UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
EXCHANGE ACT OF 1934
For the quarterly period ended
or
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
(Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
The | ||||
The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | ||
☒ | Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of July 29, 2022, the registrant had
TABLE OF CONTENTS
In this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” the “Company” and “Butterfly” mean Butterfly Network, Inc. (formerly Longview Acquisition Corp.) and our subsidiaries. On February 12, 2021 (the “Closing Date”), Longview Acquisition Corp., a Delaware corporation (“Longview” and after the Business Combination described herein, the “Company”), consummated a business combination (the “Business Combination”) pursuant to the terms of the Business Combination Agreement, dated as of November 19, 2020 (the “Business Combination Agreement”), by and among Longview, Clay Merger Sub, Inc., a Delaware corporation (“Merger Sub”), and Butterfly Network, Inc., a Delaware corporation (“Legacy Butterfly”). Immediately upon the consummation of the Business Combination and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”, and such completion, the “Closing”), Merger Sub merged with and into Legacy Butterfly, with Legacy Butterfly surviving the Business Combination as a wholly-owned subsidiary of Longview (the “Merger”). In connection with the Transactions, Longview changed its name to “Butterfly Network, Inc.” and Legacy Butterfly changed its name to “BFLY Operations, Inc.”
i
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that relate to future events or our future financial performance regarding, among other things, the plans, strategies and prospects, both business and financial, of the Company. These statements are based on the beliefs and assumptions of the Company’s management team. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
| ● | the commercialization of our products and services; |
| ● | the success, cost and timing of our product development activities; |
| ● | the potential attributes and benefits of our products and services; |
| ● | our ability to obtain and maintain regulatory approval for our products, and any related restrictions and limitations of any authorized product; |
| ● | our ability to identify, in-license or acquire additional technology; |
| ● | our ability to maintain our existing license, manufacturing and supply agreements; |
| ● | our ability to compete with other companies currently marketing or engaged in the development of ultrasound imaging devices, many of which have greater financial and marketing resources than us; |
| ● | the size and growth potential of the markets for our products and services, and the ability of each to serve those markets, either alone or in partnership with others; |
| ● | our estimates regarding expenses, revenue, capital requirements and needs for additional financing; |
| ● | our ability to raise financing in the future; |
| ● | our financial performance; and |
| ● | the potential impacts of the COVID-19 pandemic on our business, financial condition and results of operations. |
These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or similar expressions or phrases, or the negative of those expressions or phrases. The forward-looking statements are based on projections prepared by, and are the responsibility of, the Company’s management. Although the Company believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, the Company cannot assure you that it will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions relating to, among other things:
| ● | our rapid growth may not be sustainable and depends on our ability to attract and retain customers; |
| ● | our business could be harmed if we fail to manage our growth effectively; |
| ● | our projections are subject to risks, assumptions, estimates and uncertainties; |
| ● | our business is subject to a variety of U.S. and foreign laws, which are subject to change and could adversely affect our business; |
| ● | the pricing of our products and services and reimbursement for medical procedures conducted using our products and services; |
| ● | changes in applicable laws or regulations; |
| ● | failure to protect or enforce our intellectual property rights could harm our business, results of operations and financial condition; |
| ● | the ability to maintain the listing of our Class A common stock on the New York Stock Exchange; |
| ● | economic downturns and political and market conditions beyond our control could adversely affect our business, financial condition and results of operations; and |
| ● | the impact of the COVID-19 pandemic on our business, financial condition and results of operations. |
These and other risks and uncertainties are described in greater detail under the caption “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as amended, in Item 1A of Part II of this quarterly report, and in other filings that we make with the Securities and Exchange Commission, or SEC. The risks described under the heading “Risk Factors” are not exhaustive. New risk factors emerge from time to time, and it is not possible to predict all such risk factors, nor can the Company assess the impact of all such risk factors on its business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements, which speak only as of the date hereof. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements. The Company undertakes no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
2
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
BUTTERFLY NETWORK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
| June 30, |
| December 31, | ||||
| 2022 |
| 2021 |
| |||
Assets |
|
| |||||
Current assets: |
|
| |||||
Cash and cash equivalents | $ | | $ | | |||
Accounts receivable, net |
| |
| | |||
Inventories |
| |
| | |||
Current portion of vendor advances | | | |||||
Prepaid expenses and other current assets |
| |
| | |||
Total current assets | $ | | $ | | |||
Property and equipment, net | | | |||||
Non-current portion of vendor advances |
| |
| | |||
Operating lease assets | | | |||||
Other non-current assets |
| |
| | |||
Total assets | $ | | $ | | |||
Liabilities and stockholders’ equity |
| ||||||
Current liabilities: |
|
|
|
| |||
Accounts payable | $ | | $ | | |||
Deferred revenue, current |
| |
| | |||
Accrued purchase commitments, current |
| |
| | |||
Accrued expenses and other current liabilities | | | |||||
Total current liabilities | $ | | $ | | |||
Deferred revenue, non-current | | | |||||
Warrant liabilities | | | |||||
Accrued purchase commitments, non-current | | | |||||
Operating lease liabilities | | | |||||
Other non-current liabilities | | | |||||
Total liabilities | $ | | $ | | |||
Commitments and contingencies (Note 14) | |||||||
Stockholders’ equity: | |||||||
Class A common stock $ | | | |||||
Class B common stock $ | | | |||||
Additional paid-in capital | | | |||||
Accumulated deficit | ( | ( | |||||
Total stockholders’ equity | $ | | $ | | |||
Total liabilities and stockholders’ equity | $ | | $ | | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
BUTTERFLY NETWORK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share amounts)
(Unaudited)
Three months ended June 30, | Six months ended June 30, | ||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Revenue: |
|
|
|
| |||||||||
Product | $ | | $ | | $ | | $ | | |||||
Subscription |
| |
| |
| |
| | |||||
Total revenue | $ | | $ | | $ | | $ | | |||||
Cost of revenue: |
|
|
|
|
|
|
|
| |||||
Product | | | | | |||||||||
Subscription |
| |
| |
| |
| | |||||
Total cost of revenue | $ | | $ | | $ | | $ | | |||||
Gross profit | $ | | $ | | $ | | $ | | |||||
Operating expenses: | |||||||||||||
Research and development | $ | | $ | | | | |||||||
Sales and marketing |
| |
| |
| |
| | |||||
General and administrative |
| |
| |
| |
| | |||||
Total operating expenses |
| |
| |
| |
| | |||||
Loss from operations | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Interest income | $ | | $ | | | | |||||||
Interest expense |
| — |
| ( |
| — |
| ( | |||||
Change in fair value of warrant liabilities | | | | | |||||||||
Other income (expense), net |
| ( |
| ( |
| ( |
| ( | |||||
Loss before provision for income taxes | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Provision for income taxes |
| |
| |
| |
| | |||||
Net loss and comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Net loss per common share attributable to Class A and B common stockholders, basic and diluted | ( | ( | ( | ( | |||||||||
Weighted-average shares used to compute net loss per share attributable to Class A and B common stockholders, basic and diluted | | | | | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
BUTTERFLY NETWORK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share amounts)
(Unaudited)
Three months ended June 30, 2021 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Convertible | Class A | Class B | |||||||||||||||||||||||
Preferred | Common | Common | Additional | Total | |||||||||||||||||||||
Stock | Stock | Stock | Paid-In | Accumulated | Stockholders’ | ||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity (Deficit) | |||||||||||||||||
March 31, 2021 | — | $ | — | | $ | | | $ | | $ | | $ | ( | $ | | ||||||||||
Net loss | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||
Common stock issued upon exercise of stock options and warrants | — | — | | | — | — | | — | | ||||||||||||||||
Common stock issued upon vesting of restricted stock units | — | — | | — | — | — | — | — | — | ||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | | — | | ||||||||||||||||
June 30, 2021 | — | $ | — | | $ | | | $ | | $ | | $ | ( | $ | | ||||||||||
Six months ended June 30, 2021 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Convertible | Class A | Class B | |||||||||||||||||||||||
Preferred | Common | Common | Additional | Total | |||||||||||||||||||||
Stock | Stock | Stock | Paid-In | Accumulated | Stockholders’ | ||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity (Deficit) | |||||||||||||||||
December 31, 2020 | | $ | | | $ | | — | $ | — | $ | | $ | ( | $ | ( | ||||||||||
Net loss | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||
Common stock issued upon exercise of stock options and warrants | — | — | | | — | — | | — | | ||||||||||||||||
Common stock issued upon vesting of restricted stock units | — | — | | — | — | — | — | — | — | ||||||||||||||||
Conversion of convertible preferred stock | ( | ( | | | | | | — | | ||||||||||||||||
Conversion of convertible debt | — | — | | | — | — | | — | | ||||||||||||||||
Net equity infusion from the Business Combination | — | — | | | — | — | | — | | ||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | | — | | ||||||||||||||||
