Hello and thank you for standing by. And welcome to Butterfly Networks First Quarter 2021 Earnings Call. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to hand the conference over to your speaker today, Agnes Lee, Vice President of Investor Relations. Please go ahead.

Good morning and thank you for joining us today. Earlier this morning, Butterfly released its financial results for the first quarter which ended March 31, 2021 and provided the 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.butterflynetwork.com. Dr. Todd Fruchterman, Butterfly Networks' President and Chief Executive Officer; and Stephanie Fielding, Butterfly Networks' Chief Financial 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 of products and services, potential regulatory approvals, anticipated financial impacts and other effects of the business combination on our business, the size and potential growth of current or future markets for our products and services, and the potential 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 evolve 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 or both the audio and video content. Or if you 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 investor 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. Todd Fruchterman.

Thank you, Agnes, and good morning, everyone. We appreciate you taking the time to join us today. I welcome you to this earnings call. Our second since Butterfly became a public company and look forward to updating you on the results we achieved during the first quarter of the year. Following my overview of Butterfly's performance, Stephanie will walk through the details of our financial results. We will take your questions at the very end. As I said on our first earnings call, what brought me to this company is Butterfly's immense potential to drive fundamental change in healthcare by delivering information at the point of care, enabling healthcare practitioners to make more informed clinical decisions in a variety of care settings. This potential for transformation is what motivates every member of our team and their tireless efforts to bring breakthrough innovation to markets around the world. During my first 90 days as CEO, I have become even more excited about the potential for our technology and solutions to drive demand, utilization, and market expansion. Our semiconductor based technology, Ultrasound-on-Chip is the foundation of our point of care solution that enables the acquisition of information to inform clinical decision making. This technology gives us maximum flexibility and how we develop solutions, both to deliver value and create new business models, and is Butterfly's point of key differentiation. And while we intend to continuously refine our longer term strategy, we are excited about the demand in the marketplace today, and are pleased to reaffirm revenue guidance and provide additional transparency for 2021. Stephanie will walk through our guidance details later in the call. But before I talk about our first quarter performance, I want to take a moment to share a real world case of Butterfly's impact on healthcare, with 10s…

Thank you, Todd. I will take you through the details of our Q1 financial performance shortly, and then end with 2021 guidance. But first, I would like to share a highlight from the quarter in light of the forecast we shared ahead of our February SPAC merger. Notably, our gross margin has turned positive over the course of the past two quarters and now outpaces the forecast we shared in November. Total revenue for the first quarter of 2021 was $12.4 million, which is a 44% increase year-over-year from $8.7 million in the first quarter of 2020. Product revenue for the quarter was $9.6 million, an increase of 33% from $7.2 million in the same period in 2020. Units fulfilled the main driver of product revenue were 5,013 in the quarter, compared with 3,711 in Q1 2020, an increase of 35%, reflecting the early steps in the expansion of our customer base within hospitals and larger institutions. Subscription revenue was approximately $2.9 million in the first quarter, growing approximately 93% from approximately $1.5 million in Q1 2020. Our subscription mix, which we define as a percentage of our total revenue, recognized in reporting periods that is subscription based was 23% compared with 17% in the first quarter of 2020, up six percentage point increase. Subscription revenues increased along with device sales, as well as with renewals on year-on-year sales. Due to the timing of revenue recognition, and mix of revenue, we currently expect quarter-to-quarter variability for subscription revenue. But over time, we expect that recurring revenues such as subscription mix will continue to grow. Turning to cost of revenue, the cost of revenue for Q1 2021 was $6 million, a decrease of approximately 37% from $9.5 million in the first quarter of 2020. Cost of product revenues was $5.6 million…

Thank you, Stephanie. And thank you all for participating in Butterfly's first quarter 2021 earnings call. We are still at the very beginning of our journey as a public company. But our rapid and broad progress this quarter in areas such as talent, clinical partnerships, and commercial models, gives me confidence that we are poised for continued success and growth. I would like to thank the Butterfly team for their dedication to our mission and the excellent progress we made in Q1 to expand our markets and partnerships. I hope that you share my excitement. And I look forward to our next update with you. I will now turn the call over for questions.

[Operator Instructions] Your first question comes from Josh Jennings from Cowen.

Hi, good morning, Todd and Stephanie. Thanks for taking the questions. So hoping to just start off on the 2021 guidance. It's encouraging to see and implies a nice ramp throughout the rest of this year. And I was hoping to just get a little bit more insight into your team's visibility into revenues. But particularly on the enterprise contract side, if you could help us understand when your visibility and then to just remind us just the kind of timing of book-to-bill and those contract processes. Because it sounds like that channel is already full. And you're continuing to build out that pipeline is full with enterprise contracts and continue to build up that salesforce. But anyway, a lot in that one question. But wanted to just understand visibility and revenues and then just a reminder on how the enterprise contracts, the timing sets up in terms of initial contact with these enterprise or these hospital system customers and then generation revenue.

