Hello, and welcome to Butterfly Network's First Quarter 2022 Earnings Call. My name is Alex and I'll be coordinating the call today. [Operator Instructions] I will now hand over to your host, Agnes Lee, Vice President of Investor Relations. Over to you, Agnes..

Good morning, and thank you for joining us today. Earlier this morning, Butterfly released financial results for the first quarter ended March 31, 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 the company's website at ir.butterflynnetwork.com. 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 statements regarding, among other things, expectations with respect to 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 risks and uncertainties 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.

During this call, we will refer to non-GAAP financial measures, including adjusted gross margin, adjusted gross profit, and adjusted EBITDA. These financial measures are not prepared in accordance with US Generally Accepted Accounting Principles or GAAP.

These non-GAAP financial measures are not intended to be considered in isolation or to substitute the results prepared in accordance with GAAP.

The definitions and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures and a discussion of why we present these non-GAAP financial measures are included in today's press release and at the end of the slide presentation.

As a reminder, this call is being webcast live and recorded, and we will be referencing a slide presentation in conjunction with our remarks. Because there is a short delay between the live telephone audio and the presentation being shown on the webcast.

For the best experience, please use either the webcast for both the audio and video content or if you have dialed in by telephone, download the slides from our website and advance them yourself.

To access the webcast, please visit the Events section in the Investors section of our website and a replay of the event will be available following the call. I would now like to turn the call over to Dr. Fruchterman. .

one, we are building a domestic and international commercial organization to support our current revenue base; and two, we are investing in R&D resources to create future revenue streams.

Because we are investing significantly for the future and expecting operating leverage on these investments in subsequent years, we believe at this time, adjusted gross margin are the best predictor of our future profitability.

In closing, time and time again, Butterfly's unique ability to serve its valuable clinical information quickly and easily, where otherwise does not exist, is winning the hearts and minds of practitioners and leaders across healthcare. Butterfly is the practical application of ultrasound information in the clinical workflow.

This is not about doing more ultrasound, but about using the valuable information from ultrasound to better inform care decisions everywhere. Thank you for joining today's call. And thank you, to the Butterfly team for the amazing and important work you continue to do. Now, we'll open up for Q&A..

Thank you. [Operator Instructions] Our first question for today comes from Josh Jennings from Cowen. Josh, your line is now open..

Hi. Good morning. Thanks for taking my questions. Todd, I wanted to just start off on just the hospital capital spending environment. I think there's some med tech companies that have relayed kind of a slow start to the capital purchasing or capital budgets for U.S.

hospitals for systems like robots, but Butterfly iQ is in a different category, being a couple of thousand dollars per device versus kind of 1 million plus per robot, high-ticket other capital equipment.

I just wanted to better understand the lower capital purchasing environment impacted your business at the start of this year?.

So first of all, Josh, and thanks for the question.

Look, I think, in general, it's a challenging environment across health care, right? And I think we see that as it relates to a number of factors coming together, coming out of managing the pandemic, a whole bunch of dynamics with how care is being delivered, a whole bunch of things within society, employment, et cetera.

That said, we think we're actually in a fairly good position, because we think we're not seeing a lot of challenges as a lot of objections to working with Butterfly and exploring the solutions for health care systems. So we're not getting the initial resistance. We're working through the challenges that are going on in the health care system.

And I think part of that is because Butterfly is more part of the solution. So as you put together a butterfly solution and you have the ability to look at how you go about deploying, how you step into the software, how you step into deploying probes, it actually becomes economically beneficial.

So I think as systems get educated about it, as they understand the utility of Butterfly in helping them provide more efficient, more effective care and workflows across the health system. I think they see that as something they want to explore as a positive.

So economically, I think it's been -- I think we don't benefit from the challenges, but I think we benefit from where we're positioned as a solution moving forward in this environment. So people are willing to talk to us. And we haven't seen upfront objection due to the capital environment in health care today..

Great. That's helpful. And just on supply chain and strains. I mean, I know historically, you have this great relationship with the Cannes, a semiconductor manufacturing company.

But just wanted to check in on semiconductor chip supply, but also in the other supply chain constraints that you're facing, and it sounds -- it seems like you're navigating through this these macro challenges effectively on the supply side, but just wanted to kind of check that thought..

