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Operator: Good afternoon. Thank you for attending the Butterfly Network 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.

Heather Getz: 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 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 at 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 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?

Joe DeVivo: 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 line 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, leveraging 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 2023 expectations. Even more, our first quarter of 2024, was the best first quarter in Butterfly’s history, even beating 2022’s 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 the quarter. I’m very proud of the team for delivering such high quality launch ahead of schedule. So, as a reminder, as I laid out on our previous earnings call, our 2024 priorities for Butterfly are, one, iQ3 driven growth, including going deeper into health systems. Two, global expansion. And three, driving medical school adoption. In addition, we see further opportunities such as Vet. So, digging in further to the launch, on February 13, 2024, iQ3 became available to all of our domestic channels. Each of our regions then proceeded to deliver an above plan performance.

U.S. revenue growth in the quarter was 19%, led by an increase in unit volume of 18% year-over-year. There were no large deals, just a groundswell of individual orders increasing on a daily basis throughout the quarter, which in my point of view is very healthy. Now, international grew 14%. And this was without iQ3 and prior to even receiving EU MDR certification for iQ+. So, in other words, the growth was purely based on approved execution from our distributors and strong performance from our international direct team, despite no new product in years. Well, that’s about to change for them. Now that we have EU MDR certification, we’ll be rolling out a cadre of advanced features on our European iQ+, product later this month. International results should accelerate further.

So, what’s more, the new Butterfly iQ3 international rollout is kicking off very soon. We plan to launch iQ3 in Canada this month, and then Europe will come next later in 2024. So iQ3 was available for a half a quarter in the U.S. market. Sales and selling activity has been electric. Of over 1,200 iQ3 units sold, about half were brand new users to Butterfly, and half were trade-in upgrades by existing users, who wanted the new technology. In every setting iQ3 shined. We have held many private iQ3 demos for KOLs in every clinical specialty relevant to ultrasound. We used to hear, “Butterfly is great but” from several specialties, especially cardiology. But there’s no more but. That is now a thing of the past. At the most recent American College of Cardiology Conference, our little booth was swamped with cardiologists.

It was so gratifying, because we heard them say, “I just had to come by and see if iQ3 was as good as everyone says it is”. Now, that’s really nice to hear. Our message is getting out. There’s a viral buzz around our new product, and customers are reaching for it. Time and again, we’ve put iQ3 up against the competitive devices, and our image quality is just much better. We have advanced automated tools, and our cost is still a fraction of the price of all competitive probes. Remember, you need to buy four of their probes, between $5,000 and $7,000 each to get to a full-body image. Together, that’s a $20,000 to $28,000 purchase, about the same cost as an entry-level cart. We also published a white paper accessible at butterflynetwork.com/resources.

On the clinical utility of iQ Slice and iQ Fan, detailing how these advanced tools can enable more efficient care, by reducing the number of scans needed in an exam. Many ultrasound protocols are time-consuming and demanding on probe manipulation to get a series of views. With iQ Slice and Fan, we proposed new protocols that streamline the scanning process, and enhance diagnostic efficiency. This was also the first quarter that, we began selling two probes side-by-side. iQ+ remains the best-selling handheld in history, and the product has a lot of life. Providers who are generalists, or very price-sensitive may opt to purchase iQ+ at $26.99, while more specialized doctors, for example, those with cardiac, MSK, and vascular needs will likely opt for the iQ3 at $38.99.

No matter what, Butterfly wins, because we have the lowest cost all-in-one probe, and simultaneously the best handheld in image quality, capabilities, and cost. Plus, our probes are paired with enterprise software and educational tools to make deployment feasible at scale. And now, Butterfly Garden will be constantly bringing them the best AI apps in the world. It’s just simply an unbeatable offering. Health systems are now taking notice, and our pipeline is growing. We have the probe, the mobile app, enterprise software, and education portfolio. If a point-of-care ultrasound director is serious about building an enterprise program, they will now truly have only one choice, Butterfly, the most complete solution. In fact, we’re thrilled by new data coming out of one of our largest one-to-one probe and software installations at the University of Rochester Medical Center, which furthers the value story by demonstrating the economic benefits of Butterfly.

