Hello everyone, and thank you for joining the Butterfly Network Q3 2022 Earnings Call. My name is Darius and I'll be the operator for today. Before handing over to your host Heather Getz [Operator Instructions] I now have the pleasure of handing you over to your host, Heather Getz. Please go ahead.

Good morning and thank you for joining us today. Earlier this morning, Butterfly released financial results for the third quarter ended September 30, 2022, 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 this company's website at ir.butterflynnetwork.com. I, Heather Getz, Executive Vice President and Chief Financial Officer of Butterfly; alongside Dr. Todd Fruchterman, Butterfly's President 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 the 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 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 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 telephone audio and the presentation being shown. To access the webcast, please visit the investor section in the investors section of our website and replay of events will be available following the call. I would now like to turn the call over to Dr. Fruchterman. Todd?

Thank you Heather and good morning. I'd like to start the call off today a little bit differently than I have in the past. I thought it would be worth taking a step back and reminding everyone of the path we are on here at Butterfly and what makes us fundamentally different, so you can better understand why Butterfly. This context will be important as we get further into our discussion because it will help you better understand how we view the results of this quarter, our growth in the near term, and how we are taking our learnings from the market to drive our future growth and care transformation with ultrasound information at scale. Many of you will remember that we entered the market as a truly remarkable and transformative device. By putting ultrasound on a semiconductor chip, we became a disruptor in the industry, based on our innovation and hardware alone. We're proud to say we are leading in the handheld ultrasound segment today. And we continue to invest in this area to maintain our edge. Our technology works and it keeps getting better. Some of our initial learnings in the market, however, made us recognize that we were not where we needed to be in order to realize the full value of our technology and the impact to healthcare. So we went to work on our enterprise level software, and workflow solutions. We have spent the last year investing heavily in the development of our software solutions, blueprint and compass. Significant progress in software development has created best-in-class, image management and workflow software across ultrasound platforms, both internal and external to Butterfly. As a result, we have gone from software that was objectively lagging to software that is now highly valued. And we continue to innovate and…

Thank you, Todd and good morning again. Revenues for the third quarter of 2022 was $19.6 million, a 34% increase versus the prior year period, and our highest quarterly revenue to date. Growth accelerated from first half 2022 levels, albeit at less than our internal expectations. Product Revenue was $13.2 million, an increase of 21% versus Q3 2021. This increase was driven by higher average selling prices in both our U.S. and international markets. In addition, total volume was up 3% with health systems volume up significantly and global health volumes more than quadrupling due to our launch with the Gates Foundation in Africa. Partially offsetting these increases was a reduction in e-commerce. This trend of higher health system sales partially offset by lower e-commerce is consistent with our strategy of driving adoption and health system and de-emphasizing our individual probe sales through e-commerce. Software and Services revenue was $6.5 million in the third quarter, growing by approximately 71% over the prior year period. Software and Services mix was 33% of revenue and increased by approximately seven percentage points versus Q3 2021. This increase was due to implementations that occurred in the quarter as well as a higher installed base of product with accompanying subscription software, and increased renewals. We are encouraged by this momentum as we diversify our revenue from the aforementioned ecommerce channel to providing software and services to health systems that enable more informed clinical decisions. Overall, we believe our Q3 revenue was negatively impacted by quarterly softness as well as some intensifying macro trends, where we are seeing hospitals constrained not just budgetarily but also by the resources needed to implement. Internationally, revenue was all so impacted by the weakening of the Euro, which made our products more expensive. I will touch more on these factors…

Thank you, Heather. Butterfly is a game changing technologies solution to the current state of healthcare. Our technology works and our value is real. It is my hope that you walk away from this call having a better understanding of our path and appreciation for how we are navigating the market with our innovative technology, and our ability to manage the foundational elements of the business to weather external factors. We understand the elements needed for the success of the Butterfly solution, hardware, software, and connectivity. And we are meeting our customers where they are and providing a Blueprint to using ultrasound information to catalyze care transformation. Fundamental to all of these achievements is our people. I'd like to thank them for their incredible hard work and commitment to this organization and to each other. Our employees are dedicated to our mission, and want to help realize our vision to impact the lives of people all around the globe. Our leadership and organization changes will help to ensure their success. In a challenging time for health care, with increasing demands, and a workforce that is stretched thin, Butterfly is ultimately a solution that efficiently delivers better, more informed lower cost care. And while we continue to evolve our go-to-market and investment strategy to provide accelerated revenue growth and adoption, the achievements this past quarter still demonstrate that Butterfly’s message is resonating broadly. As we finish out this year, and move into 2023 our charge is to continue to walk this journey with physicians and care providers to get them to think about Butterfly technology and solutions differently. To get them to understand that Butterfly is the evolution of what they have previously known or been exposed to about ultrasound, and Butterfly’s accessibility vis-à-vis and broad utility is the only solution out there that makes the evolution possible in all settings and geography. It's why Butterfly. And with that, we will open it up to questions.

