Executive Summary / Key Takeaways

• Disruptive Technology Driving Adoption: Butterfly Network is transforming medical imaging with its proprietary semiconductor-based Ultrasound-on-Chip technology, enabling portable, affordable, and AI-enhanced POCUS that is gaining traction in diverse settings from medical schools to enterprise hospitals.
• Diversified Growth Pathways: Beyond its core product sales, Butterfly is strategically expanding into new revenue streams through its AI marketplace (Butterfly Garden), chip licensing subsidiary (Octiv), and a promising HomeCare service model, aiming to leverage its foundational technology for exponential growth.
• Financial Discipline and Improving Profitability: The company has demonstrated strong fiscal discipline, achieving record quarterly revenue and gross margins in Q2 2025, significantly reducing cash burn, and improving adjusted EBITDA despite ongoing investments.
• Near-Term Headwinds, Long-Term Bullishness: While macroeconomic pressures and lengthened sales cycles have led to a revised 2025 revenue outlook, management remains highly confident in Butterfly's long-term growth potential, driven by its cost-effective solutions and expanding market opportunities.
• Competitive Edge in a Shifting Landscape: Butterfly's lead-free, digital technology and comprehensive software ecosystem position it as a formidable disruptor against traditional ultrasound giants, particularly as healthcare shifts towards more accessible, point-of-care solutions.

The Digital Revolution in Ultrasound

Butterfly Network, Inc. is at the forefront of a profound transformation in medical imaging, aiming to democratize ultrasound by making it accessible, affordable, and intelligent. Founded in 2011, the company's journey has been marked by a relentless pursuit of innovation, culminating in its proprietary semiconductor-based Ultrasound-on-Chip technology. This foundational technology is not merely an incremental improvement; it represents a paradigm shift from traditional piezoelectric crystal-based devices, enabling whole-body imaging from a single handheld probe. This core differentiation allows Butterfly to integrate seamlessly with clinical workflows via cloud-connected software, accessible on smartphones, tablets, and hospital systems.

The company's overarching strategy is built on accelerating growth in its core point-of-care ultrasound (POCUS) business, investing heavily in R&D to maintain technological leadership, expanding into new care settings like home services, and executing efficiently to drive double-digit growth towards cash flow breakeven. This vision positions Butterfly to thrive in a healthcare environment increasingly focused on cost containment and decentralized care.

Technological Edge: The Heart of Butterfly's Disruption

Butterfly's competitive moat is deeply rooted in its Ultrasound-on-Chip technology, which fundamentally redefines ultrasound imaging. Unlike traditional probes that rely on fragile, expensive piezoelectric crystals, Butterfly's silicon-based CMUT (Capacitive Micromachined Ultrasonic Transducer) chip allows for a single probe to perform whole-body imaging. This design offers significant advantages, including enhanced durability, miniaturization, and a more cost-effective manufacturing process, contributing to a lower average selling price (ASP) for its devices.

The launch of the Butterfly iQ3 in early 2024 marked a pivotal moment, proving the technology's ability to achieve image quality parity with, and even surpass, traditional handheld devices. The iQ3, which accounted for 50% of total unit sales and 58% of probe revenue in 2024, delivered higher ASPs, increasing the MSRP by $1,200. This success directly addressed prior perceptions about image quality, demonstrating that Butterfly could "go toe to toe and win against the largest imaging companies in the world."

Looking ahead, Butterfly's R&D roadmap is even more ambitious. The upcoming fourth-generation P5 chip, which has already produced its first images, is described as a "next revolution." P5 dramatically increases mechanical pressure and, for the first time in digital imaging, achieves harmonics—a "Holy Grail" for digital imaging previously thought impossible. This breakthrough is expected to clear the path for Butterfly to enter the ultrasound cart business with its planned Butterfly iQ Station, directly challenging established players like GE HealthCare , Philips , and Siemens in a multi-billion dollar market. The P5 chip will also be integrated into Butterfly's handheld probes, delivering "the most powerful handheld image in the world." This continuous semiconductor development path is crucial, as it "will continue to improve this price performance advantage with each subsequent generation."

Furthermore, Butterfly is leveraging its lead-free technology in the European market. The company has actively engaged with EU officials to advocate for the revocation of RoHS lead exemptions for piezoelectric handheld ultrasound devices. Butterfly is the first commercial ultrasound product to meet RoHS environmental standards without exemption, positioning its technology as an environmentally superior alternative. This initiative, if successful, could create a significant competitive barrier for traditional manufacturers, who currently "legally label themselves RoHS compliant even if it's under an exemption," effectively selling lead-based products.

Strategic Pillars for Market Capture

Butterfly's growth strategy extends across several key pillars, each designed to expand its market footprint and diversify revenue streams.

Core POCUS Business Expansion

The company is deeply embedding its technology within medical education, recognizing that "students want to begin their medical training with a Butterfly of their own." This has led to a "one-probe-per-student" model, with more schools committing to programs where the device is incorporated into tuition or purchased through campus stores. This strategy cultivates a pipeline of loyal users, as the first graduating class in 2025 with four years of Butterfly training will be "clearly distinguished and simply better residents than their peers."