So -- right now, our relationship with TSMC is great, and we haven't had any issues as it relates to the semiconductor components of our device as we've spoken to you before, and I think that's an advantage for us as we've gone into this.

As it relates to overall supply chain, I think everybody is having challenges with increased prices with the challenges on supply. We have done a good job. We have good relationships with our supply partners.

And so we've been able to work with them to ensure that we're getting what we need to be able to produce product and to be able to keep things moving forward. So, I think that's been an advantage of ours, Josh, by being in the market. I think when people look at the landscape of devices, we're here. We're working with our suppliers.

We have relationships. We're in this mix, we're partnering. And so we're getting access to components. We have access to semiconductors, and we've been able to keep our supply chain and our product moving..

Great. And I just want to ask about the guidance reiteration revenue guidance range intact, understand the balance in terms of how we should be thinking about growth in the first half or the second half, that was very helpful.

Are you able to share just any other incremental color just on what's giving your team confidence that you will see this acceleration over the next three quarters, but particularly in the second half? And how -- I mean, I think -- we're thinking that the sales pipeline on the enterprise channel is building up nicely. The funnel is full.

But that's what's giving you the confidence in the back half, but any other details you can share would be super helpful..

So, I think you're getting more familiar with the story and I would start there, Josh. I would say that we see confidence in our sales pipeline building as we've gone through, we've been in a number of conversations, and we continue to have things working through our pipeline as we've evolved our value proposition into the enterprise channel.

I think also, it's an evolution of the story, right? As more time goes on, we're able to enhance our product offering, which is creating more value, which is helping us to be able to move through and be more aggressive as we move through the pipeline and we sign more deals, those will help us in the back half of the quarter, we see external trends supporting our value proposition where we're going as some of the guidelines and recommendations that have come around.

We continue to produce clinical evidence. So things are really starting to come together as people have the awareness to it, the guidelines are supporting it. Our evidence continues to reinforce it. And we're getting out there and we're building this pipeline and working with people to implement things.

So, our natural cadence in the business and as we see things kind of evolving and coming together, we see the back half really pulling together nicely. And I think it's a much more balanced year -- a much more balanced picture than what we had last year or so..

Great. And just thinking about the -- you laid it out there in your prepared remarks and your presentation, but just -- it seems like you're making nice progress in all four pillars, but enterprise channel, international, debt, and then even kind of start kicking off some of these clinical trials in the home channel.

But is that the way to think about kind of the progress as you -- continued progress throughout the year, it's going to be balanced through each of those channels, or should we be thinking that one of those channels, either enterprise systems, international, or event will going to outpace the others and drive the acceleration through the end of 2022?.

I think this is where we're kind of balancing where we are in the story, which is the early part of the story, Joshua. And that's how I think things will over a little bit of time here coming to a more predictable pattern. But right now, given where we were and how we started out, we're seeing a lot of our efforts materializing in health system.

We're also moving in our geographical expansion, but that's coming. Right now, we've done a lot of work in our pipeline and our solution that we're offering. So we see right now a good momentum in the health systems piece.

We're starting to get momentum in our international geographical expansion and you've seen that in some of our global health initiatives, and we want to stay committed to our global health equity initiatives both here in the United States and around the world. That continues to do well. And so that's -- we continue to do well.

And we believe that really the embodiment of our strategy as we've talked about in the health systems is important.

But what we've been all about is the utility of information from ultrasound, and we believe that path to home as you think about where care is going, how information drives that care and how standard of care across different settings to be equal in order to maintain a high quality of care in alternative settings is really important.

We see the path to home as being very important, but that's the one that we're really developing right now. And we see health systems international and that as more active and really home as more developmental and driving growth in the future..

Great. And maybe just a follow-up on Home, if I could. Just you guys are kicking on clinical studies. It sounds like you're a latter scanning, heart failure and some other indications.

But I mean, how do we think about the home channel evolving in front of, I guess, data? And then when should we be expecting results from some of these trials? And I assume that the follow-up would be pretty short follow-up period.

But I mean, could we see some outcomes from some of these clinical development initiatives or trial initiatives in 2022, or should we be thinking about results coming in 2023? And just in front of results, sorry to beat the question, but how do you see kind of revenue from the home channel evolving prior to kind of really establishing the evidence?.