[Operator Instructions] Our first question comes from Josh Jennings from Cowen. Please go ahead, Josh. Your line is now open.

Hi, good morning. Thanks for taking the questions. I was hoping to start Todd and Heather just asked about the sales funnel. If anything you can share quantitatively or qualitatively about how that spilling out sounds like you are getting in front of more and more high profile accounts. And then maybe there's just the macro environment just sort of delays in finalizing contracts, but want to just better understand how the sales funnel have been developing. And what sort of visibility you have within that pipeline?

Good morning, Josh. So absolutely, we see the -- we see our pipeline building. We also, see the retexturing of the revenue. So if you look at where revenue is coming from as it looks from hardware, software and our services. We see positive momentum in each of those aspects. We are lining up implementation. And we see continuing building sales funnels. So I don't know Heather, if you want to comment.

Yes, sure. Good morning, Josh. I also like to just emphasize, as Todd did in his script, that the kind of delays that we're seeing, are causing a push out in our funnel, not people opting out of our product. So I think that's an important item to note as well.

Thanks a lot. And I wanted to just think about 2023. I mean, I know entering 2022 Butterfly’s Foundation has evolved very nicely behind the scenes, but then events revealed everything that was happening in 2021. Just in terms of building out the BluePrint Platform, adding in confidence and you continuing to add to the technology. But as we're entering 2023 in a couple of months, how would you have a stake about Butterfly positioning relative to the start in 2022 and any drivers that we should be considering as we as we model our printer models.

Josh, I think when we look at 2023, the items that items that are impacting us this year with a budgetary constraints and the macro environment, we believe are mainly transitory. So we do expect to be able to enter 2023 strong and as the year progresses, see improvement, be the focus for next year in driving our product will be medical education, a continuation on the build of our software, as well as global health. And I think we're well positioned to take advantage of those areas. Todd, do you want to add anything?

Josh, I would just say that, I think every, every minute, every day that we're in the market, we make progress. And our customers understanding to where they can benefit and use the technology makes progress. I think as we look at the headwinds, I mean, everybody's seen this. I think as you look at the headwinds, at the end of the day, hospitals have to figure out how to take care of patients. And, as care continues to evolve itself as to what the next evolution of care is, I don't think it's going back to where it was. But as it continues to evolve, they're going to be looking into technologies that help them do that better. Butterfly clearly comes out as part of the solution as you start looking into more cost effective, efficient care, that helps drive better quality. So we see very positive trends moving into 2023. If you look at our fundamental elements of our technology, we continue to advance it and its performance. We continue to understand how it's being absorbed by our customers and helping them get on the journey faster, where we're looking and segmenting as we get to the areas that we're making the greatest impact. And Heather mentioned, will focus on MedEd’s [Ph] Global Health software enablement of the workflow and the adoption and utilization of the technology. So I think with the activities we're seeing in the market as we finished 2022 with where we see the macro evolving in 2003, we're optimistic continued progress in 2023 moving forward.

Understood, thank you. Just one last question. It’s on the sales leadership change, can you help us better understand just how the sales strategy the commercial strategy has evolved over the past six to 12 months and having new leaders could -- what type of direction we're going to take it from here and open them up TBD as they're just getting on board, but any high level thoughts would be appreciated. Thanks for taking all the questions.

Sure, absolutely. Thanks, Josh. Look, if you think about what we're trying to do. If you just take a step back, right, we didn't invent ultrasound, right. Our technology is enabling others to reimagine how they use ultrasound, and, and what that means in the healthcare environment. So we have elements of our solution that make it a complex, multilevel sale. So we've understood as we've been out in the marketplace, that what we need to do with our customers in order to get them on the journey is complex. Part of what we're doing here is bringing in the leadership that understands how to work through these complex conversations in the market, reduce that simplicity and help our organization be successful. We're doing that both with our leadership, and with our organizational structure to help our people and help our customers drive to efficiency and effectiveness more rapidly, more efficiently and more enjoyably. So we are breaking that forward so the commercial operations is really getting around the ultimate solution, and helping our customers to implement that and realize the value of it sooner across the entire continuum of care. We have a heavy focus on North America. We also understand that we need to continue to develop our technology to take more of the burden onto our solutions that we need to understand how to deliver that through our technology across hardware and software, and across geographies. So our commercial development organization will have a greater focus on how we do that how we support our commercial and selling activities, and how we incorporate new and novel things into our platforms to help people get on their journeys faster. So it just comes from and this is what I talked about with us being out in the market. This comes from a lot of learning by not just talking about it by being out there. And we are really trying to learn be nimble and agile and help enable success of the company and our customers. And part of that is through the organizational change and the leadership change.

