Good afternoon. Thank you for attending today's Butterfly Network's Q4 and Fiscal Year 2023 Earnings Call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions] I would now like to hand the call over to Heather Getz with Butterfly Network. You may proceed.

Good afternoon, everyone, and thank you for joining us today. Earlier today, Butterfly released financial results for the fourth quarter ended December 31, 2023, and provided a business update. The release and earnings presentation, which include a reconciliation to management 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 Getz, Chief Financial and Operations Officer of Butterfly, alongside Joseph DeVivo, Butterfly's Chairman and Chief Executive Officer, will host this afternoon's call. During today's call, we will be making certainly 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, and the size and potential growth of our current or future markets for our products and services. 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 audio and the presentation being shown, and the slides visible within the webcast platform will also not play animations. To access the animated versions of our slides, visit the events section of our investor website. And then under upcoming events, you will see today's earnings call with an option to click called presentation with animated videos. On the same page, you will also be able to access the webcast live and as a replay once the call has been completed. I would now like to turn the call over to Joe. Joe?

Thank you, Heather. Good afternoon and thanks for joining the call, everyone. I'm pleased to report that our 2023 revenue finished at $65.9 million worldwide, above our expectations of at least $64 million. I was pleased to see each one of our channels performing well as we headed into 2024. In fact, our Q4 and full year direct sale revenues grew 10% and 11% year-over-year. Moving forward, we have every opportunity to realize growth across all of our channels and grow the company double digits in 2024, while investing efficiently. Over the last 18 months we removed over $170 million of cash cost from the business yet continue to invest in our technology roadmap and our commercial team. 2023 was a necessary transition year for the company. We chose to resize the business and focus our strategy. We've matured as a company and can now rely less and less on online sales and more on higher end hospital sales. The operational disruptions over, our sights are set today on growth of our existing business, new products recently launched, and building new market opportunities only ultrasound on chip technology can deliver. During my first full call last year, I laid out what we would deliver in 2023 to set the foundation for growth in 2024. It was one, introducing new ultrasound education offerings to make POCUS accessible to healthcare providers and grow our users. Two, accelerate the easy use by increasing the availability of AI solutions. Three, identifying new development partnerships to bring our core technologies into markets that are not competitive to Butterfly, but will create value for shareholders by leveraging our core semiconductor investment. And four, introduced more products from our roadmap to drive top line growth. I'm very pleased to say that we've completed each of these commitments.…

Thank you, Joe. As you noted, we accomplished a lot in 2023 to right-size and reset the company and are now on what we believe to be a solid path for growth in 2024 and beyond. But first, let me cover the 2023 results. Revenue for the fourth quarter was $16.5 million, down compared to 2022 revenue of $19 million, driven by lower volume, partially offset by higher price. The lower volume was mostly due to lower e-commerce, as well as large orders, including the deployment of Gates in Africa and others from international distributors, and to a lesser extent, the vet market. These large orders occurred in 2022 and did not repeat in 2023. In the U.S., we realized 11 million in total sales, slightly higher than prior year. This was driven by increased ASPs and higher revenue from software and subscriptions, partially offset by lower per sales, predominantly in e-commerce. Total international declined, 24% over the prior year to 4.6 million. This was due to the previously mentioned large orders in 2022 that did not reoccur in 2023. Partially upsetting the decline in global health and international distribution was a 27% increase in the international direct market. Breaking our revenue down between product and software, product revenue was $10.2 million, a decrease of 20% versus Q4 2022. This decrease was driven by lower volume, spread largely across e-commerce, international distribution, and VET due to the large deals in '22 that I mentioned. Software and services revenue was 6.4 million in the fourth quarter, flat to the prior year period. Software and services mix was 39% of revenue, an increase by approximately 5 percentage points versus Q4 2022. This increase was due to a higher installed base of subscription software as compared to prior year, renewals on the existing…

Thank you, Heather. We discussed 2024 guidance of low double-digit top-line growth with an opportunity for upsides. This will be driven by further penetration of health systems with the launch of IQ3 and our investment in our commercial seat. Two, global expansion. Three, further medical school adoption. And four, alternative uses for our technology, including in the vet space. So we all know Butterfly had tremendous success building relationships with doctors directly around the world. Today we have a comprehensive and global online go-to-market strategy. Each quarter we sell more than 1,000 probes online directly to doctors in 18 countries around the world. This allowed us to build the Butterfly brand quickly and reliably as we launched our inexpensive all-in-one ultrasound device for just a couple thousand dollars, making ultrasound a daily fixture in physicians' hands for the first time. So Butterfly did not invent POCUS, but we certainly accelerated its adoption and in many countries put it on the map by selling more handheld POCUS devices than any other ultrasound company in the world, over 143,000 since 2018. While individual doctors were way ahead in embracing POCUS, hospitals were slower to adopt. Emergency rooms led the way, showing hospitals that bedside ultrasound for immediate diagnosis can be a potentially life-saving tool for patients. Early adopters of POCUS originated there. Hospitals became [delouse] [ph] with either having to buy expensive carts to wheel around for POCUS or multiple PISO-based handhelds, which together cost as much as a cart. Then Butterfly introduced the first all-in-one handheld device. And we did a very good job penetrating the ER. If there was a criticism of Butterfly, it was that the image quality needed to be even better to get into more places in the hospital. With the launch of Butterfly iQ3, we doubled…

