Butterfly Network, Inc.: Form 10-Q for the period ended Jun 30, 2025

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. The discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto contained in our 2024 Annual Report on Form 10-K. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described under the caption “Risk Factors” in Item 1A of Part I of our 2024 Annual Report on Form 10-K. Actual results may differ materially from those contained in any forward-looking statements.

Overview

We are an innovative digital health business transforming care through a unique combination of portable, semiconductor-based ultrasound technology, intuitive software, services, and educational offerings that can make medical imaging more accessible than ever before. Butterfly’s solution enables the practical application of ultrasound information into the clinical workflow through affordable hardware that fits in a healthcare professional’s pocket and is paired with cloud-connected software that is easily accessed through a mobile application.

Butterfly developed ultrasound devices that can perform whole-body imaging in a single handheld probe because they are powered by our proprietary semiconductor technology instead of piezoelectric crystals. Our Ultrasound-on-Chip™ makes ultrasound more accessible outside of large healthcare institutions, while our software is intended to make the product easy to use, fully integrated with the clinical workflow, and accessible on a user’s smartphone, tablet, and almost any hospital computer system connected to the Internet. We aim to enable the delivery of imaging information anywhere at point-of-care to drive earlier detection throughout the body and remote management of health conditions. We market and sell the Butterfly system, which includes probes, related accessories, and software subscriptions, to healthcare systems, physicians, and healthcare providers through a direct sales force, distributors, and our eCommerce channel.

Since 2022, we have taken significant actions to reduce our cost of operations and extend our cash runway and have reduced our annual cash requirements by approximately $180 million, to less than $50 million annually. As we look forward, we expect to continue to invest in our business in order to grow revenue. On January 31, 2025, we raised additional capital through the issuance and sale in a public offering of 27.6 million shares of our Class A common stock, generating proceeds of $81.0 million, net of underwriting costs and related expenses.

Key Performance Measures

We review the key performance measures discussed below to evaluate the business and measure performance, identify trends, formulate plans, and make strategic decisions. Our key performance measures may fluctuate over time as the adoption of our devices increases, which may shift the revenue mix more toward software and other services. The quarterly measures may be impacted by the timing of device sales.

Units fulfilled

We define units fulfilled as the number of devices whereby control is transferred to a customer. We do not adjust this measure for returns as our volume of returns has historically been low. We view units fulfilled as a key indicator of the growth of our business. We believe that this measure is useful to investors because it presents our core growth and the performance of our business period over period.

For the three months ended

Units fulfilled decreased by 279 units, or 5.1%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024. The decrease was a result of lower probe sales volume in our US sales channels since the anniversary of our iQ3's 2024 launch, but this was partially offset by higher probe sales volume internationally and in our Vet sales channel.

Software and other services mix

We define software and other services mix as a percentage of our total revenue recognized in a reporting period that is based on software subscriptions and other services, consisting primarily of our software as a service (“SaaS”) offering. We view software and other services mix as a key indicator of the profitability of our business, and thus we believe that this measure is useful to investors.

Software and other services mix decreased by 2.9 percentage points, to 28.9%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024. While this decrease is partly due to a slight decrease in implementation revenue in the current year partially offset by higher subscription revenue, the mix decrease is primarily a reflection of the increases in both our product revenue and total revenue shifting the mix more towards hardware.

Description of Certain Components of Financial Data

Revenue

Revenue consists of revenue from the sale of products, such as medical devices, accessories, and semiconductor chips, and the sale of software and other services. Our software and related service offerings include SaaS subscriptions, product support and maintenance (“Support”), software development kits ("SDKs") which may be perpetual or term-based, and partnership support services. SaaS subscriptions include licenses for teams and individuals as well as enterprise-level subscriptions. For sales of products and perpetual SDKs, revenue is recognized at a point in time upon transfer of control to the customer. SaaS subscriptions, Support, and term-based SDKs are generally related to stand-ready obligations and are recognized ratably over time.

Over time, as adoption of our devices increases through further market penetration and as practitioners in the Butterfly network continue to use our devices, we expect our annual revenue mix to shift more toward software and other services. The quarterly revenue mix may be impacted by the timing of device sales. Recently, due in part to the continued success of our next-generation iQ3 probe and the delivery of semiconductor chips to one of our partners, our software and other services mix as a percentage of total revenue decreased.

