Biotech Firms Adaptive and Butterfly Network Report Strong Q2 Results and Future Outlook

Earnings call: Adaptive Biotechnologies raises MRD revenue outlook By Investing.com

Adaptive Biotechnologies (NASDAQ:ADPT) has reported a strong performance in the second quarter of 2024, with significant growth in its minimal residual disease (MRD) segment and a decrease in operating expenses. The company has raised its full-year revenue guidance for MRD, reduced operating spend, and lowered its annual cash burn expectations. This optimistic financial update comes alongside strategic advancements in both its clinical and pharmaceutical divisions. Adaptive Biotechnologies (ticker: ADPT), a pioneer in the field of immune-driven medicine, has shared a positive forecast during its recent earnings call, reflecting a 36% YoY and 8% QoQ growth in MRD revenue, which now stands at $43.2 million for the second quarter. The company has successfully decreased total operating spend and reduced its cash burn, signaling a strong fiscal discipline and operational efficiency. The company's clonoSEQ clinical revenue has shown impressive growth, and non-Hodgkin's lymphoma has become a significant contributor to clonoSEQ tests. With the integration of six accounts into the Epic system and plans to integrate with 20 or more by year-end, Adaptive Biotechnologies is expanding its operational capabilities. The pharma business also saw a 28% YoY increase in revenue, thanks in part to a $3 million milestone from a drug approval in multiple myeloma. The company is witnessing a positive impact following the ODAC recommendation to use MRD as a primary endpoint for new therapies in multiple myeloma. This development, coupled with the company's focus on increasing its presence in the community setting and investing in physician education programs, is expected to drive further growth. Looking ahead, Adaptive Biotechnologies plans to continue its strategic initiatives, including the rollout of NovaSeq, anticipated to reduce COGS by 5-8% once fully implemented by the second half of 2025. The company remains cautious to ensure a successful rollout. Additionally, there is an opportunity to convert customers from flow cytometry-based monitoring to clonoSEQ, which offers better standardization and sensitivity. Adaptive Biotechnologies' executives remain confident in their execution strategy and have outlined targeted investments to enhance long-term value. With disciplined spending and a focus on revenue growth and program advancement, the company is well-positioned for continued success in the dynamic field of immune medicine. Adaptive Biotechnologies' recent financial report highlights its strategic and fiscal advancements, but an analysis of their real-time financial metrics and InvestingPro Tips can provide a deeper insight into the company's current position and future prospects. For readers interested in a more comprehensive analysis, there are additional InvestingPro Tips available, including insights on the company's liquidity and profitability. Visit the InvestingPro platform for a total of 9 detailed tips to guide potential investment decisions in Adaptive Biotechnologies. Operator: Good day and thank you for standing by. Welcome to the Adaptive Biotechnologies Second Quarter 2024 Earnings Call. At this time all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Karina Calzadilla, Head of Investor Relations. Please go ahead. Karina Calzadilla: Thanks, Anton, and good afternoon, everyone. I would like to welcome you to Adaptive Biotechnologies second quarter 2024 earnings conference call. Earlier today, we issued a press release reporting Adaptive financial results for the second quarter of 2024. The press release is available at www.adaptivebiotech.com. We are conducting a live webcast of this call and we'll be referencing to a slide presentation that has been posted to the Investors section in our corporate website. During the call, management will be making projections and other forward-looking statements within the meanings of federal securities laws regarding future events and the future financial performance of the Company. These statements reflect management's current perspective of the business as of today. Actual results may differ materially from today's forward-looking statements, depending on a number of factors, which are set forth in our public filings with the SEC and listed in this presentation. In addition, non-GAAP financial measures will be discussed during the call, and a reconciliation from non-GAAP to GAAP metrics can be found in our earnings release. Joining the call today are Chad Robins, our CEO and Co-Founder; and Kyle Piskel, our Chief Financial Officer. Additional members from management will be available for Q&A. With that, I will turn the call over to Chad Robins. Chad? Chad Robins: Thanks, Karina. Good afternoon, everyone, and thank you for joining us on our second quarter earnings call. It is Seafair Weekend here in Seattle, so if the Blue Angels are flying overhead, we are live and I may pause for a couple of seconds. Let's jump in. Our second quarter results are extremely encouraging. We are laser focused on fueling growth on the top-line, reducing spend, and managing our capital, and this is exactly what we achieved this quarter as you can see on Slide 3. MRD revenue grew 36% versus prior year and 8% versus prior quarter with growth coming from both clinical and pharma. Total operating spend, less one-time costs, had a significant decline of 15% versus prior year and 8% sequentially with reductions observed across all segments. Sequencing gross margin increased 5 percentage points compared to last quarter and cash ended at approximately $292 million. This reflects a cash burn reduction of 32% in the first half of this year versus a year ago. As a result of this strong performance, we are updating our full year guidance. We are raising our MRD revenue range, decreasing our operating spend and reducing our annual cash burn. Kyle will provide further details in his prepared remarks. Now let's take a closer look at the MRD business on Slide 4. clonoSEQ clinical revenue grew 43% versus prior year, driven by both volume and ASP. Test delivered had another record quarter growing 36% versus prior year and 9% versus prior quarter to over 18,500 tests. We observed double digit growth sequentially in all marketed indications. Multi-myeloma continues to be the largest contributor representing 42% of volume. Importantly, non-Hodgkin's lymphoma now contributes 11% of clonoSEQ tests with DLBCL growing at 25% quarter-over-quarter. Blood-based testing continues to be a focal point of our strategy, currently representing 40% of tests with multi-myeloma in blood at 21% versus 16% a year ago. We expect our planned launch in mantle cell lymphoma coupled with continued promotion of expanding evidence for utility of blood in other disease states to be key drivers of clonoSEQ testing in blood during the second half. EMR integration remains an important area of investment for the MRD business, both as a future growth accelerant and as an additional competitive moat for our business. We are now live with six accounts in Epic and have 13 more in progress. We remain confident that we will have completed Epic integrations with 20 or more accounts by year-end. Notably, in the second half of this year, our integration activities will expand beyond Epic with the planned Q4 kickoff to our onco EMR integration work with Flatiron Health. On the reimbursement front, we continue to reduce out of policy and non-contracted claims and optimize revenue cycle management to drive ASP growth, which increased 3% in Q2 versus Q1. Results through the first half of the year, coupled with a preliminary gap-fill rate set by Medicare, further solidifies our confidence to grow ASP by $200 per test by the end of 2025. Looking at MRD Pharma on Slide 5, our pharma business had another strong quarter with revenue growth of 28% versus prior year, which included a $3 million milestone from a drug approval multi-myeloma. This momentum comes on the heels of the ODAC announcement last quarter, which voted in favor of using MRD as a primary endpoint to support accelerated approval of new therapies in multi-myeloma. We are already seeing positive impact post this recommendation. In the past few months, we have booked two new studies and are in advanced discussions for another three new studies where the decision to use MRD as a primary endpoint was made based on the ODAC outcome. Additionally, two existing studies have converted MRD from a secondary endpoint to a primary endpoint and we are in talks with partners about another four studies already underway that may also upgrade. Importantly, we are also seeing a positive halo effect for the continued acceptance of MRD in other disease states as our partners increasingly seek to incorporate MRD as a primary endpoint in CLL and DLBCL. As the only FDA cleared MRD assay that can consistently deliver the sensitivity and standardization needed to meet the FDA's performance standards, we are confident that clonoSEQ will continue to be the test of choice not only for multi-myeloma drug developers, but also in other lymphoid malignancies. Now let's turn to immune medicine on Slide 6. We're making good progress in R&D towards the discovery and future development of differentiated immune-based therapeutics in cancer and autoimmunity. In oncology, we continue to work closely with Genentech and our cancer cell therapy programs. Both companies are excited and committed to deliver high impact TCR based cell therapy products to as many cancer patients as possible, and we will provide an update at the appropriate time. In autoimmunity, we have successfully identified a subset of auto reactive T-cell receptors that are likely causing devastating disease in patients with MS, T1D and several others. This quarter, we started our target discovery efforts in T1D. As we did in multiple sclerosis, our goal is to identify the protein to which these auto-reactive or problem TCRs bind. This helps de-risk our assumptions and confirm that the disease biology makes sense. Also this quarter, we successfully completed our first antibody mouse immunization campaign, Wave 1, in our lead autoimmune indications including multiple sclerosis and type 1 diabetes. By year end we aim to identify and make a subset of antibodies to start functionally testing these candidates. Now I'm going to pass it over to Kyle to walk through the financial results and guidance update. Kyle? Kyle Piskel: Thanks, Chad. Let's start with revenue for the second quarter on Slide 7. Total revenue in the second quarter was $43.2 million with 82% from MRD and 18% from immune medicine. MRD revenue grew to $35.3 million, up 36% from a year ago, with clonoSEQ clinical testing and MRD pharma partnerships each driving approximately 66% and 34% of the growth, respectively. Excluding the 3 million in regulatory milestones recognized this quarter, MRD revenue grew 25% from a year ago. Immune medicine revenue was $7.9 million, down 66% from a year ago, driven by an anticipated 82% decrease in Genentech upfront amortization and no related milestone in