Hello, everyone. Thank you for joining us and welcome to Butterfly Network, Inc. Q3 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to John Doherty, Chief Financial Officer. John, please go ahead.

Good morning, and thanks to all of you for joining our call today. Earlier, Butterfly released financial results for the third quarter ended September 30th, 2026. We also provided a business update. The release, which includes a reconciliation of management's use of non-GAAP financial measures compared to the most applicable GAAP measures, is currently available on the Investors section of the company's website at ir.butterflynetwork.com. Additionally, we also filed a new universal shelf registration statement on Form S3, replacing the shelf that expired in August, 2026. I, John Doherty, Chief Financial Officer of Butterfly, along with Joseph DeVivo, Butterfly's Chairman and Chief Executive Officer, will host a call this morning. 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, Revenue attributable to home and community care, as well as embedded partnerships through revenue share, ship purchases or otherwise, 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. To access the webcast, please visit the events section of our investor website. A replay of the event will also be available on this page following the call. I would now like to turn the call over to Joe.

Thank you, John. and welcome everybody to our third quarter conference call in 2026. I remain extremely pleased with our execution across the business. We delivered 32.6 million in revenue, beating top end of our guidance by 9%. We delivered the highest gross margin in Butterfly's history and we're raising our full year guidance on the top and bottom lines. What I'm most proud of is how revenue is being built. It's durable and it compounds. In the U.S., our core business is increasingly anchored in multi-year enterprise contracts with a pipeline that has grown sixfold since introducing Compass AI. Internationally, we've developed a plan to take what's working in the U.S. and put that playbook to work in global markets. In Embedded, every new partnership brings development and licensing revenue today, but more importantly, the potential for revenue share if and when they commercialize means it builds on itself. and as home and community care begins generating revenue, that's upside. Each of these wins can expand our addressable markets. So for me, I see our opportunity growing every day. I become more and more excited by Butterfly's potential for significant growth over the next few years. Starting with our POCUS business, I'm very proud of our domestic team. We delivered 15% revenue growth in our USHHS business this quarter. Our enterprise strategy is taking effect, and we're talking to new enterprise accounts on a regular basis. We are seeing a rapidly maturing POCUS landscape. Health systems are listening to clinicians who want to perform ultrasound, and they're providing more and more CME education for them. It's also becoming more recognized that a health system hocus program and data management system like Compass AI is essential. Our Compass AI pipeline is converting, and we are now closing software and hardware enterprise deals each quarter. The third quarter included five seven-figure TCV deals and then 10 six-figure TCV deals, a clear demonstration that this pipeline is materializing. Being mostly software, that revenue also compounds over time. These are also multi-year contracts, and that's exactly the kind of revenue that builds durability into our business. We expect this to keep accelerating. So continuing in the U.S., our partnerships with the Edward Villa College of Osteopathic Medicine, known as VCOM, has kicked off. Through the new Lighthouse program, VCOM is committed to providing a butterfly probe to every one of its students. That's about 670 new students per year across four schools. And then upperclassmen are receiving devices this year also. I attended one of their white coat ceremonies where I stood on stage with the dean. He handed each student their stethoscope and I handed them their new butterfly. The look of joy on their faces is a memory I will not soon forget. Graduates will take their pros with them into residency now, which is new. And because every device is networked through Compass AI, we'll work with VCOM to understand postgraduate activity and use it to inform best practices going forward. To wrap up the US, we achieved FedRAMP authorization in the quarter as anticipated, which enables us to do business with the federal government at scale. Our government pipeline is now building organically, and we are now being proactively included in RFIs from government agencies on much larger efforts. This is entirely new for Butterfly. FedRAMP could be a real catalyst for Butterfly's POCUS business by creating access to the largest purchaser of healthcare in the world. More to come on that front. So turning to international POCUS. After deal timing shifts last quarter and continued softness this quarter, we took a closer look at our international commercial strategy and identified clear opportunities to improve our performance. Historically, we've relied heavily on distributors focused on individual clinicians. We now see real opportunity to pursue larger institutional and enterprise customers, much like we've successfully done domestically, where our market share is more than double that of any international region. For competitive reasons, I won't share the specifics, but we are preparing to put our U.S. playbook to work internationally. We expect improved performance in the fourth quarter and into 2027. We believe this is an important step towards building a stronger, more durable, and scalable international business. Moving to our partnership ecosystems, we signed five new garden partners this quarter, spanning emergency medicine, global health, telemonitoring, and veterinary applications. We should now begin to see a steady stream of partners coming to market. Every garden app can expand what the probes already do in the field and become an enabler of adoption. Just this week, Deep Echo launched its app into the butterfly garden. It brings butterfly users AI powered fetal imaging analysis and automated measurements designed to expand access to critical maternal health care. Deep Echo marks our first international garden application to go live. Its initial commercial focus is underserved international markets where access to prenatal imaging is limited, and it is also available in the U.S. for educational purposes now. We congratulate our friends at Deep Echo on this accomplishment. On Embedded, I want to take a moment to reiterate how this revenue builds, because it's one of the most important things to understand about Butterfly. Today, the majority of our embedded partners pay us for development work, licenses, and chips while they're doing technology development. Assuming products reach market, we then receive software licensing, ongoing chip purchases, and in some cases, commercial licensing. So each new partnership isn't a one-time event. It adds a layer of immediate and long-term revenue that compounds as partners commercialize. Embedded revenue won't always move in a straight line quarter to quarter, especially at this early phase. But what matters is that the underlying base keeps growing with every partner we add. This quarter, we hosted an event in the Bay Area that brought together the founders, researchers, and VCs at the forefront of brain-computer interface innovation. Ultrasound is one of the few modalities that can interface with the brain noninvasively, both sensing neural activity and stimulating neurons. and Butterfly's Ultrasound on Ship is emerging as a key enabler. While early BCI work has focused on restoring function for people with injuries or disabilities, we're seeing growing interest in approaches that would also enhance human capability in entirely new ways. Some of these applications will take years of clinical study, while others may have shorter paths to market. But each new partnership expands our reach into what we believe could be A significant new market for our technology. We added three new partners over the quarter, all in the BCI space. Two we've already announced, Merge Labs and Bridge Neurotech. Both incorporate founders from our partner Forrest Neurotech, recently renamed Arbor Neuroscience, which continues to incubate new ideas from some of the brightest minds at Caltech. Both contributed to embedded revenue in the quarter. And our third partner is Still Stealth. Our pipeline continues to grow and mature with compelling ideas from startups to very large companies. We've also strengthened our commercial efforts with new sales executives dedicated to specific categories of embedded. So the future is exciting and partner innovation is already becoming a reality today. That's the moment where long-term revenue begins. Mandara, a pioneer in vascular robotics and one of the first announced embedded partners, has now launched its product with Butterfly Technology, a handheld robotic system for real-time needle guidance. We're proud of our partnership and the enhanced capability it provides physicians in critical use cases. We continue to make strong progress also with our mid-journey partnership and remain on track to achieve previously communicated milestones. Development of Apollo is also progressing on schedule. Apollo is a critical technology for MidJourney and several of our other embedded partners. We believe it could be transformational, representing the first convergence of semiconductor-based ultrasound and physical AI. It's a platform investment serving not just us, but many of our partners. Our R&D team has also advanced our wearable form factor which has been one of the most requested capabilities from current and prospective partners. We plan to release a limited batch of wearables to embedded co-development partners for research and development. We see it as a potential enabler of future embedded opportunities. So shifting to home and community care, we finally moved from program building to execution. We completed all program approvals in the third quarter and are now delivering the implementation phase we committed to last quarter. Scanning starts in November and we expect initial revenue in this fourth quarter. We hope to expand to other markets through 2027 and are also active in discussions with other large potential partners about this application while exploring new service opportunities enabled by emerging use cases and advances in AI. I believe this revenue will grow throughout 2027 and could become meaningful in 2028. So with that, I'll turn it over to John. John?

