Butterfly Network Inc (BFLY) 2020 Q4 法說會逐字稿

Good day, and thank you for standing by. Welcome to Butterfly Networks 2020 earnings call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your first speaker today, Mike Cavanagh, Investor Relations. Thank you. Please go ahead.

Good afternoon, and thank you for joining us today. Earlier this afternoon, Butterfly Network released financial results for the year ended December 31, 2020, and provided a business update. The release is 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 afternoon's call. As a reminder, 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 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. (Operator Instructions) To access the webcast, please visit the Events section in the Investors section of our website. Additionally, a replay of the event will be available following the call.

I would now like to turn the call over to Dr. Fruchterman.

Thank you, Mike, and good afternoon, everyone. I'm excited to be hosting the first earnings call for Butterfly network, and I am grateful for the opportunity to lead this incredible company and talented team. On today's call, I will provide an overview of our full year 2020 performance and the momentum we built last year, before discussing the longer-term outlook for the company. Then Stephanie will review our 2020 financial results, and we will conclude with a question-and-answer session.

With this being my first earnings call as CEO, and our first such call as a public company, I'd like to say a few words about why I was attracted to Butterfly, what we do and why we're so excited about it. For the last 25 years, I have been passionate about driving change and innovation in health care. I wake up every day wanting to make a difference in people's lives. And now more than ever, change is needed in health care on a global scale. And that's why I joined Butterfly because we have the technology and the platform that can enable change of that magnitude. Our universal handheld point-of-care ultrasound solution is powered by our proprietary technological breakthrough, ultrasound-on-a-chip. Butterfly's core chip technology is the first fundamentally new sensor to come to the ultrasound market since the introduction of clinical ultrasound some 50 years ago. It breaks through the crystal ceiling limitations of traditional ultrasound and enables the next-generation of imaging products that are affordable, portable, connected and high performance.

Butterfly has the ability to go to wherever the patient is. We have paired our handheld probe with cloud-based software to create a true imaging solution, a solution that delivers vital information in many use cases across multiple care settings. This information supports higher quality and more timely clinical decision-making and with these clinical workflow improvements, clinicians can achieve better outcomes for the people in their care. The beauty of Butterfly is that this can happen anywhere, as long as the Butterfly handheld is paired with a connected device.

This ubiquity supports our mission to create access to advanced imaging solutions for health care applications all around the world, helping to democratize health care and support global health equity.

Now let's review our 2020 performance. Last year, we made great progress in getting Butterfly into the hands of many different types of health care professionals, bringing our technology to new users and introducing new applications, important steps towards the achievement of our mission. And we are excited because as we listen to our customers, we are seeing many new use cases and opportunities emerge, guiding us as we work to rapidly develop new applications for our technology. And as a result of our team's great work, we reported a revenue increase of 68% year-over-year, demonstrating the excitement and demand for Butterfly technology in the marketplace. This performance is a measure of the positive reception by users to both our initial iQ device as well as the second-generation iQ+ device that we launched in October 2020.

This launch was a significant commercial milestone for our company, creating many improvements we know are important to our customers. The iQ+ is less expensive to produce, has a faster frame rate, longer battery life, smaller probe head and improved interoperability versus the first generation butterfly iQ. The iQ+ is the result of our many years of R&D and our proprietary chip-based technology platform that allows us to rapidly deploy performance enhancements and capabilities into the market.

As one example, in December, just following the launch we further enhanced the IQ+ with the first Biplane Imaging capability in a portable ultrasound device. This allows our customers to more accurately place needles during vascular access and regional nerve blocks. But this is only the beginning as we expect to continue pushing the paradigm of what's possible at the point of care.

In 2020, we established a number of partnerships to help us reliably produce our products and expand customer awareness, reach and clinical use cases for our differentiated Butterfly technology. In October, we announced the collaboration with the American College of Cardiology, or ACC, to explore ways to transform cardiovascular care. Butterfly and the ACC plan to jointly conduct a clinical trial that leverages our innovative technology for scanning patients with cardiac disease, exploring the benefits of Butterfly in new patient care settings that our one of a kind device can serve.

Also in 2020, we expanded our global health partnerships with a number of organizations focused on limited resource settings. We are particularly proud of our work with Ilara Health to facilitate a large-scale deployment of Butterfly iQ devices and to TeleGuidance pilot in Kenya. By leveraging Butterfly TeleGuidance, a sonographer is able to remain at a central hub location and remotely guide clinicians at the outlying Ilara clinics.

We are making important progress toward breaking new frontiers and revolutionizing the way medical imaging is delivered in our mission to advance global health equity.