[Operator Instructions] The first question is from the line of Josh Jennings with TD Cowen.

Thanks for the thorough update and congratulations on the progress. I was hoping to start with just a question on iQ3. We're assuming that there's buzz already generated within the clinical community, but I was hoping you could just comment on any buzz generated within the sales pipeline, maybe even your customer base. And then just after that, is iQ3 going to drive an acceleration in the potential replacement cycle or upgrade cycle within your customer base? And then, what is the opportunity with iQ3 to go back to hospitals that have adopted the enterprise software solution, but not the hardware? And do those customers represent the low-hanging fruit as you're moving forward with this IQ3 launch? Sorry for the multi-part question. I just have one follow-up.

Sure. I guess yes, yes, and yes. So, we're very excited about the initial reception of iQ3. We've been in many demos, and I have not heard of one situation where we haven't really impressed our clinical partners and gotten them very excited. And that, our pipeline, we don't normally comment, specifically on pipeline. But since our launch, we've added a lot of opportunity into the pipeline in just the first couple of weeks that it's been out there. So we're very, very, very excited about what this means. And now we know, like in each, all of this pipeline work are in hospital settings and we're talking to medical schools on larger deals, we're talking to health systems about upgrades and conversions of competitive product. So a lot of very good activity. So we're excited. Regarding trade-ins, yes. So we have a trade-in path for our health system partners. And actually just today have launched a trade-in for our e-commerce. So we do value the iQs and iQ+'s, we think there are other markets. And so if our loyal customers wish to upgrade, then we're allowing that to absolutely happen.

Thanks for that. And then, just to build out of the commercial team and the reorganization there, hoping to just get some more details on how the sales -- direct sales team in the United States focused on hospitals, how it's situated compared to last year and how we will follow the course of 2024 will continue to add sales reps and managers.

Yes. So I won't go into specific numbers of salespeople or managers, but we've increased the size, Heather, 30% to 50%. And through '23, we were training them, we were getting them up to speed, they were on guarantees, they were on ride-ons with other reps, we were bringing people in and getting up to speed. And now in January, they've all come off their guarantees. They all have to eat with the kill. And then, they're out there aggressively going. And one of the things we've also done is, we have an e-comm channel. We have an out-of-hospital channel, like an inside sales that deals with out-of-hospital. And then we have a direct channel that focuses in-hospital. But one of the things that we've done different this year is to make sure that all three of them work together. So as the leads come into e-comm, whether someone, everyone who buys a product online in the U.S. is a part or affiliated with some health system. And so now we link that e-comm sales to our direct rep so they know which doctor, the major institution purchased the product that all of a sudden now they're looking at that strategically saying, okay, we have another champion who's come into the fold. And interestingly, at times when we look at our health system strategy and we amalgamate the amount of doctors who are affiliated with that health system who have Butterfly's sometimes it creates a tipping point and we've seen that in the past. We've seen where all of a sudden we take inventory of how many individual doctors at a health system have purchased their own product and want to use it in the hospital that typically has led to the software deployment because in the hospital say, hey,…

And Joe, can I just add to that, to Josh's question? So Josh, around, we added people mostly in the second half of the year. So when one of the data points that we talked about was the increase in revenue related to our direct sales force and we saw a nice bump both in the fourth quarter, in the full year, around 10% and 11% respectively for those areas and that's the place that we've invested and they're the ones who are calling directly on these hospitals and systems. So as we go into 2024 and those [soaps] [ph] become fully efficient and ramped, we expect to see a benefit from that. And as the year progresses, we plan to look at each of these areas and territories and add resources where appropriate. We just don't want to get ahead of ourselves and we wanted to be efficient with our use of capital as we're investing.

The next question is from the line of Shaymus Contorno with Oppenheimer.

Hey Joe, Heather, it's Siraj. Can you hear me all right?

Yes. Hi, Suraj.

We hear you just fine, Suraj.