Thanks, Joe. Butterfly continued its strong and focused execution in the third quarter of 2026, with an increase in revenue driven by strong growth in our embedded business. Core focus was also solid, with performance reflecting our increased and expanding focus on the enterprise market. Gross margin increased, and we saw continued improvement in operating performance, with further reallocation of resources towards higher ROI opportunities and markets. Building on the operational highlights Joe outlined, let me translate these into the financial highlights in the quarter. We had strong revenue attainment, 9% above the top end of our guidance, the highest gross margin for Butterfly in its history, adjusted EBITDA that was above consensus and our guidance range, with improvement driven by our revenue performance, higher gross margin, and continued financial discipline while investing for growth and growth in probe unit sales of 5%. With that, let me move on to our results. Third quarter revenue was 32.6 million, an increase of 52% year over year. Our growth is primarily driven by butterfly embedded. In addition, in core, we had strong performance across every segment in the US, including US health systems, medical education, out of hospital, federal, Global Health, and Ecom. This helped to drive strong year-over-year unit volume growth, along with Compass AI sales gaining traction with key wins in major institutions. Breaking things down between the U.S. and international channels, during the third quarter, U.S. revenue was $27.5 million, which was 71% higher year-over-year, driven by revenue from embedded as well as solid demand in the core business, with unit sales up 9%. As Joe mentioned, international was down year over year. Total international revenue decreased by 5% year over year to $5.1 million in the quarter. Once again, we had a few deals expected to close in the previous quarters, move out into the fourth quarter, and we have some partners working through inventory. As we execute our U.S. playbook globally, we expect improved performance in the fourth quarter and as we move into 2027. The launch in the Brazil market is gaining traction. We have a new distributor in Taiwan, and we are continuing to expand our global footprint and commitment to key markets. Let's turn to our revenue split between our core POCUS business and Butterfly Embedded. As a reminder, the core business includes probe sales and related software, Compass AI, other services, and home and community care, which launched in the fourth quarter. Embedded revenue currently includes one-time NRE payments, annual license fees, devices and accessories, revenue from SOW-driven development work, and chip sales to embedded partners. With that, core revenue for the third quarter was $21.5 million, an increase of 5% versus the third quarter of 2025. This increase was driven primarily by growth in volume in most of our US segments, as I mentioned. Of note, and as Joe touched on earlier, the core result includes five seven-figure TCV deals as well as 10 six-figure TCV deals demonstrated our continued traction as we move deeper into the enterprise market. Sales of the IQ3 were up 8% in the quarter year-over-year, while sales of IQ Plus were down 9% in the quarter year-over-year. ASP was up 1% year-over-year, driven by the higher mix of IQ3, offset somewhat by a Labor Day subscription holiday promotion we ran in September. Butterfly Embedded Revenue was $11.1 million, an increase of over 1,000% versus the third quarter of 2025. This increase was primarily driven by the Mid Journey Partnership and the new partnership agreements with Merge Labs and Bridge Neurotech. Moving on to gross profit, gross profit was also a record at $23.8 million in the third quarter of 2026, An increase of $27.6 million as compared to the prior year gross loss of $3.8 million. You will recall we took a write-down of $17.5 million in the third quarter of 2025. Normalizing for this, gross profit was up $10.1 million or 74% year-over-year. Adjusted gross profit margin percentage increased to 73% from 64% in the prior year period, a 913 basis point increase. Gross margin percentage was positively impacted by the increased mix and higher margin of butterfly embedded revenue, as well as a tariff refund under the International Emergency Economic Powers Act. Moving to EBITDA and cash. For the third quarter of 2026, adjusted EBITDA loss was $1.2 million, compared with a loss of $8.1 million for the same period in 2025, an improvement of 85%. The improvement in adjusted EBITDA loss in the third quarter was driven by contribution from higher margin revenue and continued financial discipline. Our cash and cash equivalent balance, excluding restricted cash at the end of the third quarter, was $122 million and the use of cash in the quarter was $2.4 million. This compares to a use of cash of $3.9 million in the prior year quarter. I want to speak further to our capital structure for a moment and the financial announcements made this morning. With our shelf registration expiring in August, we filed a new universal shelf registration statement on Form S3 today. This filing allows us the flexibility to issue up to $150 million in various types of securities over the next three years. As part of this shelf registration, we have also established an at-the-market, or ATM, equity program for up to $150 million. I want to emphasize a few critical points regarding this ATM program. This is good corporate housekeeping. We have no immediate need for cash and are still on course to be adjusted EBITDA and cash flow positive by 2028 as our results this quarter reinforce. This is purely a proactive measure to provide us with an efficient, low-cost tool to raise capital directly or in response to inbound interest if we need to at some point over the next three years. In terms of use of proceeds, Any capital raised under this program will be deployed for general corporate purposes focusing on high ROI opportunities specifically related to where we can accelerate our strategic roadmap. We are committed to dilution discipline. We are highly sensitive to shareholder dilution. The ATM structure gives us complete control over the timing, price, and volume of any potential share issuance, ensuring that we only issue equity when it creates long-term value for our existing shareholders. With a strong cash position and this enhanced financial flexibility, we are well positioned to execute on a sustained long-term growth plan and to continue to invest in our business in areas where we see significant opportunities for additional growth and disruption, which includes scaling our POCUS business through global market and market segment expansion, continued penetration of Compass AI as a core operating system for health systems, App Releases in Butterfly Garden and 2027 New Product Launches, Continued AI and Semiconductor Innovation with the Development of our Fourth Generation Chip, Broadening and Deepening Butterfly Embedded Partnerships, and Moving Home and Community Care to the Commercial Phase. Before turning to guidance, I want to update you on the general global macroeconomic environment relative to butterfly. We continue to monitor the conflict in the Middle East and the ripple effects on the global economy as well as pressure from tariffs in certain markets and AI-driven supply chain shortages. We have mentioned in the past that there are some impacts to our business. However, they continue to be minor and we continue to manage through it and make the appropriate adjustments. Our third quarter 2026 results are indicative of this and our full year 2026 guidance includes any expected impacts. I would now like to turn to our outlook for the balance of the year. Our full year 2026 guidance reflects continued strength across the business and we feel good about where we are heading into the fourth quarter. For the full year 2026, we are increasing our guidance for both revenue and adjusted EBITDA as well as narrowing the range. We expect revenue to be between $123 million and $126 million and improvement of 4 million at the bottom and 3 million at the top of the range from our previous guidance and an increase of approximately 26% to 29% over 2025. This implies 31 to 34 million in revenue for the fourth quarter. One item that I would like to call out and that Joe mentioned in his remarks is that embedded revenue does not recognize evenly quarter to quarter. It's tied to partner program timing and development milestones and the movement of pipeline into contractual revenue. I also wanna remind you that the fourth quarter of 2025 was the first quarter of material embedded revenue. That said, interest in embedded remains strong and our pipeline is growing. We're being thoughtful about how this is ultimately reflected in our guidance. We expect our adjusted EBITDA loss to be between 12 million and 15 million. and improvement of 8 million at the bottom and 7 million at the top of the range from our previous guidance. This implies an adjusted EBITDA loss between 3 million and 6 million for the fourth quarter. Our guidance for adjusted EBITDA for the full year includes continued investment in key areas to support innovation and revenue growth in our core business and our emerging embedded business for 2026 and beyond. In summary, we had another strong quarter. We had 52% revenue growth through the quarter and improving adjusted EBITDA. We beat both our revenue and adjusted EBITDA guidance. We are very well positioned to close 2026 out strong. And as the raise to our full year guidance reflects, we look forward to continued strong growth this year and beyond. We remain focused on gaining share through deeper penetration of existing customers and adding new customers in our core focus business and expanding our ultrasound on-chip partnerships. The business continues to get stronger across core focus and embedded. This is happening while we continue our intense focus on driving operating efficiency across the business and return on investment. I continue to be excited about what is ahead for the company for the rest of the year and beyond. Now, let me hand it back to Joe for some closing comments.

