Butterfly Network, Inc.

in point of care ultrasound devices powered by our proprietary semiconductor technology. Our digital journey that we're on is an exciting exponential growth opportunity to bring digital capabilities to the lowest cost and most accessible medical image modality, ultrasound. Our vision is that every doctor and nurse in the world will have a personal butterfly imaging device. while we bring wearable ultrasound to qualifying chronic care patients who need more frequent real-time care. They will use the most advanced AI tools to locate and identify abnormalities with a secure location for their data throughout their care journey. Butterfly's powerful digital ecosystem will increase access to care, help lower cost, and empower all people to understand the care they need earlier. The building blocks of this opportunity are being set now, and several initiatives are in development that I'm excited to share with you later in 25. In 2024, it was a great year for Butterfly. We got our mojo back. The launch of IQ3 was nothing less than a resounding commercial success. IQ3 beat out 29 other products from healthcare companies who were considered for the pre-Gallion Award, the highest award in healthcare for new MedTech technology. We were a fierce 50 award winner as well. Since its launch a year ago, our next generation imaging technology proved to go toe to toe and win against the largest imaging companies in the world. IQ3 represented 50% of our overall 2024 sales and units and 58% of our pro revenue. Delivered higher ASPs than our second generation device and was helped by an all-in hardware and software program that proved very successful. Doctors who once hesitated to choose Butterfly in the past, wanting more from image quality, flocked to IQ3. Existing users upgraded to the new device. New users traded in their competitive devices. New entrants to the POCUS market chose IQ3 to start their journey, and even medical students wanted to start their education with the best, as we saw when rolling out the new student purchase options last year, that some of them actually purchased IQ3. To that end, I was very pleased with the impact ScanLab had on our education efforts. ScanLab helped new students of all ages hone their ultrasound skills. It helped new users practice without access to dedicated personnel. Where education and confidence acquiring and interpreting images are a barrier to adoption, ScanLab is now proven to be an education catalyst. Another catalyst in 2024 was the publication of the University of Rochester Medical Center data on scaled health system deployment of butterfly, demonstrating the clinical and economic ROI. And as we look ahead, we are now leveraging these and other ROI findings to meet with hospital administrators to discuss broader implementations. Earlier this month, Butterfly convened its inaugural POCUS Innovators Forum. Sixty thought leaders gathered to discuss topics like adding imaging into everyday diagnosis, the power of lung ultrasound, empowering AI, POCUS in low-resourced countries, and a special session on the ROI hospitals are seeing in POCUS. We were excited with all the sessions and especially pleased with the ROI session as URMC was accompanied by several other large institutions who were able to demonstrate similar, very positive economic data, further validating our strategy. So moving to international, in 2024, we received EU MDR in Europe for IQ+, which allowed us to up-feature the probe with our latest software capabilities and fast-followed with IQ3 certification in September, allowing for the European launch of IQ3. We want access to many new markets in Asia for IQ+, and I believe global penetration for IQ3 will power international growth in 2025 in both unit volume and ASP, as we will have both products available for sale throughout the entire year. I'd like to give you a brief update on ROS or RoHS, the revocation process in Europe. As you know, we formally submitted our application to revoke the lead exemption for piezoelectric handheld ultrasound devices. We believe the industry of course is aware and in the process of putting together a response. We also understand the EU commission is identifying a third party who will begin the process of researching our petition and the counterarguments following the open comment period. That should take the review to the end of 2025. And we hope that by this time next year, we'll learn of the independent reviewer's recommendation to the EU. If a decision is made in our favor, we believe it may take up to 12 to 18 months to implement from then. So wrapping up discussion of our core focus business, we're pushing ahead into 2025 with a focus on scaling. We have many software improvements planned to make data management workflows faster and easier, our integrations to be more expansive for all EMRs, and our data management to be more valuable, even for smaller customers. We will be focusing on combined software and hardware sales to health systems as we grow customers from departmental installations to multi-departmental and ultimately full enterprise customers. So beyond the core business, our strategic initiatives matured during the year and brought greater clarity to how Butterfly will change in the future. Entering the fourth quarter, Butterfly Garden had 17 partners signed, each developing their applications to work in the Butterfly ecosystem. Well, the team signed four new partners, including our first veterinary AI app in the fourth quarter, bringing a total of 21. In 2025, six of the 21 partners are anticipated to go commercial, five of which expect to win FDA clearance, to become the first garden apps for clinical use. These apps will join the two educational AI applications already deployed in the garden. And we are very excited to welcome these companies and products and will work to amplify their capabilities to our user base. As you know, each AI application will bring new capabilities for users, each making and capturing and interpreting ultrasound easier. Butterfly users will buy these new AI apps, and these companies will grow their business by being in the Butterfly ecosystem. It's just a win-win. So now shifting to Octave, our wholly-owned subsidiary that's tasked with commercializing our chip technology through partners in non-competitive markets. So they've also been quite busy. In our second quarter earnings report, we shared that we signed a term sheet for a third partner. Today, we're excited to announce that partner is Sonic Insights, a commercial stage business pioneering a novel approach for liver disease assessment. Sonic Insights