Executive Summary / Key Takeaways

• Transformative Technology at the Core: Butterfly Network is pioneering the digital transformation of ultrasound with its proprietary semiconductor-based Ultrasound-on-Chip technology, offering unparalleled portability, affordability, and integration with AI, setting it apart from traditional piezo-based systems.
• Diversified Growth Engines: Beyond its core point-of-care ultrasound (POCUS) device sales, Butterfly is strategically expanding through its AI marketplace (Butterfly Garden), chip licensing program (Octiv), and innovative HomeCare services, creating multiple avenues for future revenue and market expansion.
• Strong Financial Discipline Amidst Headwinds: The company demonstrated robust financial management in Q3 2025, achieving revenue at the higher end of guidance and significantly improving adjusted gross margins to 63.9% (excluding a non-recurring inventory write-off), while maintaining a disciplined cash burn and extending its liquidity runway.
• AI as a Catalyst for Adoption: AI tools, such as the auto beeline counter validated by the POCUS CARE trial (reducing hospital stays by 30% and generating over $750,000 in cost savings), and upcoming Compass AI software, are proving critical in enhancing clinical utility, simplifying workflows, and driving enterprise adoption.
• Long-Term Vision with Near-Term Challenges: While macroeconomic pressures have led to delayed large enterprise deals and individual subscription churn, management remains highly confident in its long-term growth trajectory, projecting full-year 2025 revenue of $91 million to $95 million and an adjusted EBITDA loss of $32 million to $35 million, with significant upside potential from new initiatives not yet fully factored into guidance.

The Digital Revolution in Ultrasound: Setting the Scene

Butterfly Network, Inc. (NYSE:BFLY) is at the forefront of a profound shift in medical imaging, aiming to democratize ultrasound through its innovative, portable, semiconductor-based technology. Since its incorporation in 2020 and particularly under the leadership of Chairman and CEO Joseph DeVivo, the company has embarked on a strategic journey to transform healthcare by making medical imaging more accessible and integrated into everyday clinical workflows. This vision positions Butterfly as a disruptor in an industry long dominated by traditional, cart-based, and often expensive piezoelectric ultrasound systems.

The broader healthcare landscape is increasingly embracing digital health solutions, point-of-care ultrasound (POCUS), and artificial intelligence (AI) to enhance efficiency, reduce costs, and improve patient outcomes. Butterfly's strategy is deeply intertwined with these trends, focusing on delivering affordable hardware that fits in a healthcare professional's pocket, paired with cloud-connected software accessible via mobile applications. This approach directly addresses the historical barriers of cost, accessibility, and specialized training that have limited the widespread adoption of ultrasound. The company's journey has been marked by significant operational efficiencies, reducing annual cash requirements by approximately $180 million to less than $50 million since 2022, underscoring a commitment to fiscal discipline alongside aggressive innovation.

Technological Edge: The Silicon Heart of Imaging

Butterfly Network's core differentiator lies in its proprietary Ultrasound-on-Chip technology, a fundamental departure from conventional piezoelectric crystal-based ultrasound devices. This semiconductor-based approach enables a single handheld probe to perform whole-body imaging, a tangible benefit that simplifies user interfaces and potentially lowers training requirements. The technology's inherent portability and integration with smartphones or tablets make it uniquely suited for point-of-care use in diverse settings, from bustling emergency rooms to remote clinics.

The company's commitment to innovation is evident in its product roadmap. The iQ3 probe, launched in 2024, has been a resounding commercial success, accounting for 85% of probe volume in Q3 2025 and driving higher average selling prices (ASPs). Building on this, Butterfly has completed development of its P5.1 chip, which is now entering fab production. This next-generation chip is designed to integrate advanced MEMS capabilities that significantly increase the mechanical pressure associated with imaging, a feat previously deemed challenging for CMUT technology. Management anticipates the P5.1 will debut in a new form factor in the second half of 2026 and has the potential to "make piezo handhelds a thing of the past for nearly all use cases". This technological leap is expected to deliver superior image quality and further enhance Butterfly's competitive moat by offering a compelling alternative to traditional systems.