Thanks, John. So before I look ahead, I'd like to comment that my intention for the ATM is purely opportunistic and strategic. I remain committed to get cash flow breakeven with our current capital in 2028 as John stated. I want to leave you with a few thoughts on where Butterfly is going. So first, Butterfly's diversified strategy is working. Our core POCUS business continues to grow, driven by enterprise adoption, our expanding garden ecosystem, and leadership in medical education. And now we're preparing for what we believe will be another major inflection point for our business, our next generation product in early 2027 with our P5.1 chip, the final chip in the Poseidon family. This new chip will introduce tissue harmonics. What's exciting is that we're already scanning with our prototypes internally and our KOLs are very excited with the image quality that we're seeing. With IQ3, we reached image quality parity with our largest handheld competitors. With our next generation device, we expect to move beyond parity and set an entirely new standard with the best image quality in handheld ultrasound. This is the power of semiconductor technology. We are marching with the inevitability of Moore's law, and we're continuing to push the boundaries of what's possible. Better image quality doesn't just mean a better product. It opens doors. We expect it to strengthen our ability to compete in demanding clinical environments like intensive care and cardiology, where image quality is critical. It is essential as we enter the cart market in 2028. And when combined with AI applications from partners like HeartFocus and DeepEcho, it could also expand our opportunity in cardiac care and women's health. This is where the pieces of our strategy really start coming together. Best-in-class digital imaging, enterprise infrastructure through Compass AI, education and training through ScanLab and our medical school partnerships, a growing ecosystem of AI applications through Butterfly Garden, and new care delivery models through home and community care. These aren't independent initiatives. They tie together. They're reinforcing one another, creating a flywheel that becomes more powerful with every new product, partner, and customer. We are building that momentum while the competitive landscape shifts. Some smaller competitors are struggling to find their way, and larger incumbents are actually pulling back from markets they've erroneously underinvested in. Butterfly is doing the opposite. We're leaning in by imagining, investing, and creating a new future. So that brings me back to our first cart form factor. As we look towards 2028, we're preparing to enter the $8 billion cart-based ultrasound market. We're not simply building another cart. We're bringing our semiconductor platform, digital infrastructure, AI ecosystem, and connected workflows into a market dominated by a conventional technology for decades, which frankly has become unimaginative. And we see an opportunity to fundamentally rethink how ultrasound is delivered, managed, and used across healthcare. Then there's Apollo, and Apollo represents our next major leap forward. Apollo will usher in extraordinary imaging and then physical AI. Midjourney and other embedded partners are asking for these capabilities with applications that extend well beyond the handheld pro. Wearable devices, implantable chips, extraordinary machines, new ways for ultrasound to interact and power an entirely new age of human interaction. This is the bigger butterfly story. We started with a mission to democratize medical imaging. and today we're building a semiconductor-based ultrasound platform that can serve traditional healthcare, enable new models of care and power entirely new industries. Our core business is growing. We continue to compete at a high level and our technology roadmap is delivering. And with each advancement, our addressable market gets bigger. We've spent more than a decade building the foundation for this moment and now we're just beginning to see the scale of what that investment is unlocking. We're excited about what's ahead. With that operator, let's open it up for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Josh Jennings with TD Cowan. Your line is open. Please go ahead.