Thanks Todd, thanks Heather.

The next question comes from Neil Chatterji from B. Riley. Please go ahead, Neil. Your line is now open.

Great. Thanks for taking the questions, guys. I guess first off, just wondering if you could maybe just talk more about the Yale and Stanford Blueprint deals and then just more broadly with the sales funnel, I guess, how much are the mix of opportunities more software based to start versus say a hardware deployment and software?

I think we'll always take a step back and say, if you think about how we're how we need to and where the market is, talks about meeting our customers where they are, and if you think about where our customers are, right, there are people in and institutions that are charged with managing and teaching and disseminating point of care ultrasound, right. And when they think about how do you do that, it's kind of input on them, because they have some expertise. And then people realize there's value of that what we're doing with our software, is helping experts, both the expert, [Indiscernible] and be able to help monitor the progress of how they disseminate that technology. And then help institutions architect how they want to use the technology to deliver better care. And then to help novices utilize elements of that information into delivering better care. So if you so fundamentally, in order to bring this to life, you need a backbone to make that happen. That's what we learned. That's what we're implementing. So our software really helps institutions, experts, and users go down their journey. And that comes back to fundamentally that our technology is revolutionary, because it allows you to use ultrasound, ultrasound information, and acquire it differently. But our hardware acquires the information, our software makes it user usable, both in the device and in the application. And then we have an element of the connectivity that makes that makes the information valuable in the context that you have it which allows the information to travel across the continuum, which then brings it into your ability to deliver care transformation. So it's really important that we're not selling a widget and a device, right? Like this isn't like you back it up and sell an ultrasound machine and let people use it. We are giving people the opportunity to reimagine and, and benefit from ultrasound information. In order to do that, our in-market learning have helped us see how we need to create some of the lines across the dots to help our customers cross these things to think about how they can imagine care differently. So it's important for us to put the software in partner with them, help them understand how they're currently using ultrasound, how they can evolve in the future to use ultrasound, and how Butterfly can help them use ultrasound information differently. So it's a software, hardware enterprise solution cell. And so that's what's happening at Stanford. That's what's happening at Yale. And that's our approach to helping people move forward with the journey.

[Operator Instructions] It appears we have no questions at the stage. So I'm just going to hop this one question from Neil again, I'm just going to open his line up again.

Hey, guys, sorry. Yes, I had some follow ups. Yes. Just in terms of this, the healthcare spending environment, just curious from like, at the customer level, are you seeing any nuances there? Say, are those labor and budget pressures more, is it widely spread? Or are you seeing it more in the community health system side versus, say, the academic medical center side? And have you seen a kind of new mitigation strategies?

It's really hospital. Some folks have managed their finances well through the pandemic and first pandemic and others have not. And then, I think it's a pretty consistent theme across most of the health systems with the burnout for a lot of the clinicians and hospital staff. So even the folks who are have the budgets often don't have the resources because they're not going to put another burden on their staff. So we are seeing it fairly widespread, obviously, we still did have nice revenue in Q3. So it's not everywhere. But it's definitely more prevalent and became more prevalent in Q3.

No, I think we see it as a it's definitely a macro trend, right. But I think in general healthcare is, is institution by institution difference. So the conversations that we're in, and I think that's why we say we meet our customers where they are, both with what their economic challenges are, what their workflow challenges are, what their technology challenges are, we see it as an opportunity, because there's a lot of flexibility in the Butterfly solution. It really can help you solve the problem that you want to solve. And that's a blessing and a curse for us in the sense that we're getting people to understand that it also brings some complexity to sell. At the end of the day, it's far more an opportunity than it is a challenge. And we just, we're early in the journey, we see positive signs across every aspect of the journey. And we definitely believe that at the end of the day, regardless of where you are, as a health institution, Butterfly will be part of your solution moving forward.

Thanks. And then just want one more follow-up. In terms of the adjusted top line guidance, so is that reflective mostly of the macro environment? Or are you expecting some disruptive impact means [ph] the commercial leadership will change over an organizational restructuring?

Look, I think I think it's just a combination of all. I think we're trying to, I think we're trying to be good partners. We're trying to be prudent about how we go about doing this. We're really optimistic. We have lots of good signals. And I think we're early right. So we, when we look at something it, every action kind of has an opposite reaction, right. We're building, we're growing. And so we want to be prudent about the impact of the macro environment, the complexity of the cell, the changes that we're making organizationally, and we just want to be cautious moving forward. We're very optimistic about how things are gone. We're getting very positive signals, but we also want to be realistic and good partners in the marketplace.

Alright, thanks, guys. That's it for me.

Thanks guys.

Thanks guys.