10-Q 1 bfly-20240331x10q.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 March 31, 2024

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 April 22, 2024, the registrant had 184,280,929 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

3

Part I

Financial Information

4

Item 1.

Financial Statements

4

Condensed Consolidated Balance Sheets (Unaudited)

4

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

5

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

6

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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

Item 4.

Controls and Procedures

24

Part II

Other Information

24

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25

Item 5.

Other Information

25

Item 6.

Exhibits

25

Signatures

28

In this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” the “Company,” and “Butterfly” mean Butterfly Network, Inc. and our subsidiaries.

2

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, our plans, strategies, and prospects, both business and financial. These statements are based on the beliefs and assumptions of our 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 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; and
our financial performance.

These statements may be preceded by, followed by, or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates,” “intends,” 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, our management. Although we believe that our plans, intentions, and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we 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 growth 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; and
economic downturns and political and market conditions beyond our control could adversely affect 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, 2023 (the “2023 Annual Report on Form 10-K”), in Item 1A of Part II of this Quarterly Report on Form 10-Q, and in other filings that we make with the Securities and Exchange Commission (“SEC”). The risks described under the caption “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 we assess the impact of all such risk factors on our 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 the Company’s behalf are expressly qualified in their entirety by the foregoing cautionary statements. We undertake 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.

3

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

BUTTERFLY NETWORK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

    

March 31, 

    

December 31, 

    

2024

    

2023

    

Assets

  

  

Current assets:

  

  

Cash and cash equivalents

$

112,652

$

134,437

Accounts receivable, net

 

13,914

 

13,418

Inventories

 

74,494

 

73,022

Current portion of vendor advances

3,979

2,815

Prepaid expenses and other current assets

 

8,234

 

7,571

Total current assets

213,273

231,263

Property and equipment, net

24,425

25,321

Intangible assets, net

9,967

10,317

Non-current portion of vendor advances

 

15,169

 

15,276

Operating lease assets

15,325

15,675

Other non-current assets

 

6,129

 

6,422

Total assets

$

284,288

$

304,274

Liabilities and stockholders’ equity

 

Current liabilities:

 

  

 

  

Accounts payable

$

5,808

$

5,090

Deferred revenue, current

 

14,464

 

15,625

Accrued purchase commitments, current

 

131

 

131

Accrued expenses and other current liabilities

21,139

23,425

Total current liabilities

41,542

44,271

Deferred revenue, non-current

7,217

7,394

Warrant liabilities

1,033

826

Operating lease liabilities

22,252

22,835

Other non-current liabilities

8,240

8,895

Total liabilities

80,284

84,221

Commitments and contingencies (Note 12)

Stockholders’ equity:

Class A common stock $.0001 par value; 600,000,000 shares authorized at March 31, 2024 and December 31, 2023; 184,214,377 and 181,221,794 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

18

18

Class B common stock $.0001 par value; 27,000,000 shares authorized at March 31, 2024 and December 31, 2023; 26,426,937 shares issued and outstanding at March 31, 2024 and December 31, 2023

3

3

Additional paid-in capital

955,382

949,670

Accumulated deficit

(751,399)

(729,638)

Total stockholders’ equity

204,004

220,053

Total liabilities and stockholders’ equity

$

284,288

$

304,274

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

4

BUTTERFLY NETWORK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share amounts)

(Unaudited)

Three months ended March 31, 

    

2024

    

2023

Revenue:

  

  

Product

$

11,291

$

8,848

Software and other services

 

6,365

 

6,628

Total revenue

17,656

15,476

Cost of revenue:

  

  

Product

5,096

4,349

Software and other services

2,284

2,038

Total cost of revenue

7,380

6,387

Gross profit

10,276

9,089

Operating expenses:

Research and development

10,720

16,651

Sales and marketing

10,378

10,034

General and administrative

10,442

11,019

Other

1,357

6,432

Total operating expenses

32,897

44,136

Loss from operations

(22,621)

(35,047)

Interest income

1,511

1,784

Interest expense

(300)

Change in fair value of warrant liabilities

(207)

(207)

Other (expense) income, net

(141)

17

Loss before provision for income taxes

(21,758)

(33,453)

Provision for income taxes

 

3

 

87

Net loss and comprehensive loss

$

(21,761)

$

(33,540)

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

$

(0.10)

$

(0.17)