Hi, good morning. Thanks for taking the questions, John. Morning, Josh. Great to see the momentum continuing across the board. I wanted to just start with a follow-up just on your last comments, Joe, just on the innovation pipeline and the progress there. Two things that stuck out that seemed a little bit new to me, maybe a little bit behind, but maybe you could just build out on this physical AI channel and how Thank you, Josh.

So it's really, really exciting when we think about what the continued development of semiconductors can bring. We've been fixated on improving image quality, and that has been a function of data processing speeds and the quality of the MEMS capabilities and voltage generations. and I think this next generation, it is extraordinary. We've seen what P5.1 can do and we are thrilled for what that means for 2027. Our Apollo chip will have 20 times the processing power. It'll be 20 times the processing speeds for data And what that means is that today when we interact with AI, we do a query on our phones or on our computers. And then those queries are run actually in data centers in the cloud. And then that information is sent back to our devices that we use. And in a hospital setting, that is relatively suboptimal when you're in front of a patient delivering care. and especially with hospital networks and connectivity, etc. And so the ability to actually bring AI models into the device itself, because today when a butterfly captures an image, it's actively communicating to the cloud and it's using some of the processing power to be able to deliver some of the extraordinary capabilities that we're delivering today. and so now having a semiconductor that can literally take a full AI model and process it on the chip means that it can be encapsulated for immediate feedback for the clinicians so they don't have to be tethered and processed. A lot of times even advanced cardiac images have to be pushed to a cloud, processed and wait several minutes to come back, which is phenomenal. So there are many different use cases where that processing and that demand and the immediacy is essential and we'll be bringing that to healthcare. What was the, oh, the wearables. So we've had a wearable form factor in prototype form for several years, but the key for a wearable is not that you can wear it. The key to the wearable is really to zero in on the use case and to do the final mile type research that wearable blends into what could be used for. Is it for breast imaging? Is it for cardiac imaging? Is it for some general abdominal imaging? And those use cases, one of the incredible things about Embedded is our core business is a major investment. We are doing market development in point of care ultrasound. We have sales and marketing teams. We have R&D teams. We have Implementation teams, full organization to build one market. What Embedded is giving us is the ability to have a shot on goal and to have a revenue opportunity into many different markets that we don't have to develop ourselves. We develop the core platform and then those who are in these different specific subspecialties can invest to develop that business. Our shareholders win because we take the same technology and now leverage it over multiple markets without having to make the type of investment that today we are making to grow the focus business. and so we are now feeding our partners with these wearables and the wearables can be anything from an implantable or something that can be a wearable for a patient in the home and when we really vision cast the future, we're the only company in the world on a single device that can move the beam on a mobile device. and conceptually we can put a wearable on a patient's chest in the home. We can actually move the beam in an automated fashion. AI can determine if there's any anomalies and then that image can be sent to a subspecialty clinic for diagnosis, taking out even having to have a caregiver to acquire the image. And these are the things that we've been dreaming about for years and now amplifying our partners with wearable is a way for us to accomplish those dreams.

Thanks for the answer, Joe. And just my follow up, you know, you mentioned that you're going to launch the U.S. Playbook globally. So when you could just build out on that, help us think about the steps and John, any any incremental spend and and when this initiative could could bear fruit. Maybe just some more details on on on using the U.S. Playbook that's been so successful and built out internationally. Thanks a lot.

Thank you, Josh. So we're hitting our stride now on the enterprise side in the United States. It is becoming aware now finally to administrators Health Systems, department heads, that having a centralized data management tool is not only necessary for compliance, but it has a very good ROI because we're capturing scans and capturing reimbursement. And so we built a team and an infrastructure and a marketing plan that allows us to go and access those health systems. And it has to do with our platform architecture. It has to do with our infrastructure. We have then basically outsourced our international business to partners and we haven't empowered them with that type of infrastructure and that type of selling capability. And there's been some large deals that we could have won, but we didn't because we didn't set ourselves up like we have in the US. So it's more about making technology available. It's more about now investing and it's also more about taking the marketing capabilities that we built in the US and bringing it around the world. When you're a small company and you're trying to make investment decisions, There are things that hit the cutting floor and we haven't invested in international as much as we have in the US and that's going to change. But I think we can do it through operating. I think we can do it by leveraging the capabilities. I don't think it's a massive new spend, but it's one that it's just become stark. We had actually a distributor meeting in September and I had the opportunity to look eye to eye with all of our distributors, talk about our plans. And it became evident to me that we need to bring the type of energy to the US. We need to support our international team more. We need to put more resources and we need to take and the technology solutions that we've been so successful with in the States to the rest of the world. It's an evolution thing. It's something that I'd love to be able to spend maybe a half a billion dollars in OpEx a year and just do everything, but you have to make your decisions. And now with the market maturing the way it is, Josh, I think it's time for us to be able to get to that next level.

on investment. I mean, this is really more about driving operating efficiency and doing what we do in the U.S. globally. It's an investment that pays for itself. As I mentioned in the prepared remarks, we're looking to allocate capital to higher ROI opportunities, and this is absolutely kind of one of those. The investment will pay for itself given what we expect to be able to drive globally and the improvement in our overall Revenue results there, and everything that it requires is included in the guidance that we give.

Excellent. Thanks again.

Your next question comes from the line of Bill Tlabanich. The line is open. Please go ahead.

