Butterfly Network, Inc. — FY2021 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2021, including the fourth quarter. Butterfly develops handheld, semiconductor-based whole-body ultrasound devices, cloud software subscriptions, artificial-intelligence-enabled tools and related services. Its primary products were Butterfly iQ+, Butterfly iQ+ Vet, software subscriptions, Butterfly Blueprint and Compass. The company sold in approximately 30 countries and had 463 employees at year-end.
Butterfly completed its business combination with Longview Acquisition Corp. on February 12, 2021, received approximately $589 million of gross proceeds, and began trading on the NYSE under BFLY on February 16, 2021. The transaction is accounted for as a reverse recapitalization; therefore, 2021 results are not fully comparable to the pre-combination public-company structure.
Financial and operating metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Total revenue | $62.6 million | $46.3 million | 35.3% increase |
| Product revenue | $47.9 million | $38.3 million | 24.8% increase |
| Subscription revenue | $14.7 million | $7.9 million | 85.9% increase |
| Gross profit | $17.1 million | $(61.2) million | Improved by $78.3 million |
| GAAP gross margin | 27.3% | (132.4)% | Improved materially |
| Operating loss | $(192.7) million | $(161.6) million | 19.2% larger loss |
| Net loss | $(32.4) million | $(162.7) million | 80.1% lower loss |
| Adjusted gross profit | $31.6 million | $1.6 million | Material improvement |
| Adjusted gross margin | 50.5% | 3.5% | Improved materially |
| Adjusted EBITDA | $(121.8) million | $(85.2) million | Loss increased |
| Operating cash flow | $(189.2) million | $(81.7) million | Cash use increased |
The audited financial statements report a 2021 net loss of $32.409 million; the business overview rounds this figure to approximately $32.9 million.
- Subscription revenue represented 23.5% of annual revenue, compared with 17.1% in 2020. For the fourth quarter, subscription mix increased 4.1 percentage points to 24.1%.
- Fourth-quarter units fulfilled decreased 11.1%, or 839 units, year over year. The decline reflected a difficult comparison against the prior-year iQ+ launch and slower e-commerce sales, partly offset by veterinary, distributor and direct-sales growth.
- Cost of revenue declined to $45.5 million from $107.5 million, primarily because of lower iQ+ production costs and substantially lower purchase-commitment losses.
- Losses on product purchase commitments were $14.0 million in 2021 versus $60.1 million in 2020. These charges remain a material source of earnings volatility.
- Research and development expense increased 49.7% to $74.5 million; sales and marketing increased 88.9% to $49.6 million; general and administrative expense increased 251.4% to $85.7 million.
- Stock-based compensation increased to $47.8 million from $11.0 million.
- The net loss benefited from a $161.1 million gain from the change in fair value of warrant liabilities. This non-cash gain materially reduced the reported net loss but did not improve operating performance.
- Cash and cash equivalents were $422.8 million at year-end, with restricted cash of $4.0 million. Total cash, cash equivalents and restricted cash were $426.8 million.
- Debt was eliminated during 2021: convertible debt and the PPP loan were both zero at year-end. The balance sheet included $26.2 million of warrant liabilities.
- Total assets were $572.0 million and stockholders’ equity was $447.7 million at December 31, 2021, compared with a stockholders’ deficit of $361.9 million at December 31, 2020.
Material changes versus the prior comparable period
- Revenue growth was driven by increased iQ+ sales, higher pricing and reduced discounting, as well as greater software subscription sales and renewals.
- Gross profitability improved significantly as the company shifted toward the lower-cost iQ+ product and reduced inventory and purchase-commitment charges.
- Operating expenses grew faster than revenue because Butterfly expanded its product development, sales, marketing, executive, public-company and back-office infrastructure.
- Operating cash burn more than doubled, increasing to $189.2 million. Working-capital uses included inventory purchases, prepaid expenses and purchase commitments.
- Financing cash flow of $565.7 million was primarily supported by $548.4 million of net business-combination proceeds and $21.7 million from stock-option and warrant exercises.
- International revenue increased to $19.6 million, or approximately 31% of total revenue, from $13.0 million, or approximately 28%, in 2020.
- The company launched Butterfly Academy and iQ+ Vet, expanded distributor relationships, received a Class III medical-device license in Canada and entered an AI-related partnership with Caption Health.
- Management reported that the material weakness previously identified in warrant accounting had been remediated as of December 31, 2021. Management and Deloitte issued effective-control conclusions.
Guidance, outlook, commentary, risks and unusual items
The filing does not provide formal quantitative revenue, margin or earnings guidance. Management expects continued operating losses and negative annual operating cash flow while it invests in research and development, sales and marketing, international expansion, enterprise software and new markets. Management stated that available funds and expected operating cash flows should fund liquidity, capital expenditures and operations for at least the next 12 months.
- Management expects subscription mix to increase over time and believes this could support margin expansion, although near-term software investment will increase subscription costs.
- COVID-19 caused longer sales cycles, slower near-term adoption, customer funding pressure and supply-chain constraints. Omicron-related disruptions affected healthcare customers in late 2021.
- Supply-chain risk remains significant. The company relies on TSMC for key semiconductor wafers and Benchmark Electronics for manufacturing, with additional single-source or limited-source components.
- At December 31, 2021, fixed inventory purchase obligations were $116.1 million, including $62.2 million payable within 12 months. Fixed lease obligations were $42.6 million, including $2.0 million payable within 12 months.
- The company remains exposed to regulatory clearance, quality-system, product-liability, recall, reimbursement, privacy, cybersecurity, intellectual-property and international compliance risks.
- A securities class action filed on February 16, 2022 alleges misleading statements regarding post-business-combination prospects and COVID-19 impacts. The company cannot predict the outcome or estimate a possible loss.
- The dual-class structure gives Class B shares 20 votes per share. Jonathan Rothberg controlled approximately 76.9% of voting power as of February 1, 2022, limiting other stockholders’ influence.
- Approximately 20.7 million public and private warrants were outstanding at year-end, generally exercisable at $11.50 per share, creating potential dilution and additional stock-price sensitivity.
- The company entered a Burlington, Massachusetts lease extending to 2032 and expects to occupy the facility beginning in the first half of 2022.
Most important facts for investors to verify
- Whether revenue growth, fourth-quarter unit fulfillment and customer adoption reaccelerate after the 2021 slowdown in e-commerce and COVID-affected health-system sales cycles.
- Whether the higher subscription mix translates into durable gross-margin expansion and improved unit economics.
- Whether operating cash burn and the $116.1 million of inventory purchase commitments remain consistent with available liquidity.
- The assumptions supporting reserves for purchase commitments, inventory valuation and vendor advances, which were identified as a critical audit matter.
- The effect of continued R&D, sales and marketing spending, stock-based compensation and executive turnover on the path to profitability.
- Supply-chain performance and dependence on TSMC, Benchmark and other limited-source suppliers.
- Regulatory status and commercialization timing for future products, AI features, veterinary applications and potential at-home use.
- The outcome and potential financial exposure from the securities class action and any other product, regulatory or intellectual-property litigation.
- Potential dilution from warrants, equity awards and the 2020 equity plan’s annual share reserve increase.