the quarter versus $7.7 million in milestone revenue recognized in Q2 of 2023. This decrease was partially offset by a 12% increase in immune medicine pharma services. Moving down to P&L, I want to highlight that sequencing margin, which excludes the MRD milestones and Genentech amortization, was 50% for the quarter, an increase of 7 percentage points versus prior year and 5 percentage points sequentially. The sequencing margin increase was mainly attributed to lower overhead costs from improvements in the production lab, driving lower cost per sample. Excluding one-time costs from asset impairment and severance related to restructuring initiatives, post strategic review, total operating spend, inclusive of cost of revenue, was $82.6 million, representing a 15% decrease from last year. This decrease was mainly driven by the continued emphasis on driving leverage across functions with R&D being the biggest contributor of such decline, driven by more targeted investments in immune medicines. As you can see from the segment reporting table on the right side of the slide, MRD adjusted EBITDA was a loss of $11.3 million this quarter, a deficit that was reduced by 35% from the first quarter, driven by both higher revenue and lower operating expense. The medicine adjusted EBITDA loss remained flat sequentially as reductions in operating expenses were offset by lower Genentech revenue. Total company adjusted EBITDA was a loss of $21.4 million in the second quarter compared to a $28.2 million in the first quarter of 2024 and $24.8 million a year ago. Finally, interest expense from a royalty financing agreement with OrbiMed was $2.7 million, which once again was more than offset by interest income. Net loss for the quarter was $46.2 million, or $38.4 million excluding one-time asset impairment and restructuring charges compared to $47.8 million last year. Now turning to our updated full year guidance on Slide 8. We are increasing our MRD full year revenue guidance from a prior range of $135 million to $140 million to now $140 million to $145 million. This increase in guidance reflects the better than expected results in the second quarter, inclusive of the regulatory milestone realized. With respect to trends throughout the second half, we expect MRD revenue to be about $45 million, $55 million weighted between the third and fourth quarter respectively. We are also further reducing the total company estimated operating spend excluding one-time restructuring and asset impairment charges from our previous range of $350 million to $360 million - to now $340 million to $350 million, a $10 million reduction as we continue to drive leverage across the business and manage investments. Of this total spend approximately 70% comes within the MRD business and approximately 25% within immune medicine. In addition, we are lowering our expected annual cash burn. We now expect the burn to be approximately $60 million for the second half of the year. This implies an annual cash burn of $115 million versus our previous estimate of $130 million and represents a 24% reduction over full year of 2023. We continue to expect approximately 50% of the cash burn this year to come from the MRD business and approximately 40% from the immune medicine business. The remaining 10% is due to unallocated corporate costs. I look forward to providing you with further financial updates throughout the year as we continue diligent trajectory of strengthening our financial profile. With that, I'll hand it back over to Chad. Chad Robins: Thanks, Kyle. I am encouraged by the team's execution in the first half of the year. We will continue to drive revenue growth in our MRD business and advance our focused programs in immune medicine. We will do this with disciplined spend and targeted investments to enhance long-term value. With that, I'd like to turn the call back over to the operator and open up the call for questions. Operator: Thank you. At this time we will conduct the question-and-answer session. [Operator Instructions] The first question comes from Mark Massaro from BTIG. Please go ahead. Mark Massaro: Hey guys. Congrats on a strong beat and raise quarter. I guess my first question which I find quite interesting is the number of new studies that are moving to primary endpoints. You talked about two new studies I believe in Q2, you advanced in three more. I think in the past I've heard you say that the level of economics can be roughly two times greater for a primary versus a secondary endpoint. Can you maybe just clarify that in terms of just the unit economics? Kyle Piskel: Yes, I think what you're referring to is the milestone revenue that we could realize from those studies. And I think that is where you see that delta as it relates to the economics, I think as it relates to these studies and the bookings of these studies, I just think we continue to expect that that will be a 2025 tailwind and in 2024 we're really focused on executing the bookings and growing the backlog as we exit the year. So I think as it relates to unit economics I think that primarily escalate the milestones, but it may catalyze some sequencing revenue faster than we anticipated through... Mark Massaro: Okay, that's helpful. And then I found it interesting that there's a group working with the FDA in additional disease states. I think you called up CLL and DLBCL. Do you have any sense for timing there? And give us a sense for - are you involved in this discussion or this group? Maybe just walk us through some of the stakeholders and how you think about this playing out over the coming months? Chad Robins: Yes. First Mark, thanks for the question and the compliments on the quarter. Appreciate it. We, a lot of our investigators, our principal investigators that we work with, are involved in those conversations, and they're asking us to provide clonoSEQ data to help support them in those discussions, very much like we did in multi-myeloma with the International Myeloma Working Group and others as they presented to the ODAC committee. We honestly don't have a sense of timing. It did take some time for multi-myeloma to be accepted as a primary endpoint. However, I think once the first domino has fallen, we would at least be hopeful that the next disease states will be faster moving forward. The other thing I will mention, and it's not immediate, although it has catalyzed new discussions with investigators who were initially reluctant. There's just a lot more noise and chatter around MRD being used in multiple myeloma now that the ODAC decision has been made in the clinic as well, which is great to see. Mark Massaro: Excellent. Maybe last one for me. I don't know if this was in your deck or not, but I think you've talked about approximately 60 clinical studies for multiple myeloma. And if I have it right, you had six as primary, looks like that number now is eight, three are in advanced discussions, that could be eleven. I think as we think about this longer term, where could that 10 or 11, where do you think that might go, looking out, say, two to three years from today? Chad Robins: It's hard to put a number on that. Obviously, we believe that number is going to go up and hopefully up significantly. But I'd be hard pressed to start making those projections. Once we get a little bit farther into this, maybe kind of a year down the road, we could have better visibility into making those projections Mark. Operator: Thank you. One moment for our next question. Our next question comes from David Westenberg from Piper Sandler. Please go ahead. David Westenberg: Hi. Thank you for taking the question. And congrats you on the big cost reduction burn and the MRD beat. So, Chad, I hate to ask this question because we should be celebrating your achievements in reducing the OpEx. Is there any risk here that you maybe went too lean and that this could hurt the top line growth, particularly on that MRD business? I don't know. Maybe I would ask, in addition to that, do you actually think you could accelerate the revenue if you did add reps to that business? Or do you - anyway, I'll stop there. Chad Robins: Yes. No, I think the sales and marketing, just so you know, David, were untouched, relatively untouched, except for where we always manage our performance. We're talking about a lot within the business with kind of G&A overhead and just looking at every nook and cranny to be able to kind of reduce our expenses. So the answer is no. And where we are adding is in kind of our market access team. If you look at coverage and collections, these are particular areas of focus to us, which we continue to make investments in, where we believe that we can up the ASP and essentially kind of the cash coming into the business. But we will continue to kind of monitor reps and add reps as needed, and look at territory alignments as we do consistently. So the final point is we're looking across the board at ways that we can continue to first and foremost, make sure that we're hitting our numbers and said another way that we're de risking the numbers. But it's all about operating efficiencies without hurting the top line. And we feel, we feel very comfortable that we're making the right investments and the right moves. David Westenberg: Really, really, really appreciate that. I want to just talk about some of the potential for both operating leverage and cost reduction in clonoSEQ. I know you've made efforts in the past to kind of get some kind of cog reductions there. Where are we at in terms of progress there? And then just in terms of, are you getting some of that naturally, just via more volume through that product? And how should we think about gross margins over the kind of a three-year, four-year period or three- to five-year period as this business becomes a lot more clinical MRD? And I'll stop there. I know there's a lot of analysts that want to ask questions. Thank you. Chad Robins: Yes, I mean, I think as it relates to our progress, I think, as you've seen in the quarter and first half of the year, we're continuing to gain leverage through some of the efficiency initiatives we've put in place, flattening out the org. And yes, we are getting some of that naturally through increased volumes and increased revenue. And we'll continue to see that in the back half of the year. I think we're going to gain additional leverage back half of the year. I think I would say 3% to 5% improvement on that sequencing margin line. Over the long-term, we have some initiatives going on, one of which is the NovaSeq, which we expect to launch the back half of 2025. And that can drive a lot of efficiencies. And then again, as the last point, we've got to continue to do some work and continue to execute on the ASP line, and that's going to drive a large amount of improvement to get us to that 70% target margin range that we see over three- to five-year outlook. David Westenberg: Thanks guys. Chad Robins: And as I said obviously while the milestones will also continue to drive and support the business at the end of the day, even absent the clinical performance along with the pharma business, which I think ODAC only accelerates or makes that more durable growth over the longer term. David