BFLY

Business Context and Reporting Period

Company: Butterfly Network, Inc. (BFLY)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2025
Business Overview: Butterfly is a digital health company pioneering semiconductor-based point-of-care ultrasound (POCUS) technology. Its flagship products, the Butterfly iQ+ and iQ3, utilize a proprietary "Ultrasound-on-Chip" platform to provide portable, whole-body imaging. The company generates revenue through hardware sales, software subscriptions (SaaS), and licensing its technology to third parties via the "Butterfly Embedded" program.

Key Financial Metrics (Year Ended Dec 31, 2025)

Revenue Mix: Product revenue was $63.4 million (65.0% of total), while Software and other services revenue was $34.2 million (35.0% of total).
Units Fulfilled: Increased by 9.1% year-over-year, driven by US and veterinary channel sales.

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased 19.0% to $97.6 million. Product revenue grew 17.1% due to higher volume and the introduction of the higher-priced iQ3 probe. Software revenue grew 22.7%, primarily driven by licensing revenue from the Butterfly Embedded program.
• Margin Compression: Gross margin declined from 59.5% to 46.9%. This was primarily caused by a non-recurring $17.4 million charge for excess and obsolete inventory due to technological advancements and portfolio changes.
• Operating Expenses: Total operating expenses increased to $132.1 million. Notably, "Other" expenses (litigation, severance, business transformation) surged 165.1% to $10.8 million, driven by $7.1 million in legal costs, including a $3.0 million accrued loss contingency.
• Liquidity: Cash position improved significantly to $150.5 million, bolstered by $81.0 million in net proceeds from a public share offering in January 2025.

Guidance, Outlook, and Risks

Outlook and Strategy: Management expects to continue incurring losses for at least the next several years as it commercializes existing products and develops new ones. The strategy focuses on deepening penetration in hospital enterprises, expanding into home care services (Butterfly HomeCare), and growing the Butterfly Embedded licensing program. The company believes its existing cash and cash flows will fund operations for at least the next 12 months.

Key Risks and Contingencies:

• Profitability: The company has a limited history of revenue generation and an accumulated deficit of $879.2 million. There is no assurance of when or if it will achieve profitability.
• Supply Chain Concentration: Butterfly relies on a single supplier (TSMC) for its custom semiconductor chips and a single contract manufacturer (Benchmark Electronics) for assembly. Disruptions could materially harm operations.
• Legal Proceedings: The company is subject to a securities class action lawsuit and stockholder derivative actions related to its 2021 Business Combination. A $3.0 million liability was accrued in 2025 for indemnification obligations related to these matters.
• Regulatory and IP: Success depends on maintaining FDA/CE clearances and protecting intellectual property, including a critical non-exclusive license for wafer bonding technology from Stanford University.

Investor Verification Checklist

• Inventory Valuation: Verify the assumptions behind the $17.4 million inventory write-down and the remaining $61.4 million inventory balance, given the rapid technological obsolescence risk.
• Midjourney Agreement: Review the terms of the November 2025 Co-Development and Licensing Agreement with Midjourney, which generated $6.8 million in revenue in 2025 and includes $15 million upfront plus $10 million annual fees.
• Legal Exposure: Monitor the status of the ongoing securities class action and derivative suits, specifically the potential for costs exceeding the $3.0 million accrued contingency.
• Customer Concentration: Note that approximately 11% of 2025 revenue was derived from a single customer.
• Cash Burn: Assess the sustainability of the current burn rate against the $150.5 million cash balance, considering the expectation of continued losses.