June 30, 2021 | — | $ | — | | $ | | | $ | | $ | | $ | ( | $ | | ||||||||||
Three months ended June 30, 2022 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Class A | Class B | ||||||||||||||||||
Common | Common | Additional | Total | ||||||||||||||||
Stock | Stock | Paid-In | Accumulated | Stockholders’ | |||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Equity | |||||||||||||
March 31, 2022 | | $ | | | $ | | $ | | $ | ( | $ | | |||||||
Net loss | — | — | — | — | — | ( | ( | ||||||||||||
Common stock issued upon exercise of stock options and warrants | | — | — | — | | — | | ||||||||||||
Common stock issued upon vesting of restricted stock units, net | | — | — | — | — | — | — | ||||||||||||
Stock-based compensation expense | — | — | — | — | | — | | ||||||||||||
June 30, 2022 | | $ | | | $ | | $ | | $ | ( | $ | | |||||||
5
Six months ended June 30, 2022 | |||||||||||||||||||
Class A | Class B | ||||||||||||||||||
Common | Common | Additional | Total | ||||||||||||||||
Stock | Stock | Paid-In | Accumulated | Stockholders’ | |||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Equity (Deficit) | |||||||||||||
December 31, 2021 | | $ | | | $ | | $ | | $ | ( | $ | | |||||||
Net loss | — | — | — | — | — | ( | ( | ||||||||||||
Common stock issued upon exercise of stock options and warrants | | — | — | — | | — | | ||||||||||||
Common stock issued upon vesting of restricted stock units, net | | — | — | — | ( | — | ( | ||||||||||||
Stock-based compensation expense | — | — | — | — | | — | | ||||||||||||
June 30, 2022 | | $ | | | $ | | $ | | $ | ( | $ | | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
BUTTERFLY NETWORK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six months ended June 30, | ||||||
2022 | 2021 | |||||
Cash flows from operating activities: | ||||||
Net loss |
| $ | ( |
| $ | ( |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
| ||||
Depreciation and amortization |
| |
| | ||
Non-cash interest expense on convertible debt | | | ||||
Stock-based compensation expense | | | ||||
Change in fair value of warrant liabilities | ( | ( | ||||
Other | | | ||||
Changes in operating assets and liabilities: |
| |||||
Accounts receivable | ( | ( | ||||
Inventories |
| ( |
| ( | ||
Prepaid expenses and other assets | ( | ( | ||||
Vendor advances | | ( | ||||
Accounts payable | ( | ( | ||||
Deferred revenue | | | ||||
Change in operating lease assets and liabilities | | ( | ||||
Accrued expenses and other liabilities | ( | | ||||
Net cash used in operating activities | $ | ( | $ | ( | ||
Cash flows from investing activities: |
|
|
|
| ||
Purchases of marketable securities | | ( | ||||
Sales of marketable securities | | | ||||
Purchases of property and equipment, including capitalized software |
| ( |
| ( | ||
Net cash used in investing activities | $ | ( | $ | ( | ||
|
| |||||
Cash flows from financing activities: |
|
| ||||
Proceeds from exercise of stock options and warrants |
| |
| | ||
Net proceeds from equity infusion from the Business Combination | | | ||||
Payment of loan payable | | ( | ||||
Other financing activities | ( | ( | ||||
Net cash provided by financing activities | $ | | $ | | ||
Net (decrease) increase in cash, cash equivalents and restricted cash | $ | ( | $ | ( | ||
Cash, cash equivalents and restricted cash, beginning of period | | | ||||
Cash, cash equivalents and restricted cash, end of period | $ | | $ | | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
BUTTERFLY NETWORK, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Description of Business
Butterfly Network, Inc., formerly known as Longview Acquisition Corp. (the “Company” or “Butterfly”), was incorporated in Delaware on February 4, 2020. The Company’s legal name became Butterfly Network, Inc. following the closing of the business combination discussed in Note 3 “Business Combination”. The prior period financial information represents the financial results and condition of BFLY Operations, Inc. (formerly Butterfly Network, Inc.).
The Company is an innovative digital health business transforming care with hand-held, whole-body ultrasound. Powered by its proprietary Ultrasound-on-Chip™ technology, the solution enables the acquisition of imaging information from an affordable, powerful device that fits in a healthcare professional’s pocket with a combination of cloud-connected software and hardware technology.
The Company operates wholly-owned subsidiaries in Australia, Germany, Netherlands, the United Kingdom and Taiwan.
Although the Company has incurred recurring losses in each year since inception, the Company expects its cash and cash equivalents will be sufficient to fund operations for at least the next twelve months.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of Butterfly Network, Inc. and its wholly-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the accounting disclosure rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s audited consolidated financial statements as of and for the years ended December 31, 2021 and 2020. All intercompany balances and transactions are eliminated upon consolidation.
The condensed consolidated balance sheet as of December 31, 2021, included herein, was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, including certain notes required by U.S. GAAP, required on an annual reporting basis.
In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods. The results for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for any subsequent quarter, the year ending December 31, 2022, or any other period.
Except as described elsewhere in the notes, there have been no material changes to the Company’s significant accounting policies as described in the audited consolidated financial statements as of December 31, 2021 and 2020.
COVID-19 Outbreak
The COVID-19 pandemic that began in 2020 has created significant global economic uncertainty and has impacted the Company’s operating results, financial condition and cash flows. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that are highly uncertain, including those that result from new information that may emerge concerning COVID-19, the economic impacts of the COVID-19 pandemic and the actions taken to contain the COVID-19 pandemic or address its impacts.
8
The Company has not incurred any significant impairment losses in the carrying values of its assets as a result of the COVID-19 pandemic and is not aware of any specific related event or circumstance that would require the Company to revise the estimates reflected in its financial statements.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents, and accounts receivable. At June 30, 2022, substantially all of the Company’s cash and cash equivalents were invested in money market accounts at one financial institution. The Company also maintains balances in various operating accounts above federally insured limits. The Company has not experienced any significant losses on such accounts and does not believe it is exposed to any significant credit risk on cash and cash equivalents.
Segment Information
The Company’s Chief Operating Decision Maker, its Chief Executive Officer (“CEO”), reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating its financial performance. Accordingly, the Company has determined that it operates in a single reportable segment. Substantially all of the Company’s long-lived assets are located in the United States. Since the Company operates in
Use of Estimates
The Company makes estimates and assumptions about future events that affect the amounts reported in its condensed consolidated financial statements and accompanying notes. Future events and their effects cannot be determined with certainty. On an ongoing basis, management evaluates these estimates, judgments and assumptions.
The Company bases its estimates on historical and anticipated results and trends and on various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates, and any such differences may be material to the Company’s condensed consolidated financial statements. There have been no material changes to the Company’s use of estimates as described in the audited consolidated financial statements as of December 31, 2021.
Note 3. Business Combination
On February 12, 2021 (the “Closing” or the “Closing Date”), the Company consummated the business combination (the “Business Combination”) with Butterfly Network, Inc. (“Legacy Butterfly”). In connection with the Business Combination and the transactions related to the Business Combination (the “Transactions”), Legacy Butterfly merged with and into a wholly owned subsidiary of the Company, with Legacy Butterfly surviving the Business Combination as a wholly owned subsidiary of the Company (the “Merger”). The Merger was accounted for as a reverse recapitalization in accordance with U.S. GAAP primarily due to the fact that Legacy Butterfly stockholders continue to control the Company following the Closing of the Business Combination.
The most significant change in the post-combination Company’s reported financial position and results was an increase in cash of $
9
Note 4. Revenue Recognition
Disaggregation of Revenue
The Company disaggregates revenue from contracts with customers by product type and by geographical market. The Company believes that these categories aggregate the payor types by nature, amount, timing and uncertainty of their revenue streams. The following table summarizes the Company’s disaggregated revenues (in thousands) for the three and six months ended June 30, 2022 and 2021:
Pattern of | Three months ended June 30, | Six months ended June 30, | |||||||||||||
Recognition | 2022 | 2021 | 2022 | 2021 | |||||||||||
By Product Type: |
|
|
|
|
|
|
|
|
|
| |||||
Devices and accessories | Point-in-time | $ | | $ | | $ | | $ | | ||||||
Subscription services and other services | Over time | | | | | ||||||||||
Total revenue | $ | | $ | | $ | | $ | | |||||||
By Geographical Market: | |||||||||||||||
United States | $ | | $ | | $ | | $ | | |||||||
International | | | | | |||||||||||
Total revenue | $ | | $ | | $ | | $ | | |||||||
Contract Balances
Contract balances represent amounts presented in the condensed consolidated balance sheets when either the Company has transferred goods or services to the customer, or the customer has paid consideration to the Company under the contract. These contract balances include trade accounts receivable and deferred revenue. Deferred revenue represents cash consideration received from customers for services that are transferred to the customer over the respective subscription period. The accounts receivable balances represent amounts billed to customers for goods and services where the Company has an unconditional right to payment of the amount billed.
