Butterfly Network, Inc. (NYSE:BFLY) Q4 2024 Results Conference Call February 28, 2025 8:00 AM ET Company Participants Heather Getz - Chief Financial & Operations Officer Joseph DeVivo - Chairman Chief Executive Officer Conference Call Participants Josh Jennings - TD Cowen Benjamin Haynor - Lake Street Capital Suraj Kalia - Oppenheimer & Company Operator Good morning, and welcome to the Butterfly Network Fourth Quarter and Full Year 2024 Earnings Call. All participants will be in listen-only mode. [Operator ...

Preliminary Results Announcement - Butterfly Network, Inc. announced preliminary results for the fourth quarter ended December 31, 2024[3] - The press release detailing the preliminary results was dated January 8, 2025[5] Press Release Details - The press release is incorporated by reference as Exhibit 99.1[3] - The press release is not subject to the liabilities of Section 18 of the Exchange Act[4] - The press release is not incorporated by reference in any filing under the Securities Act or the Exchange Act unless expressly set forth by specific reference[4] Regulatory Information - The information in Item 2.02 is not deemed "filed" for purposes of Section 18 of the Exchange Act[4] Report Filing and Signatory - The report was signed by Heather C. Getz, CPA, Executive Vice President and Chief Financial & Operations Officer[8] - The report was filed on January 8, 2025[8] Company Contact Information - The company's principal executive offices are located at 1600 District Avenue, Burlington, Massachusetts 01803[1] - The company's telephone number is (781) 557-4800[1]

Butterfly Network, Inc. (BFLY) is expected to deliver a year-over-year increase in earnings on higher revenues when it reports results for the quarter ended December 2024. This widely-known consensus outlook gives a good sense of the company's earnings picture, but how the actual results compare to these estimates is a powerful factor that could impact its near-term stock price.The earnings report, which is expected to be released on February 28, 2025, might help the stock move higher if these key numbers a ...

Industry Overview - The medical info systems industry is experiencing significant growth driven by the increasing demand for contactless services, which accelerated during the pandemic and continues to thrive in the post-pandemic era [1][7] - The industry focuses on providing healthcare information systems that enable secure access to real-time clinical, administrative, and financial data, emphasizing patient satisfaction, data security, and cost control [3] AI Integration - The medical sector is a major adopter of artificial intelligence (AI), utilizing it for drug synthesis, precise measurement, and faster diagnosis [4] - AI applications in medical imaging have shown success in detecting abnormalities that are difficult for human eyes to identify, such as classifying skin cancer and diagnosing diabetic retinopathy [6] Growth Segments - Telehealth and remote patient monitoring are rapidly growing segments within the medical information systems space, indicating a sustained demand for contactless services [7] - The Zacks-defined Medical Info Systems Industry ranks in the top 14% of Zacks Industry Rank, suggesting strong performance expectations over the next three to six months [7] Investment Opportunities - Five medical info system stocks are highlighted as having strong potential for 2025, including Inspire Medical Systems Inc. (INSP), Omnicell Inc. (OMCL), Talkspace Inc. (TALK), Butterfly Network Inc. (BFLY), and Clover Health Investments Corp. (CLOV) [2][8] - These stocks have shown positive earnings estimate revisions, with each carrying a Zacks Rank of 1 (Strong Buy) or 2 (Buy) [8] Company Profiles - **Inspire Medical Systems Inc. (INSP)**: Focuses on innovative solutions for obstructive sleep apnea, with expected revenue and earnings growth rates of 19.1% and 52.6%, respectively, for 2025 [10][11] - **Omnicell Inc. (OMCL)**: Develops automation solutions for medication processes, with expected revenue and earnings growth rates of 3.3% and 6%, respectively, for 2025 [12][13] - **Talkspace Inc. (TALK)**: A virtual behavioral healthcare company with expected revenue and earnings growth rates of 23.4% and over 100%, respectively, for 2025 [14][16] - **Butterfly Network Inc. (BFLY)**: Specializes in ultrasound imaging solutions, with expected revenue and earnings growth rates of 17.9% and 5.7%, respectively, for 2025 [17][18] - **Clover Health Investments Corp. (CLOV)**: Provides Medicare Advantage plans and a cloud-based platform for chronic disease management, with expected revenue and earnings growth rates of 11.2% and 41.7%, respectively, for 2025 [19][20]

