Butterfly Network, Inc. 2022 Form 10-K Summary
Business context and reporting period
Butterfly Network develops and sells handheld, semiconductor-based whole-body ultrasound devices, cloud-connected software, subscriptions and related services. Its principal product is the Butterfly iQ+, sold to healthcare systems, clinicians, distributors and veterinary customers through direct sales, eCommerce and distributors.
The filing is an annual report for the fiscal year ended December 31, 2022. The source provides selected fourth-quarter operating metrics but does not provide a complete standalone Q4 income statement.
- Products were sold in approximately 30 countries; approximately 330 employees were reported as of January 31, 2023.
- More than 80,000 Butterfly iQ and iQ+ devices had been sold and shipped cumulatively.
- Butterfly launched the enterprise-oriented Butterfly Blueprint and Compass software platform in 2022.
Financial performance and liquidity
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue | $73.4 million | $62.6 million | 17.3% increase |
| Product revenue | $50.3 million | $47.9 million | 5.0% increase |
| Software and other services revenue | $23.1 million | $14.7 million | 57.4% increase |
| Gross profit | $39.5 million | $17.1 million | Gross margin increased to 53.8% from 27.3% |
| Operating loss | $193.0 million | $192.7 million | Essentially unchanged |
| Net loss | $168.7 million | $32.4 million | Loss increased materially |
| Net loss per share | $0.84 | $0.19 | Basic and diluted |
| Operating cash flow | $(169.1) million | $(189.2) million | Use decreased 10.6% |
Gross margin benefited from lower product manufacturing costs, operational efficiencies and the absence of the $14.0 million loss on product purchase commitments recorded in 2021. Software and other services represented 31.5% of full-year revenue versus 23.5% in 2021. The filing reports fourth-quarter software and other services mix of 33.3%, up 9.2 percentage points year over year.
Research and development expense increased 19.7% to $89.1 million, and sales and marketing expense increased 20.7% to $59.9 million. General and administrative expense decreased 2.6% to $83.5 million. Stock-based compensation expense was $42.5 million, including $7.8 million of incremental expense related to the departing CEO’s equity acceleration and modifications.
- Cash and cash equivalents: $162.6 million.
- Marketable securities: $75.3 million.
- Total cash, cash equivalents and marketable securities: $237.8 million.
- Cash, cash equivalents and restricted cash at year-end: $166.8 million.
- Total assets: $417.6 million; total liabilities: $92.2 million; stockholders’ equity: $325.4 million.
- The balance sheet shows no conventional debt balance, and the company reported no floating-rate debt. Lease liabilities totaled approximately $32.0 million, with gross future operating lease payments of $40.6 million.
Material changes versus the prior comparable period
- Revenue growth was driven increasingly by subscriptions and other services, while product revenue grew modestly and benefited partly from prior pricing actions.
- Product cost of revenue declined 8.5% despite supply-cost pressure, primarily because iQ+ manufacturing became more efficient.
- Operating losses remained approximately $193 million despite improved gross profit, reflecting continued heavy investment in R&D, sales and marketing.
- The $14.0 million 2021 loss on product purchase commitments did not recur in 2022.
- Operating cash burn improved, but investing cash use increased to $93.8 million, including marketable-securities purchases and capital expenditures for the new office and software platform.
- Units fulfilled in the fourth quarter declined 14.2% year over year, primarily because of lower direct-sales and eCommerce volume, partly offset by distributor growth.
- The company implemented a reduction in force of approximately 10% in 2022 and an additional reduction of approximately 25% in January 2023.
Outlook, commentary, risks and unusual items
Management stated that existing cash, marketable securities and expected operating cash flows should fund liquidity, capital expenditures and working-capital needs for at least the next 12 months. The company also expects to remain cash-flow negative annually and acknowledges that additional financing may eventually be required. No specific revenue, earnings or margin guidance is provided in the filing.
- Management expects software and services to become a larger portion of revenue and believes the mix shift can support future margin expansion.
- Fixed inventory purchase commitments totaled $56.5 million, all payable within 12 months; approximately 40% was expected to be funded through vendor advances. A $17.1 million net vendor advance and $2.1 million accrued purchase-commitment liability were recorded.
- Supply-chain concentration is significant: TSMC supplies semiconductor wafers, while Benchmark is the principal contract manufacturer for finished products. The company also relies on limited or sole suppliers for certain components.
- The company faces extensive FDA and international regulatory requirements, including potential future clearance, clinical-trial and authorization requirements for new products and at-home applications.
- Key risks include continuing losses and cash burn, uncertain market adoption, competition from larger ultrasound manufacturers, reimbursement and pricing pressure, manufacturing and inventory obligations, cybersecurity and health-data privacy exposure, intellectual-property disputes, and product-liability risk.
- Pending litigation includes a securities class action, a Fujifilm patent-infringement action and a stockholder derivative action. The company cannot reasonably estimate potential losses for these matters.
- A Massachusetts life-sciences tax credit generated $0.9 million of other income in 2022 and may be subject to clawback if certain targets are not met.
- Founder Jonathan Rothberg controlled approximately 77% of voting power as of February 1, 2023 through the dual-class share structure, limiting other shareholders’ influence over corporate matters.
Important facts investors should verify
- Whether the subscription and enterprise-software strategy can offset slowing device volumes and produce sustained revenue growth.
- The company’s cash runway after the January 2023 workforce reduction, approximately $5.0 million of expected severance costs, ongoing operating losses and inventory commitments.
- The recoverability of the $17.1 million vendor advance and the adequacy of reserves for the $56.5 million of minimum inventory purchases.
- Progress toward reducing the approximately $193 million annual operating loss and $169 million annual operating cash burn.
- Outcomes and potential financial exposure from the securities, patent and derivative litigation.
- Regulatory status of future products, international certifications and any planned at-home or remote-monitoring uses.
- Potential dilution from approximately 20.7 million outstanding public and private warrants, exercisable at $11.50 per share, plus outstanding options and restricted stock units.
- Execution of the announced restructuring and whether headcount reductions impair product development, sales execution or customer support.