10-Q 1 tmb-20220930x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from                      to

Commission File Number: 001-39292

Butterfly Network, Inc.

(Exact name of registrant as specified in its charter)

Delaware

84-4618156

(State or other jurisdiction of incorporation or organization)

(IRS Employer

Identification No.)

1600 District Avenue

Burlington, Massachusetts

01803

(Address of principal executive offices)

(Zip Code)

(781) 557-4800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Class A common stock, par value $0.0001 per share

BFLY

The New York Stock Exchange

Warrants to purchase one share of Class A common stock, each at an exercise price of $11.50 per share

BFLY WS

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of October 28, 2022, the registrant had 174,139,488 shares of Class A common stock outstanding and 26,426,937 shares of Class B common stock outstanding.

TABLE OF CONTENTS

    

    

Page

Cautionary Statement Regarding Forward-Looking Statements

2

Part I

Financial Information

3

Item 1.

Financial Statements

3

Condensed Consolidated Balance Sheets (Unaudited)

3

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

4

Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited)

5

Condensed Consolidated Statements of Cash Flows (Unaudited)

7

Notes to Condensed Consolidated Financial Statements (Unaudited)

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

31

Part II

Other Information

31

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3.

Defaults Upon Senior Securities

33

Item 4.

Mine Safety Disclosures

33

Item 5.

Other Information

33

Item 6.

Exhibits

33

Signatures

36

In this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” the “Company” and “Butterfly” mean Butterfly Network, Inc. (formerly Longview Acquisition Corp.) and our subsidiaries. On February 12, 2021 (the “Closing Date”), Longview Acquisition Corp., a Delaware corporation (“Longview” and after the Business Combination described herein, the “Company”), consummated a business combination (the “Business Combination”) pursuant to the terms of the Business Combination Agreement, dated as of November 19, 2020 (the “Business Combination Agreement”), by and among Longview, Clay Merger Sub, Inc., a Delaware corporation (“Merger Sub”), and Butterfly Network, Inc., a Delaware corporation (“Legacy Butterfly”). Immediately upon the consummation of the Business Combination and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”, and such completion, the “Closing”), Merger Sub merged with and into Legacy Butterfly, with Legacy Butterfly surviving the Business Combination as a wholly-owned subsidiary of Longview (the “Merger”). In connection with the Transactions, Longview changed its name to “Butterfly Network, Inc.” and Legacy Butterfly changed its name to “BFLY Operations, Inc.”

i

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that relate to future events or our future financial performance regarding, among other things, the plans, strategies and prospects, both business and financial, of the Company. These statements are based on the beliefs and assumptions of the Company’s management team. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

the commercialization of our products and services;
the success, cost and timing of our product development activities;
the potential attributes and benefits of our products and services;
our ability to obtain and maintain regulatory approval for our products, and any related restrictions and limitations of any authorized product;
our ability to identify, in-license or acquire additional technology;
our ability to maintain our existing license, manufacturing and supply agreements;
our ability to compete with other companies currently marketing or engaged in the development of ultrasound imaging devices, many of which have greater financial and marketing resources than us;
the size and growth potential of the markets for our products and services, and the ability of each to serve those markets, either alone or in partnership with others;
our estimates regarding expenses, revenue, capital requirements and needs for additional financing;
our ability to raise financing in the future;
our financial performance; and
the potential impacts of the COVID-19 pandemic on our business, financial condition and results of operations.

These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or similar expressions or phrases, or the negative of those expressions or phrases. The forward-looking statements are based on projections prepared by, and are the responsibility of, the Company’s management. Although the Company believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, the Company cannot assure you that it will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions relating to, among other things:

our rapid growth may not be sustainable and depends on our ability to attract and retain customers;
our business could be harmed if we fail to manage our growth effectively;
our projections are subject to risks, assumptions, estimates and uncertainties;
our business is subject to a variety of U.S. and foreign laws, which are subject to change and could adversely affect our business;
the pricing of our products and services and reimbursement for medical procedures conducted using our products and services;
changes in applicable laws or regulations;
failure to protect or enforce our intellectual property rights could harm our business, results of operations and financial condition;
the ability to maintain the listing of our Class A common stock on the New York Stock Exchange;
economic downturns and political and market conditions beyond our control could adversely affect our business, financial condition and results of operations; and
the impact of the COVID-19 pandemic on our business, financial condition and results of operations.