There’s much more to come on this, but they allowed us to preview a highlight. Since putting Butterfly in place system-wide, URMC observed significant revenue growth, a 116% increase in hospital revenue from point-of-care ultrasound in just a year and a half, and they also reduced capital expenditures when deploying our devices system-wide. Looking at our software and services revenue, in total it was down slightly. This is temporary. Underneath that, we had great enterprise software quarter, with upsells in existing accounts growing 25% from Q4, ’23 and overall ARR growth at 34% year-over-year. On the individual side, we anniversary the subscription promotion put in three years ago that was very successful. Much of that revenue rolled off this quarter.

I’m not worried about this at all, as we’ve reloaded the chamber with a bunch of new software from this quarter’s all-in probe sales, which will roll forward nicely and set the stage for a lot of new software to amortize, over the next three years. I also explained last quarter that medical school programs would be an important growth driver for us, and we’re seeing the momentum here, including upsell into over five schools in Q1, two of which were one-to-one models deploying probes to all incoming first year students. Our pipeline in this area is also growing strong, and schools are realizing, the value of one-to-one models. Look, each student wants their own probe. Just last month, we were at AACOM, the largest gathering of osteopathic medical school leadership in the country.

More than 30 DO school decision-makers showed up for a private session, to learn more about Butterfly’s one-to-one models, and more came for conversations at our booth. ScanLab’s launch in Q1, is a huge part of our success here. Its contribution to the quarter was also nothing short of amazing. Having an ultrasound instructor side-by-side, with a student to practice is a resource not all medical schools have. Prospects have cited ScanLab as the reason they feel a one-to-one model is now feasible. ScanLab amplifies a student’s coursework and hands-on training with AI-guided practice tools. It has strengthened our lead in medical education, as a whole generation of students learn ultrasound, and do it with their Butterfly. Much like Apple built their iMac market decades earlier, when students learn on your platform, loyalty for years ensues.

The impact of ScanLab goes well beyond med schools. We have partners, distributors, and customers, hosting training programs using it. Since its launch in mid-January, thousands have downloaded it. Multiple institutions are using it in clinical research. Schools are incorporating it into their curriculum. Customers realize there is now an AI tool allowing students and clinicians, to practice their scanning skills on their own. And it’s a proven game-changer for us. We also saw growth in Butterfly Garden AI partners. We launched these streams about eight months ago in August of 2023, and saw an immediate strong inbound. This pipeline continues to grow. In Q1, 2024, we added four partners. And just last month on April 23, ThinkSono became our first partner, to commercialize an education app for deep vein thrombosis assessment.

It’s exciting to see the rate of progress in this area. So before turning it to Heather, I’d like to give a brief update on the European Commission’s effort, to ban hazardous substances from electronic devices called RoHS, or Restrictions of Hazardous Substances Directive. I’ve mentioned that we’ve been in contact with the European Commission, about our chip ultrasound as a cleaner alternative, to incumbent lead-based piezo handhelds. We’re pleased to have learned that they’ve not yet begun reviewing the lead piezo industry’s request for the next exemption. Our contact that the commission shared, will most likely begin at the end of this calendar year, and then decide sometime in 2025. So that’s terrific news for Butterfly. First, we are not late in the game.

Butterfly and our SEMA technology will be fully evaluated and considered in this next round. Second, we believe it’s possible that iQ3 will be approved in Europe, before this evaluation process concludes. While we’re very confident that even with iQ+ we would prevail, with iQ3, we feel certain that any independent evaluation against all other handhelds will conclude that iQ3 is at minimum equivalent, period. We have also further learned that the EU’s seriousness in upholding this directive is strong. The more energy we are putting into this process, the more we believe the odds of prevailing in our favor, and new sales of lead piezo handhelds may be banned from the EU as early as 2025. The facts are simply in our favor. There is still a lot of work to do, but our confidence is growing.

So with that, I’ll turn it over to Heather to report more on the quarter. Heather?

Heather Getz: 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 volume, 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 volume, 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 through e-com.