And as you are aware, last month, we completed our business combination with Longview Acquisition Corp. So now Butterfly Network Inc.'s Class A common stock and warrants trade on the New York Stock Exchange. This has enabled Butterfly to become a larger, well capitalized company that is primed for global growth and supports our robust investment in innovation. I could not be more excited for the longer-term outlook for Butterfly because we believe we have a groundbreaking solution and the team who knows how to realize its value. We know that great technologies don't just make great businesses on their own. Great Technologies make great businesses when they are enabled through powerful, scalable business models that create and capture customer value. It is still fair to say we are early in our journey, and a lot has happened in the past 8 weeks with Butterfly going public in mid-February, me joining the company as CEO a few weeks before that, and more recently, the exciting addition of Stacey Pugh as Chief Commercial Officer. Simultaneously, we have enhanced our capable and experienced Board of Directors with our latest addition of Dr. Elazer Edelman, Professor of Medical Engineering and Science at MIT. Dr. Edelman adds further clinical and technical dimension to our already powerful Board of Directors. Given this build in both the Board and leadership team, we are still defining our longer-term commercial outlook for Butterfly in the most appropriate metrics to inform our progress towards those goals. My near-term goals and that of Butterfly are foundational, and we look forward to reporting our progress in the coming months.

I have 5 goals. My first goal is to broaden and strengthen our human capital, which will complement our technology and clinical teams and to enhance our innovation capability with additional commercial, regulatory, operational and developmental horsepower. The second is to broaden our partnerships with clinical leaders and to unleash the full potential of Butterfly. The third is to align with the payer community, which we believe is well incented to drive adoption of our products to improve both outcomes and cost of care. Fourth is to commercially partner across care settings, specialty and geography, which we expect will accelerate adoption of Butterfly to deliver patient centric, value-based health care. And my final goal is to continue to invest in our industry leading innovation. We are only beginning to harness what is possible to ensure optimized implementation and coordination in health care. Butterfly has an important role to play here. Success along these 5 foundational goals, team, clinical partnerships, payer alignment, commercial expansion, and innovation, we believe, will drive our societal impact, our commercial growth and our ability to improve wellness 1 patient at a time. Our work is not only urgent, it is timely, especially as we emerge from the pandemic. There are rapid shifts in where and how care is being delivered and an increasing focus on value-based care, outcomes and total cost of care. We are fortunate to be delivering technology to a global marketplace that we believe is ready and anxious to receive it.

Today, point-of-care ultrasound is incorporated into the curriculum of more than 2/3 of the U.S. medical schools. Additionally, nearly all professional societies across clinical specialties now have a policy regarding point-of-care ultrasound and are developing standards. This strengthens the clinical foundation on which Butterfly operates and supports our advanced capabilities that enable meaningful utilization and value realization in a variety of settings. At its core, our strategy is to drive increased utilization and adoption of our solution. And this means getting the iQ+ into the hands of the people who can benefit from it in a way that creates immediate, long-lasting value. It starts with getting the hardware in a customer's hand and amplifies through our software that creates an engaging user experience and easily integrates with existing systems providing additional value when using Butterfly.

As we broaden our footprint, we will seek to expand the use cases for ultrasound information and thereby increase applications and use in care settings that haven't traditionally been able to benefit from it. We expect our technology will continue to make ultrasound more accessible to clinicians throughout the world and provide better information to make clinical decisions earlier in a patient's treatment in the hospital, in the ER, in medical transport on the way to the hospital, in the clinic and ultimately, subject to the appropriate regulatory authorization, in the home. And this is an opportunity in both developed and developing health care systems. Decision-making at the point-of-care in many settings can be a game changer for improving a patient's care with the potential to help revolutionize and simplify care delivery, addressing delays in access to clinical information, reducing unnecessary costs and improving patient satisfaction.

The Butterfly solution is designed to address key problems in modern health care and helps to get treatment on the right path earlier because more than 2/3 of diagnostic dilemmas can be answered with simple imaging. In the past, we used a stethoscope and listened. With Butterfly, we can see and know.

I look forward to sharing more information with you on our long-term outlook as the year progresses. I will now turn the call over to Stephanie for a review of our financial results. Stephanie?

Thank you, Todd. Total revenue for the full year 2020 was $46.3 million, which as Todd noted earlier, is a 68% year-over-year increase from $27.6 million in 2019. Product revenues for the full year 2020 were $38.3 million, an increase of 53% from $25.1 million in 2019.

Units fulfilled, which is the primary driver of product revenue, were 20,208 in 2020 compared with 12,941 in 2019, which is an increase of 56%, reflecting continued excitement and demand in the market, international expansion and a positive reception for our new probe, the iQ+, which was introduced in October 2020.

