Good afternoon. Thank you for attending the Butterfly Networks First Quarter 2024 Earnings Call. My name is Victoria, and I'll be your moderator today. [Operator Instructions] I would now like to pass the conference over to your host, Heather Getz. Thank you. You may proceed, Heather.

Good afternoon, and thank you for joining us today. Earlier today, Butterfly released financial results for the first quarter ended March 31, 2024, and provided a business update. The release and earnings presentation, which includes 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. I'm Heather Getz, Chief Financial and Operations Officer at Butterfly; alongside Joseph DeVivo, Firefly's Chairman and Chief Executive Officer, will host this afternoon'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 and the size and potential growth of 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. On the same page, you will also be able to access the webcast live and replay once the call has completed. I would now like to turn the call over to Joe. Joe?

So good afternoon, everyone, and thank you for joining us for our first quarter 2024 conference call. We've had a really good quarter and a perfect start to what will be a great year for Butterfly. We delivered 14% revenue growth, which was above expectations and are now raising revenue and earnings guidance for the full year. Our iQ3 launch proved everything we were hoping for and marks a major shift in competitiveness for the health system market. With our building momentum from recent product launches, along with a robust lineup of new products and services coming, we feel confident we will be able to sustain this growth for the foreseeable future. Our ongoing efforts to streamline and become more cash efficient will continue through 2024, extending our cash runway well into 2026. So elaborating further on the quarter, revenue came in at $17.7 million or 14% over the last year's first quarter, with a 22% increase in probe volume and all channels contributed. These results come on the heels of us overachieving our fourth quarter '23 expectations. Even more, our first quarter '24 was the best first quarter in Butterfly's history, even beating 2022 of $15.6 million. We were able to achieve these results through improved execution and do it more efficiently. We actually used half the cash we did last year. So 14% revenue growth, highest first quarter ever, using significantly less cash year-over-year. Now that's progress. We had a number of significant achievements in the quarter. The most notable of which was iQ3 winning FDA clearance early in January, and we were ready. We launched iQ3 ahead of schedule, delivering even more momentum. Our operations team did a marvelous job producing high-quality inventory. Our marketing team executed a flawless launch with so many online activations occurring through…

Thank you, and good afternoon, everyone. As Joe noted, we started 2024 strong with revenue of $17.7 million in the first quarter, a historic high mark for Butterfly representing a 14% increase versus the prior year. This increase was driven by a 22% increase in probe volumes with the launch of iQ3 and higher average selling prices, demonstrating strong demand for our products. Both the U.S. and international markets grew. In the U.S., we realized $12.2 million in total sales. 19% higher than the prior year period, driven by increased volumes, average selling prices and slightly higher revenue from software and subscriptions. Total international increased 14% over the prior year period to $4.2 million. This was due to higher probe volume, partially offset by lower average selling prices as a result of a higher mix of sales to distributors, which carry a lower average selling price as well as lower individual software sales per e-com. Breaking our revenue down between product and -- increase of 28% versus Q1 2023. This increase was driven by higher volumes spread across all our channels and higher average selling prices. Software and Services revenue was $6.4 million in the first quarter, down slightly versus the prior year period. Software and services mix was 36% of revenue, decreasing by approximately 7 percentage points versus Q1 2023. This decrease was due to lower individual subscription renewals that were largely offset by a higher installed base of subscription enterprise software as compared to prior year as well as renewals on the existing base of software users. Our total annual recurring revenue, which is reported as part of software and other services, grew by 4% versus the prior year period. This was led by an increase in our enterprise software, which increased to 42% of our total ARR.…