Further into the future, Butterfly has initiated development of its sixth-generation Apollo AI chip. This ambitious project aims to deliver not only lightning-fast ultrasound processing but also local AI capabilities at the edge. The Apollo AI chip is designed with a scalable architecture that seamlessly fuses Butterfly's proprietary ultrasound front end with advanced digital processing, resulting in a much smaller chip size and greater power efficiency. This will translate into even better image quality and expanded capabilities across a broad range of clinical applications, supporting both on-device and edge AI acceleration. The strategic intent behind these chip developments is to continually improve the price-performance advantage of Butterfly's technology, thereby strengthening its market positioning and long-term growth prospects.

Strategic Pillars: Expanding the Ecosystem

Butterfly's growth strategy extends beyond hardware sales, encompassing a multi-faceted approach to build a comprehensive digital health ecosystem.

Core POCUS Business and Enterprise Expansion

The company is actively driving enterprise sales by building on individual user adoption to integrate Butterfly more holistically within health systems. This strategy is gaining traction, with a second major hospital enterprise customer, consistently ranked among the top five globally, committing to integrate Butterfly's Compass software across its network. This institution has already amassed approximately 600 Butterfly probes, demonstrating the organic proliferation of the technology within healthcare settings. The upcoming launch of Compass AI (also referred to as Compass 2.0) before year-end is expected to be a "game changer", simplifying documentation, enabling faster record completion through automated tools, voice control, and auto-populating fields, thereby making large-scale hospital use more effective.

Medical school adoption is another critical component of the core business, fostering long-term brand loyalty. Butterfly has seen increasing numbers of schools, including one of the country's largest osteopathic colleges, adopt a one-probe-per-student model, integrating the device into tuition or offering it through campus stores. This ensures that future generations of healthcare professionals are trained on Butterfly technology, creating a recursive revenue stream and a pipeline of loyal users.

Butterfly Garden: The AI Marketplace

The Butterfly Garden is an innovative AI marketplace designed to expand the utility of POCUS by deploying AI tools to caregivers, including those without extensive ultrasound training. This ecosystem allows Butterfly users to access partner applications that guide probe placement, capture quality images, and support faster scans. In Q3 2025, HeartFocus from DESKi became the first FDA-cleared Butterfly partner app to launch in the Garden, enabling non-specialists to perform limited cardiac echoes. This significantly broadens the potential user base and applications for Butterfly devices.

Furthermore, Butterfly's AI strategy is yielding tangible results. The POCUS CARE trial from Rutgers Robert Wood Johnson Medical School, published in JAMA, highlighted the real-world impact of Butterfly's AI lung tool, improving clinical management in 35% of cases, reducing hospital length of stay by 30%, and generating over $750,000 in direct cost savings in an evaluation of over 200 patients. The company also launched a first-to-market AI Gestational Age Tool in Malawi and Uganda, developed with the Gates Foundation and the University of North Carolina, which automatically calculates fetal age using simple sweeps, requiring no specialized training. These initiatives underscore AI's role as a significant accelerator for Butterfly's growth and its mission to improve patient access to timely care.

Octiv: Unlocking Chip Technology Beyond POCUS

Octiv, Butterfly's wholly-owned subsidiary, is tasked with commercializing its proprietary Ultrasound-on-Chip technology through partnerships in non-competitive markets. This strategic pillar has the potential to fundamentally transform Butterfly from a POCUS company into an ultrasound chip company with a POCUS business, multiplying its total addressable market. By Q4 2024, Octiv had secured five partners, including Sonic Incytes for fatty liver disease assessment, a neuroscience company, and a leading generative AI company. The Octiv team is actively engaging with over 25 prospects across diverse sectors, including medical devices, pharmaceuticals, surgical robotics, defense, and even oil and gas. These partnerships contribute to product revenue through chip sales and to software and other services revenue through licensing, with management anticipating Octiv to become a "meaningful part of the business".