To date, we have invested in building out our commercial footprint, with the ultimate goal of growing adoption at large-scale healthcare systems and driving awareness of the usability of ultrasound. As we expand our healthcare system software offerings and develop relationships with larger healthcare systems, we continue to expect a higher proportion of our sales in healthcare systems compared to eCommerce.

Cost of revenue

Cost of product revenue consists of product costs including manufacturing costs, personnel costs and benefits, inbound freight, packaging, warranty replacement costs, payment processing fees, and inventory obsolescence and write-offs. We expect our cost of product revenue to fluctuate over time due to the level of units fulfilled in any given period and fluctuate as a percentage of product revenue over time as our focus on operational efficiencies in our supply chain may be offset by increased prices of certain inventory components.

Cost of software and other services revenue consists of personnel costs, cloud hosting costs and payment processing fees. Because the costs and associated expenses to deliver our SaaS offerings are less than the costs and associated expenses of manufacturing and selling our devices, we anticipate an improvement in profitability and margin expansion over time as our revenue mix shifts increasingly towards software and other services. We plan to continue to invest additional resources to expand and further develop our SaaS and other service offerings which will be reflected in cost of revenue as amortization expense.

Research and development

Research and development expenses primarily consist of personnel costs and benefits, professional services, facilities-related expenses and depreciation, fabrication services, and software costs. Most of our research and development expenses are related to developing new products and services that have not reached the point of commercialization and improving our products and services that have been commercialized. Fabrication services include certain third-party engineering costs, product testing, and test boards. Research and development expenses are expensed as incurred. We expect to continue to make substantial investments in our product and software development, clinical, and regulatory capabilities.

Sales and marketing

Sales and marketing expenses primarily consist of personnel costs and benefits, advertising, conferences and events, facilities-related expenses, and software costs. We expect to increase our investments in our commercial capabilities.

General and administrative

General and administrative expenses primarily consist of personnel costs and benefits, insurance, patent fees, software costs, facilities-related expenses, and outside services. Outside services consist of professional services, legal fees and other professional fees.

Other

Operating expenses classified as other are expenses which we do not consider representative of our ongoing operations. These other expenses primarily consist of employee severance and benefits costs related to reductions in force, business transformation initiatives, litigation costs, and legal settlements.

Results of Operations

We operate as a single reportable segment to reflect the way our CODM reviews and assesses the performance of the business. The accounting policies are described in Note 2 “Summary of Significant Accounting Policies” in our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

(in thousands)

Comparison of the three months ended June 30, 2025 and 2024

Revenue

(in thousands)

Product revenue increased by $2.0 million, or 13.5%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024. This increase was primarily driven by the impact of the higher selling price of our iQ3 probe, which launched in the US during the first quarter of 2024 and internationally during the third quarter of 2024, and the delivery of semiconductor chips to one of our Octiv partners. These increases were partially offset by lower probe sales volume in our US sales channels which were bolstered in the prior year by a large number of trade-ins and upgrades following the launch of our recently-anniversaried iQ3 probe.

Software and other services revenue decreased by $0.1 million, or 1.1%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024. This decrease was primarily driven by decreases in revenue from implementations and other services, but they were partially offset by an increase in our software subscription revenue.

Cost of revenue

(in thousands)

Cost of product revenue remained relatively flat for the three months ended June 30, 2025 compared to the three months ended June 30, 2024, increasing $0.1 million, or 1.4%, primarily due to the delivery of semiconductor chips to one of our Octiv partners, but partially offset by lower probe sales volume. Cost of software and other services revenue decreased by $0.5 million, or 21.5%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024, primarily driven by a corresponding decrease in amortization expense for software development investments made by the Company in 2021. Cost of revenue as a percentage of revenue decreased from 41.4% to 36.3% for the three months ended June 30, 2025 compared to the three months ended June 30, 2024, primarily due to the reasons discussed above as well as efficiency improvements in our manufacturing process.

Research and development

(in thousands)

Research and development expenses decreased by $1.1 million, or 11.6%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024. This decrease was primarily driven by a $1.0 million reduction in personnel costs resulting from our business transformation initiative in 2024 to optimize our non-specialized technical functions.