In the enterprise hospital segment, Butterfly is making significant inroads. The company recently closed a large enterprise-wide deal with one of the "top 5 most recognized health systems in the world," which plans to deploy Butterfly in every department and campus. This system had already organically amassed approximately 700 probes, demonstrating a groundswell of adoption that Butterfly is now formalizing with system-wide software integration. This success, coupled with published data from the University of Rochester Medical Center highlighting the clinical and economic ROI of scaled Butterfly deployments, is driving broader implementations across other institutions.

International expansion remains a key focus, with the iQ3 launching in Europe and new markets like Indonesia, Netherlands, and Belgium opening in 2024. The company's veterinary business also saw strong growth, with a 50% year-over-year revenue increase in Q3 2024, supported by research demonstrating Butterfly's utility in monitoring bovine respiratory disease.

Software Ecosystem and AI Integration

Butterfly's software platform, Compass, is central to its enterprise strategy, providing imaging workflow, QA, storage, and interoperability. The upcoming launch of Compass AI in the second half of 2025 is anticipated to be a "game changer." This next-generation software aims to reduce documentation steps through advanced AI tools, including automated scan completeness and quality checks, and voice control for rapid note capture. Simplifying documentation is critical for scaled Compass deployment within health systems, making it "even more compelling for new enterprise customers."

The Butterfly Garden, an AI marketplace, continues to expand, adding two new partners in Q2 2025, bringing the total to 23. Several partners, including iCardio, HeartFocus by DESKi, and Deep Echo, received FDA clearance in H1 2025 for clinical use, with HeartFocus expected to launch in Q3 2025. These AI tools enable cardiac and pulmonary scanning by healthcare professionals without prior ultrasound training, significantly expanding the POCUS market. Butterfly also launched MSK VUE, an educational app developed with the University of Rochester Medical Center, and added a descending aorta scanning protocol to its ScanLab educational software.

New Revenue Streams: Octiv and HomeCare

Beyond its core product and software sales, Butterfly is cultivating two significant new revenue streams:

• Octiv: This wholly-owned subsidiary is tasked with commercializing Butterfly's chip technology through licensing and sales to partners in non-competitive markets. Management believes the "market opportunity outside of Butterfly's use of the chip may actually be far greater than Butterfly's opportunity alone." Octiv is already having a "growing positive impact" on the top and bottom line, with chip sales contributing to Q2 2025 product revenue. The company is partnering with a generative AI company to pioneer new imaging technology and is in discussions with over 25 other prospects across diverse sectors, including medical devices, pharma, surgical robotics, and non-healthcare industries like defense and oil & gas. These new partnerships are expected to contribute revenue in 2025.
• Butterfly HomeCare: This service business leverages Butterfly's technology and training to manage chronic conditions outside the hospital, initially focusing on reducing hospital readmissions for congestive heart failure (CHF) patients. A pilot program concluded in Q2 2025, demonstrating that medical professionals without prior ultrasound training could acquire images for remote cardiologist diagnosis, leading to a "meaningful financial and clinical reduction in readmissions," cutting the readmission rate "at least by half." The company is actively negotiating its first commercial agreement, anticipated within months, with the potential to represent "$40 million to $60 million of new revenue to Butterfly for this one service line in this one customer" if deployed nationwide. This initiative represents a "new paradigm of healthcare," enabling earlier diagnosis and significant cost savings for at-risk providers.

Financial Performance: A Trajectory of Discipline and Growth

Butterfly Network's recent financial performance reflects its strategic execution and a strong commitment to fiscal discipline. In Q2 2025, the company achieved its highest quarterly revenue in history, reaching $23.4 million, representing a 9% year-over-year growth. This was driven by higher average selling prices, chip sales to Octiv partners, and international volume, partially offset by lower domestic probe sales as the iQ3 launch anniversary passed.

Gross margins reached an all-time high of 64% in Q2 2025, up from 59% in Q2 2024, driven by higher ASPs, chip sales, and improved software and services margins due to reduced software amortization and lower hosting costs. This margin expansion is critical as the company scales. For the first half of 2025, total revenue was $44.6 million, a 14% increase over H1 2024. Product revenue grew 18.7% to $30.8 million, while software and other services revenue increased 4.7% to $13.8 million. The software and services mix decreased to 28.9% in Q2 2025 as product revenue growth outpaced software.

Operating expenses show a mixed but disciplined trend. Research and development expenses decreased by 11.6% in Q2 2025 due to personnel cost reductions from a 2024 business transformation. Sales and marketing expenses increased by 18.8%, reflecting strategic investments in sales force and marketing to support revenue growth. General and administrative expenses decreased by 9.4% due to lower personnel and professional service costs. The company's adjusted EBITDA loss improved by 24% to $6.2 million in Q2 2025, and its cash use was the lowest in any quarter at $7.1 million. The trailing 12-month cash use was $46 million.