Westenberg: Thank you so much. And again, congrats on the big cost reduction curve - and reduction and beat. Tejas Savant: Hey, guys. Good evening. Thanks for the time here. Chad, I want to follow-up on Mark's question related to the ODAC guidance, and so on. So first of all, when do you expect the FDA to finalize that in MM? And does that finalization have any sort of impact in terms of accelerating MRD endpoint adoption beyond what you're seeing today in terms of that cadence in penetrating those potential trials? And then on a related note, I think in the past you've talked about a little bit of a halo effect, if you will, on the clinician side as well in terms of adopting clonoSEQ. So any color on that would be helpful. Chad Robins: Sure. I'll cover the first part, and then I'll pass it over to Susan Bobulsky, the Chief Commercial Officer of the MRD Business, to talk about kind of the impact and maybe give you some anecdotes as to what's going on from a clinical perspective. As far as the ODAC vote, remember, the advisory council is a little bit different than it is kind of for a drug approval. And we've gotten some kind of messaging around kind of the format that they're going to kind of cement this decision as to whether it's going to be kind of a formal white paper or come out as a kind of formal decision. There is a little bit of debate as exactly how the FDA is going to. Obviously, it was a 12 to 0, overwhelmingly positive vote. So we don't have a direct line as to exactly the timing of the format. But I will say this had no impact. Well, it's had only a positive impact. Our pharma partners aren't waiting in any way, shape or form. They know that the FDA, for every drug approval that's coming forward, they now have the opportunity to look at it as a primary endpoint based on this decision. The FDA is not waiting and neither are our pharma partners. So that's a - that's why we're already seeing the good trajectory that we have. I do want to caution a little bit, and Kyle mentioned this, but I'll just, it's a great leading indicator, but it doesn't necessarily impact 2024 revenue. It's more, we're seeing bookings that essentially, I would say, solidify the long-term kind of health of the pharma business going out into the future as those bookings convert into revenue opportunities, as those milestones are achieved, and as more trials sign up, we get more sequencing revenue from those additional trials. Susan, can you provide perhaps some anecdotes of how you are seeing those discussions in the clinic? Susan Bobulsky: Sure. Thanks, Chad. Since the ODAC vote in April, we've increasingly seen clinicians are aware of that ODAC vote, and they bring it up and view it favorably in the context of clinical conversations we're having with them about MRD. The way that we've been framing it, and I think this seems to resonate, is that by seeing the FDA's vote of confidence behind MRD as a means to assess response, to bring a drug into the market, that's really an incredible amount of credibility that it lends to MRD as a marker for your individual patient. If we can predict the efficacy of that drug, and approve it for marketing, then we can also predict the efficacy of that drug in your individual patient, and you can use that to in firm conversations and dialogues with your patient. So, I think that's really resonating. Interestingly, another area where we see a lot of interest is in what we call the ID of patients. In other words, the first step of clonoSEQ is to evaluate a high disease load sample and to identify the sequences that we will track for that patient's MRD. And most physicians order ID tests when they decide they need their first MRD test. But in the context of pharma increasingly anticipating use of MRD as an endpoint, there is an interesting synergy for our two businesses. The pharma companies would love to see more and more patients being IV-ed for clonoSEQ testing at the time of diagnosis so that they are eligible for any trial that might come along, and there is no delays or hurdles in finding an appropriate specimen to get them IV tested. Calibration rates, the rate of patients for whom we find viable sequences, are also higher when we test fresh samples at diagnosis. And so pharma companies are essentially saying to us, it would be great if more and more accounts can do this ID testing upfront at the time of diagnosis. And correspondingly, our accounts, particularly community accounts, where they are very eager to bring new groups of trials on board, are saying to us, hey, do you think that pharma companies would be more interested in working with us if we ID our patients upfront? And this is the strategy we've been pushing for a bit of time and we're starting to see good traction. But I think the ODAC is actually going to provide a tailwind to that strategy to bring more and more patients to be tested for a clonoSEQ ID at the time of diagnosis. And essentially that means they are MRD enabled from day one, and they can get MRD testing whenever they need it in a trial in the clinic. So it seems like it's a win-win-win for us, for pharma, for the clinic and the patient. And that's something we've been talking very actively about and again, seeing resonate. Tejas Savant: Got it. That's super helpful. And then, guys, a couple more on the clinical side of things, maybe for Kyle here, you talked about that $200 ASP increase over the next couple of years, and you're confident of getting there. You've also got that preliminary CLFS rate. I think it gets finalized on January 1 in 2025. So could you just walk us through any color on the cadence of the ASP increases? I'm sure there's a few moving parts beneath that, including perhaps some help from the biomarker bill, et cetera. Should it be front end loaded? Should it be relatively even keeled between where it is today. And then second, do you think from a commercial or physician education standpoint, you are where you need to be in the community setting today and it's just a function of time, or are there more investments to come on that front? Thank you. Chad Robins: Yes. Hi, Tejas. I'll take the question on ASP, and then again I'll pass it off to Susan to give you some color on the clinical side. Our ASP acceleration plan is really comprised of three key pillars: coverage, contracting and collections. So on the coverage side, we're seeking Medicare coverage for a broader set of indications. We're also exploring novel coverage structures, including recurrence monitoring for selected indications. And that's actually what we've already submitted and are in discussions on for our MCL. We're actively reducing out-of-policy claims and have aligned our business to drive the core indications where we now have that solid coverage in place. And that is - we can further kind of double click on that to look at how we modified our sales force incentive compensation plan. We also have kind of changes in ordering requirements for customers who wish to order the out of criteria test. And then the third component of that is really new operational policies that will increase the percentage of tests that we get paid for. And as a result of that, we've seen a really positive shift in our mix towards contracted indications where those have really grown as a percentage of our mix. So that really covers the first pillar of coverage. The second one is contracting. So, in that there is a couple things to talk about on contracting. First, we continue to negotiate agreements with our non-contracted payers. The objective here is obviously to secure pricing at or above the Medicare price. And within that, we've already talked about this, but we expect the publication of that preliminary gap bill rate to provide really meaningful leverage as we go out and have those conversations with payers, we can go reference that new rate as a benchmark to be set, that they have to be at or above that rate. A good example of that is one of the large outstanding payers with Anthem (NYSE:ELV), which we're waiting for that rate to go to Anthem and say this is what we expect or better. And then the third is in the area of, I'll just call it blocking and tackling with collections. And we're taking a few different steps on collection performance. The first is we continue to place like a real focus on Medicare Advantage collections. This has been a problem for the industry, which I think we're starting to see some resolution on. There is these large claims projects that we're going after, and we're directly engaging a CMS at a national level to help us support kind of this claim payment resolution with Medicare Advantage from the private payors. The second component of that is, just as I mentioned this in a prior question, but we've increased our resourcing allocated to claims management, so we actually have more people going after, I'll call it smiling and dialing, and there is actually more to it. We actually have some really nice AI projects for the appeals process and claims management. We put in place new initiatives on how we do prior authorizations, et cetera. And the final pillar of that is we've made some significant headway on the implementation of our PLA code, and further progress, I think, will be supported by the new preliminary Medicare rate that we talked about. With that, Susan, do you want to comment on his question regarding clinical? Susan Bobulsky: Sure. I think you asked about whether or where we need to be in the community setting. Do we need to invest additionally? So over the last several quarters, you've seen somewhere between 20% and 25% of our business kind of coming consistently from that community segment, and we believe that over time that contribution can be much higher. We've actually seen some really nice acceleration in Q2 in our academic segment in concert with continued study growth in the community. So we have a lot of feeling in both segments, and so we can't focus only on one at the expense of the other. We have a lot of untapped potential to capture in both. But that said, winning in the community is going to be a long-term critical - success factor for this business. But given the proportion of patients who are treated either entirely or partially in community settings, and our penetration is much lower in the community than it is in academic settings. So there's a couple of things that we've done recently and then a few things that we will be starting to do, and we have plans to do in the coming months. So one of the things we've done recently is really reorient our peer-to-peer educational programs and medical education programs and other types of sponsorship dollars that we invest towards physician education to really be focused on connecting thought leaders, both academic and community thought leaders who have mastered the use of MRD in their own practices to bring their playbooks to the community to show, in a variety of ways, both written, verbal, how they are using MRD, because that is the number one question we get in the clinic. And the data will continue to develop with some very nice data sets on actionability of MRD. But there's a lot more in motion right now that we'll read out over the next