Sales and marketing

(in thousands)

Sales and marketing expenses increased by $1.8 million, or 18.8%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024. This increase was primarily driven by $1.3 million of higher personnel costs and $0.2 million of higher professional services costs resulting from investments in our sales force as well as our marketing and client experience functions in order to support continued revenue growth.

General and administrative

(in thousands)

General and administrative expenses decreased by $0.9 million, or 9.4%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024. This decrease was primarily driven by a reduction of $0.5 million in personnel costs, largely due to lower stock-based compensation expense in the current year, as well as reductions of $0.1 million each in our insurance costs and our professional service fees for legal and other administrative services.

Other

(in thousands)

Other increased by $1.4 million, or 227.9%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024. This increase was driven by $0.9 million of higher legal costs due to litigation and $0.5 million of higher employment-related costs. These costs are not representative of our ongoing operations.

Comparison of the six months ended June 30, 2025 and 2024

Revenue

(in thousands)

Product revenue increased by $4.8 million, or 18.7%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. This increase was primarily driven by the impact of the higher selling price and higher international volume of our iQ3 probe, which launched in the US during the first quarter of 2024 and internationally during the third quarter of 2024. In addition, our year-to-date product revenue was positively impacted by the deliveries of semiconductor chips to one of our Octiv partners.

Software and other services revenue increased by $0.6 million, or 4.7%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. This increase was primarily driven by increases in software subscription revenue, revenue from our Octiv and Butterfly Garden partnerships, and revenue from SDK sales. These increases were partially offset by a decrease in revenue from implementations.

Cost of revenue

(in thousands)

Cost of product revenue increased by $0.8 million, or 7.0%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. This increase was primarily due to deliveries of semiconductor chips to one of our Octiv partners. Cost of software and other services revenue decreased by $0.8 million, or 16.6%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024, primarily driven by a decrease in amortization expense for software development investments made by the Company in 2021 as well as reductions in personnel costs resulting from our business transformation initiative in 2024 to optimize our non-specialized technical functions. Cost of revenue as a percentage of revenue decreased from 41.6% to 36.6% for the six months ended June 30, 2025 compared to the six months ended June 30, 2024, primarily due to the reasons discussed above as well as higher average selling prices on our iQ3 probe and efficiency improvements in our manufacturing process.

Research and development

(in thousands)

Research and development expenses decreased by $1.9 million, or 9.4%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. This decrease was primarily driven by a $1.7 million reduction in personnel costs resulting from our business transformation initiative in 2024 to optimize our non-specialized technical functions.

Sales and marketing

(in thousands)

Sales and marketing expenses increased by $3.1 million, or 15.3%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. This increase was primarily driven by $2.5 million of higher personnel costs resulting from investments in our sales force and marketing functions in order to support continued revenue growth.

General and administrative

(in thousands)

General and administrative expenses decreased by $1.8 million, or 8.7%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. This decrease was primarily driven by a reduction of $0.7 million in personnel costs. Additionally, we realized reductions of $0.4 million in our insurance costs and $0.2 million in our professional service fees for legal and other administrative services.

Other

(in thousands)

Other increased by $0.7 million, or 37.0%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. This increase was driven by $0.2 million of higher legal costs due to litigation and $0.5 million of higher employment-related costs. These costs are not representative of our ongoing operations.

Liquidity and Capital Resources

Since our inception, our primary sources of liquidity are cash flows from operations and proceeds from stock issuances and the Business Combination. Our primary uses of liquidity are operating expenses, working capital requirements, and capital expenditures.

On January 31, 2025, we raised $81.0 million, net of underwriting costs and related expenses, through the issuance and sale in a public offering of 27.6 million shares of our Class A common stock. During the three months ended June 30, 2025, the Company utilized $7.1 million of cash and cash equivalents for ongoing operations. As of June 30, 2025, our cash and cash equivalents balance was $148.1 million. Our future spending will depend on various factors, including our rate of revenue growth and the timing and extent of spending on strategic business initiatives. We expect that our existing cash and cash flows from operations will be sufficient to meet our liquidity, capital expenditure, and anticipated working capital requirements and fund our operations for at least the next 12 months.

As of June 30, 2025, we have restricted cash of $4.0 million to secure a letter of credit for one of our leases, which is expected to be maintained as a security deposit for the duration of the lease.

