Hello, everyone, and welcome to the Butterfly Network Second Quarter 2025 Earnings Call. My name is Carla, and I will be coordinating your call today. [Operator Instructions] I would now like to 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. Earlier today, Butterfly released financial results for the second quarter ended June 30, 2025, and provided a business update. The release, which provides a reconciliation of management's use of GAAP and non-GAAP 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, Heather Getz, Chief Financial and Operations Officer of Butterfly, alongside with Joseph DeVivo, Butterfly's Chairman and Chief Executive Officer; and Megan Carlson, Senior Vice President of Finance and Accounting, will be hosting 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, uncertainties regarding the potential impact of health care funding 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. To access the webcast, please visit the Events section of our Investor website. A replay of the event will also be available on the page following the call. I would now like to turn the call over to Joe. Joe?

Thanks, Heather, and good morning, everyone, and thanks for getting up early with us on a Friday. The second quarter marked the first full quarter to anniversary our Butterfly iQ3 launch in the prior year. And against this milestone, I'm pleased to share that we were able to deliver our highest quarterly revenue in company history, totaling $23.4 million. Our gross margins reached an all-time high at 64%, and our cash use was the lowest of any quarter at $7 million. Each quarter, we continue to deliver leverage as we march to breakeven. And I'm very pleased of our overall performance and continued discipline of our management team this quarter in the face of some macro headwinds we mentioned during last quarter's call. Earlier this year, we started seeing signs that certain macro environment decisions were having an effect on our core focus business. The guidance provided for Q2 reflected these dynamics, and we came in the range of that guidance. In the near term, we expect these conditions will persist through the end of the year. We believe in the long-term, Butterfly's inherent value proposition will actually thrive in the further cost-contained environment as the health care market adjusts. As a result, we are modifying our full year guidance to reflect this. Our previous guidance factored in the tough comparisons to last year given the boost we saw from iQ3 trade-ins and ASP lift. That said, we had expected to be further along in closing larger deals for additional growth. Those opportunities are still very much active, while the sales cycle is being lengthened. That said, we continue to diligently work on our significant pipeline of enterprise and medical school deals. I'm pleased to announce that we did close the large enterprise-wide deal we mentioned on the last call…

Thank you for your kind words, Joe. My time at Butterfly has been a rewarding experience, and my choice to leave was not an easy one. The accomplishments we achieved as a team over my tenure are a great source of pride and put the company on solid financial footing for years to come. As Joe mentioned, in order to ensure a seamless transition, I will work closely in an advisory capacity with Megan and the rest of the team through March of 2026. I want to thank Joe, the Butterfly team and the Board of Directors for their partnership over the past 3 years. I expect that Butterfly will continue to thrive and achieve great things in the years to come. Now turning to the financials. Revenue for the second quarter of 2025 was a record $23.4 million. The 9% growth was primarily driven by higher average selling prices, the sale of semiconductor chips to partners in our Octiv business and volume in our international markets. This was partially offset by lower domestic volume. Breaking things down between U.S. and international channels. During the second quarter, U.S. revenue was $17.2 million, which was essentially flat to prior year, driven by the sale of chips to our Octiv partners, higher average selling prices, offset by lower probe volume. As you know, Q2 2024 was the first full quarter after the launch of the iQ3 in the U.S., and we saw about 700 trade-in/upgrades in the prior year that did not repeat this quarter. Total international revenue increased 19% over the prior year period to $6.2 million, largely driven by both price and volume due to the international launch of iQ3 and geographic expansion. Breaking our revenue down between product and software and other services. Product revenue was $16.6 million, an…

Thank you, Heather. I first want to thank Heather for her leadership here at Butterfly. The finance and accounting teams as well as the entire company are stronger and better positioned for our future because of her contributions. I'm excited to serve as Interim Chief Financial Officer and look forward to continuing the progress the company has made. Before turning to guidance, I want to provide an update on some of the macro conditions we're seeing in 2025. We mentioned that there was uncertainty regarding the impact of changes in funding and other government programs that have been implemented or were being considered. We continue to see customers delay purchase decisions in the second quarter, as they sought clarity on how these changes would impact their capital and operating budgets. We saw these delays impact our U.S. hospital and enterprise channel as well as publicly funded global health deals, and we're unsure how long this uncertainty will last, as we had a number of large deals in our pipeline that we had anticipated would have already closed. Separately, as Joe will expand on momentarily, we're incredibly excited about the opportunities we see in both Octiv and HomeCare. When we weigh these risks and opportunities together, we feel it's prudent to adjust our full year guidance to a range of $91 million to $95 million in revenue. In order to get to the high end of the range, we need to close on some of the larger deals that have been delayed. If we're not able to do so, we believe our revenue will be closer to $91 million. As promised, we've continued our fiscal discipline. And as a result, even with the downward revision of revenue, we're able to make a $5 million positive revision in our adjusted EBITDA loss…

