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Table of Contents
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 01803
Burlington
,
Massachusetts
(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 Name of each exchange
Symbol(s) on which registered
Class A common stock, par BFLY The
value $0.0001 per share New York Stock Exchange
Warrants to purchase one share of Class A common BFLY WS The
stock, each at an exercise price of $11.50 per share 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 ((s)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
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
Table of Contents
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
Table of Contents
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 18 18
$
.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
Class B common stock $ 3 3
.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
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
Table of Contents
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 6,365 6,628
other services
Total revenue 17,656 15,476
Cost of revenue:
Product 5,096 4,349
Software and 2,284 2,038
other services
Total cost 7,380 6,387
of revenue
Gross profit 10,276 9,089
Operating
expenses:
Research and 10,720 16,651
development
Sales and 10,378 10,034
marketing
General and 10,442 11,019
administrative
Other 1,357 6,432
Total operating 32,897 44,136
expenses
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) ( 17
income, net 141
)
Loss before provision ( (
for income taxes 21,758 33,453
) )
Provision for 3 87
income taxes
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 208,873,449 202,565,877
attributable to Class A and B common stockholders, basic and diluted
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
Table of Contents
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 181,221,794 $ 18 26,426,937 $ 3 $ 949,670 $ ( $ 220,053
31, 2023 729,638
)
Net - - - - - ( (
loss 21,761 21,761
) )
Common stock issued upon vesting 2,992,583 - - - - - -
of restricted stock units
Stock-based - - - - 5,712 - 5,712
compensation expense
March 31, 184,214,377 $ 18 26,426,937 $ 3 $ 955,382 $ ( $ 204,004
2024 751,399
)
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 174,459,956 $ 17 26,426,937 $ 3 $ 921,278 $ ( $ 325,360
31, 2022 595,938
)
Net - - - - - ( (
loss 33,540 33,540
) )
Common stock issued upon vesting 2,908,543 1 - - - - 1
of restricted stock units
Stock-based - - - - 4,326 - 4,326
compensation expense
March 31, 177,368,499 $ 18 26,426,937 $ 3 $ 925,604 $ ( $ 296,147
2023 629,478
)
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
Table of Contents
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 ( 1,077
751
)
Inventories ( (
1,391 9,437
) )
Prepaid expenses and other assets ( (
376 3,175
) )
Vendor advances ( 2,260
1,057
)
Accounts payable 703 (
1,561
)
Deferred revenue ( (
1,338 1,536
) )
Accrued purchase commitments - (
1,615
)
Change in operating lease assets and liabilities ( 175
163
)
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 ( 74,855
1,138
)
Cash flows from financing activities:
Net cash provided by financing activities - -
Net (decrease) increase in cash, cash equivalents, and restricted cash ( 31,603
21,805
)
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
Table of Contents
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.
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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 $ ( $ 3,618
56
)
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.
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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.
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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
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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
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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.
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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 182,446,512 26,426,937 208,873,449
shares outstanding
Denominator for basic and diluted net loss 182,446,512 26,426,937 208,873,449
per share - weighted-average common stock
Basic and diluted $ ( $ ( $ (
net loss per share 0.10 0.10 0.10
) ) )
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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 176,138,940 26,426,937 202,565,877
shares outstanding
Denominator for basic and diluted net loss 176,138,940 26,426,937 202,565,877
per share - weighted-average common stock
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
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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.
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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.
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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.
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.
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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.
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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 3 0.0 87 0.6
Net loss and comprehensive loss $ (21,761) (123.2) % $ (33,540) (216.7) %
Comparison of the three months ended March 31, 2024 and 2023
Revenue
Three months ended March 31,
(in thousands) 2024 2023 Change % Change
Product $ 11,291 $ 8,848 $ 2,443 27.6 %
Software and other services 6,365 6,628 (263) (4.0)
$ 17,656 $ 15,476 $ 2,180 14.1 %
Product revenue increased by $2.4 million, or 27.6%, for the three months
ended March 31, 2024 compared to the three months ended March 31, 2023. This
increase was primarily driven by higher device sales across nearly all of our
sales channels, including the launch of our next-generation iQ3 probe and its
higher selling price.