Our material cash requirements include contractual obligations with third parties for office leases, technology licensing agreements, inventory supply agreements, and outsourced services. Our fixed office lease payment obligations were $26.2 million as of June 30, 2025, with $3.7 million payable within the next 12 months. Our fixed technology license payment obligations were $14.0 million as of June 30, 2025, with $3.5 million payable within the next 12 months. Our fixed purchase obligations for inventory supply agreements, net of vendor advances, were $1.8 million as of June 30, 2025, all of which is payable within the next 12 months. Our fixed outsourced services payment obligations were $4.2 million as of June 30, 2025, with $1.4 million payable within the next 12 months.

As of June 30, 2025, we had no obligations, assets or liabilities, which would be considered off-balance sheet arrangements.

Cash flows

Comparison of the six months ended June 30, 2025 and 2024

The following table summarizes our sources and uses of cash for the six months ended June 30, 2025 and 2024:

(in thousands)

Net cash used in operating activities

Net cash used in operating activities represents the cash receipts and disbursements related to our activities other than investing and financing activities. We expect cash provided by historical financing activities will continue to be our primary source of funds to support operating and capital expenditure needs for the foreseeable future.

Net cash used in operating activities decreased by $11.8 million, or 38.6%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. The decrease was comprised of improvements of $8.6 million in net loss adjusted for certain non-cash items and $3.3 million in net working capital cash usage. The improvement in net working capital cash usage was primarily driven by a $5.5 million improvement in cash provided by changes in our inventory and the related vendor advances and accrued purchase commitments and a $0.3 million improvement in cash used for changes in deferred revenue. These improvements were partially offset by a $1.0 million increase in cash used for changes in prepaid expenses and other assets, a $0.7 million increase in cash used for changes in accounts receivable, and a $0.7 million increase in cash used for changes in accounts payable and accrued expenses.

Net cash used in investing activities

Net cash used in investing activities decreased by $0.6 million, or 32.0%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 due to a decrease in purchases of property, equipment, and intangible assets, including capitalized software.

Net cash provided by financing activities

Net cash provided by financing activities increased by $79.5 million for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. This increase was primarily comprised of $81.0 million provided by the net proceeds from the public share offering in January 2025 as well as $1.2 million provided by stock plan transactions, partially offset by $2.8 million in cash used for payments of taxes for restricted stock units. We did not have any financing activities during the six months ended June 30, 2024.

Critical Accounting Policies and Significant Judgments and Estimates

This discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, contingent assets and liabilities, and related disclosures. Our estimates are based on our historical experience and various other factors that we believe are reasonable under the circumstances, and these form the basis for making judgments about items that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

For our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, there have been no material changes to the critical accounting policies and estimates disclosed in our 2024 Annual Report on Form 10-K.

Recently Adopted Accounting Pronouncements

The Company did not identify any significant recently issued accounting pronouncements that may potentially impact our financial position and results of operations.

Interest Rate Risk

We did not have any floating rate debt as of June 30, 2025. Our cash and cash equivalents are comprised primarily of bank deposits and money market accounts. The primary objective of our investments is the preservation of capital to fulfill liquidity needs. We do not enter into investments for trading or speculative purposes. Due to the short-term nature and low risk profile of these investments, we do not expect cash flows to be affected to any significant degree by a sudden change in market interest rates, including an immediate change of 100 basis points, or one percentage point. Declines in interest rates, however, would reduce future investment income.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition, or results of operations, other than its impact on the general economy. Nonetheless, to the extent our costs are impacted by general inflationary pressures, including as a result of tariffs, we may not be able to fully offset such higher costs through price increases or manufacturing efficiencies. Our inability or failure to do so could harm our business, financial condition, and results of operations.

Foreign Exchange Risk

We operate our business primarily within the United States and currently execute the majority of our transactions in U.S. dollars. We have not utilized hedging strategies with respect to such foreign exchange exposure. This limited foreign currency translation risk is not expected to have a material impact on our condensed consolidated financial statements.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q.

Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial & Operations Officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial & Operations Officer concluded that our disclosure controls and procedures were effective as of June 30, 2025.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended June 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our business, results of operations, and financial condition are subject to various risks and uncertainties including the risk factors described under the caption “Risk Factors” in our 2024 Annual Report on Form 10-K. There have been no material changes to the risk factors described in the 2024 Annual Report on Form 10-K.