Financial Data and Key Metrics Changes - Butterfly Network reported Q3 2024 revenue of $20.6 million, a 33% increase year-over-year, marking the highest third-quarter result in the company's history [16][22] - Gross profit for Q3 2024 was $12.2 million, a 30% increase compared to $9.4 million in Q3 2023, with a gross margin percentage of 59.5% [19] - Adjusted EBITDA loss improved to $8.4 million from a loss of $12.5 million in the same period last year, reflecting higher revenue and cost efficiencies [20] Business Line Data and Key Metrics Changes - Product revenue reached $13.5 million, a 55% increase year-over-year, driven by higher average selling prices and volume across all channels [17] - Software and other services revenue was $7 million, up 5% year-over-year, but the mix decreased to 34% of total revenue, down approximately 9 percentage points from Q3 2023 [17][18] - Total annual recurring revenue (ARR) grew slightly, with enterprise software subscription ARR increasing by 19%, now representing 46% of total ARR [18] Market Data and Key Metrics Changes - U.S. revenue was $13.1 million, a 27% increase year-over-year, driven by higher average selling prices and strong demand [16] - International revenue increased by 36% to $5.2 million, supported by higher probe volume and geographic expansion [16] Company Strategy and Development Direction - The company is focused on four strategic pillars: accelerating growth in core business, investing in R&D for tech leadership, expanding into new markets, and executing efficiently to achieve double-digit growth and cash flow breakeven by 2027 [5][6] - Butterfly is developing the iQ Station, which aims to enhance in-facility imaging and workflow, leveraging advancements in semiconductor technology [26][67] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving a strong finish to 2024, raising revenue guidance to $79 million to $81 million, reflecting about 20% growth [22] - The company anticipates at least 15% to 20% top-line growth in 2025, with plans to close on non-dilutive capital to support further investments [23] Other Important Information - The company is forming a subsidiary called Octiv to commercialize its semiconductor technology in non-competitive sectors, which could provide a significant revenue stream [34][35] - Butterfly HomeCare is set to pilot virtual chronic care management services aimed at reducing hospital readmissions, potentially creating a substantial new revenue stream [31][75] Q&A Session Summary Question: Can you break down the 23% units and 10% price increase between U.S. and international? - Management indicated that the increase was roughly half and half, with most price increases coming from the U.S. [39] Question: How does the penetration of iQ3 compare to the previous generation? - The iQ3 mix was just over 50% for the quarter, with over 80% domestically [42] Question: Can you elaborate on the harmonics and P5 technology? - Management explained that harmonics require increased mechanical pressure, which is achieved through advanced semiconductor technology, allowing for higher quality imaging [43][45] Question: What are the expectations for Q4 revenue growth? - Management expects around 25% growth for Q4, emphasizing that they build in some conservatism in their guidance [52][53] Question: Can you provide details on the U.S. iQ3 launch and pipeline? - All sales channels are performing well, with a strong pipeline being built, particularly in hospitals [56][59] Question: What are the next steps regarding the EU's RoHS update? - Management discussed the process for reactivating the RoHS exemption and expressed optimism about the EU's receptiveness to their innovative technology [61][65] Question: Can you explain the economics of the Octiv subsidiary? - The subsidiary will focus on licensing and developing technology for various industries, with a potential for significant revenue generation [80]

Group 1 - Butterfly Network, Inc. reported a quarterly loss of $0.08 per share, better than the Zacks Consensus Estimate of a loss of $0.10, and an improvement from a loss of $0.13 per share a year ago, representing an earnings surprise of 20% [1] - The company posted revenues of $20.56 million for the quarter ended September 2024, exceeding the Zacks Consensus Estimate by 7.54%, and showing an increase from $15.42 million in the same quarter last year [2] - Butterfly Network shares have increased approximately 64.8% since the beginning of the year, significantly outperforming the S&P 500's gain of 19.6% [3] Group 2 - The earnings outlook for Butterfly Network is mixed, with the current consensus EPS estimate for the upcoming quarter at -$0.10 on revenues of $21.01 million, and for the current fiscal year at -$0.37 on revenues of $79.27 million [7] - The Medical Info Systems industry, to which Butterfly Network belongs, is currently ranked in the top 25% of over 250 Zacks industries, indicating a favorable outlook compared to the bottom 50% [8]