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

208,873,449

202,565,877

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

5

BUTTERFLY NETWORK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)

Three months ended March 31, 2024

  

  

  

  

  

  

  

  

  

  

  

  

Class A

Class B

Common

Common

Additional

Total

Stock

Stock

Paid-In

Accumulated

Stockholders’

Shares

Amount

Shares

Amount

Capital

Deficit

Equity

December 31, 2023

181,221,794

$

18

26,426,937

$

3

$

949,670

$

(729,638)

$

220,053

Net loss

(21,761)

(21,761)

Common stock issued upon vesting of restricted stock units

2,992,583

Stock-based compensation expense

5,712

5,712

March 31, 2024

184,214,377

$

18

26,426,937

$

3

$

955,382

$

(751,399)

$

204,004

Three months ended March 31, 2023

  

  

  

  

  

  

  

  

  

  

  

  

Class A

Class B

Common

Common

Additional

Total

Stock

Stock

Paid-In

Accumulated

Stockholders’

Shares

Amount

Shares

Amount

Capital

Deficit

Equity

December 31, 2022

174,459,956

$

17

26,426,937

$

3

$

921,278

$

(595,938)

$

325,360

Net loss

(33,540)

(33,540)

Common stock issued upon vesting of restricted stock units

2,908,543

1

1

Stock-based compensation expense

4,326

4,326

March 31, 2023

177,368,499

$

18

26,426,937

$

3

$

925,604

$

(629,478)

$

296,147

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)

Three months ended March 31, 

2024

2023

Cash flows from operating activities:

Net loss

    

$

(21,761)

    

$

(33,540)

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

 

 

Depreciation, amortization, and impairments

 

2,584

 

2,111

Non-cash interest expense

299

Write-down of inventories

(81)

Stock-based compensation expense

5,524

4,185

Change in fair value of warrant liabilities

207

207

Other

244

(708)

Changes in operating assets and liabilities:

 

Accounts receivable

(751)

1,077

Inventories

 

(1,391)

 

(9,437)

Prepaid expenses and other assets

(376)

(3,175)

Vendor advances

(1,057)

2,260

Accounts payable

703

(1,561)

Deferred revenue

(1,338)

(1,536)

Accrued purchase commitments

(1,615)

Change in operating lease assets and liabilities

(163)

175

Accrued expenses and other liabilities

(3,310)

(1,695)

Net cash used in operating activities

(20,667)

(43,252)

Cash flows from investing activities:

 

  

 

  

Purchases of marketable securities

(297)

Sales of marketable securities

76,484

Purchases of property, equipment, and intangible assets, including capitalized software

 

(1,138)

 

(1,342)

Sales of property and equipment

10

Net cash (used in) provided by investing activities

(1,138)

74,855

 

 

Cash flows from financing activities:

 

 

Net cash provided by financing activities

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

(21,805)

31,603

Cash, cash equivalents, and restricted cash, beginning of period

138,650

166,828

Cash, cash equivalents, and restricted cash, end of period

$

116,845

$

198,431

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

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 Company’s 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 that is easily accessed through a mobile app.

The Company was incorporated in Delaware on February 4, 2020 as Longview Acquisition Corp. (“Longview”). Following a business combination between the Company and BFLY Operations, Inc. (formerly Butterfly Network, Inc.) on February 12, 2021 (the “Business Combination”), the Company’s legal name became Butterfly Network, Inc.

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

The Company has incurred net losses and negative cash flows from operating activities in each year since inception, and we expect to continue to incur losses for at least the next few years. The Company expects its cash and cash equivalents of $112.7 million at March 31, 2024 will be sufficient to fund operations and capital requirements for at least the next twelve months from the date the condensed consolidated financial statements are issued. We may need to satisfy our future cash needs through the sale of equity securities, debt financings, working capital lines of credit or partnerships, or a combination of one or more of these sources.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and the accounting disclosure rules and regulations of the SEC regarding interim financial reporting. Certain information and note disclosures normally included in the annual 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 2023 Annual Report on Form 10-K. All intercompany balances and transactions are eliminated upon consolidation.

The condensed consolidated balance sheet as of December 31, 2023, 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 for annual reporting.

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 months ended March 31, 2024 are not necessarily indicative of the results to be expected for any subsequent quarter, the year ending December 31, 2024, or any other period.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents and accounts receivable. As of March 31, 2024, substantially all of the Company’s cash and cash equivalents were invested in money market accounts 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 of its cash and cash equivalents.