Good morning, Josh. And thanks for the question. So first, if you think about the build, right, we are looking to see more growth than the back half of the year with sequential improvement, as we continue to see the revenue mix shift, both with the product and usership more from the direct to the enterprise. And I think that's what we've been working through. And I think you'll see that build as the course of the year goes on. And we're doing the investment behind that to execute that which we talked to you about investing in the salesforce and continue to do that. And we also see some elements of the realization of our product pipeline, enabling that as the year goes through, as it relates to how it builds in the enterprise segment, it's a vast segment. And we are working at approaches right now with partners where we're having great conversations at the highest level with lots of excitement in that and we are continuing to begin to create these partnerships. And we will see that happen over time, and really start accelerating towards the end of the year and into next year. And I turn it over to Stephanie, for a few comments on how that's starting to be realized.

Thanks for the questions, Josh. Yes, I think as you noted, the direct user is formerly ecommerce channel is an immediate sales, the sales cycle for the enterprise is a longer sale. And so but as Todd noted that enterprise or Health Systems Group is not a uniform walk of customers. And so there is a range of the sales process there as well. As we continue to build there, we get better and better at that sales cycle and understanding our customer needs and working with them. And as we bring on a sales team that gets more experienced in engaging with those customers, that process also improves over time. So we do expect that ramp happen in the back half of the year, both because we're investing now. And because that sales cycle take some additional time.

And I just say the last thing about from that is that as we enter into this relationship, the scope and standards then increase the time too. So I think that's one of the nice things, the nice pieces of our business is not just a piece of equipment that goes into the account, we're actually enabling value in how they practice medicine and getting value out of their institution. So that's why some of this is evolving. And that's why it's actually really quite exciting.

No, excellent. And so it segue to my next question; we appreciate the clinical value proposition of Butterfly iQ. And then the anecdotal case you shared in your prepared remarks, Todd, I think that's very clear. I was wondering if you could share any anecdotes or case studies on and how you're marketing the financial instead of a Butterfly iQ adoption for both individual practitioners and enterprises. Because that seems like another attractive element of the technology clearly for individual practitioners to have an alternate revenue stream in their practice and in their business, but also on the enterprise side, in terms of using ultrasound, more imaging and with reimbursement fully in place capturing additional revenues, but I was wondering if you could share any details there on the -- just the financial incentive for prospective customers and how you're marketing that angle of the story. Thanks a lot.

Sure, Josh. Actually Stephanie we'll start.

Yes, as you noted, Josh, we have existing reimbursement codes for these use cases, I think what's exciting about Butterfly is that there's both the existing reimbursement model, but also the tailwind to value based care and how this can drive better insight, better decision making, and ultimately, we believe a lower cost of care overall. And we think that the range of customers are seeing those benefits, both from the direct reimbursement as well as the kind of larger institutional change in their both cost structure and patient care outcomes.

And just a follow on to that, Josh to your point, we're starting to -- it's really become how you bring the information that you obtained with the Butterfly, into your clinical practice and into your workflow and your -- it's really into the decision making, and how you realize that value in the institutional view. So we're seeing that in primary care practices, now moving that forward, both in the value of doing a more enhanced exam rapidly to your point that you made, where you can get a different level of feeling for doing that, but being able to do it in a timely and efficient way. And then for the institutional piece of that, realizing that value in what it can do later on in the economic benefit of how care is delivered, that reducing secondary imaging studies, reducing unnecessary referrals, because you bring more valuable information to the actual decision making point of care. And that's where we see a lot of value. There's and then as you put that into standardization, and larger institutions and workflows, that's where you get a lot of value out of the information. So we see that both at the individual practitioner level and at the institutional level, and it's really about getting powerful information at the right time. And that's what Butterfly I think, really brings is an ability in a format that you can get a level of information that you couldn't get at that primary decision making.

Your next question comes from Matt Taylor from UBS.

Hi. Good morning and thanks for taking the question. So the first one I wanted to ask about was, obviously you assume some acceleration from the year so there's two things that I wanted to touch on. The first is in the press release and in your comments, you talked about the doubling of a salesforce and continued commercial investments, could you just give us an understanding of the cadence of hiring that you've been doing and the current state of salesforce how many folks you have and how you expect that to grow over the course of the year?