The Company recognizes a receivable when it has an unconditional right to payment, and payment terms are typically
The amount of revenue recognized during the three months ended June 30, 2022 and 2021 that was included in the deferred revenue balance at the beginning of the period was $
The Company incurs incremental costs of obtaining contracts and costs of fulfilling contracts with customers. The amount of costs capitalized for the periods presented herein was not significant.
Transaction Price Allocated to Remaining Performance Obligations
On June 30, 2022, the Company had $
Note 5. Fair Value of Financial Instruments
Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair value.
10
The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The Company utilizes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
| ● | Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. |
| ● | Level 2 — Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. |
| ● | Level 3 — Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company has no assets or liabilities valued with Level 3 inputs. |
The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates their fair values due to the short-term or on-demand nature of these instruments.
There were no transfers between fair value measurement levels during the periods ended June 30, 2022 and December 31, 2021.
The Company’s outstanding warrants include publicly traded warrants (the “Public Warrants”) which were issued as -third of a warrant per unit during Longview’s initial public offering on May 26, 2020 and warrants sold in a private placement to Longview’s sponsor (the “Private Warrants”). As of June 30, 2022, there were an aggregate of
The Company determined the fair value of its Public Warrants as Level 1 financial instruments, as they are traded in active markets. Because any transfer of Private Warrants from the initial holder of the Private Warrants would result in the Private Warrants having substantially the same terms as the Public Warrants, management determined that the fair value of each Private Warrant is the same as that of a Public Warrant. Accordingly, the Private Warrants are classified as Level 2 financial instruments.
The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy (in thousands):
Fair Value Measurement Level | ||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||
June 30, 2022: |
|
|
|
|
|
|
|
| ||||
Warrants: | ||||||||||||
Public Warrants | $ | | $ | | $ | — | $ | — | ||||
Private Warrants | | — | | — | ||||||||
Total liabilities at fair value on a recurring basis | $ | | $ | | $ | | $ | — | ||||
December 31, 2021: | ||||||||||||
Warrants: | ||||||||||||
Public Warrants | $ | | $ | | $ | — | $ | — | ||||
Private Warrants | | — | | — | ||||||||
Total liabilities at fair value on a recurring basis | $ | | $ | | $ | | $ | — | ||||
11
Note 6. Inventories
A summary of inventories is as follows at June 30, 2022 and December 31, 2021 (in thousands):
| June 30, |
| December 31, | |||
| 2022 |
| 2021 | |||
Raw materials | $ | |
| | ||
Work-in-progress |
| |
| | ||
Finished goods |
| |
| | ||
Total inventories | $ | | $ | | ||
Work-in-progress represents inventory items in intermediate stages of production by third-party manufacturers. For the three and six months ended June 30, 2022 and 2021, net realizable value inventory adjustments and excess and obsolete inventory charges were not significant and were recognized in product cost of revenues.
Note 7. Property and Equipment, Net
The Company’s property and equipment, net consists of the following at June 30, 2022 and December 31, 2021 (in thousands):
June 30, | December 31, | |||||
| 2022 |
| 2021 | |||
Property and equipment, gross | $ | | $ | | ||
Less: accumulated depreciation and amortization |
| ( |
| ( | ||
Property and equipment, net | $ | | $ | | ||
The Company excluded $
Note 8. Restricted Cash
A reconciliation of cash, cash equivalents and restricted cash as of June 30, 2022 and 2021, from the condensed consolidated balance sheets to the condensed consolidated statements of cash flows is as follows:
| June 30, | |||||
| 2022 |
| 2021 | |||
Reconciliation of cash, cash equivalents and restricted cash: | ||||||
Cash and cash equivalents | $ | | $ | | ||
| |
| — | |||
| | |||||
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows | $ | | $ | | ||
In the second quarter of 2021, the Company delivered a $
In the first quarter of 2022, the Company received $
12
Note 9. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following at June 30, 2022 and December 31, 2021 (in thousands):
| June 30, |
| December 31, | |||
| 2022 |
| 2021 | |||
Employee compensation | $ | | $ | | ||
Customer deposits |
| |
| | ||
Accrued warranty liability |
| |
| | ||
Non-income tax |
| |
| | ||
Professional fees |
| |
| | ||
| | |||||
Other |
| |
| | ||
Total accrued expenses and other current liabilities | $ | | $ | | ||
Warranty expense activity for the three and six months ended June 30, 2022 and 2021 is as follows (in thousands):
Three months ended June 30, | Six months ended June 30, | ||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||
Balance, beginning of period | $ | | $ | | $ | | $ | | |||||
Warranty provision charged to operations |
| |
| |
| |
| ( | |||||
Warranty claims |
| ( |
| ( |
| ( |
| ( | |||||
Balance, end of period | $ | | $ | | $ | | $ | | |||||
The Company classifies its accrued warranty liability based on the timing of expected warranty activity. The future costs of expected activity greater than one year is recorded within other non-current liabilities on the condensed consolidated balance sheet.
Note 10. Equity Incentive Plans
During the three and six months ended June 30, 2022, there were no significant changes to the Company’s 2012 Employee, Director and Consultant Equity Incentive Plan, as amended, (the “2012 Plan”) and the Company’s Amended and Restated 2020 Equity Incentive Plan (the “2020 Plan”). In the fiscal year 2022, pursuant to the terms of the 2020 Plan, the number of shares that may be issued was increased automatically by
Stock option activity
The following table summarizes the changes in the Company’s outstanding stock options for the six months ended June 30, 2022:
Number of | ||
Options | ||
Outstanding at December 31, 2021 |
| |
Granted |
| |
Exercised |
| ( |
Forfeited |
| ( |
Outstanding at June 30, 2022 |
| |
Each award will vest based on continued service per the award agreement. The grant date fair value of the award will be recognized as stock-based compensation expense over the requisite service period. The grant date fair value was determined using similar methods and assumptions as those previously disclosed by the Company.
13
Restricted stock unit (“RSU”) activity
The following table summarizes the changes in the Company’s outstanding restricted stock units for the six months ended June 30, 2022:
Number of | ||
RSUs | ||
Outstanding at December 31, 2021 |
| |
Granted |
| |
Vested |
| ( |
Forfeited |
| ( |
Outstanding at June 30, 2022 |
| |
Generally, each award will vest based on continued service per the award agreement. The grant date fair value of the award will be recognized as stock-based compensation expense over the requisite service period. The fair value of restricted stock units was estimated on the date of grant based on the fair value of the Company’s Class A common stock.
The Company’s total stock-based compensation expense for all equity awards for the periods presented is as follows (in thousands):
Three months ended June 30, | Six months ended June 30, | ||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||
Cost of revenue – subscription | $ | | $ | | $ | | $ | | |||||
Research and development |
| |
| |
| |
| | |||||
Sales and marketing | | | | | |||||||||
General and administrative | | | | | |||||||||
Total stock-based compensation expense | $ | | $ | | $ | | $ | | |||||
Note 11. Net Loss Per Share
We compute net loss per share of Class A and Class B common stock using the two-class method. Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of each class of the Company’s common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of the Company’s common stock, including those presented in the table below, to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential shares of the Company’s common stock outstanding would have been anti-dilutive.