Software and other services revenue decreased by $0.3 million, or 4.0%, for
the three months ended March 31, 2024 compared to the three months ended March
31, 2023. This decrease was primarily driven by lower renewals of individual
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subscriptions, partially offset by higher enterprise software sales.
Enterprise as a percentage of software sales increased by 9 percentage points
year-over-year.
Cost of revenue
Three months ended March 31,
(in thousands) 2024 2023 Change % Change
Product $ 5,096 $ 4,349 $ 747 17.2 %
Software and other services 2,284 2,038 246 12.1
$ 7,380 $ 6,387 $ 993 15.5 %
Percentage of revenue 41.8 % 41.3 %
Cost of product revenue increased by $0.7 million, or 17.2%, for the three
months ended March 31, 2024 compared to the three months ended March 31, 2023.
This increase was primarily driven by higher device sales in the current year.
Cost of software and other services revenue was higher for the three months
ended March 31, 2024 compared to the three months ended March 31, 2023 largely
due to increased software amortization of $0.2 million.
Research and development
Three months ended March 31,
(in thousands) 2024 2023 Change % Change
Research and development $ 10,720 $ 16,651 $ (5,931) (35.6) %
Percentage of revenue 60.7 % 107.6 %
Research and development expenses decreased by $5.9 million, or 35.6%, for the
three months ended March 31, 2024 compared to the three months ended March 31,
2023. This decrease was primarily driven by reductions of $4.4 million in
personnel costs resulting from our reduction in force in July 2023, $0.8
million in engineering and software costs, and $0.3 million in consulting fees
resulting from continued execution of our plan announced to better align our
commercial objectives and prioritization with our existing strengths and
offerings.
Sales and marketing
Three months ended March 31,
(in thousands) 2024 2023 Change % Change
Sales and marketing $ 10,378 $ 10,034 $ 344 3.4 %
Percentage of revenue 58.8 % 64.8 %
Sales and marketing expenses increased by $0.3 million, or 3.4%, for the three
months ended March 31, 2024 compared to the three months ended March 31, 2023.
This increase was primarily driven by a $0.3 million increase in marketing
expenses related to the launch of our new iQ3 probe in February 2024.
General and administrative
Three months ended March 31,
(in thousands) 2024 2023 Change % Change
General and administrative $ 10,442 $ 11,019 $ (577) (5.2) %
Percentage of revenue 59.1 % 71.2 %
General and administrative expenses decreased by $0.6 million, or 5.2%, for
the three months ended March 31, 2024 compared to the three months ended March
31, 2023. This decrease was primarily driven by reductions of $1.5 million in
personnel costs resulting from our reductions in force over the past year,
partially offset by an increase of $1.0 million in stock-based compensation
expense due to a prior year adjustment.
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Other
Three months ended March 31,
(in thousands) 2024 2023 Change % Change
Other $ 1,357 $ 6,432 $ (5,075) (78.9) %
Percentage of revenue 7.7 % 41.6 %
Other decreased by $5.1 million, or 78.9%, for the three months ended March
31, 2024 compared to the three months ended March 31, 2023. This decrease was
primarily driven by the nonrecurrence of $3.7 million of employee severance
and benefits costs related to our January 2023 reduction in force that were
incurred in the prior year and a reduction of $1.4 million in legal costs due
to litigation and other legal matters. These costs are not representative of
our ongoing operations.
Liquidity and Capital Resources
Since our inception, our primary sources of liquidity are cash flows from
operations, 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 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.
During the three months ended March 31, 2024, the Company utilized $21.8
million of cash and cash equivalents. In the first quarter, we paid $6.3
million of bonuses and $1.4 million of legal payments due to litigation and
other legal matters. As of March 31, 2024, our cash and cash equivalents
balance was $112.7 million. Our future spending on capital resources may vary
from those currently planned and will depend on various factors, including our
rate of revenue growth and the timing and extent of spending on strategic
business initiatives.
As of March 31, 2024, we have restricted cash of $4.0 million to secure a
letter of credit for one of our leases, which is expected to be maintained as
a security deposit for the duration of the lease. In addition, we have
restricted cash of $0.2 million for an agreement with the Gates Foundation.