Thanks, Heather. So I've been here about a year now. And looking back, I'm proud of what we have accomplished. It was easy to recognize the enormous potential and opportunities for Butterfly. What was hard was not trying to do everything all at once and instead focusing on opportunities with the greatest impact. But that's what we've done. For those of you following closely, you know now that the Butterfly team is delivering at all levels. Our R&D team and product teams just crushed it by hitting the mark on our new product launches this quarter. Our regulatory team delivers constantly with clearance after clearance worldwide. Our operations team consistently delivers quality products ahead of time. With the reinvestment in our commercial engine and some new talent combined into the organization, our sales and marketing teams are delivering globally and exceeded [ plan ] by a wide margin. In corporate development, we created the successful Butterfly Garden empowered by Butterfly programs. We did all of this with a streamlined organization that used half the cash it did in the prior year, and we're just getting started. As we look ahead, we will next launch iQ3 in Canada now as we received our certificates just a few days ago. And then with EU MDR certification this quarter as well, we will add [ post-weight doppler ] and other advanced features to iQ+ in all CE Mark countries, followed by iQ3 in those countries before the end of 2024. On the global front, we also remain dedicated to our mission to democratize health care and continue to be the device of choice in all global health contexts. Just last month, we initiated Phase 2 of our 1,000 probe deployment to sub-Saharan Africa under the Gates grant we received in March 2022. In…

[Operator Instructions] Our first question comes from the line of Suraj Kalia with Oppenheimer & Co.

So first and foremost, congrats on a really nice start to the year. It's been a long time coming and wish you guys continued success. Joe, a lot of metrics were thrown out and let me kind of hone in on a few. 1,200 or so iQ3s sold in the quarter. I hope I got that number right. If I draw a graph of the adoption curve of iQ, iQ+, iQ3, do we have an idea of how -- for the same time period, how is the adoption curve looking on a relative basis?

Yes, that's a hard one to calculate because they're different times and it's also different from -- this is the first launch that we have where we're actually launching it on top of an existing product that's on the market. So I don't know that there's -- I mean I can ask Heather if you see any correlation from what was experienced in the past. But what we are doing is, a, we're selling a new product at 30%, 40% higher price. We are still offering another product at a lower price and it's being very, very, very well received. So Heather, is there anything that you can glean from the past?

Yes. I think it's, to your point, having the 2 products out there, and we've really only had half a quarter under our belt. It's a little bit difficult to say, other than the reception has been tremendous as Joe talked about. So we'll probably have a little bit more information as we start to see some other trends and launch internationally and in Canada. But for right now, I don't think I can draw any conclusion. Joe?

The other thing I'll say, Suraj, is -- the other thing I'd say is most of the revenue was -- a very big chunk of it was through online sales, were through new orders from customers, new customers or trade-ins for existing customers. Our pipeline for our hospital business is really -- has really filled and filled big time. But as you know, those are longer sales cycles. So we're very excited about how there's changes to the competitive dynamic for us in the health system side. And that portfolio is bringing nicely. So for just the 6 weeks at the end of the quarter to see the sales come in the way they have, in a very healthy drumbeat has been encouraging.

Right. I mean, by our math, Joe, it almost looks like a little over 25% for iQ3+s with a very rapid clip. Joe, when -- in your view, at what point in time and what all needs to be done to basically make iQ3 or iQ4 or the next generation -- basically make an objective evaluation head-to-head against cart-based systems. I guess what I'm trying to understand is how and when you all are planning for the next generation in terms of cart-based systems.

So I think we're going to learn a lot over the next 6 months because now we have a handheld that can be used in all specialties across the hospital. And I think the question really is when we talk to some really hardcore ultrasound people, the question is, if you had a device that was as powerful as a cart and it was in your pocket, would you need a cart? Would you use a cart? And I think a lot of people say they still would because the workflow of the hospital is a patient -- for an inpatient going into a room to a specialized ultrasonography. And I think this is not putting ultrasonographers out of business. This is liberating ultrasonographers to be mobile and to go -- don't have to be contained to a room. But will hospitals just immediately change the workflow? I think that will take some time. But having the ability of doctors wherever they are to get any image they want of any part of the body, and then be able to refer and quickly make clinical decisions. We're seeing that time and time again at our customers that doctors are making decisions right at the point of care. That's changing the pathway, and that's better for health care. Now the big question is ultrasonographers who rely on specialized imaging and carts, if they had a cart in their pocket, would they remain in their room? I don't think I know the answer to that question, and I think we ask ourselves often what would happen. And so we're just delighted to be a part of this big revolutionary change.

