Butterfly Network, Inc.

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

Since 2022, we have taken significant actions to reduce our cost of operations and extend our cash runway and have reduced our annual cash requirements by approximately $180 million, to less than $50 million annually. As such, we conservatively expect our cash to last into 2027. As we look forward, we expect to continue to invest in our business in order to grow revenue. Before we reach 2027, we may need to raise capital in order to reach profitability. We will first seek nondilutive capital in the form of licensing, grants, or debt and then potentially in the form of equity securities.

Current wording

Since 2022, we have taken significant actions to reduce our cost of operations and extend our cash runway and have reduced our annual cash requirements by approximately $180 million, to less than $50 million annually. As we look forward, we expect to continue to invest in our business in order to grow revenue. On January 31, 2025, we raised additional capital through the issuance and sale in a public offering of 27.6 million shares of our Class A common stock, generating proceeds of $81.1 million, net of underwriting costs and related expenses.

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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 iQ3 device, we are expecting our software and other services as a percentage of total revenue to remain flat or decrease.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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, global workforce optimization, litigation costs, and legal settlements.

Current wording

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

Previous wording

Product revenue increased by $4.8 million, or 54.7%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This increase was primarily driven by higher product revenue across nearly all of our sales channels, including the impact of the iQ3 probe’s higher selling price as well as an increase in probe sales internationally.

Current wording

Product revenue increased by $2.9 million, or 25.4%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. This increase was primarily driven by higher sales volume in our US sales channels, the impact of the iQ3 probe’s higher selling price after its launch in the US during the first quarter of 2024 and internationally during the third quarter of 2024, and the delivery of semiconductor chips to one of our newly onboarded partners.

Previous wording

Software and other services revenue increased by $0.4 million, or 5.3%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This increase was primarily driven by higher enterprise software revenue and increased licensing revenue from ourButterfly Garden andPowered by Butterfly partnerships, partially offset by lower renewals of individual subscriptions. Enterprise as a percentage of software revenue increased by approximately 5 percentage points year-over-year.

Current wording

Software and other services revenue increased by $0.7 million, or 10.9%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. This increase was primarily driven by higher enterprise software revenue and increased licensing and services revenue from our partnerships, partially offset by lower renewals of individual subscriptions.

Previous wording

General and administrative expenses decreased by $2.2 million, or 19.1%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This decrease was primarily driven by reductions of $1.6 million in stock-based compensation expense and $0.4 million in professional service fees for legal services.

Current wording

General and administrative expenses decreased by $0.8 million, or 8.1%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. This decrease was primarily driven by reductions of $0.3 million in insurance costs, $0.2 million in personnel costs, and $0.1 million in professional service fees for legal and other administrative services.

Previous wording

Other decreased by $7.6 million, or 81.9%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This decrease was primarily driven by reductions of $4.1 million in legal costs due to litigation and other legal matters and $3.5 million in employee severance and benefits costs resulting from our reduction in force in July 2023. These costs are not representative of our ongoing operations.

Current wording

Other decreased by $0.7 million, or 48.1%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. This decrease was primarily driven by $0.7 million of lower legal costs due to litigation. These costs are not representative of our ongoing operations.

Previous wording

Since our inception, our primary sources of liquidity are cash flows from operations, proceeds from the Business Combination, and issuances of preferred stock and convertible notes. Our primary uses of liquidity are operating expenses, working capital requirements, and capital expenditures. 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 and negative cash flows for a few years as we continue to commercialize existing and new products and services. We expect that our existing cash

Current wording

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

Previous wording

and cash flows from operations will be sufficient to meet our liquidity, capital expenditure, and anticipated working capital requirements and fund our operations for at least the next 12 months.

Current wording

On January 31, 2025, we raised $81.1 million, net of underwriting costs and related expenses, through the issuance and sale in a public offering of 27.6 million shares of our Class A common stock. Excluding this public offering, during the three months ended March 31, 2025, the Company utilized $14.7 million of cash and cash equivalents for ongoing operations and the payment of our annual employee and management bonuses. As of March 31, 2025, our cash and cash equivalents balance was $155.2 million. Our future spending will depend on various factors, including our rate of revenue growth and the timing and extent of spending on strategic business initiatives. We expect that our existing cash and cash flows from operations will be sufficient to meet our liquidity, capital expenditure, and anticipated working capital requirements and fund our operations for at least the next 12 months.

Previous wording

Our material cash requirements include contractual obligations with third parties for office leases, technology licensing agreements, and inventory supply agreements. Our fixed office lease payment obligations were $28.9 million as of September 30, 2024, with $3.6 million payable within the next 12 months. Our fixed technology license payment obligations were $15.5 million as of September 30, 2024, with $1.5 million payable within the next 12 months. Our fixed purchase obligations for inventory supply agreements were $8.6 million as of September 30, 2024, all of which is payable within the next 12 months and approximately 20% of which we expect to pay using vendor advances.

Current wording

Our material cash requirements include contractual obligations with third parties for office leases, technology licensing agreements, and inventory supply agreements. Our fixed office lease payment obligations were $27.1 million as of March 31, 2025, with $3.7 million payable within the next 12 months. Our fixed technology license payment obligations were $14.0 million as of March 31, 2025, with $3.5 million payable within the next 12 months. Our fixed purchase obligations for inventory supply agreements, net of vendor advances, were $2.9 million as of March 31, 2025, all of which is payable within the next 12 months.

Previous wording

The following table summarizes our sources and uses of cash for the nine months ended September 30, 2024 and 2023:

Current wording

The following table summarizes our sources and uses of cash for the three months ended March 31, 2025 and 2024:

Previous wording

Net cash used in operating activities decreased by $47.1 million, or 55.0%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease was driven by reductions of $36.9 million in net loss adjusted for certain non-cash items and $10.2 million in net working capital cash usage. The decrease in net loss adjusted for certain non-cash items was primarily driven by a reduction of $35.2 million in net loss. The decrease in net working capital cash usage was primarily driven by reductions of $18.7 million in cash used for changes in our inventory and the related vendor advances and accrued purchase commitments, $1.1 million in cash used for changes in accounts payable and accrued expenses, and $0.9 million in cash used for changes in deferred revenue. These reductions were partially offset by an $8.9 million increase in cash used for changes in accounts receivable and a $1.7 million decrease in cash provided by changes in our prepaid expenses and other assets.

Current wording

Net cash used in operating activities decreased by $9.0 million, or 43.5%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The decrease was comprised of improvements of $7.3 million in net loss adjusted for certain non-cash items and $1.7 million in net working capital cash usage. The improvement in net working capital cash usage was primarily driven by improvements of $3.9 million in cash provided by changes in our inventory and the related vendor advances and accrued purchase commitments, $1.6 million in cash provided by changes in accounts receivable, and $0.9 million in cash used for changes in deferred revenue. These improvements were partially offset by a $4.5 million increase in cash used for changes in accounts payable and accrued expenses, which includes a $2.8 million increase in cash used to pay out accrued annual bonuses to our employees and management.