Thank you, Heather and Megan. As I mentioned earlier, we will begin launching a new software platform in the second half of '25 called Compass AI. Compass AI is our next-generation software aimed at reducing the steps in documentation through new advanced AI tools and other enhancements. When documentation is made easier, more people will use it and subsequently, more records and reimbursement will be captured. Simplifying documentation and enabling faster record completion are necessary steps for scaled Compass deployment inside a health system. Compass AI is designed with automated tools to help determine scan completeness and quality, automated voice control to capture the doctor's notes and auto populate fields in just seconds. We anticipate Compass AI will be a game changer, allowing us to increase penetration within existing customers and making it even more compelling for new enterprise customers to come on board. We look forward to unpacking the technology for you and delivering it to customers before the end of the year. So I'll wrap up with some brief comments on our strategic initiatives, Octiv and HomeCare. You heard earlier of the growing positive impact Octiv is having to our top and bottom line. As we disclosed last quarter, we are partnering with a generative AI company to pioneer a new imaging technology, which I believe can have a major impact on individual's health care and health awareness. Our partner will announce this effort when they are ready, which we hope should be sometime in the third quarter, but it's really up to them. The awareness of Octiv is increasing in technology circles and the inbounds we are receiving are incredible. Octiv will continue to be an area of investment, and I expect will become a meaningful part of the business in the future. I can't wait to…

[Operator Instructions] And our first question comes from the line of Josh Jennings with TD Cowen.

Thanks, Joe, and thanks, Heather, for all the help over the last couple of years during your CFO tenure. Good luck in your next chapter, and congratulations to Megan on the interim role. I was hoping to just start off, I think you laid out the drivers of the guidance revision and some of the macro headwinds that are in place and that Butterfly is facing. Just wanted to make sure we touched on the competitive landscape. There may be a read-through that competition is intensifying too. Are you seeing any competitive headwinds springing up from other handheld platforms in the U.S. specifically or internationally?

So first of all, and also, we read your report. So that really helped us. No. I mean, anything to do with the revisions have nothing to do with competition. Are we in a competitive market? Yes. Are there good competitors out there? Yes. But what we've seen, we think, more is just a function of a big part of our strategy going forward is doing larger deals. And we think we -- there's -- for handheld ultrasound, there's not a hospital budget that says, okay, here's my annual Butterfly purchases. So we are -- every deal we do is new, is -- it gets carved into a new part of a budget and is something that has to do with us blazing really a new trail. Our -- we are specifically citing the larger deals just getting delayed. Those larger deals, no one else is doing. No one. We're the first ones engaging hospitals at this scale, first one engaging medical schools at this scale, and we're blazing trails. There's a bunch of handheld companies who sell online like we do. But that is -- and that will always be competitive. But in general, no. In the environments where we are moving, we are building a market for the first time. We are creating users for the first time. We're building workflow into institutions on one-to-one for the first time. And when anyone is going through a change or they're calibrating, it's easy to delay something that's brand new versus reordering or existing businesses, et cetera. So no, the revision is simply -- we're being cautious because we saw signs. We moderated when we gave guidance in the second quarter to include that because at the end of the first was a little lighter than we would have expected, and that perpetuated into the end of the second. And so, we're just being cautious. We have not missed guidance yet since Heather and I have been here. And we're not going to miss it in the future. We're going to give our investors a very clear line of sight, and we want to continue to earn the confidence.

That's helpful. And a little bit of a similar question, just geared towards the software subscription revenue line item and Compass AI sounds like you're bolstering your enterprise software offering. I would love to just hear more about -- and any help you can give to help us to think through forecasting that those revenues on a go-forward basis just from an enterprise software positioning here with Compass AI coming on board, any trends in the enterprise software channel in the first half that could improve in the second half? And then just also on the individual subscription revenues, what's happening there? And how can Butterfly drive higher subscription levels?