8

As of March 31, 2024 and December 31, 2023, no customer accounted for more than 10% of the Company’s accounts receivable. No customer accounted for more than 10% of the Company’s total revenue for the three months ended March 31, 2024 and 2023.

Segment Reporting

The Company’s Chief Operating Decision Maker (“CODM”), its Chief Executive Officer, reviews the Company’s financial information on a consolidated basis for purposes of allocating resources and evaluating its financial performance. Accordingly, the Company has determined that it operates as a single reportable segment. Substantially all of the Company’s long-lived assets are located in the United States. Since the Company operates as a single reporting segment, all required segment reporting disclosures 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 and assumptions.

The Company bases these estimates on historical and anticipated results and trends and on various other assumptions that the Company believes are reasonable under the circumstances, including assumptions about 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 consolidated financial statements for the year ended December 31, 2023.

Operating Expenses – Other

The Company classifies certain operating expenses that are not representative of the Company’s ongoing operations as other on the condensed consolidated statements of operations and comprehensive loss. These include costs related to the Company’s reductions in force, litigation, and legal settlements. The following table summarizes the types of expenses classified as other in the Company’s condensed consolidated statements of operations and comprehensive loss (in thousands):

Three months ended March 31, 

    

2024

    

2023

Employment-related expenses

$

(56)

$

3,618

Legal-related expenses

 

1,413

 

2,814

Total other

$

1,357

$

6,432

Recent Accounting Pronouncements Issued but Not Yet Adopted

In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which introduced new guidance on disclosures for reportable segments and significant segment expenses, including for entities with a single reportable segment. This guidance is effective for the Company for annual reporting periods beginning January 1, 2024 and interim periods beginning January 1, 2025. The Company is currently evaluating the impact that the adoption of this pronouncement will have on the Company’s consolidated financial statements and disclosures.

In December 2023, the Financial Accounting Standards Board issued Accounting Standards Update 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which introduced new guidance on disclosures for income taxes, including enhancements to the rate reconciliation and income taxes paid disclosures. This guidance is effective for the Company for annual reporting periods beginning January 1, 2025. The Company is currently evaluating the impact that the adoption of this pronouncement will have on the Company’s consolidated financial statements and disclosures.

9

Note 3. 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 its revenue streams. The following table summarizes the Company’s disaggregated revenue (in thousands):

Pattern of

Three months ended March 31, 

Recognition

2024

2023

By product type:

   

   

  

   

  

   

Devices and accessories

Point-in-time

$

11,291

$

8,848

Software and other services

Over time

6,365

6,628

Total revenue

$

17,656

$

15,476

By geographical market:

United States

$

13,737

$

12,005

International

3,919

3,471

Total revenue

$

17,656

$

15,476

Contract Balances

Contract balances represent amounts presented in the condensed consolidated balance sheets when the Company has either 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. The Company recognizes a receivable when it has an unconditional right to payment, and payment terms are typically 30 days for sales on credit of product, software, and other services. The allowance for doubtful accounts was $2.0 million and $1.8 million as of March 31, 2024 and December 31, 2023, respectively. For the three months ended March 31, 2024 and 2023, the Company recognized $6.0 million and $6.2 million, respectively, of revenue that was included in the deferred revenue balance at the beginning of the period.

Transaction Price Allocated to Remaining Performance Obligations

As of March 31, 2024 and December 31, 2023, the Company had $32.7 million and $32.0 million, respectively, of remaining performance obligations. As of March 31, 2024, the Company expects to recognize 59% of its remaining performance obligations as revenue in the next twelve months and an additional 41% thereafter.

Note 4. 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.

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.

10

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 values of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate 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 March 31, 2024 and December 31, 2023.

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 and warrants sold in a private placement to Longview’s sponsor (the “Private Warrants”). As of March 31, 2024, 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 statements of operations and comprehensive loss. During the three months ended March 31, 2024 and 2023, 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 measures its Public Warrants using Level 1 fair value inputs based on quoted prices in active markets for the Public Warrants. 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 Company measures its Private Warrants using Level 2 fair value inputs based on quoted prices in active markets for the Public Warrants.