Fair enough. I'll throw 3 quick your way, and I'll hop back in queue. One is for iQ3, what have been the initial key areas of uptick, i.e., cardiology, OB/GYN? Just kind of give us a lay of the land there. Second question, you talked about and you have been emphasizing for some time, from yesterday about home care. Obviously, you guys have seen something that maybe The Street hasn't caught onto. If you can walk us through what makes you believe so strongly about TAM expansion. And Joe, the final thing is RoHS. I didn't catch that commentary completely. Sorry, I threw in a lot of things. Hopefully, you got those.

I did, my friend. So key areas of uptake. So right now, we're seeing a lot of cardiology. And that's where a lot of our new orders are coming from is that we're seeing cardiologists saying, "All right. I wanted to have a high-quality image probe, but I don't want to be limited." And now they don't have to be. So that's an area that we've seen a lot of uptake. We are seeing more uptake in the emergency room where we've always been strong and then we're seeing update in critical care. So in those areas, we're doing really well. And we're doing really well in the specialized areas that we hadn't served as well in the past. And amazingly, our iQ+ sales are still quite vibrant. So we're meeting more needs of more customers, which is very positive. Around home care, we've gotten really good at teaching people how to do ultrasound. We have the tools in Academy. We have the tools with our certified program, and we have the tools with ScanLab. And about 80% of hospitals were penalized last year due to congestive heart failure readmits. And we believe that there's a lower cost way to manage discharges and to keep patients in their home by checking their pulmonary congestion. We've done a study at a major health center that is being concluded this year. And it will show that using our pulmonary application, which is an AI-powered B-line counter, that makes it very easy for a health care professional to use our probe to manage those patients in the home. That will have the opportunity to help providers, at-risk providers to keep congestive heart failure patients in the home and manage their -- manage the progression or subsiding of their congestive heart failure symptoms based…

Great. So congrats on the progress.

Our next question comes from the line of Josh Jennings with TD Cowen.

Congratulations on the nice start to the year and the strong early demand for iQ3. Wanted to just start with a pop question to Suraj's inquiry on the home care initiative and home [ admitting ]. And thinking about 2025, where revenue may start to flow from that home channel, was just hoping, Joe, you could help us understand, I guess, the business model a little bit better. Just how will Butterfly generate revenues? Is it going to be -- is mutually sales of probes or iQ+ or iQ3s to home care services? Or could there be a recurring revenue model or a click model? Just wanted to get a better sense as that issue is kicking in next year already.

Terrific. Thank you, Josh, and thanks for the question. Yes, we're focusing not on device sales. We are focusing on service revenue and some potential taking of risk or success based upon the delivery of the clinical objectives. So again, hospitals are penalized due to these readmissions. There's a very finite cost of those readmissions, and we envision everything from either there being a service revenue that we would charge for the delivery of that service or a combination of service revenue and success based upon minimizing the risk and keeping those patients out of the hospital.

Great. And I just wanted to follow up on the University of Rochester report about the significant increase in the revenue capture for POCUS exams. It sounds like this may be a stake in the ground. I know there's been a theoretical kind of -- a potential revenue capture channel with Butterfly Compass. Does this put the formal stake in the ground and allow you to mark this more heavily? Or is this just a well-understood metric that has already been in play? And I guess then the second layer of the question is just are there even more revenue capture potential? If possible, you're using like Rochester using Butterfly probes along with the Compass software?