Sorry, I was having technical difficulties. So Joe, on RoHS, how would you gauge the probability of various outcomes? Can the goalposts be changed now to require some comparative assessments between analog and digital devices, eventually with a roadmap to phase out analog? I guess rather than having a puristic view of lead versus non-lead, can the goalpost now be changed? How are you all looking at the various outcomes and when do you think we would know more about what's next on the horizon?

Well, thank you for that question, Suraj. I just don't know. What I do know is, they have received two sets of exemptions. What I do know is that they are up for an exemption now, and we are trying to intervene. If you look, I think, we can debate numbers, but handheld ultrasound in Europe has to be a fraction of the overall, [Technical Difficulty] ultrasound and overall revenue, the political blow back for the European Commission, I believe would be very low. If they said we are taking Piezo handhelds off the market and we are going to only allow those who meet real house standards to be on the market, or else what's the purpose of having a standard? If there's equivalence in a device and it meets the standard, then why have a standard in the first place? But truthfully, we are actively in retaining lobbyists. We don't have the resources to fight big ultrasound, but I think there is not going to be a very good argument on why a Piezo-based handheld device that's compatible to our device. There's not going to be a good scientific or clinical reason why they should. So if it stays on, it'll purely be political. If it stays on, it won't be based upon, I mean, we'll go through whatever evaluation and assessment, but I would love to see that the standards upheld, of course, it's in our favor. And it's consistent with what we believe. But honestly, I don't have a read on the politics. If you read the regulations, if you read the intention to preserve the environment, if you read the desire to hold all types of electronics who use raw earth materials or who have either manufacturing toxicity or disposal toxicity. You know, the legacy piezo crystals, you know, they have not proven to scientifically meet the threshold of that directive. All we do. So I guess the question really is how serious are they on the directive? And we look forward to educating them and advocating our position.

And the other thing too Suraj is, let's say they do a phase in. If you're buying devices, are you going to want to buy a device that meets the standards now? Or are you going to be willing to buy a device that doesn't meet the standards and potentially have to remove that from the market? Right. So I think it regardless of, if they do a phase in or if they do an absolute renewal, exemption it benefits Butterfly.

Fair points. Joe, in your prepared remarks, you mentioned -- you highlighted the results of the survey on iQ3. So Joe, admittedly, it's just been two weeks since you all have commercially launched it. So I don't want to go into how many sold and accounts and whatnot. Joe, at what point in the, how many quarters down the line, would you say we would have enough visibility to quantify iQ3? Whether it's in terms of velocity of sales, systems per account, how are you thinking about, at this point in time, iQ3, this would give us a real good idea that what we are seeing qualitatively, now we are seeing quantitatively also. Thank you for taking my questions.

Yes. Thank you. It's a very good question. I personally, I believe by the end of the second quarter, when we have a full quarter, it'll give us the opportunity to see how much our pipeline has grown, how many of those deals we were actually able to convert into revenue. And it'll also be a full cycle. In the beginning, there's obviously a lot of noise. And it takes time. I think the difference with iQ3 is we're pricing it at $38.99. And so it is more of a hospital product. And it's a product that, as I had mentioned, is still far less expensive than any of the handheld platforms that are in the hospitals today with Piso crystals. But it is a higher price point. So it is a sale that we don't believe is as robust an online sale and one that will be a very robust hospital sale. But there are, we know how long those sales cycles are. I'm hopeful that we can see in -- through the second quarter how that ferrets out. We have already seen our pipeline grow a lot. We've seen a lot of deals come into the pipeline, a lot of opportunities that we didn't have before and so we're very excited about that. And so we'll see over time, how quickly do they convert? What is the process? And as you know, as you're getting into larger and larger numbers, there's more people who have to sign off and make that happen. But I think, by mid-year, we're going to know what we have.

Thank you. There are no further questions waiting in queue. [Operator Instructions] There are no further questions in queue. I'd like to turn the call back over to Joe DeVivo for concluding remarks.

So thank you very much everybody for joining. We're very excited about now having 20 -- we had a lot of accomplishments in '23. And '23 was the year where we went through a lot of changes and a lot of restructuring and we're just in such a good place right now. We have a leading team, we have a very clear strategy and our conversations on a daily basis, our execution, revenue, opportunity, not restructuring and all other types of things that are really a significant amount of effort. We have a great team, a great strategy, a market that's growing and a wonderful product that allows us to be very excited about our future. And then on March 18th, we're going to get together. We're going to unpack a little bit more of our roadmap. We're going to talk more about the longer-term strategy. And it's just a very exciting time. So thank you for your attention. And I hope you all come to our Investor Day. So thank you so much everybody.

That concludes today's conference call. Thank you for joining. You may now disconnect your line.