As the Company uses the two-class method required for companies with multiple classes of common stock, the following table presents the calculation of basic and diluted net loss per share for each class of the Company’s common stock outstanding (in thousands, except share and per share amounts):
Three months ended June 30, 2022 | ||||||||||
Total | ||||||||||
| Class A |
| Class B |
| Common Stock | |||||
Numerator: |
|
|
|
| ||||||
Allocation of undistributed earnings | $ | ( | $ | ( | $ | ( | ||||
Numerator for basic and diluted net loss per share – loss available to common stockholders | $ | ( | $ | ( | $ | ( | ||||
Denominator: |
|
|
|
|
|
| ||||
Weighted-average common shares outstanding |
| |
| |
| | ||||
Denominator for basic and diluted net loss per share – weighted-average common stock |
| |
| |
| | ||||
Basic and diluted net loss per share | ( | ( | ( | |||||||
14
Three months ended June 30, 2021 | ||||||||||
Total | ||||||||||
| Class A |
| Class B |
| Common Stock | |||||
Numerator: |
|
|
|
| ||||||
Allocation of undistributed earnings | $ | ( | $ | ( | $ | ( | ||||
Numerator for basic and diluted net loss per share – loss available to common stockholders | $ | ( | $ | ( | $ | ( | ||||
Denominator: |
|
|
|
|
|
| ||||
Weighted-average common shares outstanding |
| |
| |
| | ||||
Denominator for basic and diluted net loss per share – weighted-average common stock |
| |
| |
| | ||||
Basic and diluted net loss per share | ( | ( | ( | |||||||
Six months ended June 30, 2022 | ||||||||||
Total | ||||||||||
| Class A |
| Class B |
| Common Stock | |||||
Numerator: |
|
|
|
| ||||||
Allocation of undistributed earnings | $ | ( | $ | ( | $ | ( | ||||
Numerator for basic and diluted net loss per share – loss available to common stockholders | $ | ( | $ | ( | $ | ( | ||||
Denominator: |
|
|
|
|
|
| ||||
Weighted-average common shares outstanding |
| |
| |
| | ||||
Denominator for basic and diluted net loss per share – weighted-average common stock |
| |
| |
| | ||||
Basic and diluted net loss per share | ( | ( | ( | |||||||
Six months ended June 30, 2021 | ||||||||||
Total | ||||||||||
| Class A |
| Class B |
| Common Stock | |||||
Numerator: |
|
|
|
| ||||||
Allocation of undistributed earnings | $ | ( | $ | ( | $ | ( | ||||
Numerator for basic and diluted net loss per share – loss available to common stockholders | $ | ( | $ | ( | $ | ( | ||||
Denominator: |
|
|
|
|
|
| ||||
Weighted-average common shares outstanding |
| |
| |
| | ||||
Denominator for basic and diluted net loss per share – weighted-average common stock |
| |
| |
| | ||||
Basic and diluted net loss per share | ( | ( | ( | |||||||
For the periods presented above, the net loss per share amounts are the same for Class A and Class B common stock because the holders of each class are entitled to equal per share dividends or distributions in liquidation in accordance with the Certificate of Incorporation. The undistributed earnings for each year are allocated based on the contractual participation rights of the Class A and Class B common stock as if the earnings for the year had been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis.
For the periods presented, anti-dilutive common equivalent shares were as follows:
June 30, | |||||
| 2022 |
| 2021 |
| |
Outstanding options to purchase common stock | | | |||
Outstanding restricted stock units | | | |||
Outstanding warrants | | | |||
Total anti-dilutive common equivalent shares | | | |||
15
Note 12. Related Party Transactions
There were no significant changes in the nature of the Company’s related party transactions since December 31, 2021. Pursuant to a First Addendum dated November 19, 2020 to the Amended and Restated Technology Services Agreement dated November 11, 2020 by and between the Company, 4Catalyzer Corporation (“4Catalyzer”), and other participant companies controlled by Dr. Rothberg (the “ARTSA”), Butterfly terminated its participation under the ARTSA immediately prior to the effective time of the Business Combination. The related-party transactions with 4Catalyzer were not significant for the three and six months ended June 30, 2022 and 2021. The related-party balances with 4Catalyzer were not significant as of June 30, 2022 and December 31, 2021.
On February 2, 2022, an Executive Officer of the Company and an irrevocable trust previously established by a member of our board of directors formed a limited liability company (“LLC”) to purchase real estate and entered into an operating agreement setting forth the terms and conditions of the LLC. There was no impact as a result of this transaction to our condensed consolidated financial statements for the three and six months ended June 30, 2022.
Note 13. 401(k) Retirement Plan
The Company sponsors a 401(k) defined contribution plan covering all eligible U.S. employees. Contributions to the 401(k) plan are discretionary. Effective January 1, 2022, the Company began making matching contributions to the 401(k) plan. The expense related to the matching contributions was $
Note 14. Commitments and Contingencies
Commitments
Leases:
The Company primarily enters into leases for office space that are classified as operating leases. Total lease cost, composed primarily of the costs related to operating leases, was $
Purchase commitments:
The Company enters into inventory purchase commitments with third-party manufacturers in the ordinary course of business. These commitments are generally non-cancellable and are based on sales forecasts. These agreements range from to
There were no significant changes to the inventory supply agreement with the certain third-party manufacturing vendor during the three and six months ended June 30, 2022. The Company applied the guidance in Topic 330, Inventory to assess the purchase commitment as of June 30, 2022 and December 31, 2021 and determined that based on current conditions no change in the accrual for the purchase commitment was required.
As of June 30, 2022, the Company has a vendor advance asset of $
16
Contingencies
The Company is involved in litigation and legal matters from time to time, which have arisen in the normal course of business. Although the ultimate results of these matters are not currently determinable, management does not expect that they will have a material effect on the Company’s condensed consolidated balance sheets, statements of operations and comprehensive loss, or statements of cash flows.
On February 16, 2022, a putative class action lawsuit, styled Rose v. Butterfly Network, Inc., et al. was filed in the United States District Court for the District of New Jersey against the Company, its President and Chief Executive Officer, its then Chief Financial Officer, the Chairman of its board of directors, as well as Longview’s Chairman (who is a director of the Company), Chief Executive Officer, Chief Financial Officer and members of Longview’s board of directors prior to the Business Combination, alleging violations of Sections 10(b), 14(a) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rules 10b-5 and 14a-9 promulgated thereunder. The alleged class consists of all persons or entities who purchased or otherwise acquired the Company’s stock between February 16, 2021 and November 15, 2021 and/or holders as of the record date for the special meeting of shareholders held on February 12, 2021 in connection with the approval of the Business Combination. The lawsuit is premised upon allegations that the defendants made false and misleading statements and/or omissions about its post-Business Combination business and financial prospects, including the impact of the COVID-19 pandemic. The Company intends to vigorously defend against this action. The lawsuit seeks unspecified damages, together with interest thereon, as well as the costs and expenses of litigation. There is no assurance that the Company will be successful in the defense of the litigation or that insurance will be available or adequate to fund any potential settlement or judgment or the litigation costs of the action. The Company is unable to predict the outcome or reasonably estimate a range of possible loss at this time.
On March 9, 2022, Fujifilm Sonosite, Inc. (“Fujifilm”) filed a complaint against the Company, styled Fujifilm Sonosite, Inc. v. Butterfly Network, Inc. (Case No. 1:22-cv-00309) in the United States District Court for the District of Delaware. The complaint alleged that the iQ and iQ+ ultrasound probes, hard carrying case, and mobile device application software infringe certain patents purportedly owned by Fujifilm. The Company intends to vigorously defend against this action. The lawsuit seeks unspecified damages including compensatory damages, lost profits, and reasonable royalty damages, a preliminary and/or permanent injunction, pre- and post-judgment interest, and the fees and costs of litigation. There is no assurance that the Company will be successful in the defense of the litigation or that insurance will be available or adequate to fund any potential settlement or judgment or the fees and costs of the litigation. The Company is unable to predict the outcome or reasonably estimate a range of possible loss at this time.
On June 21, 2022, a stockholder derivative action, styled Koenig v. Todd M. Fruchterman, et al. (Case 1:22-cv-00825) was filed in the United States District Court for the District of Delaware against the Board of Directors and the Company as nominal defendant, alleging violation of Section 14(a) of the Securities Exchange Act of 1934, as amended, and Rule 14a-9 promulgated thereunder, and claims for breach of fiduciary duty, contribution and indemnification, aiding and abetting and gross mismanagement. The lawsuit is premised upon allegedly inadequate internal controls, purportedly misleading representations regarding the Company’s financial condition and business prospects and the Company’s November 2021 earnings announcement. The Company intends to vigorously defend against this action. The lawsuit seeks unspecified damages, disgorgement and restitution, together with interest thereon, as well as the costs and expenses of litigation. There is no assurance that the Company will be successful in the defense of the litigation or that insurance will be available or adequate to fund any potential settlement or judgment or the litigation costs of the action. The Company is unable to predict the outcome or reasonably estimate a range of possible loss at this time
The Company enters into agreements that contain indemnification provisions with other parties in the ordinary course of business, including business partners, investors, contractors, customers and the Company’s officers, directors and certain employees. The Company has agreed to indemnify and defend the indemnified party claims and related losses suffered or incurred by the indemnified party from actual or threatened third-party claims because of the Company’s activities or non-compliance with certain representations and warranties made by the Company. It is not possible to determine the maximum potential loss under these indemnification provisions due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances involved in any particular case. To date, losses recorded in the Company’s condensed consolidated statements of operations and comprehensive loss in connection with the indemnification provisions have not been material.
17
Note 15. Subsequent Events
On July 28, 2022, the board of directors approved a plan designed to improve the Company’s efficiency by reducing operating expenses and extending liquidity. In addition to decreasing other operating expenses, the plan includes a reduction in force representing approximately
18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. The discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto for the year ended December 31, 2021 contained in our Annual Report on Form 10-K for the year ended December 31, 2021, as amended. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2021, as amended, and of this Quarterly Report on Form 10-Q. Actual results may differ materially from those contained in any forward-looking statements. Unless the context otherwise requires, references to “we”, “us”, “our”, and “the Company” are intended to mean the business and operations of Butterfly Network, Inc. and its consolidated subsidiaries. The unaudited condensed consolidated financial statements for the three and six months ended June 30, 2022 and 2021, respectively, present the financial position and results of operations of Butterfly Network, Inc. and its wholly-owned subsidiaries.