couple of years. So while we're waiting on that, let's show what the KOLs have really gotten comfortable with. So it's been a big area of focus and investment, as well as ensuring that we have the right team structure in place. So, as you know, back at the beginning of 2022, we hired our first community sales team. That team has been able to drive tremendous increases in contribution of that business. We were only 5% community when they started, but we've also got a small team, what we call strategic accounts managers. And those folks are really the folks driving G-suite engagement in the oncology community practice networks, or supergroups, which is where the majority of patients in the community are managed. And we recently reorganized our strategic accounts team under a dedicated leader, which had a variety of strategic benefits. The other place where we are going to invest in the coming months, and you've heard about this a little bit, is EMR integration oriented toward the community. So Flatiron is the big partnership we've discussed, but we have a number of ongoing or recently initiated integration projects or integration discussions and negotiations which will allow us to significantly increase our footprint for integration in the community. Tejas Savant: Got it. Super helpful. Appreciate all the color, guys. Thank you. Kyle Piskel: Hey, Josh, just on the ASP increase, we've talked about the $200 increase over the course of the next two years. I think what we're seeing from these ASP initiatives and what Chad is summarizing is, we've got strong confidence. We'll start to see kind of some of the early evidence from this in the back half of the year. And the gap fill rate effectively gives us confidence heading into 2025 that we can continue to deliver that growth over the next few years. Tejas Savant: Thank you, Kyle. Appreciate it. Operator: Thank you. [Operator Instructions] Our next question comes from Dan Brennan from TD Cowen. Please go ahead. Dan Brennan: Thanks. Thanks for taking the questions. Congrats on the quarter. Maybe one just on the burn and the margin improvement. Could you just speak a little bit more towards kind of what went better in the quarter? You're obviously taking down the guide or, excuse me, improving the guide, just kind of what are you thinking about in the back half of the year from some of the line items about what's getting better? Kyle Piskel: Yes, Dan, I would say, we've done a number of, initiatives here to get the workforce aligned and spend aligned with where we think business should be. I think we're going to continue to see leverage in that, in those areas, especially as it relates to the margin profile. We're continuing to expect increased volumes both in the clinic and increased revenues in the pharma business. So we're going to continue to see that leverage in the back half of the year. And, I think we've got some decent initiatives in place for 2025 that will continue to play out there as it relates to the burn. I mean, again, I don't want to sound like a broken record, but the restructuring initiatives we put in place over the first half of the year have led us to some increased confidence of the results of the reductions in spend to be confident that we can continue to reduce the burn and focus our investments in IM, which will yield benefits in the longer term. But as it relates to Q2, we had some significant collections across the business, the milestones being one of them, the pharma business and in the clinic. So, I think what we're going to see in the course of the year is just a continued march down that path. There is a bit of seasonality in the back half of the year from a spend perspective, so that's why it's just a little bit slightly higher than the first half of the year. Dan Brennan: Got it. Okay, that sounds good. What about on the mean medicine side? You know, biotech funding has been healthier. I know that's generally been a drag over the last period of time, a kind of a spending environment. Like, what are you guys seeing just from more of like a macro basis on that side of the business? Chad Robins: Are you talking about from kind of an IM pharma revenue perspective, Dan? Dan Brennan: Yes, exactly. Sorry, Chad. Yes. Chad Robins: Yes. Just as a reminder to everyone, obviously we not - we don't report revenue based on that, but there has been kind of some impact. I think it depends on what our technology is being used for. Some of the very early kind of research and development budgets aren't what they used to be, but we now have kind of longstanding relationships where we've been embedded, and many different pharma companies are looking at the immunological response to the therapies, and we've used in a variety of different contexts, which I think it continues to hold up pretty well. Dan Brennan: Okay. And then maybe on DLBCL, I heard you say like 20% quarterly growth. I think sequentially it's still. Penetration is still fairly nascent. Like, how is that progressing versus expectations? Does that kind of keep going linearly or there an opportunity for any kind of acceleration there? Chad Robins: Yes, I did. I'll pass it over to Susan to answer that question. But it was 25% sequence of growth. And Susan, do you want to give some color on the trajectory? Susan Bobulsky: Sure. Yes. So DLBCL is now up to 6% of our total business, clinical business, which is up from 3% a year ago. And it we've been hitting our internal projections with the indication level with DLBCL. So far we've been pleased to see significant uptake in the community setting and also, continued opportunities to report out new data. You may have noted that earlier in Q2 in May, we saw a really nice publication on clonoSEQ in DLBCL in the context of a study for a regimen known as ViPOR, the relapsed/refractory regimen. And it was published in the New England Journal of Medicine in May. And in that study we saw really nice performance from the clonoSEQ assay in terms of the ability to differentiate patients who would have better or worse progression pre survival and overall survival. In that study, 15 patients who achieved complete response at the end of therapy and remain progression free throughout the study, they all had MRD that was undetectable by clonoSEQ. And of those that progressed, three out of the four had detectable ctDNA prior to the evidence of relapse. So we saw another nice demonstration, albeit in a small patient population, of the performance of the assay in a relapsed/refractory setting. We continue to generate data, and that will certainly be a catalyst for ongoing adoption, as well as our ongoing work with regulatory agencies to expand access and to increase the utilization of DLBCL by pharma companies. So, actually, last week we submitted our DLBCL strep [ph] offering to New York state CLEP, which will expand the access to DLBCL in New York if approved. And we continue to work on our FDA submissions, which we expect to be useful both in the pharma setting and also have a halo effect on a clinic over time. Operator: Thank you. [Operator Instructions] Our next question comes from Andrew Brackmann from William Blair. Please go ahead. Andrew Brackmann: Hi, guys. Good afternoon. Thanks for taking the questions. Maybe just going back to the Epic integrations, it sounds like things are moving nicely there, but can you maybe just sort of talk about of those accounts who have integrated, just what you're seeing in terms of any utilization uptick? And I guess, how should we be thinking about the impact here? Not necessarily just over the next couple of quarters, but more so over the next few years. Thank you. Chad Robins: Sure. Susan? Susan Bobulsky: Yes, sure. Yes. So, as Chad mentioned, we now have six sites integrated. Four of those have been integrated for about six months, and then two are brand new in Q2, they have 13 others that are actively progressing towards the completion of the integration, plus a variety of additional sites kind of in the funnel where they've been approved for waiting for the resources to be able to implement them on the account side. But the accounts that we started with were relatively smaller accounts. So we saw a very nice pickup almost immediately upon integration, double digit increases in adoption in test volumes just within a quarter, and also significant increases in the number of ordering providers, which reflects the ease of use of the integrated test. We also have seen some really nice improvements in operations. For example, the orders that come in through Epic are less likely to have discrepancies that require follow up from our customer service team, or more likely to have complete accurate billing information, which we need to submit successful claims reimbursement, and so a variety of nice benefits that we've seen in those accounts. But those first floor accounts were relatively small accounts intentionally, because we were just getting started. The two very recent accounts are accounts that are larger potential, but very early days from clonoSEQ adoption. So in this case, we'll get to evaluate over the next six to 12 months whether EMR integration can accelerate sort of uptick from a nascent place in a larger potential account. We will have some of our largest current accounts going live by the end of 2024. And so I think that's when we're really going to be able to tell you that more about what we've learned about the impact on the business. But I will remind you that Epic integration was the strategy that we've had in mind for some time. And so we did built into our 2024 guidance for the clinical business some increase in use based on the implementation of Epic as - Andrew. Andrew Brackmann: Perfect. And then maybe just on the LIMS overhaul, can you just level set us on where that initiative stands and just how we should be thinking about any impact to cost savings over the next couple of quarters in 2025? Thank you. Chad Robins: Yes. With regards to LIMS, I'd say we put that on the back burner to focus initiatives around things that we can do to improve our workflows, namely in the reimbursement space as well as in the customer office space. So, right now coming out of the strategic review and some of the restructuring initiatives, that was one of the projects, we're deprioritizing at this time and reprioritizing other initiatives that we think have a better near term ROI. Andrew Brackmann: Got it. Thanks, guys. Operator: Thank you. [Operator Instructions] Our next question comes from Rachel Vatnsdal from JPMorgan (NYSE:JPM). Please go ahead. Rachel Vatnsdal: Perfect. Good afternoon guys. Thanks so much for taking the questions. So great to hear about the continued strength on MRD and then the cost savings as well. You previously had kind of talked about a second half of 2025 EBITDA breakeven. So is that still the right way to think about it, or we potentially see that timeline get moved up. Given where you're at from a cost based perspective. Kyle Piskel: I'd say that's the right way to think about it right now. I mean, again, we'll continue to monitor performance and, as we get closer to 2025 update you at that point. But right now, that's what we're thinking about and