No problem, Josh. So first of all, the software line is kind of like a tale of 2 stories. So on one side, on the individual subscriptions, when we get to renewals, we do have a pretty good churn from an individual subscription. And that is a quarter-to-quarter headwind for us. It is harder for us to get people to re-up after 3 years or after 5 years or if they're on year-to-year. That's just something we're trying to get better, make our software more sticky to those individual users. The enterprise software is growing. And that's where we are not only growing new accounts, but Compass AI is going to give us the opportunity to also take a little more price because of the impact the software has, the capabilities of the software. And so, while the line itself doesn't look like it's growing as fast, it's dealing with that type of shift in product. I think the enterprise software will become and continue to become a more and more meaningful part of our overall revenue. And it's absolutely key to our enterprise strategy because as we've been selling into the hospitals, we've been selling department to department. And then as we stitch together multiple departments, we start talking enterprise. And when you talk enterprise and you talk scaling over a lot of people, efficiency, ease of use, integration to their workflow is literally life or death for software. And it has to be easy. It has to be easy to document. It has to have a few steps. And now with all of the incredible AI tools that are out there, we are able to stitch steps together for one step, and we are able to do things in an automated fashion that makes it quick. So for…

The next question comes from Chuck Knickerbocker with Craig-Hallum.

Maybe just to dig in a little bit more on guidance again, sorry. Can you talk kind of a little bit more about kind of the change in assumptions between prior guidance and this as far as was it kind of impact through Q2, and now it's kind of impact through the rest of the year? And then can you talk about kind of the mix of -- kind of impact on the enterprise side, med schools and then DTC as far as kind of where you're seeing a little bit of a difference relative to previous expectations?

Well, sure. So I don't know if I have anything incredibly novel to add. But the -- when we initially looked at the second quarter guidance based upon how things had closed in the first, we started to see our -- first of all, our global health business, our public global health business, those that work with NGOs that then do work in countries with us, we definitely saw that pause. We saw -- and there were deals that there was a material impact in our second quarter based upon things that we thought would close. Now those things didn't go away. We didn't lose them to a competitor. It was a delay to just ensure that sources of funding in the future would persist. And so I don't think there's a need for anything to be too permanent. And I think things are adjusting. And we just think that, that over the near term is something that we have to keep an eye on because we believe, especially with global health, that if the changes weren't made, our revenue in the second quarter just would have been higher. And we think that would have persisted through the year. When it comes to enterprise and medical school, we have -- I wish I could just share with you the numbers, but we have a pretty good pipeline, and a smaller part of the pipeline closed on those deals. And we didn't lose the deals. They didn't go anywhere. They're pushed out into an out quarter. But now our line of sight and our ability to predict them are just not as certain as they were from a timing perspective in the past. So we are taking a very conservative -- the original guidance had contemplated a continuing of the momentum that we felt at the end of the year. And we definitely felt within the enterprise, within the medical schools and within global health that things have changed. And again, I don't think it's permanent because when we do get into a competitive environment, we have cost as our advantage. We have cloud and AI as our advantage. We have all-in as our advantage. We're not losing the competitors. But we clearly felt that we wanted to be cautious going into the second half of the year, and that's what we've expressed.

And Joe, anything you're hearing from your customers as far as kind of the visibility they need to maybe move time lines along as normal or just faster in general from kind of how they are today? Is it just a little bit -- do you think they just need a couple more quarters kind of in the current environment to kind of get comfortable that things are stable, or a little bit more visibility like on the international side, obviously, just maybe a little bit more visibility into how funding is stabilizing. Just a little bit more thought as far as kind of the driver to things returning to normal?

Yes. So on the global health side, that's -- that will take time to see. I think the needs are out there. People have big hearts, and there's a lot of opportunity to make a significant impact on people's lives where imaging is not readily available. So I think that will recover, but I think that is something where real funding was cut and now those projects that wish to be funded are in the process of looking for different funding. And the private sector still has hearts of gold and are still funding and who knows, maybe they'll step into a bit of a short-term void. But again, I think that will all correct. On the medical school and the health system side, it's just timing. It's just timing. It's -- we save cost. We are a cost saver in imaging. We make outcomes better. So on any analysis, like those dynamics haven't changed. It's just people are like, okay, well, this might take a little longer or we're going to prioritize this or that or it's -- the hospitals have just -- have made their funding decisions -- and I think it's purely temporary. So no, I don't think there is a structural permanent change for hospitals and health systems and medical schools. I just think there's a calibration. And we had expected to go hot through '25 like we did '24, and we've just seen a bit of a change. So again, as I mentioned in the prepared remarks, we might be overly conservative. I don't know. But I think we would rather deal with it, communicate it and give investors a great lens than just hit a wall or something, or guide you in the wrong direction.