I think if you think about home as a journey and it's the site of care, no, I think that home is a destination. So today, people are delivering care in the home, Butterfly provides benefits to people to practitioners who are going out in the home setting and delivering care to patients.

So that's really kind of the start because remember, at its core, Butterfly is about information, right? It's about getting information and informing care decisions, so we're demonstrating the value of that in a different care setting today by getting it in the hands of practitioners or going out of the hospital to the home to deliver care, and we're already doing that.

And what we want to do is then expand that utility so we can bring more efficiencies to care.

And that's the next step, right? So that as you use that information in managing disease, identifying disease and then continuing to do that in a broader and more expanded way to getting patients more involved in their care, getting that information last at point in time, but more as a continuum to practitioner and that's really the evolution.

So Butterfly is going in the home today with practitioners. We then want to bring it in the hands of patients so that information flow can continue, and we want to ultimately evolve it to other form factors where we can have that information more seamlessly coming. So it's really about bringing information and evolution of care in different settings.

That's what home’s is all about. So we're already there today. It's just that we're starting that journey, and we're going to continue that evolution as we go on. So we're proving that.

So we have some of that data with practitioners doing that evidence, now some of those studies are going on, and we hope to see some of that data towards the end of this year and at the beginning of next year.

And then we are also starting studies to help this walk with patients becoming involved in their care and then some of the evidence that we need to continue our form factor evolution and how we can get the continuation of the flow of information into decision-making.

So we'll start hopefully having evidence as part of that journey towards the end of the year and then into next year. And then this story is just going to keep evolving, and we're just going to keep telling the story..

Great. And maybe just a two-part or just maybe two last questions.

Just thinking about enterprise contracts, the big University of Rochester win and then how we should be kind of incorporating those enterprise wins into our models, just from a revenue ratio standpoint, it looks like Butterfly iQ device deployment will start in the second quarter is a multiyear agreement, thousands of devices being deployed.

But any help just thinking through revenue would kind of flow through and is recognized as you deploy these Butterfly iQ devices over the next couple of years..

So I think, Josh, this is the part where we're working on and how they're coming in will help us as we continue to texture revenue.

I think what it demonstrates is that our revenue is multicomponent and so that -- there's different elements to how we're going to be building, which hopefully would also get some comment, some confidence as we continue to move through because upfront, actually, we look at some elements of the software, which enable the deployment, right? So there's a capital element to the subscription.

There are services elements to that. There are services elements to how we deploy. And then there's obviously the capital acquisition of the devices. So I think what it does is it helps us as we're evolving our business model to bring diversification into our revenue.

And it's also helping us understand how we can bring greater value faster into the health system. And so, right now, we're at the phase where we're bringing software up to speed and understanding the services component and to maximize the deployment we're going to be bringing devices onboard with time, that we'll be doing that.

But that -- but what I would caution you is we look to -- look at as a predictor, right now, what it is as an enabler -- and so this is really what we're learning with them on how we can package this.

So it could be more it can be more scalable and done faster and more segmented out to other institutions so we can accelerate their path on to the journey.

And so I think these big deployments early are a huge advantage for us because they're allowing us to absorb and learn the multi elements that are required to actually do something completely different, which is to bring in counter-based workflow with ultrasound into clinical care. And it's an evolutionary change. And so we're in it right now.

And we're going to package it, and then it will be more predictable as we go through and then understanding how it impacts revenue moving forward into the future. So that's how we're approaching these larger enterprise deployments right now. And then as we do some of the smaller ones, we're taking elements of it and bringing that together..

Excellent. And lastly, just thinking the bill indicates -- grants $5 million. Just how do we think about recognize? How that $5 million flows through the P&L or on the balance sheet.

Is that -- are you generating revenue as you deploy these devices out into Kenya -- and I think South Africa? Is that -- how should we think about that $5 million run into the P&L 2022?.

Yes. So I think you're thinking about exactly correct, Josh. As we deploy the services elements and the devices into Kenya and to South Africa over the course of the year will be recognized in the revenue. So it will be recognized over the -- majority will be recognized over the course of the year..

Fantastic. Thanks for putting up with all my questions. I really appreciate it. Super..

Thanks for your interest, Josh..

Thank you. [Operator Instructions] Okay. We have no further questions for today. That concludes today's conference call. Thank you for joining. You may now disconnect..