Great. Thanks. Good morning, and thanks for taking my questions. I wanted to start off just on the enterprise you signed 15 deals in the quarter and I'm curious you know five super scaled and and I'm curious as to how should we think about the forward revenue contribution timing does this drive incremental unit sales as well just how should we think about it as we go into Q4 and then even into 27 and maybe frame it as over the first six or 12 months and what that kind of cadence looks like from the deal about nature. Thanks.

So I'll start and then I'll ask John to fill in. So the way our enterprise deals work today is we solve the problem initially of deploying software and deploying software allows them to connect all their point of care ultrasound devices, allows them to compile all their patient data from the focus scans, allows them to bring the DICOM images into their DICOM servers and then allows them to have the data ready for their revenue cycle management platforms for reimbursement. And so what we normally do is we put the software in, we normally start a program up with a smaller amount of probes. And then over time, as we're rolling the software out through the enterprise, we see sales of probes kind of occur on a weekly, if not monthly, and many more. put their enterprise platform in, and they're probably at 700 or 800 probes today over a year and a half. So that's an evolution of what it takes. Now, we have to implement all these. And so we have implementation timelines. And then once the programs start, then these are monthly type SaaS revenue for the software. So it'll take time for it to get into the pipeline, but also the ones that we've closed before are also in the pipeline. So John, any other comments on how we would phase that?

Yeah, just for crystal clarity here, of the 15 deals that we mentioned, they include compass deals. They also include non-compass deals. So, for example, the merge deal, the bridge deal are also deals that would be included in that count. On the core business side of things, I look at it primarily with the compass deals and some of these deals being larger deals. They're also multi-year deals as kind of firming up the foundation of our revenue over time. in the core business. So that's kind of, it's like a layering effect. And like I said, over a three-year window of time, but it's a mix of deals and they contribute a bit differently in each of the embedded side as well as the core side, but ultimately just improving the overall foundation by which we're growing revenue off of.

Okay, and then just following up on guidance, It's, you know, if you look at the Q4, you know, the high end of the guide is kind of where consensus sits now. I think the general question is just, you know, obviously it's the lumpiness of the software sales component, but, you know, is this conservatism? Is this, you know, do you have expectations that maybe with a new, you know, 5.1 coming out in early 27 that that could have some impact on Thank you, Bill. So first of all, next quarter we'll be able to guide for 2027 and we'll give a view as to how 2027 looks. We've been guiding this guidance the entire year. We gave our annual guidance in the first quarter.

We've updated it, I think, in the in the second quarter, and we've now increased our guidance in the third quarter. And so our annual guidance really hasn't changed. It's, you know, I think you're looking at what the quarter-to-quarter growth rate is. We just increased our annual guidance to top and bottom. We narrowed the range, and so our annual guidance grew. Now, when we look at, you know, the individual quarter, we look at, you know, we guide what we know we can deliver, and then we look to exceed that. We have a very large pipeline and embedded. And I know everyone is asking, when's the next mid-journey? When's the next pop? It'll happen. We're working on a ton of stuff. But I think when you look at the year-over-year growth percentage, we're anniversarying the mid-journey deal in the fourth quarter. And so you'll see the numbers are as we've guided all throughout the year. We've been very consistent in what we said we were going to deliver. and I think if we have the next big deal and next thing happens, we will update our guidance accordingly, but we don't get ahead of ourselves and we don't guide the things that we don't have in our hand and the ability to grow this business, the amount of opportunities we're looking to close across all the different areas and many more.

announced the mid-journey deal. So that was kind of the first step in our journey up the embedded curve of revenue growth. And we do continue to expect that to move up to the right. The other point is, you know, we've talked about what we expected embedded to be each and every quarter this year. And the last couple of quarters, frankly, we're trending well above what we had anticipated through the signing of the two new deals this quarter, as well as the work we're doing against the mid-journey contract. We continue to expect that trend to continue. However, we just want to be thoughtful as we close out the year. To Joe's point, we up guidance in the second quarter. We up guidance in the third quarter based on the beats that we had in both the second and third quarter. And we're being prudent about what we're putting out there for the fourth quarter. But nothing's changed. We're well on track. and we're excited about being able to do what we usually do, which is put out revenue, you know, revenue results at the JP Morgan Conference in the second week of January. And at that time, we'll likely also talk about 2027, but we're really excited about where the company is and where the company is going. Thank you.

Thanks, Bill.

Your next question comes from the line of David Saxon with Needham. Your line is open. Please go ahead.

Great. Good morning, Joe and John. Thanks for taking the questions and next quarter here. So maybe, yeah, good morning. So I'll maybe just follow up to kind of how to think about fourth quarter in 27. So, I mean, we've been getting a lot of questions on how to think about embedded revenue in 27, particularly since there's been a lot of milestones recognized in 26 that won't repeat. I think you've historically talked about kind of seven to eight million a quarter for embedded. Last two quarters were obviously above that. So, you know, any framework or guardrails you'd point to as we kind of look out to 27 for embedded, you know, just given the milestones in 26 and kind of how you're thinking about the portfolio?

You want to start?

Yeah, sure. To my comments based on the last question, we are trending above what we had said. We do expect to kind of live in the space that we're in now. We also expect to carry that on into 2027. Of course, we're not prepared to give full year guidance on that, but our trajectory is we expect it to be consistent. In addition, as Joe has said in the past and as well as I have, We're folks that will tell you what we do when we do it. So as and when we get additional partners to Embedded, we'll make sure that we announce that and we'll be very clear about it as we have in the past. And as we said, we remain incredibly confident about what's happening with Embedded. In addition, and as we've talked about and we'll talk more about in early 2027, is the core business is also moving in a really strong direction. with what we're doing with International, with what we're doing in preparation for our new product launches next year, with the launch of Home this quarter, things are looking very, very positive for us.

And the only other thing I'd say on Embedded is we have the contract signed that we have and the work that we are doing. And and it's reflected in a line of sight as we see things and we'll communicate that for 27. But we also have a very large pipeline and now we have a commercial team that is actively engaging new opportunities. And the more and more we get comfortable with the ability to close those opportunities and more that repeats them, the more we'll be willing to take some more risk in the guidance looking forward. But we've, John and I, first of all, we're very conservative. We've hit everything we've told you guys. and we want to make sure that we support our investors and we support the way that we put our vision forward. We don't get ahead of ourselves. The tailwinds in this business are real and they're real across the board. I wouldn't get too spooked with some guidance that's basically been there since the beginning of the year. And has improved. And has improved each quarter.