Overview
We are an innovative digital health business transforming care with hand-held, whole-body ultrasound. Powered by our proprietary Ultrasound-on-Chip™ technology, our solution enables the acquisition of imaging information from an affordable, powerful device that fits in a healthcare professional’s pocket with a unique combination of cloud-connected software and hardware technology that is easily accessed through a mobile app.
Butterfly iQ+ is an ultrasound transducer that can perform whole-body imaging in a single handheld probe using semiconductor technology. Our Ultrasound-on-Chip™ makes ultrasound more accessible outside of large healthcare institutions, while our software is intended to make the product easy to use and fully integrated with the clinical workflow, accessible on a user’s smartphone, tablet, and almost any hospital computer system connected to the Internet. Butterfly aims to enable the delivery of imaging information anywhere at point-of-care to drive earlier detection throughout the body and remote management of health conditions. We market and sell the Butterfly system, which includes probes and related accessories and software subscriptions, to healthcare systems, physicians and healthcare providers through a direct sales force, distributors and our eCommerce channel.
COVID-19
The COVID-19 pandemic that began in 2020 has created significant global economic uncertainty. Uncertainty remains regarding the extent, timing and duration of the pandemic, including the emergence of new strains of the virus that may be more contagious or virulent and the extent to which the availability of vaccines and other safety measures will positively impact public health conditions. The uncertainty and potential economic volatility impact our customer base, supply chains, business practices and employees.
The COVID-19 pandemic and its economic impact have caused financial strain on our customer base due to decreased funding and other revenue shortfalls. During the pandemic, we have seen our customer base become further strained in solving immediate problems associated with the variants. As a result, some of our customers have had to shift their attention to these pressing issues, resulting in longer sales cycles and slower adoption in the near term.
In addition, the issues originally brought on by COVID-19 continue to have an ongoing adverse impact on global supply chains, including ours. Although the impact of COVID-19 on our supply chains is lessening, we are still experiencing limited constraints in availability and increasing costs required to obtain some inventory components. However, the semiconductor chips used in our probes are manufactured under an inventory supply agreement and to date we have not experienced any constraints. We have and will continue to implement operating efficiencies in our supply chain and manufacturing processes to help offset the cost increases in component parts for our device. Additionally, our new products are being designed to avoid single sourced components to mitigate supply chain risk.
The pandemic caused us to make modifications to our business practices, including work from home policies, establishing strict health and safety protocols for our offices specific to COVID-19 and imposing restrictions on employee travel. Our
19
employees have resumed traveling to perform sales-generating and corporate activities, and we have reopened our offices, allowing our employees to return.
We continue to closely monitor the developments of COVID-19 for any material impact on our business. Given the uncertainty and potential economic volatility of the impact of the COVID-19 pandemic, the developments we have experienced may change based on new information that may emerge concerning COVID-19, its economic impact on local, regional, national and international markets and the actions to contain it or address its impacts.
Key Performance Metrics
We review the key performance measures discussed below to evaluate the business and measure performance, identify trends, formulate plans and make strategic decisions. Our key performance metrics may fluctuate over time as the adoption of our devices increases which may shift the revenue mix more toward subscriptions. The quarterly metrics may be impacted by the timing of device sales.
Units fulfilled
We define units fulfilled as the number of devices whereby control is transferred to a customer. We do not adjust this metric for returns as our volume of returns has historically been low. We view units fulfilled as a key indicator of the growth of our business. We believe that this metric is useful to investors because it presents our core growth and performance of our business period over period.
Units fulfilled decreased by 406, or 6.3%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily due to decreased device sales volume from our e-commerce, distributor and direct sales force channels. The decreases were partially offset by higher sales in our global health channel.
Subscription Mix
We define subscription mix as a percentage of our total revenue recognized in a reporting period that is subscription-based, consisting primarily of our software as a service (“SaaS”) offering. We view subscription mix as a key indicator of the profitability of our business, and thus we believe that this metric is useful to investors.
20
Subscription mix increased by 8.9 percentage points, to 30.1% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The increase was due to increases in subscription renewals and an expansion of subscription offerings. In addition, the increase is due to the timing of revenue recognition for our SaaS and other subscription contracts as revenue from such contracts is deferred and recognized over the service period.
Non-GAAP Financial Measures
We present non-GAAP financial measures in order to assist readers of our condensed consolidated financial statements in understanding the core operating results that our management uses to evaluate the business and for financial planning purposes. Our non-GAAP financial measures, Adjusted Gross Profit, Adjusted Gross Margin and Adjusted EBITDA, provide an additional tool for investors to use in comparing our financial performance over multiple periods.
Adjusted Gross Profit, Adjusted Gross Margin and Adjusted EBITDA are key performance measures that our management uses to assess our operating performance. Adjusted Gross Profit, Adjusted Gross Margin and Adjusted EBITDA facilitate internal comparisons of our operating performance on a more consistent basis. We use these performance measures for business planning purposes and forecasting. We believe that Adjusted Gross Profit, Adjusted Gross Margin and Adjusted EBITDA enhance an investor’s understanding of our financial performance as they are useful in assessing our operating performance from period-to-period by excluding certain items that we believe are not representative of our core business.
Our Adjusted Gross Profit, Adjusted Gross Margin and Adjusted EBITDA may not be comparable to similarly titled measures of other companies because they may not calculate these measures in the same manner. Adjusted Gross Profit, Adjusted Gross Margin and Adjusted EBITDA are not prepared in accordance with U.S. GAAP and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with U.S. GAAP. When evaluating our performance, you should consider Adjusted Gross Profit, Adjusted Gross Margin and Adjusted EBITDA alongside other financial performance measures prepared in accordance with U.S. GAAP, including gross profit, gross margin, operating loss and net loss.
Adjusted Gross Profit and Adjusted Gross Margin
We calculate Adjusted Gross Profit as gross profit adjusted to exclude depreciation and amortization, non-recurring changes to our warranty liability, non-recurring losses on purchase commitments and non-recurring inventory write-downs. We calculate Adjusted Gross Margin as gross margin adjusted to exclude depreciation and amortization and non-recurring changes to our warranty liability.
Our changes in the warranty liability are excluded from Adjusted Gross Profit and Adjusted Gross Margin when they are outside the normal course of operations for our business. The non-recurring warranty liability adjustments are for changes in our warranty policy resulting from a shift in product lines that impacted our estimate of future warranty costs.
21
The following table reconciles Adjusted Gross Profit to gross profit and Adjusted Gross Margin to gross margin, the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP.
Three months ended June 30, | Six months ended June 30, | |||||||||||
(In thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||
Revenue |
| $ | 19,215 | $ | 16,513 | $ | 34,789 | $ | 28,958 | |||
Cost of revenue |
| 8,643 |
| 8,293 |
| 15,874 |
| 14,320 | ||||
Gross profit | $ | 10,572 | $ | 8,220 | $ | 18,915 | $ | 14,638 | ||||
Gross margin | 55.0% | 49.8% | 54.4% | 50.5% | ||||||||
Add: |
|
|
|
|
|
|
|
| ||||
Depreciation and amortization |
| 677 |
| 72 |
| 1,103 |
| 160 | ||||
Warranty liability policy change | — | — | — | (560) | ||||||||
Adjusted gross profit | $ | 11,249 | $ | 8,292 | $ | 20,018 | $ | 14,238 | ||||
Adjusted gross margin | 58.5% | 50.2% | 57.5% | 49.2% | ||||||||
Adjusted EBITDA
We calculate Adjusted EBITDA as net loss adjusted to exclude interest income, interest expense, changes in the fair value of warrant liabilities, other expense, net, provision for income taxes, stock-based compensation, depreciation and amortization and other non-recurring items. The other non-recurring items include costs related to our executive transition, adjustments for the warranty liability policy changes, discretionary transaction bonuses and other fees incurred with the close of the Business Combination.
Our non-recurring discretionary bonuses are excluded from Adjusted EBITDA when they are outside the normal course of operations for our business and were given at the discretion of management due to the completion of the Business Combination. The non-recurring costs related to the executive transition include one-time severance and bonus payments and the recruiting expenses for our current CEO. The non-recurring warranty liability adjustments are for changes in our warranty policy resulting from a shift in product lines that impacted our estimate of future warranty costs.
The following table reconciles Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.