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

March 31, 2024:

    

  

    

  

    

  

    

  

Warrants:

Public Warrants

$

690

$

690

$

$

Private Warrants

343

343

Total liabilities at fair value on a recurring basis

$

1,033

$

690

$

343

$

December 31, 2023:

Warrants:

Public Warrants

$

552

$

552

$

$

Private Warrants

274

274

Total liabilities at fair value on a recurring basis

$

826

$

552

$

274

$

Note 5. Inventories

The following table summarizes the Company’s inventories (in thousands):

    

March 31, 

    

December 31, 

    

2024

    

2023

Raw materials

$

49,692

 

49,366

Work-in-progress

 

2,587

 

3,384

Finished goods

 

22,215

 

20,272

Total inventories

$

74,494

$

73,022

Work-in-progress represents inventory items in intermediate stages of production by third-party manufacturers. For the three months ended March 31, 2024 and 2023, net realizable value inventory adjustments and excess and obsolete

11

inventory charges were not significant and were recognized in product cost of revenue. See Note 12 “Commitments and Contingencies” for additional information regarding the Company’s inventory supply arrangements.

Note 6. Property and Equipment, Net

The following table summarizes the Company’s property and equipment, net (in thousands):

March 31, 

December 31, 

    

2024

    

2023

Property and equipment, gross

$

44,663

$

43,516

Less: accumulated depreciation and amortization

  

(20,238)

  

(18,195)

Property and equipment, net

$

24,425

$

25,321

Note 7. Restricted Cash

The following table reconciles cash, cash equivalents, and restricted cash from the condensed consolidated balance sheets to the condensed consolidated statements of cash flows (in thousands):

    

March 31, 

    

2024

    

2023

Reconciliation of cash, cash equivalents and restricted cash:

Cash and cash equivalents

$

112,652

$

193,808

Restricted cash included within prepaid expenses and other current assets

 

179

 

609

Restricted cash included within other non-current assets

4,014

4,014

Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows

$

116,845

$

198,431

Restricted cash included within prepaid expenses and other current assets is restricted by an agreement with the Bill & Melinda Gates Foundation (“Gates Foundation”). The restriction on these funds lapses as the Company fulfills its obligations in the agreement. Restricted cash included within other non-current assets is held as collateral to secure a letter of credit for one of our office leases and is expected to be maintained as a security deposit throughout the duration of the lease.

Note 8. Accrued Expenses and Other Current Liabilities

The following table summarizes the Company’s accrued expenses and other current liabilities (in thousands):

    

March 31, 

    

December 31, 

    

2024

    

2023

Employee compensation

$

5,002

$

9,442

Customer deposits

 

1,751

 

1,613

Accrued warranty liability

 

289

 

297

Non-income tax

 

2,118

 

1,197

Professional fees

 

3,705

 

2,481

Current portion of operating lease liabilities

2,262

2,192

Other

 

6,012

 

6,203

Total accrued expenses and other current liabilities

$

21,139

$

23,425

12

The following table summarizes warranty expense activity (in thousands):

Three months ended March 31, 

    

2024

    

2023

    

Balance, beginning of period

$

697

$

873

Warranty provision charged to operations

 

96

 

(44)

Warranty claims

 

(149)

 

(35)

Balance, end of period

$

644

$

794

The Company classifies its accrued warranty liability based on the timing of expected warranty activity. The future costs of expected activity greater than one year are recorded within other non-current liabilities on the condensed consolidated balance sheets.

Note 9. Equity Incentive Plans

For the three months ended March 31, 2024, there were no significant changes to the Company’s 2012 Employee, Director and Consultant Equity Incentive Plan, as amended, (the “2012 Plan”) and the Company’s Amended and Restated 2020 Equity Incentive Plan (the “2020 Plan”). On January 1, 2024, pursuant to the terms of the 2020 Plan, the number of shares reserved for issuance was increased automatically by 4% of the number of outstanding shares of common stock as of January 1, 2024.

Stock Option Activity

The following table summarizes the changes in the Company’s outstanding stock options:

Number of

Options

Outstanding at December 31, 2023

 

7,439,187

Granted

 

Exercised

 

Forfeited

 

(288,029)

Outstanding at March 31, 2024

 

7,151,158

Generally, each award vests based on continued service per the award agreement. The grant date fair value of the award is recognized as stock-based compensation expense over the requisite service period. The grant date fair value was determined using similar methods and assumptions as those previously disclosed by the Company.