These and other risks and uncertainties are described in greater detail under the caption “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021, as amended, in Item 1A of Part II of this quarterly report, and in other filings that we make with the Securities and Exchange Commission, or SEC. The risks described under the heading “Risk Factors” are not exhaustive.  New risk factors emerge from time to time, and it is not possible to predict all such risk factors, nor can the Company assess the impact of all such risk factors on its business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements, which speak only as of the date hereof. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements. The Company undertakes no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

BUTTERFLY NETWORK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

    

September 30, 

    

December 31, 

    

2022

    

2021

    

Assets

  

  

Current assets:

  

  

Cash and cash equivalents

$

193,313

$

422,841

Marketable securities

74,546

Accounts receivable, net

 

11,807

 

11,936

Inventories

 

57,664

 

36,243

Current portion of vendor advances

20,844

27,500

Prepaid expenses and other current assets

 

14,291

 

13,384

Total current assets

$

372,465

$

511,904

Property and equipment, net

31,377

14,703

Non-current portion of vendor advances

 

9,883

 

12,782

Operating lease assets

22,146

24,083

Other non-current assets

 

7,387

 

8,493

Total assets

$

443,258

$

571,965

Liabilities and stockholders’ equity

 

Current liabilities:

 

  

 

  

Accounts payable

$

2,675

$

5,798

Deferred revenue, current

 

13,927

 

13,071

Accrued purchase commitments, current

 

3,951

 

5,329

Accrued expenses and other current liabilities

25,327

25,631

Total current liabilities

$

45,880

$

49,829

Deferred revenue, non-current

5,591

5,476

Warrant liabilities

17,348

26,229

Accrued purchase commitments, non-current

14,200

Operating lease liabilities

30,176

27,690

Other non-current liabilities

626

850

Total liabilities

$

99,621

$

124,274

Commitments and contingencies (Note 15)

Stockholders’ equity:

Class A common stock $.0001 par value; 600,000,000 shares authorized at September 30, 2022 and December 31, 2021; 174,074,602 and 171,613,049 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

17

17

Class B common stock $.0001 par value; 27,000,000 shares authorized at September 30, 2022 and December 31, 2021; 26,426,937 shares issued and outstanding at September 30, 2022 and December 31, 2021

3

3

Additional paid-in capital

905,852

874,886

Accumulated deficit

(562,235)

(427,215)

Total stockholders’ equity

$

343,637

$

447,691

Total liabilities and stockholders’ equity

$

443,258

$

571,965

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

BUTTERFLY NETWORK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share amounts)

(Unaudited)

Three months ended September 30, 

Nine months ended September 30, 

    

2022

    

2021

    

2022

    

2021

Revenue:

  

  

  

  

Product

$

13,164

$

10,848

$

37,607

$

33,455

Software and other services

 

6,454

 

3,773

 

16,800

 

10,123

Total revenue

$

19,618

$

14,621

$

54,407

$

43,578

Cost of revenue:

 

  

 

  

 

  

 

  

Product

6,534

7,584

19,481

21,090

Software and other services

 

2,095

 

536

 

5,022

 

1,351

Loss on product purchase commitments

11,623

11,623

Total cost of revenue

$

8,629

$

19,743

$

24,503

$

34,064

Gross profit (loss)

$

10,989

$

(5,122)

$

29,904

$

9,514

Operating expenses:

Research and development

$

23,154

$

21,654

$

69,997

$

54,459

Sales and marketing

 

15,811

 

14,203

 

47,451

 

34,550

General and administrative

 

18,056

 

16,008

 

56,474

 

67,928

Total operating expenses

 

57,021

 

51,865

 

173,922

 

156,937

Loss from operations

$

(46,032)

$

(56,987)

$

(144,018)

$

(147,423)

Interest income

$

1,304

$

893

$

1,574

$

1,739

Interest expense

 

(2)

 

 

(2)

 

(645)

Change in fair value of warrant liabilities

(9,087)

42,958

8,881

130,528

Other income (expense), net

 