Breaking our revenue down, between product and software, product revenue was $11.3 million, an increase of 28% versus Q1, 2023. This increase was driven by higher volume 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. Turning now to gross profit. Gross profit was $10.2 million in Q1, 2024, a 12% increase as compared to $9.1 million in the prior year period, while gross margin percentage remained relatively flat at 58%, versus 59%. The slight downtick was driven by a negative impact of higher software amortization, and lower proportion of higher margin software and other services revenue, partially offset by higher average selling prices. Moving to EBITDA and capital resources. For the first quarter of 2024, adjusted EBITDA loss was $13.2 million, compared with a loss of $22.3 million for the same period in 2023. The $9.1 million improvement in adjusted EBITDA loss, was driven by higher revenue, cost reductions and efficiency, which led to lower payroll, consulting, and other outside services.

Capital resources as of March 31, 2024, were cash and cash equivalents, including restricted cash of $117 million. Excluding $6.5 million of bonus and other non-recurring expenses, our total use of cash in the first quarter was about $15 million. As we have previously discussed, over the last 18 months, we have taken over $170 million of cost out of the business, and have reduced our annual cash burn to approximately $60 million. Based on this, we estimate that our cash balance, conservatively, provides us with a runway into 2026, and we have a plan to extend it further. Before moving to guidance, I want to touch on the notification we received from the NYSE. As you may have read in our release, we received a notification that we are out of compliance with the NYSE standard that requires a 30-day stock price moving average of at least $1.

We are viewing this strictly as an administrative issue, and are confident we will maintain our listing. We have six months to regain compliance. Since we believe the market has undervalued the stock, and is not factoring in our first quarter results, or future growth, we believe we can regain compliance with a recovery in our stock price through continued business execution. In the event that the market and our price does not recover in that time period, we will perform a reverse stock split. During this time, our stock will continue to trade on the New York Stock Exchange. Now moving to guidance. As Joe discussed, we have been executing against the roadmap we laid out in August. We launched iQ3, ScanLab, and Butterfly Garden with 13 deals.

We added four new garden partners in the first quarter, and in April, ThinkSono, became the first garden partner to commercialize, an example of what we expect to be a meaningful contributor down the line. We have invested in our sales team, all while reducing our cash consumption and conservatively extending our cash runway into 2026. As we look into 2024, our commercial organization is humming, and we are continuing to find further efficiencies to extend our cash runway even further. In addition, we are exploring a number of opportunities for non-diluted financing, for example, grants and licensing deals, to provide us with maximum flexibility and a pathway to profitability. We will keep you updated on this front. For 2024 guidance, after launching iQ3, and seeing its market acceptance, we can provide more concrete and higher revenue guidance in the range of $75 million to $80 million, or about 15% to 20% growth, and adjusted EBITDA guide for the full year, of a loss of $55 million to $50 million.

As the year progresses, we will provide updates and further clarification. Specifically looking at Q2, which is our toughest time for the year, due to a few large medical school deals that occurred in the prior year, we expect to see revenue growth around 10%, bringing us to approximately $20 million in revenue. For Q2, adjusted EBITDA, we expect a loss of approximately $12 million to $13 million. To summarize, we have started the year strong, and we look forward to continued growth in 2024, as well as to realize additional efficiencies that will further extend our cash runway. Additionally, we have maintained a solid cash position while investing in the business. We will continue to execute against our plan, drive adoption of iQ3, and expand uses of our product across all of our channels.

Butterfly is set up to accomplish its goals, with a strong base of technological and organizational assets, and a team who is energized to capitalize on this attractive opportunity. And with that, I will turn the call back to Joe. Joe?