Restricted Stock Unit Activity

The following table summarizes the changes in the Company’s outstanding restricted stock units (“RSUs”):

Number of

RSUs

Outstanding at December 31, 2023

 

15,569,983

Granted

 

10,600,519

Vested

 

(2,992,583)

Forfeited

 

(205,422)

Outstanding at March 31, 2024

 

22,972,497

Generally, each award vests based on continued service per the award agreement. The grant date fair value of the award is recognized as stock-based compensation expense over the requisite service period. The grant date fair value was determined based on the fair market value of the Company’s Class A common stock on the grant date.

Included in the table above are market-based RSUs granted in 2023 that include a service condition. The market-based conditions for these awards are objective metrics related to the Company’s stock price defined in the award agreement.

13

The service condition for these awards is satisfied by providing service to the Company through the achievement date of the market-based conditions. The grant date fair value of the awards is recognized as stock-based compensation expense over the derived service period. The grant date fair value and derived service period were determined by using a Monte Carlo simulation with similar risk-free interest rate, expected dividend yield, and expected volatility assumptions as those used by the Company for determining the grant date fair value of its stock options.

The following table summarizes the Company’s stock-based compensation expense (in thousands):

Three months ended March 31, 

   

2024

   

2023

   

Research and development

$

2,019

$

2,194

Sales and marketing

1,107

621

General and administrative

2,398

1,370

Total stock-based compensation expense

$

5,524

$

4,185

Prior period stock-based compensation expense that was classified as cost of revenue is now included in research and development due to the amount being insignificant.

Note 10. Net Loss Per Share

We compute net loss per share of Class A and Class B common stock using the two-class method. Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of each class of the Company’s common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of the Company’s common stock, including those presented in the table below, to the extent dilutive. Basic and diluted net loss per share were the same for each period presented as the inclusion of all potential shares of the Company’s common stock outstanding would have been anti-dilutive.

As the Company uses the two-class method required for companies with multiple classes of common stock, the following tables present the calculation of basic and diluted net loss per share for each class of the Company’s common stock outstanding (in thousands, except share and per share amounts):

Three months ended March 31, 2024

Total

    

Class A

    

Class B

    

Common Stock

Numerator:

  

  

 

  

Allocation of undistributed earnings

$

(19,008)

$

(2,753)

$

(21,761)

Numerator for basic and diluted net loss per share – loss available to common stockholders

$

(19,008)

$

(2,753)

$

(21,761)

Denominator:

 

  

 

  

 

  

Weighted-average common shares outstanding

 

182,446,512

 

26,426,937

 

208,873,449

Denominator for basic and diluted net loss per share – weighted-average common stock

 

182,446,512

 

26,426,937

 

208,873,449

Basic and diluted net loss per share

$

(0.10)

$

(0.10)

$

(0.10)

14

Three months ended March 31, 2023

Total

    

Class A

    

Class B

    

Common Stock

Numerator:

  

  

 

  

Allocation of undistributed earnings

$

(29,164)

$

(4,376)

$

(33,540)

Numerator for basic and diluted net loss per share – loss available to common stockholders

$

(29,164)

$

(4,376)

$

(33,540)

Denominator:

 

  

 

  

 

  

Weighted-average common shares outstanding

 

176,138,940

 

26,426,937

 

202,565,877

Denominator for basic and diluted net loss per share – weighted-average common stock

 

176,138,940

 

26,426,937

 

202,565,877

Basic and diluted net loss per share

$

(0.17)

$

(0.17)

$

(0.17)

For the periods presented above, the net loss per share amounts are the same for Class A and Class B common stock because the holders of each class are entitled to equal per share dividends or distributions in liquidation in accordance with the Certificate of Incorporation. The undistributed earnings for each year are allocated based on the contractual participation rights of the Class A and Class B common stock as if the earnings for the year had been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis.

The following table summarizes the Company’s anti-dilutive common equivalent shares:

March 31, 

    

2024

    

2023

    

Outstanding options to purchase common stock

7,151,158

10,358,769

Outstanding restricted stock units

22,972,497

16,250,193

Outstanding warrants

20,652,690

20,652,690

Total anti-dilutive common equivalent shares

50,776,345

47,261,652

Note 11. 401(k) Retirement Plan

The Company sponsors a 401(k) defined contribution plan covering all eligible U.S. employees. Contributions to the 401(k) plan are discretionary. For the three months ended March 31, 2024 and 2023, expenses for matching 401(k) contributions were $0.2 million and $0.2 million, respectively.