that's what we're executing towards. Rachel Vatnsdal: Great. And then on my follow up, just on the COGS side of things, you mentioned NovaSeq in Dave's earlier question. So can you walk us through the timing for that rollout and how we should think about the potential reduction in COGS? How quickly can that really kick in? And then where do you think you could get on a COGS per test with NovaSeq in that rollout there? Thanks. Kyle Piskel: We're moving along in the development phase. It's a pretty significant undertaking. So we're going to be fairly cautious about getting this done and getting it right. But, at the end of the day, we're anticipating, hey, back half of 2025, we can get this and again, we'll see the initial uptake. But our anticipation is this could be between five percentage points to eight percentage points. And once we're up and running and once we get in the workflow, we'll have a little bit better data, but we'll wait and see. But we think it's a meaningful driver. We just need to make sure it's done right. Chad Robins: Yes. And as volumes continue to grow, that percentage reduction in COGS will correspondingly grow. So that's an initial estimate of kind of back half of 2025 cost reduction of 5% to 8% with upside from there. Operator: Thank you. [Operator Instructions] Our next question comes from Sung Ji Nam from Scotiabank. Please go ahead. Sung Ji Nam: Hi. Thanks for taking the questions. Just a couple of clarification questions on MRD pharma for the $3 million milestone that you received. Was that an accelerated, customer accelerating from secondary. I'm sorry, converting from secondary to primary endpoint in their study? Or was it just an acceleration since the ODAC in terms of implementing the trial, MRD as primary endpoint, or is something different altogether? Kyle Piskel: No, it wasn't result of the ODAC decision. This was a study that had been in play and just recently got approval. So nothing. It wasn't tied to ODAC... Chad Robins: Where MRD data was used in the submission package. We again, not related to ODAC or endpoint. Sung Ji Nam: Okay, got it. And then just on the again, on the MRD pharma side, are there customers that are currently, that have currently incorporated flow cytometry based monitoring for MRD that might be interested in switching to clonoSEQ? Given the better standardization that you talked about, is that a potential opportunity and kind of curious if you might be getting any interest from those customers and hurdles from switching kind of a midway, if you will, in their studies, from one technique to another? Chad Robins: Absolutely. There's an opportunity to convert. I mean, with some already have, and we've been converting them over the years, but certainly kind of with the ODAC decision, I think it continues to solidify the importance of NGS MRD with the depth of sensitivity, down to one in a million where as low as it, one to 10,000, without even the same level of standardization. So we continue to convert over those pharma customers. Operator: Thank you. I am showing no further questions at this time. Thank you for participating in today's conference. This does conclude the program. You may now disconnect.

Earnings call: Butterfly Network reports record Q2 revenue, expands AI By Investing.com

Butterfly Network (LON:NETW), Inc. (NYSE: NYSE:BFLY), a pioneer in digital ultrasound technology, has reported a significant 16% year-over-year growth in its Q2 2024 revenue, reaching $21.5 million. This performance marks the company's highest quarterly revenue to date and surpasses its own financial guidance. Butterfly Network also highlighted its successful cost reduction initiatives and the expansion of its AI ecosystem, as well as its efforts to challenge current European RoHS exemptions for traditional ultrasound companies. Butterfly Network, Inc. continues to focus on its growth pillars, which include accelerating core business growth, expanding into new markets and care settings, investing in research and development, and driving profitability. The company's CEO, Joseph DeVivo, has expressed confidence in the company's direction and the transformative potential of its wearable technology for patient care in the home. Butterfly Network's strategic partnerships in the ultrasound AI space are anticipated to further accelerate the adoption of AI in ultrasound, contributing to future revenue growth. Butterfly Network, Inc. (BFLY) has demonstrated a strong commitment to growth and innovation, as evidenced by its record-breaking Q2 2024 revenue figures. To provide a more in-depth perspective on the company's financial health and investment potential, let's consider some key InvestingPro Data and InvestingPro Tips. InvestingPro Data highlights include a market capitalization of approximately $234.94 million USD, indicating the company's size in the competitive market. Despite a challenging profitability outlook with a negative P/E ratio of -2.01, the company's revenue growth for Q1 2024 stands at 14.09% quarterly, showcasing its ability to increase sales over a short period. InvestingPro Tips that are particularly relevant for investors are the company's ability to hold more cash than debt on its balance sheet and the fact that its liquid assets exceed short-term obligations. These tips suggest that Butterfly Network maintains a level of financial stability, which could be reassuring to investors concerned about the company's cash burn and lack of profitability over the last twelve months. Moreover, the stock has experienced strong returns over the last month (20.21%) and the last three months (22.52%), reflecting investor optimism despite analysts not anticipating the company to be profitable this year. The company's stock price movements have been quite volatile, which could present opportunities for investors with a higher risk tolerance. For those looking for additional insights, InvestingPro offers more tips on Butterfly Network, Inc., which can be found at https://www.investing.com/pro/BFLY. Operator: Good evening. Thank you for attending the Butterfly Network Second Quarter 2024 Earnings Call. My name is Megan, and I'll be your moderator today. All lines will be muted during the presentation portion of the call, with an opportunity for questions-and-answer at the end. [Operator Instructions]. I would now like to pass the conference over to Heather Getz with Butterfly Network. Please go ahead. Heather Getz: Good afternoon and thank you for joining us. Earlier today, Butterfly released financial results for the second quarter ended June 30, 2024 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 investor section of the company's website at ir.butterflynetwork.com. I, Heather Getz, Chief Financial and Operations Officer of 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 as a replay once the call has been completed. I would now like to turn the call over to Joe. Joe? Joseph DeVivo: Thank you, Heather, and good afternoon, everyone. 2024 has been a great year for Butterfly so far. During the quarter we continued to accelerate our revenue momentum, continued to become more efficient, and continued our investment in our future. Earlier this year, we held an Investor Day, where we gave a look under the hood at our most robust roadmap and introduced pillars for our strong path forward. These pillars include, one, accelerating growth in our core focus business. Two, expanding our market and becoming more accessible to new user bases and new care settings such as the home. Three, investing in R&D to maintain our differentiated tech and especially in our semiconductor innovation. And four, executing these pillars to drive our pathway to profitability and we have a plan to get there. Throughout today's call, it should be clear that we are executing against these goals. The last quarter we raised our guidance to $75 million to $80 million or 15% to 20% growth year-over-year. As part of this we mentioned that the second quarter would be our toughest comp for the year due to two non-recurring large medical school deals that happened the year prior. Regardless of this one-time event we blew past our numbers. In Q2 we posted $21.5 million in revenue, represented 16% year-over-year growth. The highest quarterly revenue in Butterfly's history. So this outcome demonstrates that we're delivering and our plan is working. So before I get into commercial progress I'd like to discuss the cost side of the business. In July we completed an initiative that achieved an additional annualized cost reduction of $10 million. Heather will go into more detail shortly. Over the past two years we reduced our cash use to now under $50 million a year, while re-energizing our top line and extending our cash runway into 2027. All the while, we're continually identifying ways to become more efficient, while investing in our commercial organization and maintaining the commitment to our technological advancements in chips, digital, and new form factors. This is not an easy task to balance the growth investment and cost reduction. I am so proud of the team. They're maturing into an execution machine delivering increasing value to our shareholders every day. Now turning to sales. As I mentioned, we grew revenue 16%. This was driven by iQ3 sales and an ASP uplift in the U.S. as well as stellar performance from our international team, who launched iQ3 in Canada at the start of the quarter, added newly EU MDR cleared advanced features on our international iQ+ product, and opened new markets in Southeast Asia. On top of that, it was a quarter of strong enterprise software sales. I am very pleased with the quality of this quarter's revenue because we delivered sustainable and repeatable business across our channels. In Q2 iQ3 continued to be a complete success commercially and clinically. We are actively involved in several health system deals that we previously would not have been competitive in. Our online customers purchased iQ3 74% of the time. In Canada iQ3 represented 89% of sales across all channels. We've upgraded over a thousand probes this quarter to iQ3 and just launched a competitive device upgrade allowing customers to turn their old non-butterfly product into butterfly for a new iQ3. When we look at utilization data launching iQ3, we're pleased to see, accelerate the use of our cardiac and OB presets. We'll continue to analyze these trends but we believe this to be a testament to our improved image quality that's critical for these advanced specialists. I mentioned that Q2 was our toughest comp due to last year's large medical school deals. We've had tremendous success over the years in placing our technology in medical school programs. So historically Butterfly built the medical school segment primarily relying on a combination of smaller deals putting probes in the lab for students to share or large-scale one-to-one deployments that were typically made possible by medical school donor funding. We of course enjoy those large orders. It's just as a public company big one-time events are hard to anniversary. So this quarter we saw a large number of medical schools purchasing probes directly, showing us the market is ever maturing. ScanLab has been huge for us. ScanLab has strengthened our position by proving to be a very valuable asset in helping medical schools be more-and-more confident in going to a one-to-one model since they often lack ultrasound educators. A student truly learns ultrasound when they have their own device because they can practice on their own. ScanLab gives them their own AI instructor on their iPad to be there with them helping them hone their skills making a one-to-one model even easier to implement. So to expand on this like Apple (NASDAQ:AAPL) did in the 80s and 90s, Butterfly is partnering with schools to create a seamless pathway for their students to purchase a Butterfly through a campus store discount. They get their textbooks, their pencils and laptops and their Butterfly. All essentials for the next chapter of their careers. This quarter's campus store pilot program at a leading medical school offered 300 eligible students the opportunity to purchase their own Butterfly. Their choice of an iQ+ or an iQ3. 