(898)

 

(428)

 

(1,387)

 

(1,320)

Loss before provision for income taxes

$

(54,715)

$

(13,564)

$

(134,952)

$

(17,121)

Provision for income taxes

 

27

 

(3)

 

68

 

72

Net loss and comprehensive loss

$

(54,742)

$

(13,561)

$

(135,020)

$

(17,193)

Net loss per common share attributable to Class A and B common stockholders, basic and diluted

$

(0.27)

$

(0.07)

$

(0.68)

$

(0.10)

Weighted-average shares used to compute net loss per share attributable to Class A and B common stockholders, basic and diluted

200,172,683

196,095,192

199,528,394

165,656,408

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

BUTTERFLY NETWORK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share amounts)

(Unaudited)

Three months ended September 30, 2021

  

  

  

 

 

  

  

  

  

  

  

  

  

  

  

  

Convertible

Class A

Class B

Preferred 

Common

Common

Additional

Total

 Stock

Stock

Stock

Paid-In

Accumulated

Stockholders’

Shares

Amount

Shares

Amount

Shares

Amount

Capital

Deficit

Equity (Deficit)

June 30, 2021

$

167,477,126

$

17

26,426,937

$

3

$

844,770

$

(398,438)

$

446,352

Net loss

(13,561)

(13,561)

Common stock issued upon exercise of stock options and warrants

2,966,397

7,634

7,634

Common stock issued upon vesting of restricted stock units

129,787

Stock-based compensation expense

10,836

10,836

September 30, 2021

$

170,573,310

$

17

26,426,937

$

3

$

863,240

$

(411,999)

$

451,261

Nine months ended September 30, 2021

  

  

  

 

 

  

  

  

  

  

  

  

  

  

  

  

Convertible

Class A

Class B

Preferred 

Common

Common

Additional

Total

 Stock

Stock

Stock

Paid-In

Accumulated

Stockholders’

Shares

Amount

Shares

Amount

Shares

Amount

Capital

Deficit

Equity (Deficit)

December 31, 2020

107,197,118

$

360,937

6,593,291

$

1

$

$

32,874

$

(394,806)

$

(361,931)

Net loss

(17,193)

(17,193)

Common stock issued upon exercise of stock options and warrants

8,268,869

1

19,322

19,323

Common stock issued upon vesting of restricted stock units

597,021

Conversion of convertible preferred stock

(107,197,118)

(360,937)

80,770,178

8

26,426,937

3

360,926

360,937

Conversion of convertible debt

5,115,140

1

49,916

49,917

Net equity infusion from the Business Combination

69,228,811

6

361,281

361,287

Stock-based compensation expense

38,921

38,921

September 30, 2021

$

170,573,310

$

17

26,426,937

$

3

$

863,240

$

(411,999)

$

451,261

Three months ended September 30, 2022

  

  

  

  

  

  

  

  

  

  

  

  

Class A

Class B

Common

Common

Additional

Total

Stock

Stock

Paid-In

Accumulated

Stockholders’

Shares

Amount

Shares

Amount

Capital

Deficit

Equity

June 30, 2022

172,816,532

$

17

26,426,937

$

3

$

894,162

$

(507,493)

$

386,689

Net loss

(54,742)

(54,742)

Common stock issued upon exercise of stock options and warrants

691,907

2,034

2,034

Common stock issued upon vesting of restricted stock units, net

566,163

Stock-based compensation expense

9,656

9,656

September 30, 2022

174,074,602

$

17

26,426,937

$

3

$

905,852

$

(562,235)

$

343,637

5

Nine months ended September 30, 2022

Class A

Class B

Common

Common

Additional

Total

Stock

Stock

Paid-In

Accumulated

Stockholders’

Shares

Amount

Shares

Amount

Capital

Deficit

Equity

December 31, 2021

171,613,049

$

17

26,426,937

$

3

$

874,886

$

(427,215)

$

447,691

Net loss

(135,020)

(135,020)

Common stock issued upon exercise of stock options and warrants

1,035,574

2,844

2,844

Common stock issued upon vesting of restricted stock units, net

1,425,979

(106)

(106)