Note 12. Commitments and Contingencies

Commitments

Leases:

The Company primarily enters into leases for office space that are classified as operating leases. For the three months ended March 31, 2024 and 2023, total lease cost was $0.7 million and $1.0 million, respectively. Total lease cost was primarily composed of operating lease costs.

Purchase Commitments:

The Company enters into inventory purchase commitments with third-party manufacturers in the ordinary course of business, including a non-cancellable inventory supply agreement with a certain third-party manufacturing vendor. The provisions of the agreement allowed the Company, once it reached a certain cumulative purchase threshold in the fourth quarter of 2021, to pay for a portion of the subsequent inventory purchases using an advance previously paid to the vendor. As of March 31, 2024, the aggregate amount of minimum inventory purchase commitments is $12.5 million, and the Company has a vendor advance asset of $1.3 million, net of write-downs, and an accrued purchase commitment liability

15

of $0.1 million related to the agreement. The portion of the balances that is expected to be utilized in the next 12 months is included in current assets and current liabilities in the accompanying condensed consolidated balance sheets.

The Company applied the guidance in Topic 330, Inventory to assess the purchase commitment and related loss, using such factors as Company-specific forecasts which are reliant on the Company’s limited sales history, agreement-specific provisions, macroeconomic factors, and market and industry trends. For the three months ended March 31, 2024 and 2023, the Company did not recognize any additions to the accrued purchase commitment liability, or any related losses, based on its purchase commitment assessment as there were no significant changes to the assessment factors.

The Company reviews its inventory on hand, including inventory acquired under the purchase commitments, for excess and obsolescence (“E&O”) on a quarterly basis. Any E&O inventory acquired that was previously accounted for as a purchase commitment liability accrual or vendor advance write down is recorded at zero value. During the three months ended March 31, 2024, the Company did not acquire a significant amount of such E&O inventory. During the three months ended March 31, 2023, the Company utilized $1.6 million of the accrued purchase commitment liability and $4.5 million of the vendor advance that was previously written down to acquire such E&O inventory.

Contingencies

The Company is involved in litigation and legal matters from time to time, which have arisen in the normal course of business. Although the ultimate results of these matters are not currently determinable, management does not expect that they will have a material effect on the Company’s condensed consolidated balance sheets, statements of operations and comprehensive loss, or statements of cash flows. The Company accrues an estimated liability for legal contingencies when the Company considers a potential loss probable and can reasonably estimate the amount of the potential loss.

On February 16, 2022, a putative class action lawsuit, styled Rose v. Butterfly Network, Inc., et al. was filed in the United States District Court for the District of New Jersey. The claims are against the Company and certain of its directors and previous management as well as Longview and member of its then board of directors, alleging that the defendants made false and misleading statements and/or omissions about its post-Business Combination business and financial prospects. The alleged class consists of all persons or entities who purchased or otherwise acquired the Company’s stock between January 12, 2021 and November 15, 2021, persons who exchanged Longview shares for the Company’s common stock, and persons who purchased Longview stock pursuant, or traceable to, the Proxy/Registration Statement filed with the SEC on November 27, 2020 or any amendment thereto. The Company intends to vigorously defend against this action. The lawsuit seeks unspecified damages, together with interest thereon, as well as the costs and expenses of litigation. There is no assurance that the Company will be successful in the defense of the litigation or that insurance will be available or adequate to fund any potential settlement or judgment or the litigation costs of the action. The Company is unable to predict the outcome or reasonably estimate a range of possible loss at this time.

On June 21, 2022, a stockholder derivative action, styled Koenig v. Todd M. Fruchterman, et al. was filed in the United States District Court for the District of Delaware against the Company’s board of directors and the Company as nominal defendant. On November 28, 2023, a stockholder derivative action, styled Bhavsar v. Todd M. Fruchterman, et al. was filed in the United States District Court for the District of Delaware against the board of directors and the Company as nominal defendant. Both these actions allege violation of Section 14(a) of the Exchange Act, as amended, and Rule 14a-9 promulgated thereunder, and claims for breach of fiduciary duty, contribution and indemnification, aiding and abetting, and gross mismanagement. The lawsuits are premised upon allegedly inadequate internal controls and purportedly misleading representations regarding the Company’s financial condition, business prospects, and the Company’s November 2021 earnings announcement.  The Company intends to vigorously defend against these actions. The lawsuit seeks unspecified damages, disgorgement, and restitution, together with interest thereon, as well as the costs and expenses of litigation. There is no assurance that the Company will be successful in the defense of the litigation or that insurance will be available or adequate to fund any potential settlement or judgment or the litigation costs of the action. The Company is unable to predict the outcome or reasonably estimate a range of possible loss at this time.