Yes, that's a great question. I think it has to do where this is a view in the things to come. When we sell Compass, we learned that hospitals are not capturing all of their ultrasound revenue. And what we see pretty consistently is of all the ultrasound scans they do, especially in point-of-care, they're only capturing about 35% to a full reimbursement. And it's just based upon either not having a process or a software in place to capture that revenue, training, et cetera. When hospitals deploy Compass, they capture a significant amount more of the revenue, well above the 35% and we don't have anything -- what I'm telling you is more anecdotal and experiential, but we're getting to 60%, 70%, 80%. And so we're seeing a very quick ROI of our software deployment, and that's been very positive. What's unique about Rochester is they've actually deployed a one-to-one model where they've probably deployed, I don't know, I think it's between 700 or 800 probes throughout their health system. And then they have the Compass software out that is actively capturing, a, the proficiency of all the new users coming on in a process of education that they are very well putting in place but, b, you're seeing the classic standard point-of-care ultrasound departments having a similar uptake in revenue based upon the capture. But now because of the all-in one-to-one model, we're seeing nontraditional POCUS departments who are deploying ultrasound, doing so and capturing additional ultrasound revenue. So it's -- in the first year, it's a significant increase in revenue. And interestingly, people in the past who've been critical of the saying a point of care ultrasound and ROI would say: "Hey, you're doing these scans, but you're taking scans away from radiology." I can't quote you…

Excellent. And maybe last question. Just thinking about -- or just hearing about the nondilutive financing options that both you and Heather mentioned. Maybe you could elaborate on both of those. And then just to tie in, you talked at the investor meeting about becoming reaching profitability by 2027, but requiring financing to get there. Maybe just include in your answers how maybe remind us of that path to profitability and just how the nondilutive financing could impact that pathway?

Awesome, Josh. Thank you. So the premise of our Powered by program is we've invested upwards of $0.5 billion in our semiconductor program. And we focused that primary market in point-of-care ultrasound, and we're making the products that you all know about. And also the chip technology that is delivering exponential improvement over time. What we've learned is our semiconductors with our MEMS technology has real applicability in other markets. You know you've seen the market with brain computer interface, with Forest Neurotech, and we're seeing them in that deal contribute nicely. What we're also seeing is that there are other markets, and one of them that is very interesting is in drug activation using ultrasound. And if we prove that we could do -- and what's also fascinating is a lot of the researchers are breaking apart ultrasound carts and trying to go through all of this work to tune it to a different place and a different attenuation for these different types of therapies they're studying. Because our ultrasound is chip-based, we have tremendous flexibility in just thinking software changes to change frequencies, power settings, to be able to do many different clinical applications. So it's not entirely far-fetched that we did get $3 million of license revenue in our Forest Neurotech deal. If there's a large market and there's a big appetite to have the technology, we may be able to extract more license revenue. And by monetizing our Powered by and the current investment and creating new markets for these new applications. If we set out -- if we accomplish what we've set out to do, some of that balance sheet needs to get us to profitability, can be done in a nondilutive way. So we are really focused on that. We have great people with great energy and are talking to great partners. And that's something I think investors need or should appreciate. This whole concept that there's just finite cash and we're running out of cash and what's going to happen with the company is a bunch of gibberish. We are growing our revenue. We are reducing our cash burn. We have a lot of opportunities to be able to monetize things. And we are really focused on preserving shareholder value. We don't just want to dilute everybody and be at these prices. We're focusing really hard on getting ourselves to extend our cash runway as best as possible and creating shareholder value during this difficult time. But our R&D team has delivered. We've recaptured our momentum, and we think our ability to control our destiny is in our hands.

Thank you for your question. There are no additional questions waiting at this time. I would now like to pass the conference back to Joe DeVivo for any closing remarks.

All right, everyone. Thank you for being with us on this call. We continue to be very excited. As I mentioned to you many times, this is going to be a great year for Butterfly, and we're off to a good start. So thank you for your support.

That concludes today's call. Thank you for your participation, and enjoy the rest of your day.