Stock-based compensation expense

28,228

28,228

September 30, 2022

174,074,602

$

17

26,426,937

$

3

$

905,852

$

(562,235)

$

343,637

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

BUTTERFLY NETWORK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Nine months ended September 30, 

2022

2021

Cash flows from operating activities:

Net loss

    

$

(135,020)

    

$

(17,193)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

Depreciation and amortization

 

4,066

 

1,420

Non-cash interest expense on convertible debt

389

Write-down of inventories

582

Stock-based compensation expense

27,428

38,769

Change in fair value of warrant liabilities

(8,881)

(130,528)

Other

750

665

Changes in operating assets and liabilities:

 

Accounts receivable

(39)

(3,674)

Inventories

 

(21,421)

 

1,432

Prepaid expenses and other assets

(498)

(8,896)

Vendor advances

9,555

(5,615)

Accounts payable

(3,121)

(11,276)

Deferred revenue

971

5,660

Accrued purchase commitments

(15,578)

(23,021)

Change in operating lease assets and liabilities

1,772

(872)

Accrued expenses and other liabilities

(240)

5,748

Net cash used in operating activities

$

(140,256)

$

(146,410)

Cash flows from investing activities:

 

  

 

  

Purchases of marketable securities

(75,118)

(1,018,095)

Sales of marketable securities

702,152

Purchases of property and equipment, including capitalized software

 

(16,180)

 

(3,826)

Net cash used in investing activities

$

(91,298)

$

(319,769)

 

 

Cash flows from financing activities:

 

 

Proceeds from exercise of stock options and warrants

 

2,844

 

19,314

Net proceeds from equity infusion from the Business Combination

548,403

Payment of loan payable

(4,366)

Other financing activities

(100)

(52)

Net cash provided by financing activities

$

2,744

$

563,299

Net (decrease) increase in cash, cash equivalents and restricted cash

$

(228,810)

$

97,120

Cash, cash equivalents and restricted cash, beginning of period

426,841

60,206

Cash, cash equivalents and restricted cash, end of period

$

198,031

$

157,326

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

BUTTERFLY NETWORK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Description of Business

Butterfly Network, Inc., formerly known as Longview Acquisition Corp. (the “Company” or “Butterfly”), was incorporated in Delaware on February 4, 2020. The Company’s legal name became Butterfly Network, Inc. following the closing of the business combination discussed in Note 3 “Business Combination”. The prior period financial information represents the financial results and condition of BFLY Operations, Inc. (formerly Butterfly Network, Inc.).

The Company is an innovative digital health business transforming care with hand-held, whole-body ultrasound. Powered by its proprietary Ultrasound-on-Chip™ technology, the solution enables the acquisition of imaging information from an affordable, powerful device that fits in a healthcare professional’s pocket with a combination of cloud-connected software and hardware technology.

The Company operates wholly-owned subsidiaries in Australia, Germany, Netherlands, the United Kingdom and Taiwan.

Although the Company has incurred recurring losses in each year since inception, the Company expects its cash and cash equivalents and marketable securities will be sufficient to fund operations for at least the next twelve months.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Butterfly Network, Inc. and its wholly-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the accounting disclosure rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s audited consolidated financial statements as of and for the years ended December 31, 2021 and 2020. All intercompany balances and transactions are eliminated upon consolidation.

The condensed consolidated balance sheet as of December 31, 2021, included herein, was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, including certain notes required by U.S. GAAP, required on an annual reporting basis.

In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal and recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for any subsequent quarter, the year ending December 31, 2022, or any other period.

COVID-19 Outbreak

The COVID-19 pandemic that began in 2020 has created significant global economic uncertainty and has impacted the Company’s operating results, financial condition and cash flows. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that are highly uncertain, including those that result from new information that may emerge concerning COVID-19, the economic impacts of the COVID-19 pandemic and the actions taken to contain the COVID-19 pandemic or address its impacts.

The Company has not incurred any significant impairment losses in the carrying values of its assets as a result of the COVID-19 pandemic and is not aware of any specific related event or circumstance that would require the Company to revise the estimates reflected in its financial statements.