The restriction is expected to lapse as we fulfill our obligations in the
agreement with the Gates Foundation.
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 $30.7
million as of March 31, 2024, with $3.6 million payable within the next 12
months. Our fixed technology license payment obligations were $15.5 million as
of March 31, 2024, with $1.5 million payable within the next 12 months. Our
fixed purchase obligations for inventory supply agreements were $12.5 million
as of March 31, 2024, with $9.0 million payable within the next 12 months. We
expect to pay for approximately 15% of the amount payable within the next 12
months using vendor advances.
As of March 31, 2024, we had no obligations, assets or liabilities, which
would be considered off-balance sheet arrangements.
Cash flows
Comparison of the three months ended March 31, 2024 and 2023
The following table summarizes our sources and uses of cash for the three
months ended March 31, 2024 and 2023:
Three months ended March 31,
(in thousands) 2024 2023
Net cash used in operating activities $ (20,667) $ (43,252)
Net cash (used in) provided by investing activities (1,138) 74,855
Net cash provided by financing activities - -
Net decrease in cash, cash equivalents and restricted cash $ (21,805) $ 31,603
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Net cash used in operating activities
Net cash used in operating activities represents the cash receipts and
disbursements related to our activities other than investing and financing
activities. We expect cash provided by historical financing activities will
continue to be our primary source of funds to support operating and capital
expenditure needs for the foreseeable future.
Net cash used in operating activities decreased by $22.6 million, or 52.2%,
for the three months ended March 31, 2024 compared to the three months ended
March 31, 2023. The decrease was driven by reductions of $14.8 million in net
loss adjusted for certain non-cash items and $7.9 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 $11.8 million in net loss and
higher adjustments for stock-based compensation expense and other non-cash
items. The decrease in net working capital cash usage was primarily driven by
reductions of $6.3 million in cash used for changes in our inventory and the
related vendor advances and accrued purchase commitments, $2.8 million in cash
used for changes in our prepaid expenses and other assets, and $0.7 million in
cash used for changes in accounts payable and accrued expenses, partially
offset by a $1.8 million increase in cash used for changes in accounts
receivable.
Net cash used in investing activities
Net cash provided by investing activities decreased by $76.0 million for the
three months ended March 31, 2024 compared to the three months ended March 31,
2023. The increase was primarily due to the sale of our marketable securities
in 2023.
Net cash provided by financing activities
We did not have any significant financing activities during the three months
ended March 31, 2024 and 2023.
Critical Accounting Policies and Significant Judgments and Estimates
This discussion and analysis of our financial condition and results of
operations are based on our condensed consolidated financial statements which
have been prepared in accordance with U.S. GAAP. The preparation of these
condensed consolidated financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue,
contingent assets and liabilities, and related disclosures. Our estimates are
based on our historical experience and various other factors that we believe
are reasonable under the circumstances, and these form the basis for making
judgments about items that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
For our condensed consolidated financial statements included in this Quarterly
Report on Form 10-Q, there have been no material changes to the critical
accounting policies and estimates disclosed in our 2023 Annual Report on Form
10-K.
Recently Adopted Accounting Pronouncements
The Company did not identify any significant recently issued accounting
pronouncements that may potentially impact our financial position and results
of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We did not have any floating rate debt as of March 31, 2024. Our cash and cash
equivalents are comprised primarily of bank deposits and money market
accounts. The primary objective of our investments is the preservation of
capital to fulfill liquidity needs. We do not enter into investments for
trading or speculative purposes. Due to the short-term nature and low risk
profile of these investments, we do not expect cash flows to be affected to
any significant degree by a sudden change in market interest rates, including
an immediate change of 100 basis points, or one percentage point. Declines in
interest rates, however, would reduce future investment income.
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Inflation Risk
We do not believe that inflation has had a material effect on our business,
financial condition, or results of operations, other than its impact on the
general economy. Nonetheless, to the extent our costs are impacted by general
inflationary pressures, we may not be able to fully offset such higher costs
through price increases or manufacturing efficiencies. Our inability or
failure to do so could harm our business, financial condition, and results of
operations.