and Octave are collaborating to develop technology that leverages ultrasound on chip for fatty liver disease assessment, a market poised for significant multi-billion dollar growth. We are also pleased to share that we've signed to additional partners. Our fourth partner is in the neuroscience space, a burgeoning market where our technology is uniquely suited given its broad, powerful imaging capabilities and overall flexibility, including miniaturization. Lastly, our fifth partner is one of the leading companies in the generative AI space who will be developing new hardware technology. We look forward to sharing more details on these partnerships in the coming months and anticipate all of these new signed partnerships to contribute revenue in 2025. So now let's turn to butterfly home care. So as we highlighted during our last earnings call, we recently signed a pilot agreement with the largest health services organization to deliver lung ultrasound services to the members residing in long-term care and assisted living facilities across two counties in Wisconsin. We've trained their nurse practitioners to capture lung ultrasound images using our probe, AI-guided tools, and our COMPASS software. The pilot officially launched and we're already seeing positive results. We're currently onboarding members with congestive heart failure. The initial participants are patients being discharged from the hospital after a congestive heart failure episode. And the goal is to ensure that they receive appropriate follow-up care and to identify any early signs of worsening heart failure. Through the pilot, they've already detected conditions like pneumonia, pleural effusions, and other complications, allowing the team to interview promptly and deliver care according to the established protocols. Although it's still early, both we and our partner are encouraged by the outcome since the pilot launch. Notably, No patients have needed to be transferred out of the facility for scanning, and none have been readmitted to the hospital. We are confident that this pilot will showcase improved care and cost savings for our partner, and we look forward to keeping you updated on our progress. You know, I can't stress enough how important these findings are. We're teaching nurse practitioners who've not been classically trained in ultrasound to do lung ultrasound using AI, to assess patients right where they are. This pilot is not just about the immediate business opportunity ahead of us, which is great. It represents the power of Butterfly. Butterfly has made ultrasound accessible, high quality, mobile, and at a low cost. Now we're proving that all healthcare professionals can use it to help patients where they are, efficiently and at scale. As this program evolves from pilot to a new care delivery model, we expect to see new AI apps from the garden to further empower caregivers with low-cost tools delivered on the go, wherever the patient is. This is only possible because of the evolving digital landscape that's driven by Butterfly. In addition to the pilot, at the end of December, Butterfly Home Care also executed a proof of concept at MyPlace Health. MyPlace is a PACE organization, and the acronym stands for program of all-inclusive care for the elderly. And it's to demonstrate that Butterfly Services can identify conditions in previously undiagnosed patients. Our pilot was successful in identifying previously undocumented conditions, such as peripheral vascular disease, pleural effusions, diastolic heart failure, and potential cardiac failure, resulting in an immediate hospitalization. Our work with MyPlace allows them to risk score their members so they receive appropriate reimbursement and care. MyPlace is one of the 180 PACE organizations nationwide, and we expect to collaborate with them this year to expand with them as well as to expand to other PACE organizations. So now I'll turn it over to Heather to go deeper in the quarter. Heather.

Thank you. As Joe noted, In 2024, we accomplished everything we set out to do at the Investor Day in March of 2024. The initiatives we laid out have been driving Butterfly's growth and will continue to do so in the future. So let's dig into the results. We saw continued strength in the fourth quarter of 2024 with revenue of $22.4 million, the highest quarterly result in the company's history. This represents a 35% increase versus the prior year period. The increase was driven by both price and volume across all channels and was positively impacted by continued penetration of the IQ3 and global distribution. Breaking things down between the US and international channels, During the fourth quarter, U.S. revenue was $14.5 million, which was 32% higher than the prior year, driven by higher average selling price and strong demand. Total international revenue increased 19% over the prior year period to $5.5 million, driven by higher probe volume. Breaking our revenue down between product and software and other services, Product revenue was $14.7 million, an increase of 45% versus the fourth quarter of 2023. This increase was driven by higher average selling price and volume across all channels. Software and other services revenue was $7.6 million in the fourth quarter, up 20% versus the prior year period. Software and other services mixed was 34% of revenue decreasing by approximately four percentage points versus Q4 2023. This decrease can be attributed to product revenue growth outpacing software revenue with the launch of our IQ3 in early 24, as well as our geographic expansion. Our total annual recurring revenue, which is reported as part of software and other services, grew slightly versus the prior year period. This was led by an increase in our enterprise software subscription ARR that grew 8%. When looking at the full year 2024 versus 2023, total revenue increased 25% to $82.1 million, led by sales of devices where we saw both increased volume and higher average selling price, driven by the launch of our new generation IQ3, where we increased our MSRP by $1,200. Furthermore, at the end of 2023 and throughout 2024, we made additional investments in our direct sales teams and signed new distributors in new markets internationally. Turning now to gross profit. Gross profit was $13.7 million in Q4 2024, a 45% increase as compared to the prior year adjusted gross profit of $9.4 million. Gross profit margin percentage increased to 61% from an adjusted 57% in the prior year period. While gross margin percentage was positively impacted by higher average selling prices and higher software and services margin, these benefits were offset by higher