For the full year 2024, Butterfly delivered $82.1 million in revenue, a 25% top-line growth, while improving adjusted EBITDA by 42% to a loss of $38.9 million. A public offering in January 2025 raised $81.0 million net, bolstering the cash position to $148.1 million at the end of Q2 2025 and providing a "bridge to cash flow independence." Management expects existing cash to be sufficient for at least the next 12 months.

Competitive Landscape: Disrupting Giants

Butterfly Network operates in a competitive medical imaging market dominated by established players like GE HealthCare Technologies (GEHC), Koninklijke Philips N.V. (PHG), and Siemens AG (SI). These incumbents offer a broad range of medical imaging solutions, including traditional ultrasound carts and handheld devices. However, Butterfly's unique technological foundation and strategic approach position it as a formidable disruptor.

While GEHC, PHG, and SI boast significantly larger market shares (GEHC ~25-30% in imaging, PHG ~15-20% in ultrasound, SI ~15-20% in imaging) and robust financial profiles (e.g., GEHC's 45-48% gross margins, PHG's 42-45%, SI's 40-43%, all with positive operating margins and free cash flow), Butterfly's TTM gross margin of 61.97% indicates a strong unit economic advantage, though its overall operating and net margins remain negative due to high R&D and scaling investments. Butterfly's revenue growth, initially projected at 20-25% and now revised to 13-15% for FY2025, generally outpaces the more mature competitors (GEHC 8-10%, PHG 6-8%, SI 7-9%).

Butterfly's core competitive advantages stem from its proprietary Ultrasound-on-Chip technology, which enables superior portability, lower manufacturing costs, and a single probe for whole-body imaging. This allows Butterfly to offer a "much more affordable solution at scale than the current cart-based ultrasound solutions." While competitors offer feature-rich systems, Butterfly's focus on user-friendly design, AI-driven software, and direct sales/eCommerce channels provides a qualitatively easier and faster deployment model.

In the enterprise space, Butterfly is "blazing trails" by engaging hospitals and medical schools at a scale previously unseen for handheld ultrasound, creating new market segments rather than merely displacing existing programs. Its software, Compass, is designed to aggregate data from various devices, enabling seamless integration with hospital systems and revenue cycle management, a competitive edge against older, more limited data aggregation technologies. The company's push for RoHS lead exemption revocation in Europe further highlights its environmental and technological superiority, putting pressure on competitors still relying on lead-based piezoelectric crystals.

Outlook and Risks: Charting the Future

Butterfly Network has revised its full-year 2025 guidance to reflect persistent macroeconomic headwinds and lengthened sales cycles for larger deals. The company now expects full-year 2025 revenue in the range of $91 million to $95 million, representing approximately 13% growth. This is a downward adjustment from the previous guidance of $96 million to $100 million. Management noted that while large enterprise and medical school opportunities remain active, their sales cycles have been extended as customers delay purchase decisions due to uncertainties regarding healthcare funding and capital budgets.

Despite the revenue revision, Butterfly has made a positive adjustment to its adjusted EBITDA loss guidance, now expecting a range of $32 million to $37 million (a $5 million improvement from previous guidance). This reflects the company's continued "fiscal discipline" and "disciplined approach to expense control." For Q3 2025, the company anticipates revenue between $20 million and $22 million, with an adjusted EBITDA loss of $8 million to $9 million.

Management remains "bullish about the long-term growth potential for Butterfly," believing its "inherent value proposition will actually thrive in the further cost-contained environment." The company's strategic initiatives, including Octiv and HomeCare, are expected to become meaningful revenue drivers in the future, although their contributions are not yet fully factored into the core 2025 guidance due to timing uncertainties.

Key risks include the ongoing macroeconomic uncertainty, which could continue to lengthen sales cycles and impact funding for global health initiatives. Litigation risks, including class action and stockholder derivative lawsuits, also present potential financial and reputational challenges, though the company intends to vigorously defend against them. While direct tariff exposure is minimal, broader economic pressures could impact the company's ability to fully offset higher costs through price increases or manufacturing efficiencies.

Conclusion

Butterfly Network stands at a pivotal juncture, poised to redefine medical imaging with its groundbreaking semiconductor-based ultrasound technology. The company's journey, marked by innovation, strategic diversification, and a renewed focus on fiscal discipline, has positioned it as a compelling investment in the evolving healthcare landscape. Despite near-term macroeconomic headwinds that have necessitated a cautious adjustment to 2025 revenue guidance, Butterfly's core investment thesis remains robust.

The unique technological advantages of its Ultrasound-on-Chip, exemplified by the iQ3's market acceptance and the transformative potential of the P5 chip and iQ Station, provide a durable competitive moat. Coupled with expanding software ecosystems like Compass AI and Butterfly Garden, and the promising new revenue streams from Octiv and HomeCare, Butterfly is building a diversified growth engine. The company's ability to deliver affordable, portable, and AI-powered solutions, while demonstrating improving financial metrics and a clear path to cash flow independence, underscores its potential to capture significant market share and drive long-term value for investors.