Subscription revenues were $7.9 million in 2020, growing 216% from $2.5 million in 2019. Our subscription mix, which we define as the percentage of our total revenue recognized in a reporting period that is subscription-based, was 17.1% in 2020 compared with 9.1% in 2019, an 8 percentage point increase. Subscription revenues increased with device sales as well as with renewals on prior year sales.

Turning to expenses. The cost of revenue for 2020 was $107.5 million, an increase of 122% from $48.5 million in 2019. Cost of product revenues was $106.4 million, a 122% increase from $47.9 million in 2019. And the cost of subscription revenue was $1.1 million, increasing 72% from $621,000 in 2019. The increase in cost of revenue included nonrecurring charges totaling $62.7 million this year. As we shifted production from the iQ to the iQ+ device in the second half of 2020, we renegotiated some inventory commitments with certain third-party vendors, recognizing a $7 million loss on purchase commitments and a $2.6 million loss on inventory write-downs. Additionally, in the third quarter, we commenced production with a long-term strategic development partner, TSMC. The economics of this partnership were negotiated early in the development of Butterfly iQ+, and the successful production shift represents a tremendous accomplishment for the teams of both Butterfly and TSMC.

Concurrent with this transition and the generation of revenue forecast shared at the time of our Longview merger announcement in November, we undertook an inventory analysis. This review process resulted in the establishment of a $53.1 million noncash inventory reserve against forward purchase commitments. We believe our inventory position fairly represents a reasonable range of sales outcomes, consistent with our merger forecast and provides Butterfly with the ability to meet material excess demand should it materialize through future periods. Importantly, in an environment where there are widespread chip shortages, we are pleased to enjoy clear supply lines.

Inclusive of these onetime charges, reported gross profit for 2020 was negative $61.2 million compared to 2019 gross profit of negative $20.9 million. Operating expenses in 2020 were $100.4 million, an increase of $19 million or 23% compared to 2019. The increase was primarily due to costs incurred in growing the business and completing our staffed business combination, including increased spending in research and development, sales and marketing and general and administrative costs. I would note that we were deliberately conservative with operational spending during the year, conserving cash as we work to secure longer term financing. Loss from operations was $161.6 million, a 58% increase from $102.3 million in 2019, while net loss for 2020 was $162.7 million as compared to a net loss of $99.7 million during 2019. Adjusted EBITDA was negative $85.2 million in 2020 compared with negative $86 million in 2019. Adjusted EBITDA reconciliation calculation to GAAP net loss can be found in today's press release and filings.

Moving to the balance sheet. Throughout much of 2020, we focused on having adequate capital resources and liquidity to support the business over the near and long term. As of December 31, cash and cash equivalents were $60.2 million. Although it occurred subsequent to the end of 2020, as you know, our balance sheet was significantly strengthened following the business combination with Longview Acquisition Corp. On February 12, upon the closing of the business combination with Longview, we added over $540 million in cash to the balance sheet. We believe Butterfly is well capitalized at this point in time to support the next stage of development, and we are in a position to invest aggressively to expand Butterfly's headcount, adoption and utilities.

I would now like to turn the call back over to Todd.

Thank you, Stephanie, and thank you all for participating in Butterflies first earnings call as a public company. We hope you have come away with a better understanding of our company, a sense for the accomplishments of our team in 2020 and excitement about the opportunity for Butterfly Network.

We have the foundation in place for the next stage of our growth and evolution supported by tailwinds for our sector as well as broader health care and societal trends. We believe that our technology is unique, disruptive and able to drive a fundamental change in the way health care is practiced by delivering the information necessary to make more informed clinical decisions earlier. Truly affordable and accessible point-of-care ultrasound information can provide real value to health care providers, and we believe that Butterfly's solution will result in many new use cases for ultrasound information, unlimited by physical location.

Our organization is vibrant, growing and in an excellent position for this stage of Butterfly's life as a public company. I look forward to our next update with you, and I will now turn the call over for questions.

(Operator Instructions) Your first question comes from Matt Taylor from UBS.

I was hoping you could give us some perspective on the + launch. And how long you're going to be able to kind of ride that new product launch for? And is this the kind of thing we should expect from you in the future, kind of a regular cadence of new handpieces, new features and add ons, maybe you could talk a little bit about that.