Three months ended June 30, | Six months ended June 30, | ||||||||||||
(In thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||
Net loss |
| $ | (35,801) |
| $ | (2,942) |
| $ | (80,278) |
| $ | (3,632) | |
Interest income |
| (260) |
| (607) |
| (270) |
| (846) | |||||
Interest expense |
| — |
| 7 |
| — |
| 645 | |||||
Change in fair value of warrant liabilities | (12,805) | (33,458) | (17,968) | (87,570) | |||||||||
Other expense, net |
| 388 |
| 262 |
| 488 |
| 895 | |||||
Provision for income taxes |
| 23 |
| 51 |
| 41 |
| 75 | |||||
Stock based compensation |
| 9,285 |
| 7,738 |
| 18,015 |
| 28,035 | |||||
Depreciation and amortization |
| 1,350 |
| 456 |
| 2,190 |
| 915 | |||||
CEO transition costs | — | — | — | 5,398 | |||||||||
Warranty liability policy change | — | — | — | (560) | |||||||||
Transaction bonus | — | — | — | 1,653 | |||||||||
Adjusted EBITDA |
| $ | (37,820) |
| $ | (28,493) |
| $ | (77,782) |
| $ | (54,992) | |
Description of Certain Components of Financial Data
Revenue
Revenue consists of revenue from the sale of products, such as medical devices and accessories, and related services, classified as subscription revenue on our condensed consolidated statements of operations and comprehensive loss, which
22
are SaaS subscriptions and product support and maintenance (“Support”). SaaS subscriptions include licenses for teams and individuals as well as enterprise level subscriptions. For sales of products, revenue is recognized at a point in time upon transfer of control to the customer. SaaS subscriptions and Support are generally related to stand-ready obligations and are recognized ratably over time.
Over time as the adoption of our devices increases through further market penetration and as practitioners in the Butterfly network continue to use our devices, we expect our annual revenue mix to shift more toward subscriptions. The quarterly revenue mix may be impacted by the timing of device sales.
To date, we have invested heavily in building out our direct salesforce and plan to continue to do so, with the ultimate goal of growing adoption at large scale healthcare systems. As we expand our healthcare system software offerings and develop relationships with larger health systems, we continue to expect a higher proportion of our sales in health systems compared to eCommerce.
Cost of revenue
Cost of product revenue consists of product costs including manufacturing costs, personnel costs and benefits, inbound freight, packaging, warranty replacement costs, payment processing fees and inventory obsolescence and write-offs. We expect our cost of product revenue to fluctuate over time due to the level of units fulfilled in any given period and decrease as a percentage of product revenues over time as we focus on operational efficiencies in our supply chain. Additionally, our suppliers have and may from time-to-time increase prices of certain inventory components, which we may not be able to offset through pricing actions and therefore could in the future offset the operational efficiencies in our supply chain.
Cost of subscription revenue consists of personnel costs, cloud hosting costs and payment processing fees. Because the costs and associated expenses to deliver our SaaS offerings are less than the costs and associated expenses of manufacturing and selling our device, we anticipate an improvement in profitability and margin expansion over time as our revenue mix shifts increasingly towards subscriptions. We plan to continue to invest additional resources to expand and further develop our SaaS and other subscription offerings. The level and timing of investment in these areas could affect our cost of subscription revenue in the future.
Research and development (RD)
Research and development expenses primarily consist of personnel costs and benefits, facilities-related expenses, depreciation expense, consulting and professional fees, fabrication services, software and other outsourcing expenses. Most of our research and development expenses are related to developing new products and services, which we define as not having reached the point of commercialization and improving our products and services that have been commercialized. Consulting expenses are related to general development activities and clinical/regulatory research. Fabrication services include certain third-party engineering costs, product testing and test boards. Research and development expenses are expensed as incurred. We expect to continue to make substantial investments in our product development, clinical and regulatory capabilities.
Sales and marketing
Sales and marketing expenses primarily consist of personnel costs and benefits, third party logistics, fulfillment and outbound shipping costs, digital marketing, advertising, promotional, as well as conferences, meetings and other events and related facilities and information technology costs. We expect to continue to make substantial investments in our sales capabilities.
General and administrative
General and administrative expenses primarily consist of personnel costs and benefits, insurance, patent fees, software costs, facilities costs and outside services. Outside services consist of professional services, legal and other professional fees.
23
Results of Operations
We operate as a single reportable segment to reflect the way our chief operating decision maker (“CODM”) reviews and assesses the performance of the business. The accounting policies are described in Note 2 “Summary of Significant Accounting Policies” in our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Three months ended June 30, |
| Six months ended June 30, | ||||||||||||||||||||||
2022 | 2021 |
| 2022 | 2021 |
| |||||||||||||||||||
% of | % of |
| % of | % of |
| |||||||||||||||||||
(in thousands) | Dollars | revenue | Dollars | revenue |
| Dollars | revenue | Dollars | revenue |
| ||||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product | $ | 13,429 |
| 69.9 | % | $ | 13,012 |
| 78.8 | % | $ | 24,443 |
| 70.3 | % | $ | 22,608 |
| 78.1 | % | ||||
Subscription | 5,786 |
| 30.1 | % | 3,501 |
| 21.2 | % | 10,346 |
| 29.7 | % | 6,350 |
| 21.9 | % | ||||||||
Total revenue: | $ | 19,215 |
| 100.0 | % | $ | 16,513 |
| 100.0 | % | $ | 34,789 |
| 100.0 | % | $ | 28,958 |
| 100.0 | % | ||||
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Product | 6,799 |
| 35.4 | % | 7,858 |
| 47.6 | % | 12,947 |
| 37.2 | % | 13,506 |
| 46.6 | % | ||||||||
Subscription | 1,844 |
| 9.6 | % | 435 |
| 2.6 | % | 2,927 |
| 8.4 | % | 814 |
| 2.8 | % | ||||||||
Total cost of revenue: | $ | 8,643 |
| 45.0 | % | $ | 8,293 |
| 50.2 | % | $ | 15,874 |
| 45.6 | % | $ | 14,320 |
| 49.5 | % | ||||
Gross profit | $ | 10,572 |
| 55.0 | % | $ | 8,220 |
| 49.8 | % | $ | 18,915 |
| 54.4 | % | $ | 14,638 |
| 50.5 | % | ||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Research and development | 23,220 |
| 120.8 | % | 17,088 |
| 103.5 | % | 46,843 |
| 134.6 | % | 32,804 |
| 113.3 | % | ||||||||
Sales and marketing | 16,438 |
| 85.5 | % | 10,540 |
| 63.8 | % | 31,640 |
| 90.9 | % | 20,347 |
| 70.3 | % | ||||||||
General and administrative | 19,369 |
| 100.8 | % | 17,279 |
| 104.6 | % | 38,419 |
| 110.4 | % | 51,920 |
| 179.3 | % | ||||||||
Total operating expenses | $ | 59,027 |
| 307.2 | % | $ | 44,907 |
| 271.9 | % | $ | 116,902 |
| 336.0 | % | $ | 105,071 |
| 362.8 | % | ||||
Loss from operations | $ | (48,455) |
| (252.2) | % | $ | (36,687) |
| (222.2) | % | $ | (97,987) |
| (281.7) | % | $ | (90,433) |
| (312.3) | % | ||||
Interest income | 260 |
| 1.4 | % | 607 |
| 3.7 | % | 270 |
| 0.8 | % | 846 |
| 2.9 | % | ||||||||
Interest expense | — |
| — | % | (7) |
| (0.0) | % | — |
| — | % | (645) |
| (2.2) | % | ||||||||
Change in fair value of warrant liabilities | 12,805 | 66.6 | % | 33,458 | 202.6 | % | 17,968 | 51.6 | % | 87,570 | 302.4 | % | ||||||||||||
Other income (expense), net | (388) |
| (2.0) | % | (262) |
| (1.6) | % | (488) |
| (1.4) | % | (895) |
| (3.1) | % | ||||||||
Loss before provision for income taxes | $ | (35,778) |
| (186.2) | % | $ | (2,891) |
| (17.5) | % | $ | (80,237) |
| (230.6) | % | $ | (3,557) |
| (12.3) | % | ||||
Provision for income taxes | 23 |
| 0.1 | % | 51 |
| 0.3 | % | 41 |
| 0.1 | % | 75 |
| 0.3 | % | ||||||||
Net loss | $ | (35,801) |
| (186.3) | % | $ | (2,942) |
| (17.8) | % | $ | (80,278) |
| (230.8) | % | $ | (3,632) |
| (12.5) | % | ||||
Comparison of the three months ended June 30, 2022 and 2021
Revenue
Three months ended June 30, |
| |||||||||||
(in thousands) | 2022 | 2021 | Change | % Change |
| |||||||
Revenue: |
|
|
|
|
|
|
|
| ||||
Product |
| $ | 13,429 | $ | 13,012 | $ | 417 |
| 3.2 | % | ||
Subscription |
| 5,786 | 3,501 | 2,285 |
| 65.3 | % | |||||
Total revenue: | $ | 19,215 | $ | 16,513 | $ | 2,702 |
| 16.4 | % | |||
Product revenue increased by $0.4 million, or 3.2%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The increase in product revenue was primarily driven by higher prices of products sold due to a price increase in the third quarter of fiscal 2021.