Joe DeVivo: Thanks, Heather. So I’ve been here about a year now, and looking back, I’m proud of what we’ve 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 and powered 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’ve received our certificates just a few days ago. And then with EU MDR certification this quarter as well, we will add Pulse Wave Doppler and other advanced features to iQ+ in all CE mark countries, followed by iQ3 in those countries, before the end of 2024. On a global front, we also remain dedicated to our mission to democratize healthcare, 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 this phase, 500 probes are being distributed to improve maternal care in South Africa. Our vet business also continues to strengthen with new partnerships. In Q1, Chewy became the latest corporate partner who will leverage Butterfly in their first ever veterinary hospitals. We’ve now partnered with the biggest names in pet retail, namely Petco, PetSmart, and Chewy, who all view Butterfly as a key part of their toolkit as they move into the veterinary services space. We also continue to see positive findings from Kansas State’s Beef Cattle Institute researching the use of iQ+ vet for shoot-side respiratory disease management. Data will be presented at the American College of Veterinary Internal Medicine Conference in June. Now, as a part of our continued efforts to best serve the specific needs of our customers, we will also soon introduce our first specialty product, iQ+ bladder.

It will launch this quarter in the U.S. iQ+ bladder is a small, cart-based bladder scanner with purpose-built software, to make it quick and easy for nurses to get bladder volume in a hospital using our proprietary tool. With our new iQ+ bladder in the U.S. coming soon and all the momentum already discussed today, we are increasing guidance for the year. As Heather mentioned, instead of our previous guidance of low double-digit revenue growth, we are guiding to about 15% to 20% revenue growth, which we believe is sustainable in the future. With that increased growth, we will continue to reduce our cash needs. I would also like to touch on our stock price. So, as you’re all aware, it’s been a challenging market, and in particular for small medtech.

As Heather mentioned earlier, we do not believe our current price accurately reflects our business’s value. What we have accomplished or the opportunities ahead. With the work we put into right-sizing the business last year and this quarter’s strong results, we hope that the market acknowledges our return to growth and the great future of this business. As we have reignited growth and became more efficient, Heather and I are committed to continue to optimize the organization. As mentioned, we have several initiatives underway for further cost efficiencies, and are looking at creative opportunities for non-diluted financings, both of which will extend our runway even further and deliver upside to our current plan. So, now I’d like to end with a brief review of our Investor Day, which was held March 18.

I’m very proud of the team and of the delivery of our plans for the next several years. At Investor Day, we showcased new technology, provided real-time demonstrations, communicated new business opportunities, and heard from KOLs on their deployment of Butterfly for the growing point of care ultrasound market. I encourage you to revisit the replay, on the Events page of our Investor website. The URL can be seen on the current slide. There were three takeaways I’d like to reinforce from the day. First, we are winning the race to digital and ultrasound. We have the largest handheld user base, and device deployment in the world. We now have double the processing power in a very successful iQ3 launch, and we’re continuing to invest in higher power semiconductors.

We showed the new capabilities of our next P5 chip, significantly increasing the mechanical impedance, while showing the Apollo chip, which will produce 10 times the processing power of iQ3. Each chip has an exponential leap in capabilities, and each dramatically expands our market, by offering more cart-like capabilities in the palm of a doctor’s hand. Remember, supercomputers used to be huge. Now, each one of you carries one around in your pocket. Every doctor, every nurse in the world will carry a super imaging device from Butterfly, with capabilities of the most sophisticated carts in the world today. Second, Butterfly Garden and Powered by Butterfly are two programs with over 15 contracted partners, which will generate meaningful revenue for the company over the next five years.

Butterfly is the largest data repository, with over 20 million images, growing at over 30,000 new image uploads a day. Ultrasound AI developers will want to partner with Butterfly for development as well as commercialization. Our Garden will become the epicenter of independent global ultrasound AI development. Our Powered by Butterfly program, which licenses our chip technology, also has a major pipeline of partners interested. If we’re successful in closing these deals, Butterfly’s balance sheet will improve by adding non-dilutive capital through licensing. So our Powered by Butterfly program can bring us capital while generating revenue, from markets never contemplated as core to Butterfly in the past. So third, Butterfly will soon be helping patients in the home, by introducing Butterfly Home Care.

Butterfly Home Care will focus on helping at-risk providers manage congestive heart failure patients, by empowering in-home nurses to test for pulmonary congestion. We also intend to help people with bladder insufficiency manage their catheterization at the right time through calculating their bladder volume in their home. Both of these present large new revenue opportunities for Butterfly starting in 2025. In conclusion, over the past year, we extended the cash runway of the business, and have plans to do so even further. We’ve reignited top-line revenue growth, and will continue to drive commercial success as we begin to harvest new market opportunities to grow even faster. New product and market launches will continue to power growth. So this is the investment thesis I believe investors want, and we’re excited to deliver on it.