Revenue and Growth - Total revenue for the three months ended September 30, 2024, was $21.487 million, representing a 31.8% increase compared to $15.421 million for the same period in 2023[83]. - Units fulfilled increased by 1,249 units, or 36.6%, for the three months ended September 30, 2024, compared to the same period in 2023, with significant growth in international distributor volume[81]. - Product revenue increased by $4.8 million, or 54.7%, for the three months ended September 30, 2024 compared to the same period in 2023, driven by higher sales across nearly all channels and increased international probe sales[97]. - Software and other services revenue rose by $0.4 million, or 5.3%, for the three months ended September 30, 2024, primarily due to higher enterprise software revenue and increased licensing revenue[99]. - Product revenue increased by $9.6 million, or 32.1%, for the nine months ended September 30, 2024, with a notable impact from the iQ3 probe's higher selling price[107]. Expenses and Profitability - Research and development expenses for the three months ended September 30, 2024, were $8.844 million, accounting for 43.0% of total revenue[95]. - The gross profit margin for the three months ended September 30, 2024, was 59.5%, compared to 60.8% for the same period in 2023[95]. - Loss from operations for the three months ended September 30, 2024, was $(17.246) million, representing an 83.9% loss margin[95]. - Research and development expenses decreased by $3.3 million, or 27.1%, for the three months ended September 30, 2024, attributed to reductions in personnel costs and efficiencies[101]. - Sales and marketing expenses increased by $0.6 million, or 6.6%, for the three months ended September 30, 2024, driven by higher sales commissions[102]. - General and administrative expenses decreased by $2.2 million, or 19.1%, for the three months ended September 30, 2024, primarily due to reductions in stock-based compensation and professional service fees[103]. - Research and development expenses decreased by $15.4 million, or 34.8%, for the nine months ended September 30, 2024, mainly due to personnel cost reductions[110]. - Sales and marketing expenses increased by $0.9 million, or 3.3%, for the nine months ended September 30, 2024, primarily related to marketing expenses for new product launches[111]. Cash Flow and Financial Position - The company reduced its annual cash requirements by approximately $180 million, bringing it to less than $50 million annually, with cash expected to last into 2027[78]. - As of September 30, 2024, the company utilized $8.3 million of cash and cash equivalents, with a remaining balance of $93.8 million[117]. - Net cash used in operating activities decreased by $47.1 million, or 55.0%, for the nine months ended September 30, 2024, compared to the same period in 2023[122]. - The decrease in net cash used in operating activities was primarily driven by a reduction of $36.9 million in net loss adjusted for non-cash items and $10.2 million in net working capital cash usage[122]. - Fixed office lease payment obligations totaled $28.9 million as of September 30, 2024, with $3.6 million due within the next 12 months[119]. - Net cash provided by investing activities decreased by $75.2 million for the nine months ended September 30, 2024, compared to the same period in 2023, mainly due to the sale of marketable securities in 2023[123]. - Net cash provided by financing activities decreased by $0.2 million for the nine months ended September 30, 2024, with no significant financing activities during this period[125]. - The company had restricted cash of $4.0 million to secure a letter of credit for one of its leases[118]. - Cash used for changes in accounts receivable increased by $8.9 million, impacting overall cash flow[122]. - The company expects to pay approximately 20% of its inventory supply agreements obligations using vendor advances[119]. - The company had no off-balance sheet arrangements as of September 30, 2024[120]. Future Outlook - The company expects to continue investing in product and software development, clinical, and regulatory capabilities to drive future growth[90]. - The company anticipates a shift in revenue mix towards software and other services as device adoption increases, although the mix may remain flat or decrease in 2024 due to the launch of the iQ3 device[86]. - The company expects to continue incurring losses and negative cash flows for a few years while commercializing existing and new products[115]. - The company plans to seek non-dilutive capital in the form of licensing, grants, or debt before potentially raising equity capital to reach profitability[78].