Subscription revenue increased by $2.3 million, or 65.3%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The increase was driven by a higher volume of our SaaS subscriptions sold in conjunction with sales of our devices, as well as the current year subscription renewals.
24
Cost of revenue
Three months ended June 30, |
| |||||||||||
(in thousands) | 2022 | 2021 | Change | % Change |
| |||||||
Cost of revenue: |
|
|
|
|
|
|
|
| ||||
Product |
| $ | 6,799 | $ | 7,858 | $ | (1,059) |
| (13.5) | % | ||
Subscription |
| 1,844 | 435 | 1,409 |
| 323.9 | % | |||||
Total cost of revenue: | $ | 8,643 | $ | 8,293 | $ | 350 |
| 4.2 | % | |||
Percentage of revenue |
| 45.0 | % |
| 50.2 | % |
|
|
|
| ||
Cost of product revenue decreased by $1.1 million, or 13.5%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. This decrease was primarily driven by a higher mix of sales of our second-generation device, the Butterfly iQ+, which is less costly to produce due to operational efficiencies.
Cost of subscription revenue increased by $1.4 million, or 323.9%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. This increase was primarily driven by higher headcount that supports our subscription products and increases in cloud hosting costs and amortization expenses.
Research and development
Three months ended June 30, |
| |||||||||||
(in thousands) | 2022 | 2021 | Change | % Change |
| |||||||
Research and development |
| $ | 23,220 |
| $ | 17,088 |
| $ | 6,132 |
| 35.9 | % |
Percentage of revenue |
| 120.8 | % |
| 103.5 | % |
|
|
|
| ||
Research and development expenses increased by $6.1 million, or 35.9%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. This increase was primarily driven by higher personnel costs of $4.2 million, including stock-based compensation expense of $2.1 million, product development supplies and software costs of $0.8 million, facilities-related costs of $0.6 million and professional service fees of $0.6 million.
Sales and marketing
Three months ended June 30, |
| |||||||||||
(in thousands) | 2022 | 2021 | Change | % Change |
| |||||||
Sales and marketing |
| $ | 16,438 |
| $ | 10,540 |
| $ | 5,898 |
| 56.0 | % |
Percentage of revenue |
| 85.5 | % |
| 63.8 | % |
|
|
|
| ||
Sales and marketing expenses increased by $5.9 million, or 56.0%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. This increase was primarily driven by higher personnel costs of $3.8 million, facilities-related costs of $0.5 million, travel and entertainment costs of $0.8 million.
General and administrative
Three months ended June 30, |
| |||||||||||
(in thousands) | 2022 | 2021 | Change | % Change |
| |||||||
General and administrative |
| $ | 19,369 |
| $ | 17,279 |
| $ | 2,090 |
| 12.1 | % |
Percentage of revenue |
| 100.8 | % |
| 104.6 | % |
|
|
|
| ||
General and administrative expenses increased by $2.1 million, or 12.1%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. This increase was primarily due to higher personnel costs of $2.4 million, including an offsetting decrease in stock-based compensation expense of $0.5 million, and software and computer supplies costs of $0.5 million, partially offset by lower recruiting expenses and professional fees of $0.8 million.
25
Comparison of the six months ended June 30, 2022 and 2021
Revenue
Six months ended June 30, |
| |||||||||||
(in thousands) | 2022 | 2021 | Change | % Change |
| |||||||
Revenue: |
|
|
|
|
|
|
|
| ||||
Product |
| $ | 24,443 | $ | 22,608 | $ | 1,835 |
| 8.1 | % | ||
Subscription |
| 10,346 | 6,350 | 3,996 |
| 62.9 | % | |||||
Total revenue: | $ | 34,789 | $ | 28,958 | $ | 5,831 |
| 20.1 | % | |||
Product revenue increased by $1.8 million, or 8.1%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The increase in product revenue was primarily driven by higher prices of products sold due to a price increase in the third quarter of fiscal 2021 as well as increased sales volumes in our health systems, distributor and veterinary channels, partially offset by lower volumes in our e-commerce channel.
Subscription revenue increased by $4.0 million, or 62.9%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The increase was driven by a higher volume of our SaaS subscriptions sold in conjunction with sales of our devices, as well as the current year subscription renewals.
Cost of revenue
Six months ended June 30, |
| |||||||||||
(in thousands) | 2022 | 2021 | Change | % Change |
| |||||||
Cost of revenue: |
|
|
|
|
|
|
|
| ||||
Product |
| $ | 12,947 | $ | 13,506 | $ | (559) |
| (4.1) | % | ||
Subscription |
| 2,927 | 814 | 2,113 |
| 259.6 | % | |||||
Total cost of revenue: | $ | 15,874 | $ | 14,320 | $ | 1,554 |
| 10.9 | % | |||
Percentage of revenue |
| 45.6 | % |
| 49.5 | % |
|
|
|
| ||
Cost of product revenue decreased by $0.6 million, or 4.1%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. This decrease was primarily driven by a higher mix of sales of our second-generation device, the Butterfly iQ+, which is less costly to produce due to operational efficiencies, partially offset by a higher volume of accessories sold and $0.5 million of higher warranty expense due to a one-time benefit in the prior year from a change in our warranty liability policy.
Cost of subscription revenue increased by $2.1 million, or 259.6%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. This increase was primarily driven by higher headcount that supports our subscription products and increases in cloud hosting costs and amortization expenses.
Research and development
Six months ended June 30, |
| |||||||||||
(in thousands) | 2022 | 2021 | Change | % Change |
| |||||||
Research and development |
| $ | 46,843 |
| $ | 32,804 |
| $ | 14,039 |
| 42.8 | % |
Percentage of revenue |
| 134.6 | % |
| 113.3 | % |
|
|
|
| ||
Research and development expenses increased by $14.0 million, or 42.8%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. This increase was primarily driven by higher personnel costs of $9.2 million, including stock-based compensation expense of $3.4 million, product development supplies of $0.9 million, facilities-related costs of $1.0 million, software costs of $1.5 million and professional service fees of $1.4 million.
26
Sales and marketing
Six months ended June 30, |
| |||||||||||
(in thousands) | 2022 | 2021 | Change | % Change |
| |||||||
Sales and marketing |
| $ | 31,640 |
| $ | 20,347 |
| $ | 11,293 |
| 55.5 | % |
Percentage of revenue |
| 90.9 | % |
| 70.3 | % |
|
|
|
| ||
Sales and marketing expenses increased by $11.3 million, or 55.5%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. This increase was primarily driven by higher personnel costs of $7.6 million, facilities-related costs of $1.3 million, travel and entertainment costs of $1.8 million and trade show participation costs of $1.0 million.
General and administrative
Six months ended June 30, |
| |||||||||||
(in thousands) | 2022 | 2021 | Change | % Change |
| |||||||
General and administrative |
| $ | 38,419 |
| $ | 51,920 |
| $ | (13,501) |
| (26.0) | % |
Percentage of revenue |
| 110.4 | % |
| 179.3 | % |
|
|
|
| ||
General and administrative expenses decreased by $13.5 million, or 26.0%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. This decrease was primarily due to lower personnel costs of $10.3 million driven by a reduction in stock-based compensation expense of $13.6 million due to the non-recurrence of certain performance based restricted stock units vesting upon the closing of the Business Combination in the prior year, lower recruiting expense of $2.3 million from the non-recurrence of certain costs associated with to our CEO transition, and lower professional service fees of $2.0 million. The decrease was partially offset by $1.0 million in higher expenses due to increased headcount.
Liquidity and Capital Resources
Since our inception, our primary sources of liquidity are cash flows from operations, proceeds from the Business Combination and issuances of preferred stock and convertible notes. Our primary uses of liquidity are operating expenses, working capital requirements and capital expenditures. Cash flows from operations have been historically negative as we continue to develop new products and services and increase our sales and marketing efforts. We expect to be cash flow negative on an annual basis, although we may have quarterly results where cash flows from operations are positive.
We expect that our existing cash and cash flows from operations will be sufficient to meet our liquidity, capital expenditure, and anticipated working capital requirements and fund our operations for at least the next 12 months.
Our cash and cash equivalents balance as of June 30, 2022 was $310.8 million. Our future capital requirements may vary from those currently planned and will depend on various factors, including our rate of revenue growth and the timing and extent of spending on strategic business initiatives.
