Butterfly Network, Inc. 2020 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2020. The reported consolidated financial statements are those of Longview Acquisition Corp., a blank-check company formed in February 2020, rather than operating Butterfly for the full year. Longview completed its business combination with Legacy Butterfly on February 12, 2021, changed its name to Butterfly Network, Inc., and began trading as BFLY on the NYSE on February 16, 2021.
Legacy Butterfly develops and sells portable, semiconductor-based ultrasound systems and related software subscriptions, principally the Butterfly iQ and second-generation Butterfly iQ+. The filing presents Legacy Butterfly operating and financial information separately for comparison and business discussion.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Legacy Butterfly revenue | $46.3 million | $27.6 million | +$18.7 million, approximately 67.8% |
| Legacy Butterfly net loss | $162.7 million | $99.7 million | Loss increased by $63.0 million |
| Devices sold and shipped | Approximately 20,200 | Approximately 12,900 | Approximately 56.2% growth |
| 2020 revenue mix | 82.9% product; 17.1% subscriptions | Not clearly provided | Management expects subscription mix to increase |
| U.S. revenue mix | Approximately 87% | Not clearly provided | International revenue was approximately 28% of product and service revenue, versus 13% in 2019, under a separate disclosure |
| Legacy Butterfly cash and cash equivalents | $60.2 million at December 31 | Not clearly provided | Not directly comparable from the provided text |
Legacy Butterfly's 2020 cash flow included $81.7 million of net cash used in operating activities, $2.4 million used in investing activities, and $54.3 million provided by financing activities. Financing proceeds included approximately $47.9 million of convertible debt, $4.4 million of Paycheck Protection Program proceeds, and $2.0 million from stock-option exercises. Net cash used in operations improved from $120.4 million in 2019, primarily because of higher accrued liabilities and lower vendor advances.
Legacy Butterfly reported no long-term debt or capital lease obligations at December 31, 2020 in the contractual-obligations discussion; however, it had convertible notes that were converted into Class A common stock at the February 2021 business-combination closing. The filing does not provide a clear Legacy Butterfly gross-margin percentage, operating-margin percentage, or free-cash-flow figure.
Longview's separate SPAC financial statements reported no revenue from inception through December 31, 2020, a net loss of $3.5 million, net cash used in operating activities of $1.2 million, $414.3 million in cash and securities held in the trust account, and $158,599 of cash outside the trust account. Longview raised $414.0 million through its initial public offering and over-allotments, before transaction costs. The February 2021 business combination generated approximately $589 million of gross proceeds for Butterfly, including the PIPE financing.
Material changes versus the prior comparable period
- Legacy Butterfly revenue increased from $27.6 million to $46.3 million, while device shipments increased approximately 56.2%.
- Legacy Butterfly's net loss widened from $99.7 million to $162.7 million, reflecting continued investment in research and development, sales and marketing, commercialization, and other operating activities.
- Operating cash burn improved by $38.7 million, or 32.2%, to $81.7 million, although the business remained materially cash-flow negative.
- Legacy Butterfly launched the Butterfly iQ+ in October 2020. Management states that the product has lower manufacturing cost, lower power consumption, faster frame rates, improved interoperability, and additional imaging functionality.
- The February 2021 reverse recapitalization replaced Legacy Butterfly's preferred stock and convertible notes with common stock and resulted in a dual-class structure. Class B common stock carries 20 votes per share, compared with one vote per Class A share.
- Following the transaction, founder Jonathan Rothberg controlled approximately 76.2% of the combined voting power, making the company a controlled company under NYSE rules.
Guidance, outlook, commentary, risks and unusual items
Management expects continued revenue growth from increased adoption, enterprise health-system deployments, international expansion, and a growing mix of software subscriptions and other higher-margin offerings. It expects subscription revenue to become more important over time and believes this mix shift could improve gross margins. The company nevertheless expects significant net losses and negative annual operating cash flow in the near term.
Management stated that cash raised in the business combination and operating cash flows should fund liquidity, capital expenditures, working capital, and operations for at least the next 12 months from the filing date. Additional financing may nevertheless be required, and future equity or debt financing could dilute shareholders or impose restrictive covenants.
- Key operating risks include limited operating history, continued losses, uncertain market adoption, competition from substantially larger ultrasound companies, and difficulty forecasting demand.
- The company relies on TSMC for semiconductor wafers and Benchmark Electronics for finished-device manufacturing. Supply interruptions, minimum-purchase commitments, quality issues, or manufacturing delays could increase costs or restrict sales.
- Medical-device regulation is extensive. Future products, product modifications, and expanded uses, including at-home applications, may require additional FDA clearances, approvals, clinical studies, or foreign authorizations.
- In February 2020, Legacy Butterfly initiated a recall of two software tools after being notified by the FDA that 510(k) clearance was required.
- COVID-19 could disrupt manufacturing, customer access, demonstrations, elective procedures, regulatory inspections, supply chains, and healthcare purchasing decisions.
- Privacy, cybersecurity, HIPAA, GDPR, CCPA, data-transfer, and healthcare fraud-and-abuse requirements create potential compliance costs, penalties, litigation, and reputational risk.
- Two stockholder lawsuits relating to the business combination were voluntarily dismissed in February and March 2021; the parties were negotiating a potential attorneys' fee award as of the filing.
- The company had approximately 20,653,333 public and private placement warrants outstanding after the transaction, generally exercisable at $11.50 per share, which could create future dilution.
Facts investors should verify
- Use Legacy Butterfly's $46.3 million revenue and $162.7 million net loss for operating-company analysis; do not confuse those figures with Longview's separate SPAC results.
- Review the audited Legacy Butterfly financial statements and notes for gross margin, operating expenses, inventory commitments, convertible-note conversion, cash balances, and any subsequent-event adjustments.
- Confirm the amount of cash actually available to Butterfly after redemptions, transaction expenses, deferred underwriting fees, PIPE proceeds, and other closing adjustments.
- Assess the sustainability of the reported 2020 shipment growth and the pace at which product revenue can convert to recurring subscription revenue.
- Evaluate manufacturing concentration, minimum purchase obligations, inventory levels, product recalls, FDA compliance, and the regulatory status of planned software, AI, remote-monitoring, and at-home applications.
- Consider the governance and dilution implications of the 20-vote Class B shares, founder control, public and private warrants, stock-based compensation, and future capital needs.