Foreign Exchange Risk
We operate our business primarily within the United States and currently
execute the majority of our transactions in U.S. dollars. We have not utilized
hedging strategies with respect to such foreign exchange exposure. This
limited foreign currency translation risk is not expected to have a material
impact on our condensed consolidated financial statements.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we conducted
an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act as of the end of the period covered by this
Quarterly Report on Form 10-Q.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in our reports
filed or submitted under the Exchange Act is recorded, processed, summarized,
and reported within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include controls and procedures designed to
ensure that information required to be disclosed in our company's reports
filed under the Exchange Act is accumulated and communicated to management,
including our Chief Executive Officer and Chief Financial & Operating Officer,
to allow timely decisions regarding required disclosure. Management recognizes
that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired control
objectives, and management necessarily applies its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures, our Chief
Executive Officer and Chief Financial & Operating Officer concluded that our
disclosure controls and procedures were effective as of March 31, 2024.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting
identified in connection with the evaluation required by Rules 13a-15(d) and
15d-15(d) of the Exchange Act that occurred during the three months ended
March 31, 2024 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are currently and may in the future be subject to legal proceedings,
claims, and regulatory actions arising in the ordinary course of business. The
outcome of any such matters, regardless of the merits, is inherently uncertain.
For more information about our legal proceedings and this item, see Note 12
"Commitments and Contingencies" in the Notes to Condensed Consolidated
Financial Statements in Part I, Item 1 "Financial Statements" of this
Quarterly Report on Form 10-Q, which is incorporated herein by reference.
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Item 1A. Risk Factors
Our business, results of operations, and financial condition are subject to
various risks and uncertainties including the risk factors described under the
caption "Risk Factors" in our 2023 Annual Report on Form 10-K. There have been
no material changes to the risk factors described in the 2023 Annual Report on
Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
Not applicable.
Issuer Purchases of Equity Securities
We did not repurchase any of our equity securities during the three months
ended March 31, 2024.
Item 5. Other Information
Rule 10b5-1 Trading Plans
During the three months ended March 31, 2024, none of our directors or
executive officers
adopted
, modified or
terminated
any contract, instruction or written plan for the purchase or sale of our
securities that was intended to satisfy the affirmative defense conditions of
Rule 10b5-1
(c) or any "
non-Rule 10b5-1 trading arrangement
."
Item 6. Exhibits
See Exhibit Index.
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EXHIBIT INDEX
Exhibit Exhibit Filed Incorporated Filing Date SEC File/
Number Description Herewith by Reference Reg. Number
herein from Form
or Schedule
3.1 Second Amended and Form 8-K 2/16/2021 001-39292
Restated Certificate of (Exhibit
Incorporation of 3.1)
Butterfly Network, Inc.
3.2 Amended and Form 8-K 2/16/2021 001-39292
Restated Bylaws (Exhibit
of Butterfly 3.2)
Network, Inc.
31.1 Certification of the Principal X
Executive Officer pursuant
to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of the Principal X
Financial Officer pursuant
to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1* Certifications of the Chief Executive X
Officer and Chief Financial
Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
101.INS Inline XBRL X
Instance
Document
- The instance document does not
appear in the Interactive Data File
because its Inline XBRL tags are
embedded within the Inline XBRL document
.
101.SCH Inline XBRL X
Taxonomy
Extension Schema
Document.
101.CAL Inline XBRL X
Taxonomy Extension
Calculation
Linkbase Document.
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Exhibit Exhibit Filed Incorporated by Reference Filing Date SEC File/
Number Description Herewith herein from Form or Schedule Reg. Number
101.DEF Inline XBRL Taxonomy Extension X
Definition Linkbase Document.
101.LAB Inline XBRL Taxonomy Extension X
Label Linkbase Document.
101.PRE Inline XBRL Taxonomy Extension X
Presentation Linkbase Document.
104 Cover Page Interactive X
Data File
(formatted in Inline XBRL and
contained in Exhibit 101)
* Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUTTERFLY NETWORK, INC.
Date: May 1, 2024 By: /s/ Joseph DeVivo
Joseph DeVivo
President, Chief Executive Officer, and Chairman of the Board
Date: May 1, 2024 By: /s/ Heather C. Getz, CPA
Heather C. Getz, CPA
Executive Vice President and Chief Financial & Operations Officer
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