So with that, operator, let’s open it up for questions.

Operator: [Operator Instructions] Our first question comes from a line of Suraj Kalia with Oppenheimer & Co. Your line is now open.

Suraj Kalia: Joe, Heather, can you hear me all right?

Joe DeVivo: Yes. Perfect on noise. Hopefully you can hear me all right.

Suraj Kalia: Okay.

Joe DeVivo: No, you’re good. With the background noises.

Suraj Kalia: Okay. So first and foremost, congrats on a really nice start to the year. Been a long time coming and I wish you guys continued success. Joe, a lot of metrics were thrown out. And let me kind of hone in on a few. The 1,200 or so iQ3 sold in the quarter. I hope I got that number right. Joe, the adoption.

Joe DeVivo: Yes, they actually there.

Suraj Kalia: If I draw a graph of the adoption curve of iQ, iQ+ iQ3, do we have an idea how, for the same time period, how is the adoption curve looking on a relative basis?

Joe DeVivo: Yes, that 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 been very, very, very well received. So, Heather, is there any anything that you can glean from the past?

Heather Getz: Yes, I think it’s to your point, having the two products out there, and we really only have a 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 in Canada. But for right now, I don’t think I can draw any conclusions yet.

Joe DeVivo: The other thing I’d 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 sell cycles. So, we’re very excited about how this changes the competitive dynamic for us in the health system side. And that that portfolio is bringing nicely. So for just the six 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.

Suraj Kalia: Right. I mean, by our math, Joe, it’s almost looks like a little over 25% for iQ3 pluses, you know, 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?

Joe DeVivo: So, I think we’re going to learn a lot over the next six 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? I think a lot of people say they still would. Because the workflow of the hospital, is a patient going – an inpatient going into a room to a specialized, ultra-sonographer. 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 their workflow?

I think that’ll, that’ll 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 healthcare. 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, you know, what would happen? And so, we’re just delighted to be a part of this, of this big revolutionary change.

Suraj Kalia: Fair enough. Joe, I’ll throw three quick your way and I’ll hop back in queue. One is for iQ3, what have been the initial key areas of uptake, i.e. cardiology, OBGYN, 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 your Investor Day about home care. Obviously you guys are seeing something that maybe the street hasn’t caught on to. 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 caught those? Thank you for taking my questions.

Joe DeVivo: 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’ve 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 uptake 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’ll show that using our pulmonary application, which is an AI-powered beeline counter, that makes it very easy for a healthcare 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 the progression or subsiding of their congestive heart failure symptoms based upon diuretics in the home.

So, there is a pathway where a nurse in the home can do it. There’s a pathway where, through telemedicine, the patient can do it themselves. And then there’s a pathway, of course, to wearables, as we’ve discussed, which is in our future and a good part of it. So sometimes in order to move the market, you’ve got to wipe yourself off, stand up, and go do it yourself. And we’ve been able to train people in the past, and we’re very confident that we can provide some services, help take on some risk, and drive a key part of the healthcare economy and healthcare market. The third on RoHS is basically this Suraj. We’ve had much more dialogue with the European Commission this quarter. We’ve gotten feedback from them, and the feedback is this. One, they haven’t even taken up the exemption, the refreshing of the existing exemption for the lead-Piezo ultrasound industry.

So what that means is that we are in the game. We didn’t miss it. They’re not at the tail end of it, and then we’re just butting in. They haven’t started. So that’s great news for us, Raj, because it means that we are now in the game and we will be fully evaluated. We were not fully evaluated during the last time. We were not as a company aware of it, of this exemption process. Now that we are, we’ve already submitted data that would refute any claim that we are not equivalent. And so, we feel very good, because we’re a part of the process that the probability of success is much higher. Second, because they’re going to be evaluating at the end of 2024, that means, like, if everything goes the way we expect it to go regarding CE marking clearance or EU MDR clearance of iQ3.