So Matt, thanks for the question. So one of the things -- one of the core fundamentals that we have in having ultrasound-on-a-chip is our ability to bring new features and benefits to the product. So you can think about the cadence that we have introducing new technology over the appropriate period that we would over our life cycle of every couple of years or so, right? We would do major technology upgrades. And then within those time periods, we would be able to add functionality and capability to it. And that's really the benefit that we have of our fundamental platform of having ultrasound off of a semiconductor based technology. And so that's really, I think, the cadence that you would have, and you've seen that with iQ+. So we were able to bring iQ+ out. We were -- we added some benefits and features to it. You saw us add Biplane in, which was really a nice addition to the product and gave more capabilities to our users. And as we work closely with our users and understand what problems the customers have and we align to them, that's really going to be the approach to our road map, and it's really the advantage of our technology platform.

Great. And I just wanted to ask a follow-up on the ACC partnership, the study that you talked about. It sounds pretty exciting. Can you give us some color on just the size of that, the enrollment, what some of the end points are? Anything to help us understand that a little bit better.

So the ACC collaboration is in it's early stages, and we we're in the planning part of that with them right now. So as that develops, we will inform you as this study materializes. One of the areas that we're focusing on is going to be in congestive heart failure, which I think is a large chronic condition. And as you see now having point-of-care ultrasound starting to be used in some of these more chronic conditions in different care settings, the opportunity becomes really exciting to have an impact in how we start managing -- how we start managing the health of broad populations of people in a variety of care settings. And those are the types of things that we're looking at. And that's the type of studies that we're looking right now to create with ACC.

Your next question comes from Josh Jennings from Cowen.

Congratulations on the strong growth in 2020. I wanted to just ask about your go-to-market strategies here. I think you guys are talking about rapidly scaling up. And anything you can provide in terms of how you're thinking of building out the enterprise sales force and emphasizing that channel versus the historic e-commerce channel would be helpful.

So thanks for the question. We absolutely -- one of the things in me coming in right now as a new CEO and taking a look at the opportunities that we have as Butterfly is to challenge all the opportunities that we have in our business model. And enterprise is an area that we're definitely excited about. There's strong demand in enterprise right now for Butterfly, not only as a unique ultrasound device, but for our total solution too. Our sales force expansion is on track there. We continue to -- we're continuing to drive that expansion to help us take advantage of the opportunity in enterprise. We're focused also on customer success to help usability and deployment of the solutions. And we're lining up to enterprise.

So we see a lot of opportunities in the enterprise channel, not just using point-of-care ultrasound, but also the ability to deploy our Butterfly solution across the enterprise and get maximum value out of the information.

Excellent details. And I hate to ask this question, realizing you just launched Butterfly iQ+, but my checks have, with some Butterfly iQ adopters, been very positive around image quality. And I was just curious about the road map and where you go from here, just strictly thinking about image quality, where it sits today and where it can go? And is it essential for Butterfly to improve on image quality from here? I mean, clearly, you're having very strong early adoption trends over the last 2 years. I just wanted to bounce that question off you. And then sorry to sneak in one last one. But just wanted to follow-up with Stephanie's comment about the global chip shortage, and you have a clear line of supply, but anything you can share there as well on where Butterfly sits the midst of this global chip shortage.

So I'll take the first one, and I'll let Stephanie take the second one. One of the advantages of our technology is that we can continue to improve our capabilities on it. So not only can we enhance usability and the capabilities of the device, we can enhance the performance of the device as we're able in a semiconductor-based technology platform. So we absolutely, with time, we'll continue to enhance our image capabilities and our image quality. Right now, I think we have a very solid device that allows for the binary decision -- oftentimes the binary decision making that's required at point-of-care and to enable that decision making.

So if you think about point of care, right? It starts to move the decision-making earlier with where the patient is. And so point-of-care-ultrasound enables you to do that. I think where we are right now with our technology, more than adequately allows someone to do that, and we have the ability to increase our image quality and our capabilities on a fairly regular cadence here. And that is the advantage of semiconductor based technology along with continuing to improve our cost basis, which obviously becomes important in the overall economics of care. And then Stephanie, I'll let you take the second one.

Sure. Thanks for the question, Josh. As you know, we have a very strong partnership with TSMC, and that's both an engineering partnership that has been going for the last years. We've looked to develop the iQ+ as well as a manufacturing partnership. As part of that, we do have a committed supply agreement with them. And so we feel very confident both in their ability to deliver the semiconductor wafers that we need for our current production as well as to help us meet additional demand, should it materialize. We think this partnership is a competitive strength, and the availability of wafers in the midst of a global shortage is just one example of the value of that partnership.

That's all the time we have allotted for Q&A today. I will turn the call back over to Dr. Todd Fruchterman for closing remarks.

I just want to thank all of you for participating in Butterfly Networks first ever earnings call. I can't tell you how excited we are about the future of the company, our technology and the solution. And we really do look forward to embarking on this exciting journey with all of you. Thank you again for your time today.

This concludes today's conference call. Thank you for participating. You may now disconnect.