Yeah. Okay. Appreciate the color there. And then, you know, in the script, you talked about some competitive dynamics, you know, health and ears moving out of general ultrasound and then Phillips recall. So how are you thinking about butterflies positioning to catch some of that demand, you know, particularly with the kind of next-gen probe and IQ station around the corner? and I don't know if you have any data that you could quantify how you think about that competitive opportunity or how meaningful it could be. Thanks so much.

Thank you, David. I don't want to make a comment about a specific company. That's really not my objective. I do think that when it comes to semiconductor-based ultrasound, when it comes to point of care ultrasound, when it comes to the next wave, I think what you see in the larger companies is this desire to continually move upstream and to move into more and more niche capabilities. And look, if I'm a patient, I want those capabilities. I want you to be able to see my disease even better and better in these different care settings. So I don't begrudge a strategy. But I do think there is the part of the market or the individual user and the expanding out into homes and empowering individuals in the main part of the market I think that's an area that big ultrasound is underinvested in. I think they've looked down their nose at this. I think they've looked down their nose at Butterfly. And that builds a chip on our shoulder. We do have a chip on our shoulder. And we are proving the world, just like every other digital company that's disrupted analog, we are going to do it. And we actually are doing it. I think what's important is we have 600 or 700 patents now. We're going to launch our fourth generation chip and our first generation cost, it took $300 million to get the first chip out the door. Our competitive moat is big. Our competitive moat is real and our competitive moat is long. I think if you really sit back and look at this segment and I think of people being honest with you, they say, wow, that thing has really taken off and What are we going to do about it? Now, I don't think we factor into any of those other companies' decisions. I think they're bigger with a bunch of other things that they're concerned about. but from our perspective we are making big investments in the future of this industry and we've been building a moat whether it's been quietly or whether or or not but I think that is real and it and it is hard to be able to just now decide today it would be five years if someone decided today to replicate what we're doing so I think what's so exciting is not only is our technology getting better but the health systems are waking up to this now and this is becoming more present and we're seeing more activity and so competition will definitely get harder and it'll definitely and that's you know any market that matures you know segments and you'll see more and more people getting in and more and more competition but specifically in how we address this problem it's a very very unique situation where we've been so far ahead for so long and I think we're about to reap the rewards of that. Great, thanks so much and congrats. Thank you.

Your next question comes from the line of Daniel Markowitz with Evercore ISI. Your line is open. Please go ahead. Hey, Daniel.

Hey, thank you for taking my question and good morning. Number one, I wanted to ask on embedded. Firstly, are you able to quantify the 3Q revs for mid-journey? And then I recognize MidJourney might be somewhat lumpy going forward, but I wanted to talk about the overall embedded business ability to grow in 27 versus 26. Can you, I guess, in framing that question, can you talk about how big of a factor the MidJourney lumpiness will be versus the ramp that you'll be able to see in some of your other embedded partners and whether that should be kind of moving in the right direction?

We're not going to specifically call out MidJourney revenue. We'll obviously continue to talk about Embedded Revenue, if things are material over time and we have to file, we'll put things out there. But yes, MidJourney is foundational for us in Embedded, but we're not going to talk specifically to it. The guidance that I've given in the past around Embedded as a whole still kind of stands. We've trended a little better than that. Some of that is driven by MidJourney, but also driven by some of the new partnerships that we've signed this quarter. Merge was a big contributor. in the quarter. And we do expect, and we've talked about this in the past, and I want to remind folks too, we said, if MidJourney current course and speed is successful at what they're doing, there's nothing we've seen so far in working with them that proves anything that they're not going to be. In 2030, our revenue will be at least $550 million. And that's what we've talked about. We've also talked about how that would be effectively only taking into account and many, many more. Even at that level, that's a 45% compound annual growth rate for revenue for the business as a whole. And as I said, we feel that's somewhat conservative. But on a quarter-to-quarter basis, we'll announce the deals that we sign. We'll obviously announce revenue each quarter. We'll continue to break out embedded. But we're not going to talk specifically to any individual customer. We did it for the one time because of the journey that we're on with them. And I'll leave it at that.

I think the only thing I'd add is if we sign something of a magnitude of Midjourney, it'll be material. There'll be an 8K on it. We're in this really kind of uncomfortable place where a public company and our investors want to have a very clear model and road map for the future. And our partners want everything but. They don't want us to talk about this. Midjourney hated the fact we had to put the 8K out. and all these companies, unless there's a press release that's associated on the technology, whatever's in the press release is what they want to talk about. And so we want to be able to inform you, but we also have to protect kind of the roadmap and the privacy of our partners. So it's really a tightrope that at times is uncomfortable. But the thing I would say is we have a big pipeline. We have a lot of conversations. There are many big deals out there. and there's a ton of base hits that pretty quickly add up to big deals. I think it's going to be a beautiful contributor through 27. But John and I are not in the business of guiding to something that within a period we don't have in our fingertips and can't deliver. So you're going to see everything that we say is going to have a conservative side to it.

Super helpful, and I definitely appreciate it. It's a tricky one, but that's a really helpful answer. The second thing, hopefully an easier question, on core focus, it's encouraging to see the acceleration from low single-digit growth last quarter to mid-single-digit growth in the third quarter, and it seems like there are more catalysts for acceleration in 4Q and beyond between home and community, Compass AI contracts. Is it fair to say we should continue to expect acceleration into 4Q and 27 on the back of these tailwinds?

