Butterfly Network, Inc. — Q1 2024 Form 10-Q Summary
Business context and reporting period
Butterfly Network develops handheld, semiconductor-based ultrasound devices paired with cloud-connected software and services. The company sells probes, accessories, software subscriptions and support through direct sales, distributors and eCommerce channels. This unaudited filing covers the three months ended March 31, 2024, compared with the three months ended March 31, 2023. The company operates as one reportable segment.
Financial performance and condition
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $17.7 million | $15.5 million | +14.1% |
| Product revenue | $11.3 million | $8.8 million | +27.6% |
| Software and services revenue | $6.4 million | $6.6 million | -4.0% |
| Gross profit | $10.3 million | $9.1 million | +13.1% |
| Gross margin | 58.2% | 58.7% | -0.5 percentage points |
| Loss from operations | $(22.6) million | $(35.0) million | Improved by $12.4 million |
| Net loss | $(21.8) million | $(33.5) million | Improved by $11.8 million |
| Basic and diluted loss per share | $(0.10) | $(0.17) | Improved by $0.07 |
| Cash flow from operations | $(20.7) million | $(43.3) million | Use decreased by $22.6 million |
Product revenue benefited from higher device volumes and the February 2024 launch of the higher-priced iQ3 probe. Software and services represented 36.1% of revenue, down from 42.8%, primarily because of increased device sales and lower individual subscription renewals. Enterprise software sales increased as a percentage of software revenue.
Cash and cash equivalents were $112.7 million at March 31, 2024, down from $134.4 million at December 31, 2023. Cash, cash equivalents and restricted cash totaled $116.8 million. Total assets were $284.3 million and total liabilities were $80.3 million. The filing does not disclose material conventional debt; the company reported no floating-rate debt and had $22.3 million of operating lease liabilities. Warrant liabilities were $1.0 million.
Inventory was $74.5 million, and remaining performance obligations were $32.7 million, of which 59% was expected to be recognized as revenue within the next 12 months. Stock-based compensation was $5.5 million, compared with $4.2 million in the prior-year quarter.
Material changes versus the prior comparable period
- Revenue increased $2.2 million, driven by a $2.4 million increase in product revenue, partially offset by a $0.3 million decline in software and services revenue.
- Units fulfilled increased 21.8%, or 768 units, reflecting higher U.S. and international sales of iQ+ and iQ3 probes.
- Research and development expense declined 35.6% to $10.7 million, primarily due to lower personnel, engineering and consulting costs following the July 2023 workforce reduction.
- Total operating expenses declined 25.5% to $32.9 million. Other operating expenses fell 78.9% to $1.4 million, primarily because prior-year severance costs did not recur and legal costs declined.
- Gross margin declined modestly as cost of revenue increased faster than revenue, while the revenue mix shifted toward lower-margin device sales.
- Operating cash usage improved substantially, although the company continued to report significant negative operating cash flow.
- Cash decreased by $21.8 million during the quarter. Q1 2023 benefited from $76.5 million of marketable securities sales, which did not recur in Q1 2024.
Guidance, outlook, risks and unusual items
Management expects cash and cash equivalents to fund operations and capital requirements for at least the next 12 months and stated that, assuming no revenue growth or further expense reductions, cash is expected to last into 2026. Management also expects to raise capital before reaching profitability, initially seeking grants or debt and potentially equity financing. The filing does not provide quantitative revenue or profitability guidance.
- The company has incurred net losses and negative operating cash flow since inception and expects losses to continue for at least the next few years.
- Contractual cash requirements included $30.7 million of fixed office lease payments, $15.5 million of technology license payments and $12.5 million of inventory purchase commitments; portions are payable within the next 12 months.
- Inventory and supply commitments remain material. The company held $1.3 million of vendor advances, net of write-downs, and reported $0.1 million of accrued purchase commitments.
- Pending litigation includes a putative securities class action and two stockholder derivative actions. The company cannot predict the outcomes or reasonably estimate potential losses.
- Key business risks include customer adoption and retention, competition, regulatory approvals, reimbursement and pricing, intellectual property protection, supply-chain execution, additional financing needs and continued NYSE listing.
- Substantially all cash and cash equivalents were held in money market accounts with one financial institution, creating concentration of credit exposure.
Important facts for investors to verify
- Whether iQ3-driven device growth can translate into sustained revenue growth without further reducing the software revenue mix.
- The pace of individual subscription renewals and enterprise software adoption.
- Quarterly cash burn, remaining cash runway and the timing, structure and dilution implications of anticipated financing.
- Inventory utilization, potential obsolescence and fulfillment of the $12.5 million of inventory purchase commitments.
- Progress toward profitability despite continued operating losses and material stock-based compensation.
- Developments, insurance coverage and potential financial exposure from the disclosed litigation.
- The company’s ability to maintain its stated cost reductions while continuing investment in product development, sales and software capabilities.