That's helpful, Joe. Heather, sorry to see you go out here. Wish you the best.

Thank you.

[Operator Instructions] The next question comes from Andrew Brackmann with William Blair.

Joe, your commentary on the pilot program for CHS, it sounds like that's going very well. Any additional color you can maybe provide with respect to the timing, size or structure for expectations for how an agreement like that might shape up? Should it be sort of per click? How to probe sales fit into that? Any color around that might be -- would be appreciated.

Sure, no problem. So the way it works is -- and I can't give specific numbers yet because the commercial agreement is not finalized. But the way it works is there'll be a program fee. And that program fee will be based upon the number of patients or members enrolled in the program. And that gives us the ability to train the nurses on site. That gives us the ability to provide all the technology needed in that scalable fee based upon the number of people who are enrolled in the program. And so that then provides kind of the consistent revenue and the consistent coverage of the cost that it takes to get the program going. And then there's going to be revenue per scan. So as each scan is done, we will then have it professionally read by a clinician, we will route it, we will quality check it and manage that. So the revenue stream is based upon how large is the population, and then how active is the scanning activity. And we -- when we get to the first agreement, I'll try to give a little bit more color on it, and it's something that will just scale with the number of patients, the number of states that come on. So we do believe it's highly probable that before the end of the year. Butterfly will have its first state signed up. I mean we'll be managing with the teams on site, these patients. And what's beautiful about this model is that this isn't about Butterfly getting into some new business. HomeCare care is about us accelerating adoption. It's about eating our own dog food. It's about using our tech and putting our money where our mouth is, which is we can help you improve. If…

That's great color. Maybe a similar question on sort of the pipeline and where you're going with the entity. You mentioned Butterfly Garden's getting into the commercial phase here and recognizing the crosswinds here and now for the business. If we just zoom out a bit and more and more of these are added, can you just remind us about your confidence that Garden can sort of help drive the flywheel effect, which you just talked about for HomeCare as well?

Well, sure. So that's -- I mean, I wish I had time to explain to you how good that question that you just asked is because, again, it is the flywheel. So for example, we now with HeartFocus from DESKi, we're going to have a tool that's going to allow a historically uneducated health care professional to be able to get an echo. So that can be now a whole new service that we provide. So we not only help manage the congestive heart failure patient through our current AI tools, but if they want to have an echo done on site instead of having to send them to the hospital for that echo, we can, with HeartFocus, have them do the echo at the bedside for the patient. Or the same thing with iCardio, or the same thing with Deep Breathe, whereas these new or think [ Sono ], for example, who has a beautiful application for deep vein thrombosis, we could help these nurses also check for DVTs for patients that are bedridden, et cetera. So as each Garden partner comes in, it does so many things for Butterfly; a, it creates a new revenue stream for Butterfly as Butterfly users purchase the software; b, it gives us a new capability in HomeCare that allows us to provide additional services; and c, it allows for an acceleration of adoption of point-of-care ultrasound in the core population, especially in rural areas, in third world countries where the education component of ultrasonography is a major barrier. So -- and that's what's going to make Butterfly go completely mainstream. And by us not choosing winners or losers but allowing the marketplace to come into the Butterfly platform and we will have 20 and 30 and 50 and 100 different applications, people are going to choose the winners, and they're going to make great clinical decisions. We are marching down a path of allowing ultrasound to be ubiquitous. We've dramatically reduced the cost of ultrasound. We are now dramatically improving the access. We've dramatically improved the education tools. And now we're dramatically improving AI or access to AI tools that are going to allow this to accelerate just so much faster. So again, it's a part of our 5-year plan of creating a flywheel, and it's exactly how you formed your question.

The next question comes from Ben Haynor with Lake Street Capital Markets.