Yeah, I don't think there's any reason to be looking back. And one of the things I mentioned in the prepared remarks was FedRAMP. FedRAMP is the hardest security clearance to get in the world. That means that we can operate inside the federal government systems. And we're a cloud-based vendor. So we're not some brick device that we claim that we're FedRAMP. Our stuff's networked. That means we have to ride their rails. And so for us to be able to get FedRAMP and ride inside the government is nuts. And we now are having conversations that are meaningful. And actually, I didn't realize it would happen this quickly, but I don't think there's many companies that get across that FedRAMP threshold. And once it happens, now there's things. And I think the government's biggest purchaser of health care and from what I'm seeing, I think that is going to be not a fourth quarter, that's a little too soon, although we have seen some really nice base hits. But I think there's an opportunity in 27 for it to really catalyze a whole new opportunity for us. And I'm very appreciative of our IT security leadership who have led this for us.

Very helpful. Thank you so much.

Thank you.

Your next question comes from the line of Steven Litman with William Blair. Your line is open. Please go ahead.

Hey, Steven.

Thank you. Good morning, guys, and congrats on the progress. This is the first question. Thinking about the home care opportunity with that kicking off here in earnest, you talked about the health care cost savings as an important aspect to that story. When do you think we'll start to see enough data from the first partner to start showing those savings? And as you're talking with other potential customers, are the discussions focused on CHF or moving to other indications as well?

Yeah, I mean, I wish we can do an investor day just on answering that question, because it is really, really exciting. Because remember, our device has many different use cases. And the initial use case we're doing with our partner is for congestive heart failure and to reduce the revolving door into hospitals, which every patient that you can eliminate an admission or readmission saves them you know, 10 to $12,000 for each patient. And so putting a protocol in place that allows us to manage those patients and keep them healthier and better managed and having a virtual cardiologist with them and having them getting pulmonary scans for pulmonary wetness really is a major deal. But you know, the same partner also now wants to do bladder scanning, wants to do scanning for sepsis, wants to do cardiac echoes. And we're telling them, no, let's just focus on this first. But the opportunity Oh boy. We're in a building that is testing its fire system. So I apologize for that. I don't know how to...

I don't... That is hilarious. We'll just keep talking through it.

We'll just talk through it. That is unbelievable.

That's great.

Thank you for that, guys. We know that our fire system is being tested right now, so we can put that into our note. Now, there are other types of clinical opportunities. Right now, this opportunity is in nursing homes to keep the revolving door, but there's opportunities where millions of patients are being managed in their home, and they're being managed by home healthcare nurses that come in and see them. There are use cases that we are working towards with other large organizations too. So as far as the data is concerned, that's another really delicate source because our partner is not one to want their data to be marketed out in the marketplace. So we'll find an elegant way to communicate the progress without violating their trust. So sorry about that announcement in the background. We're in New York City in our offices and can't control that. So thank you.

Yeah, we've been there. Just really quickly, one test on Mandera and any initial feedback you've heard from the field. Obviously, I understand of the embedded opportunity, not the largest, but it's sort of the first hit here commercially. Any initial feedback that you've heard from them relative to Focalist?

Yeah, well, actually, they were in our offices yesterday, and we had a great update. And, you know, we're very excited for their launch and what will occur with them in 2027. They're a startup, so they have, you know, it's not like there's all this existing revenue that just pops over, but they're out there, you know, selling and they're in, you know, account by account by account. and it is just such a wonderful multiplier for us because on one side, they're bringing ultrasound into some interventional cases, doing some more complex cases that would be hard to do with the human hand and it's leveraging our core platform and it's a part of that flywheel because as they go into health systems doing more advanced procedures, leveraging on a butterfly The next question comes from the line of Chase Knickerbocker with Craig Hellam. Your line is open. Please go ahead. Hey, Chase.

Hey guys. Yeah, this is Nick on for Chase. Thanks for taking our questions. So you guys touched on this a bit in a previous question, but just as you guys build out more of a proactive outbound sales effort for Embedded, how is that changing the size and mix of the pipeline and what could this mean for the pace of new partner ads in 2027? And then also on top of that, just any verticals outside of healthcare where you guys are seeing a strong interest?

Yep. So thank you for that. The base is definitely broadening. And the question really is, as we broaden the base, I think there's going to be a lot more base hits. So there's going to be a lot more opportunities to get people on and then to start seeing some revenue. And I think they're all going to stack. And then we hope to pull some diamonds out of that stack and create more mid journeys as we The thing right now is so much of our earlier conversations have been with more startup, new tech generation. And some of our conversations are now being held with much larger entities, and some of them are large entities with mature products. And so there is the possibility if we sign a deal with a large entity with a mature product that that revenue happens very quickly because They're already standing on hundreds of millions or billions of dollars of product revenue of things that they're already selling. So us getting into that environment all of a sudden would be like you're not in the R&D of a new market, you're converting or you're upgrading their technology to new capabilities. So there are so many different things and it's early and it's very hard to predict and that's why John and I are taking a conservative posture that we basically guide what is signed. We're not going to extrapolate. We're not going to guess because each of these are unique deals and each of these are unique situations. But one deal can completely change the complexion of the company. I have a friend of mine who's a CEO of biotech. I just checked their revenue today. They're about $5 million in revenue as a biotech, and their market cap is about $3 billion. Because people look at it and say, okay, if this molecule can do what this can, then this opportunity is massive. We're signing deals like that every day. and and butterflies should not be looked at as as a revenue multiple today it should be looked at as the magnitude of opportunity that we are capturing for the for our future and for investors and so it becomes very difficult to predict each one of these but as I said in my prepared remarks we are layering in opportunity on top of opportunity on top of opportunity and it expands our TAM and it expands the leverage and the beautiful part is that it's leveraging our core tech. We just had a laboratory two days ago with a very large potential partner who came up with a very specific use case and said, can you do this? And our team spent a month, looked at exactly what they were trying to do and we knocked it out of the park in the lab yesterday or two days ago. So it is It is a very, very exciting time. And I'd be looking at what is Butterfly, you know, able to deliver over the next several years, then worry about, you know, how this phases on a quarter by quarter basis.

Got it. And then that kind of leads into my next question is just as these existing embedded partners progress and you continue to add new ones, how much capacity do you guys have within the current engineering team and How should we think about any incremental operating expense going into next year to support embedded growth?