So, Matt thanks. So we're looking at, obviously, building to meet the needs that we have, and currently we have the Delta 00 we've doubled the Delta Force in the first quarter. We're at about 27 heads currently, and we're continuing to evaluate where we think we need to enhance coverage as we look at how we use our direct sales force to help with the value proposition and what we just talked about mainly in the enterprise segment, and we're continuing to look at as we are having these conversations, having to, you need to continue to add, but we add, we doubled it in the first quarter.

So you doubled it year-over-year, again, you talk about the cadence of the hiring last year, and how it's impacted sales and or anything on productivity, how should we think about that in terms of sales per person?

Happy to that, so we doubled it from the prior year, not in the first quarter prior year, but actually, sequentially, the sales team is obviously ramping, but we're incredibly pleased with the quality of the talent that we're getting, and the diversity of backgrounds. And given the product and the solution that we sell, it's really important that we find individuals who are able to represent the holistic breadth of what we're offering. And we've been really pleased at the quality of the people who are coming in the door and their connections and ability to work with the institutions that are their customers.

Okay, cool. Thanks for that. And then since we haven't seen the quarterly from last year, I know that it's typically a little bit more backend loaded. Can you talk about how you expect sales to fall through the year and in Q4? And, given you're doing some different initiatives this year, like the enterprise selling, do you think the cadence will be different this year than last year?

Yes, I think this is a unique year for us, both because of the way that we're pivoting our business model, because we have incremental resources to invest as we grow. And so we certainly expect this to be a unique year in terms of the ramp. As you noted, in prior years, we had been more heavily weighted towards the back end and particularly in Q4. That was in part due to the direct to user approach that we've had. Again, we do expect to be backend weighted this year, but for slightly different reasons. In terms of our investment, kind of bearing fruit, I would say that over time the seasonality, the backend weightiness is likely to balance out more as we get more of the kind of subscription, recurring revenues and have that ongoing sales process with our customers where we continue to add value. And that will be more of a conversation that has less of the timing variation to it. But for this year, for sure, we expect that kind of ramp.

Yes, it didn't matter as it relates to the productivity and to what Stephanie was talking about. I think we tried to convey that at this point in the journey it's -- there's just so much excitement and interest, and people are still filling out the utility. So it's a lot about getting into the workflows, whether it's in practices, or whether it's an institutional account. As we get into those and then the scope of the offerings, more defined themselves, it becomes a little bit clearer as to where we sell in the next account and the next account. So right now, it's actually quite an exciting time. And there's a ton of opportunity in each of the accounts that we're working on because this scope are quite large, because we're not just putting a single product into the account, we're actually unlocking a lot of value. So we work with them both on how they're going to use Butterfly, and how it makes sense across a variety of workflows and practices within them. And then how they take that data and then put it into their institutional workflow and health outcome decision making. And that's why I think the question we're evolving into the after the question, because we're evolving with our account. And what I would say is the opportunity and the demand is just incredibly large. And so we're working on meeting it.

Okay, good. That's good perspective. Maybe I could sneak in one more. I just wanted to understand pricing and unit. So you made some disclosures here in the quarter, it looks like pricing was down about a 1%. I mean, I realized that could be due to some of these bigger contracts. You also have the iQ launch in Q3. So, maybe, generally, in the future, how do you expect like for like pricing to trend and including some of these bigger deals? And then when you come out with new products, are they going to be priced higher or the same? What's the right way to think about them?

Yes, so I think the pricing over time there, there are a lot of factors that go into that I wouldn't read too much into kind of minor variation. It's the international mix has an impact. So there are a variety of things kind of going into that from revenue recognition standpoint. And so I think, the way I would think about this more broadly is we have a pricing structure right now that we've discussed, and it's got different kind of tiers around direct to user and larger health systems accounts. But we are thinking carefully about the ways that we're creating value for our customers, and how we want to structure the relationships over time. So they drive value for the customer and for a Butterfly, because we view that as a kind of partnership relationship. The individual pricing variation I wouldn't read into for this quarter.

And, Matt, I think the other thing that's important is to remember we're a digital health company. So and the value we bring into the marketplace and with our customers, we have the element of the device which acquires the information, and then we have the software that makes the information usable. And so that aggregate is the value that we work with our customers over. So it's not just on a price per unit basis. And I think as we are evolving our business model, you'll see that evolve with that.

Thank you, everyone. This brings us to the end of our Q&A session today. I turn the call back over to the presenters for closing remarks.

I just want to thank everyone for joining us today. And we look forward to our next call with you.

Thank you everyone. This will conclude today's conference call. You may now disconnect.