Revenue Growth and Performance - Delivered quarterly revenue of $20.6 million, representing 33% YoY growth[1] - Product revenue increased 55% YoY to $13.5 million, driven by a 37% increase in units fulfilled[10] - Software and other services revenue increased 5% YoY to $7.0 million[10] - Total revenue for Q3 2024 increased to $20.56 million, up 33.3% from $15.42 million in Q3 2023[22] - Raised full-year revenue guidance to $79 million to $81 million, representing over 20% growth[14] Profitability and Gross Margin - Gross profit increased to $12.2 million, with gross margin decreasing to 59.5% from 60.8%[11] - Gross profit for Q3 2024 rose to $12.23 million, a 30.4% increase from $9.38 million in Q3 2023[22] - Adjusted gross margin for Q3 2024 was 60.0%, slightly down from 60.8% in Q3 2023[25] - Adjusted gross profit for Q3 2024 was $12.33 million, up 31.4% from $9.38 million in Q3 2023[25] Net Loss and Operating Expenses - Reduced Q3 net loss by 38% and net cash used in operations by 50%[1] - Net loss improved to $16.9 million from $27.4 million in the prior year period[13] - Net loss for Q3 2024 improved to $16.92 million, down 38.2% from $27.37 million in Q3 2023[22] - Operating expenses decreased 30% YoY to $29.5 million[12] - Total operating expenses for Q3 2024 were $29.48 million, a 29.7% reduction from $41.95 million in Q3 2023[22] - Research and development expenses for Q3 2024 decreased to $8.84 million, down 27.1% from $12.13 million in Q3 2023[22] - Net loss for Q3 2024 was $16.9 million, compared to $27.4 million in Q3 2023, showing a 38.2% improvement[26] - Adjusted net loss for Q3 2024 was $(10.2) million, compared to $(14.6) million in Q3 2023, a 30.1% improvement[26] Cash Flow and Financial Position - Cash, cash equivalents, and restricted cash totaled $97.8 million as of September 30, 2024[14] - Cash and cash equivalents decreased to $93.76 million as of September 30, 2024, from $134.44 million at the end of 2023[23] - Net cash used in operating activities for the first nine months of 2024 was $38.59 million, a 55.0% improvement from $85.72 million in the same period of 2023[24] - Accounts receivable increased to $20.62 million as of September 30, 2024, up 53.7% from $13.42 million at the end of 2023[23] Adjusted Metrics and Non-GAAP Measures - Adjusted EBITDA for Q3 2024 was $(8.4) million, compared to $(12.5) million in Q3 2023, reflecting a 32.4% improvement[26] - Adjusted EPS for Q3 2024 was $(0.05), compared to $(0.07) in Q3 2023, indicating a 28.6% improvement[26] - Stock-based compensation for Q3 2024 was $4.4 million, compared to $6.8 million in Q3 2023, a 35.3% decrease[26] - Interest income for Q3 2024 was $(1.2) million, compared to $(1.9) million in Q3 2023, a 35.8% decrease[26] - Depreciation and amortization for Q3 2024 was $2.6 million, compared to $4.0 million in Q3 2023, a 35.0% decrease[26] - Weighted average shares used to compute adjusted EPS for Q3 2024 was 212.8 million, compared to 206.7 million in Q3 2023, a 2.9% increase[26] Market Expansion and Product Launches - Launched iQ3 in Europe and opened new markets in Indonesia, the Netherlands, and Belgium[1]

Group 1 - Butterfly Network, Inc. (BFLY) has shown a year-to-date performance increase of approximately 39.8%, significantly outperforming the Medical sector's average return of 11.7% [4] - The Zacks Consensus Estimate for BFLY's full-year earnings has risen by 11.9% over the past 90 days, indicating improving analyst sentiment and a positive earnings outlook [4] - Butterfly Network, Inc. currently holds a Zacks Rank of 2 (Buy), suggesting it has characteristics that may lead to outperformance in the market over the next one to three months [3] Group 2 - Butterfly Network, Inc. is part of the Medical Info Systems industry, which consists of 41 companies and is currently ranked 69 in the Zacks Industry Rank [6] - The Medical Info Systems industry has experienced a decline of about 10.6% year-to-date, indicating that BFLY is performing better than its industry peers [6] - In comparison, Brainsway Ltd. Sponsored ADR, another outperforming stock in the Medical sector, has increased by 17% year-to-date and has a Zacks Rank of 1 (Strong Buy) [5][7]

Core Viewpoint - Butterfly Network's shares surged 26.9% following the commercial launch of its third-generation handheld ultrasound system, Butterfly iQ3, in Europe, reflecting strong investor sentiment due to its successful uptake in the U.S. market after its February launch [1]. Product Launch and Features - The Butterfly iQ3 received EU MDR certification in March and is compliant with the Restriction of Hazardous Substances Directive, making it available in all European countries and the UK, with a prior launch in Canada during Q2 [2]. - The iQ3 is the most advanced portable ultrasound device from Butterfly Network, featuring the P4.3 chip with double the processing power of the previous iQ+ model, enhanced 3D imaging tools, and a more ergonomic design [3]. - The iQ3's higher selling price compared to iQ+ is expected to accelerate revenue growth [3]. Market Performance - Butterfly Network's shares have increased by 39.9% year-to-date, outperforming the industry decline of 13.5% and the S&P 500 Index's gain of 15.9% [4]. - The company reported a 16% top-line growth in Q2, driven by strong iQ3 uptake in the U.S. and additional sales from the Canadian launch, with 74% of total online orders being for iQ3 [6]. Sales and Adoption - In Q2, iQ3 sales accounted for 50% of total unit sales, with 75% of units sold in the U.S. [7]. - The company initiated a competitive device upgrade program, allowing customers to exchange old devices for the new iQ3, resulting in over a thousand probes upgraded in Q2 [6]. Technological Advancements - The iQ3 features advanced 3D capabilities, including iQ Slice and iQ Fan, which facilitate easier image capturing and improve clinical decision-making [7][8]. - The device's smaller and ergonomic design, with a 17% smaller probe face and 7% shorter size than iQ+, along with a stronger battery, enhances its appeal and usability [9]. Clinical Benefits - The iQ3 significantly improves echo image quality and includes a biplane mode for cannulation, beneficial for managing patients with challenging IV access [10].