production costs of IQ3 and warranty costs. Moving to EBITDA and capital resources. For the fourth quarter of 2024, adjusted EBITDA loss was $9.1 million compared with a loss of $15.7 million for the same period in 2023. For the full year 2024, adjusted EBITDA loss was $38.9 million compared to $67.5 million for 2023. The 42% improvement in adjusted EBITDA loss for both the fourth quarter and full year was driven by higher revenue, Cost reductions and efficiencies, which led to lower payroll consulting and other outside services. We saw a 16% reduction in operating expenses for the full year. These reductions are a result of us right sizing the infrastructure. over the past three years, leading to a cash and cash equivalent balance, including restricted cash at year end of $92.8 million and a use of cash in 2024 of $46 million. These results demonstrate that we are delivering against our priorities set out in our March Investor Day. We launched IQ3 in the US and internationally, launched ScanLab and IQ Plus Bladder, reached 21 Butterfly Garden partners, and signed two more Octave partners for a total of five. We also signed our first two pilots to enter home services. Internationally, we received EUMDR for our advanced features of IQ Plus and IQ3, while adding additional geographic footprint. We invested in our commercial teams and continue to expand our sales footprint both domestically and internationally, all the while reducing our cash consumption. As we look to 2025, our organization is humming. The plan is working and we will continue to execute against it by driving adoption of IQ3 and expanding uses across all our channels. We have signed two pilots for home services and continue to develop the market for our ultrasound on a chip technology through our wholly owned subsidiary, Octave. Subsequent to year end, we raised $81.7 million from our follow on offering in late January 25. which provides us with a bridge to cash flow independence. This capital will enable us to maintain our current level of investment to sustain our revenue growth, as well as the option to opportunistically invest in strategic initiatives that can expand our market. To be clear, we do not view this capital raise as an opportunity to regress in the fiscal discipline we have instilled over the past few years. Notwithstanding these exciting and potentially meaningful tailwinds, in establishing 2025 guidance, we have not included any new revenue streams or markets in our forecast. As we have in the past, we will take this prudent approach and guide to a full year 2025 revenue of $96 to $100 million or approximately 20% growth with an adjusted EBITDA loss of $37 to $42 million. To reiterate, this does not include incremental revenue from our investment in Octave or the home services business And as the year progresses, we will provide updates and further clarification. Now, specifically looking at Q1, we expect approximately $20 to $23 million in revenue as we ended the fourth quarter slightly higher than expected. And Q1 is typically a slower quarter for closing hospital deals. For Q1 adjusted EBITDA with expenses related to payroll tax and 401 reset, as well as our national sales meeting and POCUS forum, we expect slightly higher expenses and higher adjusted EBITDA loss in the first quarter relative to the remainder of the year in the range of $9 to $11 million. To summarize, we had strong results in 2024 and we look forward to continued growth in 2025 and beyond. We have been delivering against our plan and will continue to do so by going deeper and wider in the traditional ultrasound market expanding the market by going where traditional ultrasound can't go with new users and applications, differentiating ourselves with continued development of ultrasound on a chip technology, and by doing this, we will generate market-leading growth while maintaining our fiscal discipline by balancing investment with return. These objectives will allow us to capitalize on this attractive market opportunity over the long term. With that, I will turn the call back to Joe. Joe?

Thanks, Heather. Today, Butterfly is in complete control of our destiny. We have revenue momentum, a pipeline to empower growth for many years to come, a successful fundraise allowing us to continue to invest in our growth initiatives, as well as a runway to get the cash flow positive with our current balance sheet. Our core business growth will be powered by our efforts to increase health system opportunities, drive the one probe per student model in medical schools, and continue global distribution to both IQ Plus and IQ3. In our new business areas, we expect to progress more active opportunities and convert our home care business from a pilot to commercial revenue. This is consistent with the roadmap that we laid out at last year's Investor Day. Butterfly has ended our first era. which had us fixating on image equivalency to other PISO-based handheld probes. So now we're not looking back. We're looking forward to not just being equivalent, but surpassing the market to deliver a new digital experience only Butterfly can offer. While Butterfly is in the POCUS category, we are differentiated as the only company with a true mobility solution. Most POCUS devices are just one-step extensions away from a cart workflow in a hospital. As we see it, Butterfly today is the only mobile solution because it is a single personal imaging device for every doctor, nurse, and qualified chronic care patient in the world, powered by a plethora of new AI tools, cloud connectivity and processing, seamless integration with hospital systems, while working completely independent of them in the most remote places in the world. We will go anywhere a doctor, nurse, or patient braves to go and will carry the best experience for them. So to understand this future, you don't need to look too far away. History does repeat itself, and the power of digital over analog technology has been proven time and again. Just as digital cameras replace traditional film, chip-based ultrasound is set to dramatically expand the medical imaging world, and Butterfly is the platform to lead this change. Everything we do going forward will be to increase imaging power even further, make in-hospital workflows easier, miniaturize the device to drive mobility further, make the device smarter and easier to use with AI tools and connected to a very powerful and safe cloud ecosystem. I look forward to updating you throughout the year on new developments and our accomplishments as there are many great things brewing. So with that, operator, Please open it up for questions.