do and why it'll be a game changer for the market. IQ3 is next generation technology that will allow for images to be captured in an automatic way. I won't go into how it works now, but it will be the easiest image capture device for ultrasound in the world. Instead of searching for anatomy like a flashlight in a cave, you'll press a button and it will scan automatically. This is a new feature that will be added to the current standard ultrasound imaging that Butterfly performs. We know as word gets out, as it already has, customers may want to wait for the new technology. We're planning for this. in our forecasting and also in making it easier for our customers to upgrade to IQ3. They should continue to purchase IQ Plus now so they can get in and get going with ultrasound. And we'll make it easy and cost effective for them to get into IQ3 so there's no incentive to wait. We will continue to sell our IQ Plus alongside IQ3 for those customers who want a lower cost alternative or who don't need the benefits of the next generation device. I came to butterfly not to turn around another company, but to have the pleasure to bring this kind of technology into health care. This is what it's about. This is the next step in making ultrasound easier for inexperienced health care providers to be comfortable with ultrasound. All made possible by our ultrasound on chip technology. Second, Butterfly Garden. Our technology has caught the attention of third-party AI developers who want to build novel applications that work with our imaging platform. We've already enabled a few of those partnerships. And as a result of this interest, I'm pleased to announce the launch of Butterfly Garden. Our garden will be the place where ultrasound AI and software developers can access our proprietary software development kits or SDKs and APIs that will allow them to build their applications and use our imaging platform to work in conjunction with theirs. Our first SDK, which is available today, will enable developers to place their app in Apple's App Store and link that app to work with the Butterfly IQ Plus probe. When they open their app and plug in Butterfly, the image captured through the Butterfly probe appears in their application and their software can do the rest. We believe developers will like the easy to use kit and appreciate access into the largest install base of point of care ultrasound devices in the world. For Butterfly, it allows us to continue to broaden our base. As each of these companies who develop on our platform, we will have more of their customers buying Butterfly, while existing Butterfly customers will have access to even more capabilities. It's a win, win, win. As mentioned, we currently have several partners that we're working with to this end. Charitable Foundation, pharmaceutical companies, surgical robotics companies, a cardiac AI company, and we are in discussions with several more. Responding to the unsolicited demand we've received to date, Butterfly Garden standardizes this activity and welcomes more partners. Our next SDK plans to give developers access into our cloud and make it possible for third-party apps to use the EHR integration and workflow, further monetizing our investment in enterprise software. We're also in discussions to monetize our ultrasound on-chip platform. Butterfly investors have funded an incredible semiconductor chip technology, which warrants use even outside of POCUS. For example, implantables, medical devices, and other diagnostic tools. And we intend to monetize it for them. Like Intel Inside, these applications that use our ultrasound on-chip technology will be quote unquote powered by Butterfly and will be vigorously protected by our thousand patents worldwide. Third, I'm pleased to announce that we're adding a full range of courses as well as Butterfly certification to Butterfly Academy. As you may recall, Butterfly Academy has a compendium of virtual training courses. Training is so important in point-of-care ultrasound because ultrasound is hard to learn. Making it more accessible to healthcare professionals increases the importance of training. Currently, nearly 15,000 users have accessed our Butterfly Academy courses. We're now adding in-person modules, which can augment self-training with virtual scan review and didactic training. We'll also start offering in-person certification courses designed to increase proficiency and quality. We're even planning to launch an instructor or train the trainer course, which helps institutions in source training by developing proficiency of a few staff to educate the others on their team. All Butterfly subscribers will get access to our catalog and practicing. So with that, I'll turn it over to Heather. Heather.