I think there is a variable component there. As we sign new deals, there is a demand on development resources and we will continue to grow it. Again, we won't get ahead of ourselves. The first parts of these deals, we get a lot of leverage off of what we've already done. and then the incremental, we will bring in the best talent. We've been very fortunate actually in 2026 so far. We brought on some extraordinary people and we're so delighted and we do need to continue to do that as we sign these deals. But it's something that we will be able to just create more and more leverage. But yes, of course, we will have to continue to invest as well. Anything?

Yeah, I mean, our results... and many more. in the absolute right direction. We're still well on track to be a positive and cash flow positive in 2028. Actually, as our results are being driven out, I would say that that's moving closer for us. In addition, we haven't really talked about it much on the call. We talked about it in the prepared remarks. We did file a new shelf. I want to remind folks that's over a three-year period of time that that would be active for us, in addition, an ATM. Should we need capital at some point in time, we're prepared for that. It was just good general corporate housekeeping, but current course and speed, we're headed in the right direction, and we are investing in the areas of the business that we need to, and our results are reflective of that. Great. Thanks for taking the questions.

Thank you.

The next question comes from the line of Ben Hainer with Lake Street Capital Markets. Your line is open. Please go ahead.

Good morning, gentlemen. Thanks for taking the question. Hey, Ben. Just following up on the embedded Salesforce, how is that kind of structured? Are they going after individual you know areas BCI industrial what have you and then how do you make the decision whether or where to add folks to to that uh to that group so um thank you for the question so first of all um we we are trying to get through the pipeline um and so um

and it's not just in the selling folks, but there are application specialists who are able to do labs and able to do demos, et cetera. So first of all, we're getting through the pipeline and trying to get the pipeline closed because each one of these, it's not just a cookie cutter sale, it's a partnership and we have to learn about the partners and tailor ourselves to their needs. But there are very large ultrasound markets. and there are very large players that we are proactively targeting and we are looking at it from a market by market basis. And so it starts off by cultivating the pipeline and then learning from the pipeline to extrapolate it into different markets. And then now we're starting for the first time to, we're in the process of being proactive, cold calling, having dialogue, going, and we can be more proactive with existing incumbents by communicating to them and by going out and having that dialogue. Usually the startup companies are the inbounds to us and then the more existing ultrasound companies are the ones that we are outbound to. But we're also starting to target certain markets where we think we have great applicability. I wish I can outline them for you, but if I outline them for you, then you'll be like, oh, so you're calling, you're talking to this company or that company. And so I don't want to do that. But we are proactively going into the largest ultrasound markets that are not competitive with Butterfly and talking to them about what we think we can do to refresh and upgrade and take their current technology to the next level. Now, we are also, though, targeting some non-healthcare industries. and we are I think I mentioned in the last quarter that we are talking to someone who is not a traditional healthcare company and it's our first market that we're having dialogue in and doing labs and so we're going to do everything we can to build on that but We've been building our infrastructure, building the team. It's one thing to talk to a customer. It's another thing to have the technical support in the lab, the ability to make modifications that they might want to see and show them. So we've been building that all together. And right now, I'm very pleased. We've been blessed with David Horsley and Steve Cashman, who've been leading this effort. And we are very excited about the new people that we brought on. So the more The more I can tell you, the more I will, but I can't kind of outline each of the markets for competitive reasons.

Understandable. That makes a lot of sense. I guess I'll leave it at one question before someone pulls the fire alarm.

I believe we have one more. Thank you, Ben. One more analyst.

Your next question comes from the line of Aralem Kanatgazi with Freedom Broker. Your line is open. Please go ahead.

Hi, everyone. Thank you for taking my question. This is Aralem. Good morning. Hello. And congrats on a strong quarter and record gross margin. I also want to focus on Compass AI. This quarter, you closed five seven-figure and ten six-figure and more. My question is how disease enterprise wins represent system-wide standardization on Butterfly or are they still mostly departmental deployments that can expand over time? And over the long term, what do you expect to come from recurring enterprise software and how should we think about the contract structure behind these deals? Thank you.

So that is a beautiful question, a very, very good question. because when we built Compass AI, we didn't build it for Butterfly alone because we knew if we were going to put an enterprise software in place, you can't put enterprise software in for one product. And so what we're doing is solving a problem the hospital has. And the hospitals are buying GE Pocus carts. They're buying Sonosite Pocus carts. Pocas is divided into two different pieces of hardware, a handheld device and then a scaled down version of a cart. and that's again why we are getting into the IQ Station market and to get into that cart market to begin with. But hospitals have POCUS carts all over the hospital and probably 30% of the scans are getting recorded into their EMR and so they're not compliant and they're losing revenue. So when we put Compass AI in place, we are solving a major problem that the hospital has, whether or not they're a butterfly customer. When we solve that problem for them and we put our infrastructure in place, of course, Compass AI integrates with our hardware much better than anyone else because we can control both sides and we have the ability to make the software that sits inside of our hardware more capable. So it starts off with solving a problem that the entire industry is creating by putting POCUS into hospitals. And then once we are in, then we use that as a land expand by building out the handheld program. So that's why our IQ station dovetails so beautifully in, because now we will have a handheld, we'll have a cart, and we'll have the enterprise software platform to be able to have a really smooth, elegant, and incredibly modern way of managing these programs. But it's a very astute question because a lot of times, sometimes 80% of the scans that are coming into Compass are from all of our competitive companies. So Butterfly's vision has been to promulgate and to move Point of Care Ultrasound Forward and Compass AI is dedicated to solving health system problems in point of care ultrasound and then second to be able to pull through our hardware. And that's why our IQ station is going to be such an important launch because we're going to go after existing business. We're going to go after the competitive footprint. on point-of-care ultrasound. And the integration of our software and hardware is going to be so tight that it's going to make us the choice for the future. But thank you for such a great question.

Thank you so much.

There are no further questions at this time. I will now turn the call back to Joe DeVivo, President and CEO, for closing remarks.

I know it's been a long call. We've been blessed with having three more analysts this quarter. We're so appreciative of the attention and support. So we're going to have to reduce our are prepared remarks and have more conversation going forward because those questions were just fantastic. I just want to thank everybody for their support. We are so excited about our future. So much is happening and can't wait to provide more updates at the end of the year and of course at the upcoming JPMorgan conference. So thank you all and have a wonderful holiday season.

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