Then iQ3 will actually be the technology that we’ll be comparing, against the older lead-Piezo handheld ultrasound devices. So given the fact that, A) they haven’t even started, and, B) when they do, it’s a good possibility that iQ3 will be a part of the evaluation, we’ve gone from being kind of, hi, this is some possible upside, but we don’t know where it is. And we’ve also learned that they’re very committed to this directive. And they’ve made tough decisions in the past, and they’re not afraid to make tough decisions in this area in the future. It’s given us the confidence to feel, you know what, we actually think, based upon an appropriate independent review, and their conviction on this law, that it’s more probable that we’ll see them suspending sales of handheld lead-Piezo devices than not.

And they had said that they would, start the evaluation process in the end of 2024, and they would hopefully conclude sometime in 2025. So, I mean, just looking at those, if you’re willing to be positive in the future, I think the probability is a little bit more in our favor that, they may take those off the market with our measure of equivalency.

Suraj Kalia: Great. So congrats on the progress.

Heather Getz: Thank you.

Joe DeVivo: Thank you. Appreciate you.

Operator: Thank you for your questions. Our next question comes from the line of Josh Jennings with TD Cowen. Your line is now open.

Josh Jennings: Hi. Good evening. Thanks for taking the questions.

Heather Getz: Hi, Josh.

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

Joe DeVivo: 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, the hospitals are penalized due to these readmissions. There’s a very finite cost to 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.

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

Joe DeVivo: 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 learn 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. Meaning when hospitals deploy Compass, they capture a significant amount more of the revenue, well above the 35%. And we don’t have anything that what I’m telling you is more anecdotal and experiential, but we’re getting the 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 and a process of education that they’re 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 non-traditional focus departments who are deploying ultrasound doing so and capturing additional ultrasound revenue. So in the first year, it’s a significant increase in revenue.

And interestingly, people in the past who’ve been critical of this saying a point of care ultrasound and ROI would say, hi, you’re doing these scans, but you’re taking scans away from radiology. I can’t quote you numbers, because they haven’t given me the clearance to do that. But radiology as an individual subspecialty, this revenue was up very healthily on its own. So point of care ultrasound didn’t take anything from radiology. What point of care ultrasound did for URMC, is help them make better clinical decisions sooner. I’ve heard time-and-time again, recently a young child who had some chest pain. They did a scan, immediately identified that there’s an aortic stricture downstream and they go right into surgery, because the doctor had a butterfly.

Or someone who had a difficulty evacuating their bladder and the doctor right then and there uses it to scan the bladder and they find a tumor and they go right into surgery. That is what point of care ultrasound does. It makes – and the doctors at URMC are absolutely thrilled. It’s been a tough learning curve. You go through a whole new process, you go through a whole new deployment. But now all of a sudden they can see things they never saw before. They can help their patients sooner. And I’ve asked them for the anecdotal and then of course the more specific, larger trends. But time and time again, empowering a doctor to be able to do an earlier diagnosis is more fun and gratifying for the doctor and is much better for the patient.

Josh Jennings: Excellent. Maybe last question. Just thinking about or just hearing about the non-dilutive financing options that both you and Heather mentioned. Maybe you could elaborate on both of those and just to tie in, you talked at the investment meeting about the company reaching profitability by 2027, but requiring financing to get there. Maybe just – including your answers, just how maybe remind us of that path to profitability and just how non-dilutive financing could impact that pathway? Thanks for taking all the questions.

Joe DeVivo: 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 focus 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’ve seen the market with brain-computer interface, with Forest Neurotech, and we’re seeing them and 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 making 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 power buy and the current investment, and creating new markets for these new applications, if we – accomplish what we set out to do, some of that balance sheet need to get us to profitability can be done in a non-dilutive 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. Now, this whole concept that there’s this 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 delude 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.

Josh Jennings: Appreciate that. Thanks, Joe.

Joe DeVivo: Thanks, Josh. Thank you for your question.

Operator: 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.

Joe DeVivo: 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.

Operator: That concludes today’s call. Thank you for your participation and enjoy the rest of your day.