First off for me on HomeCare, can you maybe share a little bit more on how meaningful the heart failure reduction or readmission reduction was? Any kind of anecdotal commentary there? And then what does the partner want to see in terms of going from 1 state to 2 states? Is that a function of you guys being able to train? Is it something that potentially can go in parallel? What's the right way for investors to think about that?

So as usual, very good questions, Ben. So first of all, I can't share with you the specifics because it's the partner's data. But I can say there was a significant reduction in readmissions. Let's say -- I don't know if I can give you a number, but it definitely -- let's put it this way, it cut the readmission number at least by half. And if you look at those numbers, those numbers scale very quickly. And so of course, going to the first state is to make sure that the pilot results are transferable at scale. And so -- and I think when we show the ability to transfer those results at scale, I think that just opens up the opportunity. And I think that, that would happen quickly. So there's a difference between monitoring, doing a pilot at 2 sites versus a full state. And so it's purely -- we're going to work really hard to show that those results can continue. And I think when we do, the opportunity just continues to open for us, Ben.

Makes sense. I mean it sounds like with what they saw, there's not really any question that they'll be duplicatable elsewhere?

No. It's -- I mean the results are great. So it's just -- but as you know, when you scale stuff, you have to -- sometimes the littlest things get you. So you just have to prove that, hey, you can go to these different sites, you can train -- everyone -- it wasn't just an anomaly, blah, blah, blah. So we're going to do that now in -- hopefully, as we get this first day closed.

Okay. Got it. That's very helpful. And then you mentioned hospitals not having specific handheld ultrasound budgets. Is that something that you think iQ station could potentially help you with, whether it falls into a broader imaging bucket or traditional ultrasound cart budget? And then any updates on kind of the P5 next-generation versions and form factors?

So again, another very good question. And actually, you're kind of dead on. Right now, hospitals have budgets to refresh their ultrasound every 3 to 5 years. They have budgets to refresh their point-of-care ultrasound carts every 3 to 5 years. Because iQ3 is only a year out, we're still getting penetrated in the hospitals, and we haven't established it enough for it to become like a routine reorder. But iQ Station will compete with point-of-care ultrasound carts, and that's exactly correct. And again, this is all tying into our evolution because we rewind the tape a year ago, prior to iQ3, the narrative on Butterfly was it's a great device, but it will never be used in hospitals because the image quality doesn't match up. That's what we dealt with 12 months ago. Now over the last year, we proved that we not only are equivalent, but being an all-in pro, being cost effective, having all of our tools, we are the solution going forward. And so we are building that momentum and a way to get into the core $2 billion, let's say, POCUS cart business or the cart business at the lower level, having a device like an iQ station will access existing market dollars and existing budgets and will allow us to displace existing competitors as we move upstream with our image quality. And then, of course, P5 is going to be a generational step-up in image quality. You're going to start asking yourself a question, when you see how good the image quality of our fourth generation is over the existing devices out there, you're going to have to ask yourself, why am I using these devices? Why? They're not going to be as good as P5. We've seen there be a certain limitation on a technology that's been out there for 30 or 40 years doesn't have the type of generational leaps that a semiconductor that we have has. And our fourth generation is going to be so good. I do believe people will be like, okay, well, this is it. And then you add that to a current environment. It creates the workflow when we talk about every doctor and every nurse having their own probe, stepping up to a station and having a sit-down type of quality experience, that's exactly why we've designed this concept. And I think it will allow us to get into the core budgets of the health system. So that's exactly right, Ben.

Heather, sorry, I didn't have one for you, but it's been a pleasure working with you over the years and best of luck to you.

Thanks, Ben.

Thanks, Ben.

[Operator Instructions] And as we have no further questions in the queue, that concludes the Q&A portion of today's call. So I will hand back over to you, Joe, for any final comments.

All right. Well, everyone, thank you so much for joining us this morning. We remain extremely bullish on Butterfly's future, and we will navigate us through whatever changes. I'm very pleased in our expense management and our ability to continue to grow the business, while being good shepherds of capital. We're making great, great progress. And so I just appreciate all of your support as we navigate some change here. And also, I'd just reiterate thanking Heather for all the great work, and she'll go off and do great things and her legacy will continue with a perfect team that we have assembled here in finance. So thank you guys for all your support, and we'll talk to you soon. Thanks.

This concludes today's call. Thank you, everyone, for joining. You may now disconnect.