We have restricted cash of $4.0 million as of June 30, 2022 to secure a letter of credit for one of our leases, which is expected to be maintained as a security deposit for the duration of the lease. In addition, we have restricted cash of $2.9 million as of June 30, 2022 for a grant issued by the Bill Melinda Gates Foundation (“BMGF”). The restriction is expected to lapse as we fulfill our obligations in the grant agreement with BMGF.
The nature of the Company’s cash requirements has not changed materially during the three and six months ended June 30, 2022. Our material cash requirements include our facility lease arrangements for office space and inventory purchase obligations. As of June 30, 2022, we had fixed lease payment obligations of $41.6 million, with $2.9 million payable within 12 months. As of June 30, 2022, we had fixed purchase obligations of $86.4 million, with $64.6 million payable within 12 months. We expect to pay for approximately half of the fixed purchase obligations payable within the next 12 months using vendor advances.
27
As of June 30, 2022, we had no obligations, assets or liabilities, which would be considered off-balance sheet arrangements.
Cash flows
Comparison of the period for the six months ended June 30, 2022 and June 30, 2021
The following table summarizes our sources and uses of cash for the six months ended June 30, 2022 and 2021:
Six months ended June 30, | ||||||
(in thousands) | 2022 | 2021 | ||||
Net cash used in operating activities |
| $ | (98,229) |
| $ | (99,929) |
Net cash used in investing activities |
| (11,578) |
| (492,343) | ||
Net cash provided by financing activities |
| 709 |
| 555,671 | ||
Net (decrease) increase in cash, cash equivalents and restricted cash |
| $ | (109,098) |
| $ | (36,601) |
Net cash used in operating activities
Net cash used in operating activities represents the cash receipts and disbursements related to our activities other than investing and financing activities. We expect cash provided by historical financing activities will continue to be our primary source of funds to support operating needs and capital expenditures for the foreseeable future.
Cash flows from operating activities used $1.7 million, or 1.7%, less cash for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The decrease in cash used for operating activities was driven by an $18.2 million decrease in net working capital cash usage partially offset by a $16.5 million increase in net loss adjusted for certain noncash items, primarily driven by stock-based compensation expense and the change in fair value of warrant liabilities. The decrease in net working capital cash usage was mainly due to the $14.8 million decrease in cash used by vendor advances, $6.4 million decrease in cash used by accounts payable and accrued expenses and $2.9 million decrease in cash used by prepaid expenses and other assets, partially offset by an $8.2 million increase in cash used by inventories.
Net cash used in investing activities
Net cash used in investing activities decreased by $480.8 million, or 97.6%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The decrease was primarily due to a decrease of $490.5 million in purchases and sales of marketable securities for the period ended June 30, 2022. The decrease was partially offset by an increase in purchases of property and equipment of $9.7 million related to the Company’s new office space and additional investments into our software platform.
Net cash provided by financing activities
For the six months ended June 30, 2022, net cash provided by financing activities decreased by $555.0 million, or 99.9%, compared to the six months ended June 30, 2021. The decrease was primarily due to the non-recurrence of net proceeds from the Business Combination of $548.4 million and a $10.9 million decrease in option exercises, partially offset by the non-recurrence of the $4.4 million repayment of the Paycheck Protection Program loan.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about items that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
28
For our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as amended.
Recently Adopted Accounting Pronouncements
The Company did not identify any significant recently issued accounting pronouncements that may potentially impact our financial position and results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We did not have any floating rate debt as of June 30, 2022. Our cash and cash equivalents are comprised primarily of bank deposits and money market accounts. Due to the short-term nature of these investments, we do not expect cash flows to be affected to any significant degree by a sudden change in market interest rates.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition or results of operations, other than its impact on the general economy. Nonetheless, to the extent our costs are impacted by general inflationary pressures, we may not be able to fully offset such higher costs through price increases or manufacturing efficiencies. Our inability or failure to do so could harm our business, financial condition and results of operations.
Foreign Exchange Risk
We operate our business primarily within the United States and currently execute the majority of our transactions in U.S. dollars. We have not utilized hedging strategies with respect to such foreign exchange exposure. This limited foreign currency translation risk is not expected to have a material impact on our condensed consolidated financial statements.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act).
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2022.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
29
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
On March 9, 2022, Fujifilm Sonosite, Inc. (“Fujifilm”) filed a complaint against the Company, styled Fujifilm Sonosite, Inc. v. Butterfly Network, Inc. (Case No. 1:22-cv-00309) in the United States District Court for the District of Delaware. The complaint alleged that the iQ and iQ+ ultrasound probes, hard carrying case, and mobile device application software infringe certain patents purportedly owned by Fujifilm. The Company intends to vigorously defend against this action. The lawsuit seeks unspecified damages including compensatory damages, lost profits, and reasonable royalty damages, a preliminary and/or permanent injunction, pre- and post-judgment interest, and the fees and costs of litigation. There is no assurance that the Company will be successful in the defense of the litigation or that insurance will be available or adequate to fund any potential settlement or judgment or the fees and costs of the litigation. The Company is unable to predict the outcome or reasonably estimate a range of possible loss at this time.
On June 21, 2022, a stockholder derivative action, styled Koenig v. Todd M. Fruchterman, et al. (Case 1:22-cv-00825) was filed in the United States District Court for the District of Delaware against the Board of Directors and the Company as nominal defendant, alleging violation of Section 14(a) of the Securities Exchange Act of 1934, as amended, and Rule 14a-9 promulgated thereunder, and claims for breach of fiduciary duty, contribution and indemnification, aiding and abetting and gross mismanagement. The lawsuit is premised upon allegedly inadequate internal controls, purportedly misleading representations regarding the Company’s financial condition and business prospects and the Company’s November 2021 earnings announcement. The Company intends to vigorously defend against this action. The lawsuit seeks unspecified damages, disgorgement and restitution, together with interest thereon, as well as the costs and expenses of litigation. There is no assurance that the Company will be successful in the defense of the litigation or that insurance will be available or adequate to fund any potential settlement or judgment or the litigation costs of the action. The Company is unable to predict the outcome or reasonably estimate a range of possible loss at this time.
In addition, there has been no material change in the legal proceedings described in Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2021, as amended.
Item 1A. Risk Factors
Our business, results of operations and financial condition are subject to various risks and uncertainties including the risk factors described under the caption “Risk Factors” in our most recent Annual Report on Form 10-K, filed with the SEC on February 28, 2022, as amended on March 28, 2022 and April 19, 2022 (the “2021 Annual Report on Form 10-K”). There have been no material changes to the risk factors described in the 2021 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
Not applicable.
Issuer Purchases of Equity Securities
We did not repurchase any of our equity securities during the three months ended June 30, 2022.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
30
EXHIBIT INDEX
Exhibit Number | Exhibit Description | Filed Herewith | Incorporated by Reference herein from Form or Schedule | Filing Date | SEC File/ Reg. Number | |||||
|---|---|---|---|---|---|---|---|---|---|---|
10.1+ | Offer Letter, dated as of April 1, 2022, by and between Butterfly Network, Inc. and Heather C. Getz. | Form 10-Q (Exhibit 10.1) | 5/6/2022 | 001-39292 | ||||||
10.2+ | Offer Letter, dated as of May 14, 2022, by and between Butterfly Network, Inc. and Lawrence Weiss. | X | ||||||||
10.3+ | Offer Letter, dated as of March 21, 2022, by and between Butterfly Network, Inc. and Tamara Dillon. | X | ||||||||
10.4+ | Amended and Restated Nonemployee Director Compensation Policy. | X | ||||||||
31.1 |
|
| X |
|
| |||||
31.2 |
|
| X |
|
| |||||
32* |
|
| X |
|
| |||||
101.INS |
| Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its Inline XBRL tags are embedded |
| X |
|
|
32
Exhibit Number | Exhibit Description | Filed Herewith | Incorporated by Reference herein from Form or Schedule | Filing Date | SEC File/ Reg. Number | |||||
|---|---|---|---|---|---|---|---|---|---|---|
within the Inline XBRL document. | ||||||||||
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. |
| X |
|
| ||||
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
| X |
|
| ||||
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
| X |
|
| ||||
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document. |
| X |
|
| ||||
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
| X |
|
| ||||
104 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) | X |
+ | Management contract or compensatory plan or arrangement. |
* | The certifications attached as Exhibit 32 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Butterfly Network, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing. |
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BUTTERFLY NETWORK, INC. | ||
Date: August 3, 2022 | By: | /s/ Todd Fruchterman, M.D., Ph.D. |
Todd Fruchterman, M.D., Ph.D. | ||
President and Chief Executive Officer | ||
Date: August 3, 2022 | By: | /s/ Heather C. Getz, CPA |
Heather C. Getz, CPA | ||
Executive Vice President and Chief Financial Officer | ||
34