Hello, and welcome to the Butterfly Network's Second Quarter 2022 Earnings Conference Call. My name is Alex. I'll be coordinating the call today. [Operator Instructions] I will now hand over to your host, Heather Getz, Chief Financial Officer. Heather, over to you.

Good morning, and thank you for joining us today. Earlier this morning, Butterfly released financial results for the second quarter ended June 30, 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 this company's website at ir.butterflynnetwork.com. I, Heather Getz, Executive Vice President and Chief Financial Officer of Butterfly; alongside 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 the 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. I would now like to turn the call over to Dr. Fruchterman. Todd?

Thank you, Heather, and good morning, everyone. This past quarter has been an important one for Butterfly as we’ve seen continued growth in the market and excitement about our solutions, delivering our largest revenue quarter ever. We know what Butterfly makes possible and practical, and our message is resonating with our customers. Although its one just a transformative device that brought unprecedented access to imaging, it's now a truly transformative digital health care company that is showcasing before the world the value that ultrasound information brings when it becomes part of the everyday assessment and standard of care for patients everywhere. As I've said before, there's a real difference between doing ultrasound and using ultrasound. And it's Butterfly's charge to bring the medical community with us on this journey where they can see for themselves that by using ultrasound, and the information it provides earlier in care, they can make more informed decisions, and they can deliver better experiences and outcomes. This is what Butterfly makes possible. Butterfly is the practical application of ultrasound information into the clinical workflow across all care settings. As I said, this past quarter has been an important one for our progress and trajectory as an organization. Not only are we piloting the growth of a truly disruptive technology, we're also at the heart of our evolution, as a young public company, continuing to build off the changes we have made last year and how we operate, innovate and bring value to the health care ecosystem. We are shifting the paradigm of care. And we know this work will take time, because we are changing how ultrasound has traditionally been used, and where it's traditionally been found. But we are confident based on the signals from those in our commercial pipeline, based on the results…

Thank you, Todd, and good morning again, everyone. Revenue for the second quarter of 2022 was $19.2 million, a 16% increase versus the prior year period and our highest quarterly revenue to date. It also represents an increase of 23% sequentially. Product revenue was $13.4 million, an increase of 3% versus Q2 2021. This increase was driven by higher average selling prices in both our U.S and international markets, as well as higher volume in the vet and international market. Partially offsetting this increase with a reduction in e-commerce or direct to user and smaller out of hospital sales as our business model is evolving to larger enterprise transactions across health systems. We believe out of hospital performance was negatively impacted by a shift in support resources, which has since been remedied. Going into Q3 our volume is strong with an increase in July quarter-to-date volume versus both Q2 and prior year Q3. Subscription revenue, which includes software and services was $5.8 million in the second quarter, growing by approximately 66% over the prior year period. Subscription mix of 30% of revenue increased by approximately 9 percentage points versus Q2 2021. This increase is due to a higher installed base of products with accompanying subscription software as well as increased renewals. We are encouraged by the continued momentum in our subscriptions as we diversify our revenue from primarily one-time probe sales to providing annuity based software and services that enable more informed clinical decisions. Turning now to adjusted gross profit. Adjusted gross profit was $11.2 million in Q2 2022 compared to $8.3 million in the prior year period. This increase was primarily due to product mix, reflecting a higher proportion of subscription revenues, in addition to higher device prices. Also contributing to the increased margin was higher manufacturing productivity, partially…

Thank you, Heather. I hope we provided you with greater context into the accomplishments of Butterfly this quarter. I am immensely proud of what Butterfly has built and achieved and we are now singularly focused on changing how health care is delivered. To support the future, we made the tough decision to focus our investments and streamline our workforce. As a leadership team, we are confident that the changes we are making will ensure we have the resources to fund our strategic plans, ensure our long-term success, and help us advance the innovation and value we bring to health care. I want to thank you for your time and support today, and everyone at Butterfly for their contributions to making all this possible. Thank you for joining today's call. Let's open it up to Q&A.

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

Hi. Good morning. Thanks, Todd and Heather for taking the questions. I was hoping to just start off on the -- good morning …

Hi, Josh.

… the reiteration of 2022 revenue guidance and just wanted to get some help just speaking about the cadence of revenue progression in the second half and how we should be thinking about seasonality in 3Q? Was there any incremental color you can share?

Go ahead.

Yes. So, good morning, Josh. So in the second half, obviously, we have -- typically Q3 is a little bit softer than Q4, but the momentum that we're seeing coming out of Q2 going into Q3, we believe will give us some strength relative to prior year. So on a year-over-year basis, I would expect that to be a higher growth quarter than Q4, but then I would expect to see additional growth sequentially from Q3 to Q4.

Okay. That's helpful. Thank you. And just thinking about the momentum that you guys are citing and the acceleration in the back half, you laid out a number of initiatives that we made progress on, but maybe just to better understand some of the drivers of the second half revenue growth acceleration in the enterprise channel, international channel and that is [indiscernible] just start with just the international channel and thinking about some of the partnerships with major hospital systems. [Indiscernible] you've already established and just how should we think about revenue contributions in 2Q from Rochester and South Carolina? And how those revenue contributions build in the back half? And maybe the same type of question for Petco on the vet side.