Butterfly HomeCare: A New Paradigm for Chronic Disease Management

The Butterfly HomeCare initiative represents a significant step towards new care delivery models, focusing on providing lung ultrasound services to patients in long-term care and assisted living facilities. A pilot agreement in Wisconsin demonstrated that nurse practitioners, trained with Butterfly probes, AI-guided tools, and Compass software, could acquire necessary images for remote cardiologists, leading to a "meaningful financial and clinical reduction in readmissions" for congestive heart failure patients. Notably, during the pilot, no patients needed transfer for scanning, and none were readmitted to the hospital.

Management estimates that deploying this solution for one population nationwide could generate $40 million to $60 million of new revenue for Butterfly. The company is actively negotiating commercial terms to launch in the first state before the end of 2025. This initiative leverages Butterfly's entire technology stack—hardware, AI, software, and educational capabilities—to address a high-cost use case in healthcare, proving the model for a highly scalable, new paradigm of care.

Financial Performance: A Trajectory Towards Efficiency

Butterfly Network's recent financial performance reflects a company focused on growth and increasing operational efficiency, even amidst a challenging macroeconomic environment. For the three months ended September 30, 2025, total revenue reached $21.5 million, marking a 5% increase over the prior year period and landing at the higher end of guidance. For the nine months ended September 30, 2025, total revenue grew to $66.1 million, an increase of 10.7% compared to the same period in 2024.

Product revenue in Q3 2025 was $14.6 million, up 7.5% year-over-year, primarily driven by higher average selling prices in international markets following the iQ3 launch and increased sales volume in e-commerce and veterinary channels. Software and other services revenue, however, remained relatively flat at $6.9 million in Q3 2025, experiencing a slight decrease of 1.3% year-over-year. This was attributed to lower renewals of individual subscriptions and reduced revenue from extended warranties for the iQ3, partially offset by increased licensing and services revenue from partnerships. The software and other services mix has recently decreased as product revenue growth, particularly from the iQ3, has outpaced software revenue.

Gross profit for Q3 2025 was a loss of $3.8 million, primarily due to a non-recurring $17.4 million charge for excess and obsolete inventory. This charge resulted from stronger-than-expected market adoption of the iQ3 probe, which accounted for approximately 85% of probe volume in Q3 2025, leading to a revision of assumptions for the previous generation iQ+ chips. Excluding this charge, the adjusted gross margin significantly improved to 63.9% in Q3 2025, up from 60% in the prior year period, driven by higher ASPs and reduced software amortization costs.

Operating expenses saw some shifts, with "other" expenses increasing by $1.1 million in Q3 2025 due to higher legal costs from litigation, partially offset by lower employment-related costs. Despite these fluctuations, the adjusted EBITDA loss for Q3 2025 improved to $8.1 million, compared to a loss of $8.4 million in the same period of 2024.

From a liquidity standpoint, Butterfly Network is well-positioned. The company raised $81 million net from a public offering in January 2025. As of September 30, 2025, cash and cash equivalents stood at $144.2 million, with total cash, cash equivalents, and restricted cash at $148.2 million. The normalized cash burn was $3.9 million in Q3 2025, and the trailing 12-month use of cash was $31.5 million. Management expects existing cash and cash flows from operations to be sufficient for at least the next 12 months.

Competitive Arena: Outmaneuvering Giants

Butterfly Network operates in a competitive landscape dominated by large, established medical imaging companies like GE Healthcare (GEHC), Philips Healthcare (PHG), and Siemens Healthineers (SHLS). However, Butterfly has carved out a distinct position as a challenger and disruptor, particularly in the mobile POCUS market. Its core competitive advantage stems from its proprietary semiconductor-based technology, which enables a single, highly portable probe for whole-body imaging, a stark contrast to the multi-probe, often cart-based systems of its rivals.

While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Butterfly's iQ3 probe has demonstrated its ability to "go toe to toe and win against the largest imaging companies in the world". The company's cost advantage, coupled with its cloud and AI capabilities, provides a significant differentiator. Competitors generally rely on on-premise software and are not as deeply integrated with cloud connectivity, which Butterfly views as a strategic weakness for them as the industry shifts towards connected imaging devices. Butterfly's strengthened global information security posture with ISO 27001 and other international certifications further reinforces its cloud platform as "safe, trusted and enterprise-ready".