16

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 2023 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 2023 Annual Report on Form 10-K and in Item 1A of Part II of this Quarterly Report on Form 10-Q as filed with the SEC. 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 iQ+ and iQ3 are ultrasound devices that can perform whole-body imaging in a single handheld probe using semiconductor technology. 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.

In 2023 and 2022, we took significant actions to reduce our cost of operations and extend our cash runway. Over the two years, we reduced our annual cash requirements by approximately $170 million, to approximately $60 million assuming no revenue growth or further reductions in expenses. As such, we conservatively expect our cash to last into 2026. As we look forward, we expect to continue to invest our business in order to grow revenue. Before we reach 2026, we expect to raise capital in order to reach profitability. We expect to first seek nondilutive capital in the form of grants or debt and then potentially in the form of equity securities.

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 metrics 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 metric is useful to investors because it presents our core growth and the performance of our business period over period.

17

Graphic

Units fulfilled increased by 768 units, or 21.8%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, with increased device sales volume in the U.S. and internationally for both our established iQ+ probes and our newly launched iQ3 probes.

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 related 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.

Graphic

Software and other services mix decreased by 6.7 percentage points, to 36.1% for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This decrease is due to the recent launch of our new iQ3 probe and an increase in device sales during the current year.

18

Description of Certain Components of Financial Data

Revenue

Revenue consists of revenue from the sale of products, such as medical devices and accessories, and the sale of software and related services, classified as software and other services revenue on our condensed consolidated statements of operations and comprehensive loss, which are SaaS subscriptions and product support and maintenance (“Support”). SaaS subscriptions include licenses for teams and individuals as well as enterprise-level subscriptions. For sales of products, revenue is recognized at a point in time upon transfer of control to the customer. SaaS subscriptions and Support 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. In 2024, due to the launch of our next generation device iQ3, we are expecting our software as a percentage of total revenue to remain flat or decrease.

To date, we have invested heavily in building out our direct salesforce, with the ultimate goal of growing adoption at large-scale healthcare systems. 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 device, 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.

Research and development

Research and development expenses primarily consist of personnel costs and benefits, 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 continue to make substantial investments in our sales capabilities.

General and administrative

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

19

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 our reductions in force, 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.

Three months ended March 31, 

 

2024

2023

 

% of

% of

 

(in thousands)

Dollars

revenue

Dollars

revenue

 

Revenue:

  

   

  

  

  

    

  

   

  

  

  

    

  

Product

$

11,291

 

63.9

%  

$

8,848

 

57.2

%

Software and other services

6,365

 

36.1

6,628

 

42.8

Total revenue

17,656

 

100.0

15,476

 

100.0

Cost of revenue:

  

 

 

  

 

Product

5,096

 

28.9

4,349

 

28.1

Software and other services

2,284

 

12.9

2,038

 

13.2

Total cost of revenue

7,380

 

41.8

6,387

 

41.3

Gross profit

10,276

 

58.2

9,089

 

58.7

Operating expenses:

  

 

 

  

 

Research and development

10,720

 

60.7

16,651

 

107.6

Sales and marketing

10,378

 

58.8

10,034

 

64.8

General and administrative

10,442

 

59.1

11,019

 

71.2

Other

1,357

7.7

6,432

41.6

Total operating expenses

32,897

 

186.3

44,136

 

285.2

Loss from operations

(22,621)

 

(128.1)

(35,047)

 

(226.5)

Interest income

1,511

 

8.6

1,784

 

11.5

Interest expense

(300)

 

(1.7)

 

Change in fair value of warrant liabilities

(207)

(1.2)

(207)

(1.3)

Other (expense) income, net

(141)

 

(0.8)

17

 

0.1

Loss before provision for income taxes

(21,758)

 

(123.2)

(33,453)

 

(216.2)

Provision for income taxes