Thanks for the multipart question, Josh. So I guess if I would break it down, first and foremost, I think you need to step back, right? I think there's an element of time, right? So people are starting to realize the power and the potential of ultrasound information in the workflow. And really, it's Butterfly that makes that possible at scale, right. So we have a momentum building in the marketplace where people are starting to really understand that. And I think that's really powerful. Secondly, the evolution of our solutions, right? Our Compass software is really what's enabling in counter based workflow and really ultrasound deployment at scale, which is really important. And then our blueprint, which really brings the elements that are required between software, hardware and services to do that, this recognition is really starting to build in the marketplace, in combination with the talent that you see. So that's building. And that's what we're seeing from Rochester from MUSC, from Baylor Scott & White. And as you're starting to see more and more institutions, understanding that there's value in this, but there's -- there needs to be a way to realize it in Butterfly, is the way to realize it both in hardware and software. And then, we're evolving like I said, maturing as a company, so we're getting better at helping our customers through a more effective sales force, through our activities that are supporting people and being able to do that. And then getting better at the way we are executing our business, both directly here in the U.S and in partnership outside of the U.S. And you're seeing those things happening as we're getting traction and penetration in markets outside of the U.S where we have health systems, and working with governments outside of the U.S with our value proposition and building momentum, both in developing and developed markets. And then similarly, we're doing this in veterinary. Our deployment with Petco went really well. They're fully trained. The enterprises -- the enterprise software is up and live. So our ability to execute, do this, get our customers up and running and realizing the value is really coming into its own. And that's really starting to pick up and drive our operations in the back half of the year. And Heather, I don't know if you want to comment additionally.

Less specifically on the larger deals, we've increased our pipeline quite significantly over the second quarter going into Q3. And that momentum has shown in the deals that we've closed actually in July already. We are well ahead of prior year July as well as the first month of April. And all of that lends itself to the momentum we've talked about that we're building.

Understood. Thanks. Thanks for those details and congratulations on the contract with Baylor Scott & White. Was hoping to better understand a partnership like the one you establish with Baylor, and then this Compass software adoption, it seems like it's another element of the business model and revenue generating opportunity. How should we thinking about this agreement? I mean, initially, they're adopting the Compass software platform, [indiscernible] revenue contribution, one. And then I know, Todd, you’ve spoken about the blueprint in Compass has kind of being a backbone for which some of these enterprises can then start hanging Butterfly iQ devices from. And is that how we should be thinking about this Baylor Scott & White contract as well? Sorry, another multi part question for you.

Yes, thanks, Josh. Absolutely, right. I think if you take it, I think this is what I've been talking about the whole time with Butterfly, right? It's about the practical application of ultrasound information into the workflow and how we enable that. So there's an element of hardware, an element of software, and then an element of what I will [indiscernible] is services that enable people to bring this to life, right. So there has to be a way to get people there and that's what at the end of the day, Butterfly is able to do. There's elements within how we break those things down that get people through the journey. But right now, I think it's really important that our Compass software has let people work the way that they need to work in an in counter based workflow manner that lets them start realizing the value of ultrasound. That's why there's real value in Compass and Compass really establishes a platform in which you can get the value out of point of care ultrasound, and then that evolution of point of care ultrasound to advance [indiscernible] tool in workflows all throughout clinical practice. So we see a lot of value in this and our customers are starting to see value in it. It then allows us to work with our customers to help them move away from a doing ultrasound conversation to a using ultrasound conversation, and then incorporating Butterfly which is really one of the best solution to be able to do in counter based workflow using ultrasound information into the workflows. So it's a really important foundation for us and it's a way that we see value as we go about expanding our offering into the health care system.

Great. And just wanted to ask a follow-up on just investing in -- into the build out of the commercial team. Any update just on the status of how the -- where the commercial team stands in the U.S? And how you see the build out progressing from here or whether or not you feel like that build out has been established and then you're comfortable with where the commercial team stands?

Yes, Josh, the structure of the sales organization hasn't changed since we've previously talked about it. We'll continue to add territories and areas where we think that we can get, I would say, quick hit in a large market because that will benefit obviously the revenue growth. And this is an area that this year and going into the future we will continue to invest in to strengthen the field force as well as grow our revenue.

Just on in this area [indiscernible] hyper focused on cash burn, you have some initiatives in place to -- for cash conservation. But have you disclosed public notices about your target potentially wherever it is just in terms of revenue run rate where you expect it to achieve cash flow or EBITDA positivity? Thanks for taking all the questions.

Yes, no problem. You're welcome. No, we have not put that out publicly obviously, with the cash conservation and given the macro environment. Our goal was to extend our runway and the actions we have taken have positively impacted that. And we feel that we have plenty of cash to invest in the areas that we need to within R&D and the commercial organization in order to grow revenue.

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