The company's semiconductor development path, particularly with the P5.1 and Apollo AI chips, is designed to continually improve its price-performance advantage. Management believes the P5.1 chip will "surpass them entirely with the potential to make piezo handhelds a thing of the past for nearly all use cases". This technological superiority, combined with a focus on affordability and direct-to-provider sales, allows Butterfly to democratize ultrasound and expand its market reach. The upcoming IQ Station, a cart-based POCUS solution, is also designed to compete directly with existing point-of-care ultrasound carts, accessing established hospital budgets.

Despite these strengths, Butterfly faces competitive disadvantages due to its smaller scale compared to industry giants, which can lead to higher customer acquisition costs. However, its strategic focus on innovation, particularly in AI-driven solutions like Compass AI and the Butterfly Garden, enables it to outmaneuver larger, less agile competitors. The company's strategy of building a market for new applications, rather than solely displacing incumbents, allows it to create new revenue opportunities where traditional ultrasound has not penetrated.

Outlook and Risks: Charting the Future Course

Butterfly Network has reaffirmed its full-year 2025 revenue guidance in the range of $91 million to $95 million, which implies a Q4 2025 revenue of $25 million to $29 million. The full-year adjusted EBITDA loss guidance has been tightened to a range of $32 million to $35 million, implying a Q4 2025 adjusted EBITDA loss of $9 million to $12 million. Achieving the higher end of the revenue range is contingent on closing larger deals in the pipeline that have experienced delays.

Management anticipates a return to momentum in 2026, with potential early signs in Q4 2025, as healthcare institutions adjust to macroeconomic changes and new budget cycles. The outlook is underpinned by the expected commercialization of the HomeCare business, the continued expansion of Octiv partnerships, the launch of Compass AI, and the introduction of next-generation chips like P5.1 and Apollo AI. These initiatives represent significant growth drivers not yet fully reflected in current guidance, offering substantial upside potential.

However, several risks could impact this outlook. Macroeconomic headwinds, including uncertainty around healthcare funding (e.g., USAID cuts) and broader economic pressures, have led to customers delaying purchase decisions, particularly for large enterprise deals and global health initiatives. While a federal government shutdown had not directly impacted the company as of October 31, 2025, a prolonged closure could delay deal timing and regulatory processes. The company also recognized a non-recurring $17.4 million charge for excess and obsolete inventory in Q3 2025 due to the rapid adoption of iQ3 over its predecessor, highlighting the risk of inventory management in a fast-evolving technological landscape. Legal proceedings, including class action and stockholder derivative lawsuits, also present an ongoing, albeit unquantifiable, risk. Furthermore, the company continues to experience churn in individual software subscriptions, a challenge it aims to address by making its software more "sticky".

Conclusion

Butterfly Network stands at a pivotal juncture, transforming the medical imaging landscape with its innovative semiconductor-based ultrasound technology and a robust ecosystem of AI-powered software and services. The company's journey, marked by strategic diversification into areas like Butterfly Garden, Octiv, and HomeCare, demonstrates a clear vision to expand beyond traditional POCUS device sales and establish new, scalable revenue streams. Despite facing macroeconomic headwinds that have temporarily lengthened sales cycles for large deals, Butterfly's commitment to fiscal discipline and continuous innovation remains unwavering.

The successful launch of iQ3, the imminent debut of Compass AI, and the promising developments of the P5.1 and Apollo AI chips underscore Butterfly's technological leadership and its potential to redefine point-of-care ultrasound. The early successes of the HomeCare pilot, demonstrating significant clinical and economic benefits, highlight the transformative power of Butterfly's integrated solution. While challenges such as delayed deals and individual subscription churn persist, the company's strategic positioning, technological superiority, and disciplined execution provide a compelling investment thesis for those looking to capitalize on the digital revolution in healthcare. Butterfly Network is not merely selling devices; it is building a new paradigm of care, poised for long-term growth as it continues to make ultrasound ubiquitous and intelligent.