232 of them bought a probe before the semester started and a third of those students even opted to buy the premium iQ3. Like Apple when you engage them young you develop a lifetime of familiarity and relationship. You develop a common language and then you do everything to maintain that belonging into the future. With several years building medical school programs behind us it's exciting to see many graduating classes this year heading into residency with ultrasound skills. The Butterfly army is growing. Students trained on Butterfly are transforming healthcare by being the most sought-after candidates for residency programs and shepherding in the new era of point-of-care ultrasound, when they get into clinical practice. Gosh residents with ultrasound skills are just invaluable. It's where the industry is headed. Ultrasound capability is being demanded at hospitals. Doctors without ultrasound skills need to learn them or will simply be marginalized by their juniors. There is a seismic shift happening in diagnostic imaging and Butterfly is a catalyst. Our medical school strategy is shaping the future. So in sum, we have a really bright outlook with medical schools. Butterfly no longer needs to depend on large donation-based opportunities given that we've built a model that will support sustainable revenue growth. There are about 100,000 medical students at any given time and 25,000 new first-year students annually in the U.S. alone. Ten other programs have agreed to go live on our campus essentials program and we're working on many more. This will not only deliver a more stable recurring revenue model for the company but it will also allow evergreen purchasing that is not based on hospital budget cycles as they are now. So let's now discuss our developments in AI. Butterfly posted more wins this quarter for Butterfly Garden powered by Butterfly and our internal AI developments. In-house we have many AI tools that we're developing and we'll have a series of releases scheduled for next year. As a reminder, we have the largest private ultrasound image repository in the world. 21 million images growing at about 30,000 a day and that enables us to quickly develop new tools. It also allows us to use our capabilities to amplify other ultrasound AI companies and expose them then to the largest handheld ultrasound marketplace in the world. In Q2 we increased our Butterfly Garden partners to a total of 15 and have also signed the term sheet for our third powered by Butterfly chip licensing deal. We announced that HeartFocus by DESKi, UltraSight and SouthWood signed to the Butterfly Garden. We're very excited to have them join our effort and are pleased with the amount of new cardiac AI platforms that are choosing Butterfly Garden as the marketplace to bring their advanced technologies. While Big Ultrasound is buying a few AI companies for themselves, Butterfly is building a premier AI ecosystem for everyone. This makes Butterfly the only independent AI ultrasound marketplace and it also will allow Butterfly customers access to the best new AI tools available without needing multiple platforms. Butterfly customers will purchase new ultrasound AI products to advance their clinical care and all independent developers will build with us to access the marketplace. This is a win-win-win and it's happening now. Our partners ThinkSono was the first garden partner to commercially launch their deep vein thrombosis training tool. We launched it to all of our customers and are making progress getting the message out. Next year they expect to launch their clinical DVT guidance tool upon winning regulatory clearance. In 2025 we also see a cohort of Butterfly Garden and Powered by Butterfly partners commercialize their offerings providing a new and growing reoccurring revenue stream for Butterfly. So this quarter we also signed a term sheet for our third Powered by Butterfly partner. This company is already commercial and the next version of their product will leverage our proprietary ultrasound on chip. We are not announcing their name yet so we don't disrupt their current commercial activities. Of the three partners we anticipate they will be the first to market next year. So they will not only deliver some technical revenue this year for Butterfly we expect them to deliver revenue from commercial activities as soon as next year. We look forward to announcing this partnership when they're ready to launch commercially and are excited today to share the continued success of our Powered by Butterfly program. I want to remind you that each of these Powered by Butterfly deals are complex requiring research and development and a regulatory strategy yet have a very high opportunity ceiling for Butterfly. We have at least 15 other partners in our pipeline and are actively negotiating with five of them concurrently. The interest in Butterfly and accessing our proprietary and protected technology has been extraordinary. We are doing everything to keep up with demand. As I've stated in the past this effort has the opportunity to deliver non-dilutive capital to the company and at the right time I'll update you more on that. So before I turn it over to Heather, I'd like to touch on a few parallel momentum drivers in the clinical and regulatory space. So first on the clinical front, we told you at our investor day that heart failure management is an area of great opportunity for Butterfly with a rising patient population and hospitals working hard to tackle readmission challenges. Recent research has been published in the academic emergency medicine journal further validating the clinical significance of Butterfly in the space. The studies demonstrated that not only was it easy for paramedics to master lung ultrasound with Butterfly devices but the pre-hospital scanning reduced time to acute heart failure treatment by over two hours compared to routine care. This early initiation of heart failure therapy is crucial and it's associated with lower mortality and hospital readmission rates. We also introduced bladder scanning as our second primary use case for home care. Progress is happening here too. The Christopher Reeve Foundation just launched a study of their own to validate that bladder self-scanning can revolutionize care management for patients with spinal cord injuries. So next we're proud to share that after rigorous vetting Butterfly iQ+ was recognized by the World Health Organization in its 2024 compendium of innovative health technologies for low resource settings. Inclusion in this manual further legitimizes our device and we continue engaging with foreign governments and funders for our global health initiatives. Lastly, I'd like to update you on our efforts to overturn the exemption big ultrasound gets from the RoHS standards in Europe. We've been working closely this quarter with the European Commission on how Butterfly's petition can be heard. You see for the last 20 years or so, the ultrasound industry has gained compliance to the EU's restrictions on hazardous substances directive or RoHS only via an exemption. These incumbent ultrasound devices contain hazardous levels of lead in their piezoelectric crystals above the standards set for toxic materials and electronic devices and are exempted now only because there's been no clean alternative presented to the commission. These exemptions are time limited and intended to bridge compliance until big ultrasound can produce cleaner products. But since they get this exemption, why should they invest in an alternative? Periodically, big ultrasound files for exemption renewals stating that there's no alternative and their toxic devices remain worthy of the exemption. In my view, that's all about the change. Butterfly is demonstrating to the European Commission that there is now a clean alternative that doesn't rely on lead crystals or the exemption and that the alternative is the CMUT technology utilized in our devices including Butterfly iQ3. And this showcases the rapid technological evolution of our CMUT chips. Just weeks ago we filed for what is called revocation. Revocation is a formal process to petition for cancellation of a prior exemption given. After going through this process, it seems Butterfly may be one of if not the first company filing for such a request in the 20-year history of the RoHS directive. While the EC is currently reviewing previously filed applications by big ultrasound to renew their exemption in parallel, they will now be considering whether it's warranted in the first place and whether they should be revoked for all piezo-based handheld devices altogether. So stay tuned because we believe an exemption renewal decision will be made one way or the other in the first half of '25. And now I'll turn it back over to Heather. Heather Getz: Thank you. As Joe noted, we saw continued strength in the second quarter of 2024 with revenue of $21.5 million. The highest quarterly revenue in the company's history. This represents a 16% increase versus the prior year period. The increase was driven by price and volume positively impacted by the launch of iQ3 and higher software sales. Of note, in the second quarter of 2023, we had two large grant-based deals at medical schools that did not repeat in 2024. Excluding these deals our volume grew 37% demonstrating strong core demand for our products. Looking at the U.S. and international channels. During the quarter, U.S. revenue was $14.8 million, which was 3% higher than the prior year. Excluding the aforementioned medical school deals in 2023, U.S. revenue grew 25% versus Q2 '23 and 21% sequentially from Q1 2024. These results were driven by higher average selling price and strong demand. Total international revenue increased 57% over the prior year period to $5.2 million driven by higher probe volume partially offset by lower average selling price due to a higher mix of sales to distributors, which carry a lower selling price as compared to our direct business as well as due to lower mix of software revenue and sales through the e-commerce channel. Breaking down our revenue between product and software and other services. Product revenue was $14.6 million, an increase of 19% versus Q2 '23. This increase was driven by higher average selling price and volume mainly in international distribution and e-commerce and approximately 50% of our total volume was iQ3 and 75% domestically. Software and other services revenue was $6.9 million in the second quarter, up 10% versus the prior year period. Software and other services mix was 32% of revenue, decreasing by approximately 2 percentage points versus Q2 '23. This decrease can be attributed to product revenue growth outpacing software revenue with the launch of our iQ3 earlier this year. Our total annual recurring revenue, which is reported as part of software and other services was flat versus the prior year period. This was due to an increase in our enterprise software subscription ARR that grew 24% an increase to 43% of our total ARR. This increase in enterprise software revenue was offset by declines in our individual subscriptions. Turning now to gross profit. Gross profit was $12.6 million in Q2 2024, a 15% increase as compared to $10.9 million in the prior year period. Gross margin percentage remains relatively flat at 59%. While gross margin percentage was positively impacted by the higher average selling prices these benefits were offset by higher software amortization a lower proportion of higher margin software and other services revenue and inefficiencies associated with the launch of iQ3 including warranty costs. Moving to EBITDA and capital resources for the second quarter of 2024 adjusted EBITDA loss was $8.1 million, compared with a loss of $17 million for the same period in 2023. The $8.8 million improvement in adjusted EBITDA loss was driven by higher revenue cost reductions and efficiencies which led to lower payroll consulting and other outside services. Cash and cash equivalents including restricted cash as of June 30, 2024 was $106 million. Our total use of cash in the second quarter was $11 million. As we have previously discussed, we have taken significant costs out of the business and reduced our annual cash burn but we are not done yet. We will continue to find ways of being more-and-more cost efficient. In keeping with this principle, on July 1, we entered into an agreement with a third-party partner to optimize and lower the cost of certain non-specialized technical functions. With this agreement, we will have a tightly knit team located across the globe with increased access to talent 24/7. As part of the transition into this new partnership a portion of the company's workforce will be in lower cost geographies resulting in an estimated annual cost savings of $10 million. The cost of this program will be recognized as an expense in the second half of 2024 but the cash payment will be deferred and paid ratably starting in July of '25 through the end of 2028. With this program we have further extended our cash runway into 2027 from our previous estimate of early '25th. Moving now to guidance. In the first half of the year we have made significant progress in delivering against our priorities. We launched iQ3 in the U.S., launched ScanLab and iQ+ Ladder, reached 15 Butterfly Garden Partners and signed the term sheet for a third powered by Butterfly Partner. Internationally, we received EU MDR for advanced features of iQ+ and are applying for iQ3 while adding additional geographical footprints. We invested in our commercial teams and will continue to expand our sales footprint both domestically and internationally all the while reducing our cash consumption and conservatively extending our cash runway into 2027. In addition, I am pleased to report that yesterday, we regained compliance with the New York Stock Exchange minimum bid price rule and received official notification from the exchange. As we look at the second half of 2024, our commercial organization is humming. As mentioned, we are adding additional commercial resources in the U.S. and internationally and we expect to open more countries and launch iQ3 in Europe. Our work is not done. We will continue to find efficiencies and are exploring opportunities for non-diluted financing for example grants and licensing deals. This will provide us with maximum flexibility as we continue on the pathway to profitability. As always we will keep you updated on this front. For 2024 guidance, we are reiterating our revenue guide in the range of $75 million to $80 million or about 15% to 20% growth and improving our adjusted EBITDA guide by $5 million for the full year to a loss of $45 million to $50 million. Specifically looking at Q3, which tends to be the toughest quarter for demand in healthcare, we expect to see revenue growth of around 20% to 25% bringing us to approximately $19 million of revenue. For Q3 adjusted EBITDA, we expect a loss of approximately $9 million to $10 million. To summarize, we had a strong second quarter in first half of 2024. We look forward to continued double-digit growth in 2024 and beyond with the realization of additional efficiencies that will further extend our cash runway into 2027. We have been delivering against our plan and will continue to do so with a strong base of technological and organizational assets and a team who is energized to capitalize on this attractive market opportunity over the long term. And with that, I will turn the call back to Joe. Joseph DeVivo: Thanks Heather. Butterfly today is undoubtedly leading the digital revolution in ultrasound. We're making it less expensive and easier to gain access to necessary medical imaging. We're helping low and middle income countries, areas of conflict, medical students, nurses, veterinarians, and point-of-care doctors all gain access to tools and skills necessary to provide life-saving diagnostic technology where they need it most at the patient's side. I am very pleased with our success this quarter and I'm just as eager to forge ahead on the exciting plan and roadmap that we've unveiled at our March Investor Day. There we spoke of our future, our technology roadmap, our semiconductor investment, and our pathway to profitability. We showed how our wearable technology will transform care for patients in the home and how they can do their own scans. It's all happening. So if you're interested in Butterfly, urge you to revisit those Investor Day materials. While we can't give you a thorough update on everything going on, just know that while we work to deliver you great numbers each quarter, we are simultaneously dedicated to executing on our commitment over the long term with that North Star strategy. So I want to leave you today with this. There is no longer any doubt where point-of-care ultrasound is going. Butterfly is delivering at every level and in my view is in control now of our destiny. Change is hard for healthcare. History has proven that. But we are drivers of change and our results demonstrate that we are succeeding. Butterfly is a great company with massive growth potential and we will continue to deliver strong performance quarter-after-quarter-after-quarter. Just sit back and watch. We hope you join the ride with us. With that, Operator, let's open it up for questions. Operator: Absolutely. [Operator Instructions]. Our first question goes to the line of Josh Jennings with TD Cowen. Your line is open. Josh Jennings: Great. Thanks for taking the questions. I wanted to start on the iQ3 launch. It sounds like you're having significant early success. I apologize if I'm making you repeat some things from your prepared remarks. I jumped in late. But I just wanted to hear about the launch in the U.S., where you're having the most success, either on the hospital enterprise channel or e-commerce channel or other. And then also, sorry for the multi-tiered one here, but just the international launch coming up and any expectations there in terms of just high-level color and contributions in the second half? Joseph DeVivo: Awesome. Thanks, Josh. Appreciate the question. What's really exciting about the revenue and the progress right now is it's very broad-based. It's not lumpy. It's not one or the other. We're not sweating this or sweating that. We're seeing a lot of traffic to the website. We're seeing our e-com up. We're seeing our inside sales team really crushing it, doing a great job. We're seeing our direct team build out the pipeline. We have our software selling. We're seeing a lot of health system deals. So I think what's really good is that our commercial team at all phases are delivering. We're seeing a very strong clinical acceptance for multiple specialties. We're seeing the emergency room, please, we're seeing new cardiology grow a new interest. We're seeing our EMS business grow with our inside sales team. So I can't point to one particular thing saying, hey, this is happening that's outside. I'm really just seeing a nice groundswell. I'm seeing average daily sales go up, seeing great activity across our presets and our platform. So what makes us confident about our future is, it's not like we're with our tongues out through the quarter and, oh boy, we hope we get that one big order coming in. It's just not like that. Of course, we're trying to close orders at the end of the quarter, but it's more, we're seeing the business pay strong. We're seeing ourselves delight new users. We're seeing ourselves reinvigorate existing users. And it's a pretty broad-based type of success. I think in the U.S. about 75% of our sales were iQ3 on a unit basis this quarter. And it's just showing the acceptance of the product, but also it's been a lot of fun having two products to sell. So we have price when we need it and we have premium when we need it. And the strategy is working. Josh Jennings: Excellent. And I guess my follow-ups, sorry, I've got two. First is just anything, just want to pipe the sales funnel and the sales pipeline. I mean, I think your answers and your prepared remarks suggest that that is building nicely, but any way to kind of quantify the pipeline relative to where things stood last year? Joseph DeVivo: Well, first of all, I realized I didn't answer the second part of your first question, which was international. So let me do that because I wrote that down. Josh Jennings: Okay. Thank you. Appreciate it. Joseph DeVivo: So I apologize for that. So international, our first international market to see iQ3 was Canada. And it was nice because Canada is not a massive market for us and we didn't really know how in tune they would be for this. And it was great. I mean, our distributor had great success, our online sales had great success. And one of the things that we're finding is, while we are, it's approved in the U.S. today, ultrasound, radiology, imaging is a small community actually, and it's a global community. And so we've had trade shows in different markets where we're not really, we're not cleared yet. We're selling our current product, but we have people coming up to the booth saying, hey, can I see iQ3? When are you going to bring iQ3 out? So we're excited about what happened in Canada. We were actually pretty surprised. And we have a launch event in London on September 8th, where we have thought leaders from throughout markets who are going to be there in the room and we'll be launching in Europe in the end of this