8

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents, marketable securities and accounts receivable. As of September 30, 2022, substantially all of the Company’s cash and cash equivalents and marketable securities were invested in money market accounts and mutual funds, respectively, with one financial institution. The Company also maintains balances in various operating accounts above federally insured limits. The Company has not experienced any significant losses on such accounts and does not believe it is exposed to any significant credit risk on cash and cash equivalents and marketable securities.

One customer accounted for 12% and 15% of the Company’s accounts receivable as of September 30, 2022 and December 31, 2021, respectively. One customer accounted for 12% of the Company’s total revenue for the three months ended September 30, 2022. No customer accounted for more than 10% of the Company’s total revenue for the three months ended September 30, 2021 and the nine months ended September 30, 2022 and 2021.

Segment Information

The Company’s Chief Operating Decision Maker, its Chief Executive Officer (“CEO”), reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating its financial performance. Accordingly, the Company has determined that it operates in a single reportable segment. Substantially all of the Company’s long-lived assets are located in the United States. Since the Company operates in one operating segment, all required financial segment information can be found in the condensed consolidated financial statements.

Use of Estimates

The Company makes estimates and assumptions about future events that affect the amounts reported in its condensed consolidated financial statements and accompanying notes. Future events and their effects cannot be determined with certainty. On an ongoing basis, management evaluates these estimates, judgments and assumptions.

The Company bases its estimates on historical and anticipated results and trends and on various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates, and any such differences may be material to the Company’s condensed consolidated financial statements. There have been no material changes to the Company’s use of estimates as described in the audited consolidated financial statements as of December 31, 2021.

Note 3. Business Combination

On February 12, 2021 (the “Closing” or the “Closing Date”), the Company consummated the business combination (the “Business Combination”) with Butterfly Network, Inc. (“Legacy Butterfly”). In connection with the Business Combination and the transactions related to the Business Combination (the “Transactions”), Legacy Butterfly merged with and into a wholly owned subsidiary of the Company, with Legacy Butterfly surviving the Business Combination as a wholly owned subsidiary of the Company (the “Merger”). The Merger was accounted for as a reverse recapitalization in accordance with U.S. GAAP primarily due to the fact that Legacy Butterfly stockholders continue to control the Company following the Closing of the Business Combination.

 

The most significant change in the post-combination Company’s reported financial position and results was an increase in cash of $589.5 million. The Company as the accounting acquirer incurred $11.4 million in transaction costs relating to the Business Combination, which has been offset against the gross proceeds recorded in additional paid-in capital in the condensed consolidated statements of changes in convertible preferred stock and stockholders’ equity (deficit). The Company on the date of Closing used proceeds of the Transactions to pay off $30.9 million, representing all significant liabilities of the acquiree excluding the warrant liability.  As of the date of the Closing, the Company recorded net liabilities of $186.5 million with a corresponding offset to additional paid-in capital. The net liabilities included warrant liabilities of $187.3 million and other insignificant assets and liabilities.

9

Note 4. Revenue Recognition

Disaggregation of Revenue

The Company disaggregates revenue from contracts with customers by product type and by geographical market. The Company believes that these categories aggregate the payor types by nature, amount, timing and uncertainty of their revenue streams. The following table summarizes the Company’s disaggregated revenue (in thousands) for the three and nine months ended September 30, 2022 and 2021:

Pattern of

Three months ended September 30, 

Nine months ended September 30, 

Recognition

2022

2021

2022

2021

By Product Type:

   

   

  

   

  

   

  

   

  

   

Devices and accessories

Point-in-time

$

13,164

$

10,848

$

37,607

$

33,455

Software and other services

Over time

6,454

3,773

16,800

10,123

Total revenue

$

19,618

$

14,621

$

54,407

$

43,578

By Geographical Market:

United States

$

13,582

$

10,220

$

37,881

$

30,320

International

6,036

4,401

16,526

13,258

Total revenue

$

19,618

$

14,621

$

54,407

$

43,578

Contract Balances

Contract balances represent amounts presented in the condensed consolidated balance sheets when either the Company has transferred goods or services to the customer, or the customer has paid consideration to the Company under the contract. These contract balances include trade accounts receivable and deferred revenue. Deferred revenue represents cash consideration received from customers for software and other services that are transferred to the customer over the respective subscription period. The accounts receivable balances represent amounts billed to customers for goods and services where the Company has an unconditional right to payment of the amount billed.