third quarter. So I'm very excited about the global reach, about the acceptance and how this is going to roll market-by-market, because people are talking, people see what's happening online. Some people follow us even as a public company and hear these calls. And I get, I hear things recuperated back that we've told investors. So everyone's listening and watching and waiting for them to be able to actually start buying a product. As far as the pipeline is concerned, I really can't give numbers on a pipeline, but the best way is, everyone wants your pipeline to cover your forecast, right? So you have a certain amount of coverage. Hopefully, your pipeline is in excess of what your numbers are. And I think the best way for me to communicate right now is that our coverage hasn't been higher. So our pipeline coverage is at a place where there's a certain multiple of our forecast, which gives us great confidence because everything doesn't have to come in for us to be successful. Josh Jennings: It's great to hear. Last question is just wanted to, you know, we've spoken about this before and you addressed it at the investor, but just to think it as you're calling out through Butterfly Garden and Powered by Butterfly opportunities, how, and we're updating our models for 2025, just maybe talk about revenue contributions from those two channels. I know you're not going to quantify them, but should they start, some start flowing in here before the end of the year or into 2025, within the same vein, but totally off base potentially, just thinking about the intracardiac ultrasound market, left atrial appendage occlusion, pulse field ablation is coming in, cardiac ablation, all these structural heart procedures, intracardiac ultrasound is much more important, but also it's taking off. Is there, are there any partnerships in the works and is that a channel that excites you guys? Thanks. Joseph DeVivo: So Josh, cardiac certainly excites us. I'm not aware of particular partnerships yet in that space. And so if anyone's listening, give us a call. But no, I can't say that there's something specific. I will say that ultrasound AI companies are, in our view, kind of flocking to Garden, and it's like, we'll have 13 or 15 different partners live on Garden. And so for us, that's providing 15 different AI tools ultimately to our customers. And what that means is, if we're a big ultrasound, we have to purchase 15 companies to kind of offer them to customers. And we don't have to do that. We just create these partnerships and we, and we share success with each other. So I think that's going to accelerate now, where the rubber hits the road is when they turn into commercial. And this year we've had one partner, as I mentioned in my prepared remarks, ThinkSono, have an education app. And I think, it's going to take, it's going to take a bit before these companies kind of stack up on each other. And we start seeing that revenue build from software sales that pull through. So, and it's hard to really predict, but I think we're going to start to feel it in '25. Now, the powered by customers, there's R&D expense, there's, access to some of the tech, and there is some revenue there. And it's, I don't know how to quantify it. You can decide, Heather, if you want to quantify it or not. But I do think that as the powered by partners become commercial, and we have one next year, we're going to start feeling that revenue. So, I don't know, Heather, how you want to quantify it this year or next year, but I do think by the end of '25, the contribution from both of those are going to be felt. Heather, you want to jump in? Heather Getz: Yeah, in 2024, we are recognizing some licensing revenue, but that's done over the course of the arrangement. And we expect that to build into '25. And as Joe mentioned, with the commercialization of some of our partners, we will see that accelerate in addition to as we sign additional partners, we'll pull in some additional licensing. So right now, not material enough to speak of in '24, but we will see that build in '25. Operator: Thank you, Josh. Our next question goes to the line of Suraj Kalia with Oppenheimer. Your line is open. Suraj Kalia: A couple of questions for you and a couple for Heather. Joe, let me start out with AI and ultrasound, more macro level, Joe. Are there any specific structural shifts happening in ultrasound? All the key players are now talking about pushing AI and ultrasound, obviously, GE with Caption Health. And I guess I'm more curious as to the more recent drivers for which everyone has started talking about AI integration, whether it's a Fax to EMR, and more so just kind of putting it into the assistance. Any color there would be great. Joseph DeVivo: Thank you for the question. I think there is a broad-based realization that AI is a major accelerant to ultrasound and ultrasound usage and ultrasound in the home, ultrasound in the hands of less trained users. We've now, in the quarter, trained more midwives in South Africa. We had our Kenya deployment. We then had our South Africa deployment. And these are midwives who are now doing ultrasound for childbirth to understand fetal position. And whether it's that experience or whether it's the caption experience that GE is having or other companies are having, they're realizing that handheld ultrasound is a really low-cost, easy way to deploy advanced imaging into the hands of clinicians and to be able to help patients. And so I think there's a broad-based understanding that this is not some niche or something that's nascent. The Gates Foundation has now invested over $100 million in all the different ultrasound industries, all the different companies to develop applications specifically for third-world countries for ultrasound AI. And I think the large players in the space, cloud players, software players are realizing that there can be a lot done here. So I think the AI ultrasound field is going to completely explode. And if you just think about in the U.S., we have a million doctors, 4 million, 5 million nurses. We only have 80,000 ultrasonographers. And so that's a major constraint in the ability to deliver ultrasound out into the general public. When you empower people who don't have legacy ultrasound skills, you dramatically not only improve throughput, you deliver care to where it's needed most. So I think the big players, and I just don't mean the big ultrasound players, but I think the big tech players realize this is an opportunity, and we're right in the thick of it. Suraj Kalia: Fair enough. Joe, in terms of the RoHS revocation letter, obviously you guys are going against the three big dogs in the field, right? What would you consider a mission accomplished? Joseph DeVivo: Well, obviously I'd love to see there be a date associated with when there would be no more purchases of piezoelectric handheld devices. I'd love to see a date established. You can't buy any of these devices beyond a particular date. That's what I'd like to see because truthfully, our iQ3 can do pretty much everything that all the other ones can do today. You can't point to something that we can't do. Actually, I could point to things that we can do that they can't. So what would the argument be, Suraj, to keep them on the market other than political discomfort and other stuff? So I mean, technically, clinically, we could do it all. Why have a directive if we're not going to allow it to meet its original intent? So I understand politically, big companies, it's going to be discomfort. But actually, if you look at handhelds, handheld is such a small, minuscule part of their business. It won't affect them really. So I mean, success for me is a date being established, whatever that is, for those products to no longer be sold. It doesn't have to be pulled off the market, but why should we be selling technology that doesn't meet the standard when there is a complete green, clean alternative that can do what it can clinically? So that's how I feel. But we're walking in uncharted territory here. And who knows what will happen. But I think it's such a potential big event. I've decided that it's hard to not talk about and educate investors that there is a possibility. But of course, just incumbent in your question, Suraj, you know, the probability is low because of market might and lobbying, etc. But I'm trying to build awareness. And truthfully, I think that there's very good intent with this law. And I hope that the regulators see that we meet the initial spirit of their intent. Suraj Kalia: Got it. Heather, a couple of questions. I'll put both of them together. Maybe I read this wrong, Heather. So units were up 37% year-over-year, but sales, product sales were up 4%. Obviously, I'm screwing up somewhere. If you could help clarify that? I guess what I'm trying to get at is price versus volume split. And the second thing, Heather, is iQ3 contribution in the quarter. Thanks again for taking my question, folks, and congrats. Heather Getz: Sure, of course. So as to your first question, the volume and the price, we backed out two large deals that occurred in 2023. They were grant-based medical school deals. That's where the volume, if you look at the domestic number, the revenue grew 25%. And the 37% was the volume excluding those deals. So it's both including and excluding. So the lower number was including the deals. What I was trying to demonstrate there was the high core demand for the product left these large grant-based deals. And then your second question. Joseph DeVivo: If I could just jump in on that, Heather. I mean, we had 1,300 probes. We had 1,300 probes to kind of anniversary. And we went into the quarter thinking we didn't have a shot to overcome that with basic consumption. But we did. And so we're thrilled with the high quality broad-based type of consumption that we had. And we overcame that big one-timer. And on top of that, we benefit from the ASP uplift too. But I'm sorry, Heather, to interrupt you. I just wanted to clarify. Heather Getz: No, no. No, go ahead. And Siraj, what was your second question? I apologize. Suraj Kalia: Well, just the iQ3 contribution in the quarter, just additional metrics in terms of penetration rates, what percent of your base now has an iQ3, just additional metrics that we can slice and dice? Heather Getz: Yeah. So the volume in the quarter overall was just shy of 50% iQ3. Domestically, it was about 75%. Suraj Kalia: Thank you. Operator: Thank you, Suraj. There are currently no other questions registered. [Operator Instructions]. There are currently no other questions registered. So I'll pass the conference back over to you, Mr. DeVivo, for closing remarks. Joseph DeVivo: Well, everyone, thank you so much for joining us. There's a lot of content, a lot of things happening. And this turnaround for Butterfly continues. We see the balance of the year being very strong. We see that we're building momentum, broad-based, repeatable business. And we're very excited about how our team has delivered and appreciate all your time and attention. So thanks, everybody. Operator: That concludes today's earnings call. Thank you for your participation. I hope you have a wonderful rest of your day.