The Company recognizes a receivable when it has an unconditional right to payment, and payment terms are typically 30 days for all product and service sales. The allowance for doubtful accounts was $0.4 million as of September 30, 2022 and December 31, 2021.

The amount of revenue recognized during the three months ended September 30, 2022 and 2021 that was included in the deferred revenue balance at the beginning of the period was $5.1 million and $4.3 million, respectively. The amount of revenue recognized during the nine months ended September 30, 2022 and 2021 that was included in the deferred revenue balance at the beginning of the period was $11.2 million and $7.2 million, respectively.

The Company incurs incremental costs of obtaining contracts and costs of fulfilling contracts with customers. The amount of costs capitalized for the periods presented herein was not significant.

Transaction Price Allocated to Remaining Performance Obligations

On September 30, 2022, the Company had $23.2 million of remaining performance obligations. The Company expects to recognize 70% of its remaining performance obligations as revenue in the next twelve months, and an additional 30% thereafter.

Note 5. Fair Value of Financial Instruments

Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair value.

10

The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The Company utilizes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.
Level 2 — Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
Level 3 — Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company has no assets or liabilities valued with Level 3 inputs.

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates their fair values due to the short-term or on-demand nature of these instruments.

There were no transfers between fair value measurement levels during the periods ended September 30, 2022 and December 31, 2021.

The Company’s investments in marketable securities are ownership interests in mutual funds. The equity securities are stated at fair value, as determined by quoted market prices. As the securities have readily determinable fair value, unrealized gains and losses are reported as other income (expense), net on the condensed consolidated statements of operations and comprehensive loss. Subsequent gains or losses realized upon redemption or sale of these securities are also recorded as other income (expense), net on the condensed consolidated statements of operations and comprehensive loss. The Company considers all of its investments in marketable securities as available for use in current operations and therefore classifies these securities within current assets on the condensed consolidated balance sheets.  For the three and nine months ended September 30, 2022, the Company recognized $0.6 million of unrealized losses that relate to equity securities still held as of September 30, 2022. For the three and nine months ended September 30, 2021, the Company did not recognize any unrealized losses that relate to equity securities still held as of September 30, 2022.

The Company’s outstanding warrants include publicly traded warrants (the “Public Warrants”) which were issued as one-third of a warrant per unit during Longview’s initial public offering on May 26, 2020 and warrants sold in a private placement to Longview’s sponsor (the “Private Warrants”). As of September 30, 2022, there were an aggregate of 13,799,357 and 6,853,333 outstanding Public Warrants and Private Warrants, respectively. Each whole warrant entitles the registered holder to purchase one share of Class A common stock at an exercise price of $11.50 per share, subject to adjustment per the warrant agreements. The warrants will expire on February 12, 2026 or earlier upon redemption or liquidation. The Company recognizes the change in fair value of warrant liabilities in the condensed consolidated statement of operations and comprehensive loss. During the three and nine months ended September 30, 2022 and 2021, the number of exercises and the amount reclassified into equity upon the exercise of the Public Warrants and Private Warrants were not significant.

The Company determined the fair value of its Public Warrants as Level 1 financial instruments, as they are traded in active markets. Because any transfer of Private Warrants from the initial holder of the Private Warrants would result in the Private Warrants having substantially the same terms as the Public Warrants, management determined that the fair value of each Private Warrant is the same as that of a Public Warrant. Accordingly, the Private Warrants are classified as Level 2 financial instruments.

11

The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy (in thousands):

Fair Value Measurement Level

Total

Level 1

Level 2

Level 3

September 30, 2022:

    

  

    

  

    

  

    

  

Marketable securities:

 

  

 

 

  

 

  

Mutual funds

$

74,546

$

74,546

$

$

Total assets at fair value on a recurring basis

$

74,546

$

74,546

$

$

Warrants:

Public Warrants

$

11,591

$

11,591

$

$

Private Warrants

5,757

5,757

Total liabilities at fair value on a recurring basis

$

17,348

$

11,591

$

5,757

$

December 31, 2021:

Warrants:

Public Warrants

$

17,525

$

17,525

$

$

Private Warrants

8,704