Executive Summary / Key Takeaways

• Butterfly Network is executing a strategic pivot, leveraging its unique semiconductor-based Ultrasound-on-Chip technology to disrupt the medical imaging market beyond traditional point-of-care ultrasound (POCUS) devices.
• The company delivered strong Q1 2025 results with 20.2% revenue growth and a 31% improvement in adjusted EBITDA loss, building on 25% revenue growth and 42% EBITDA loss improvement in FY 2024, demonstrating operational efficiency gains and commercial momentum.
• Key growth drivers include the successful launch and adoption of the iQ3 probe, a burgeoning "one probe per student" medical school model, progress in securing large enterprise hospital contracts, and expansion into international markets.
• New strategic initiatives like Octiv (chip licensing), Butterfly Garden (AI marketplace), and Butterfly HomeCare (virtual chronic care services) represent significant potential upside, targeting new revenue streams and market expansion beyond the core device business.
• A recent $81.1 million public offering has bolstered liquidity, extending the cash runway into 2027 and providing capital to fund growth initiatives, positioning the company for its stated goal of cash flow independence, though significant risks related to economic conditions and funding uncertainty persist.

The Digital Revolution in Ultrasound: Setting the Scene

Butterfly Network, Inc. (BFLY-WT) is not just another medical device company; it is fundamentally challenging the status quo in medical imaging. Founded with the ambitious goal of democratizing ultrasound, Butterfly set out to replace the bulky, expensive, and complex piezoelectric crystal technology that has dominated the industry for decades with a portable, affordable, and intuitive semiconductor-based solution: the Ultrasound-on-Chip. This foundational technology, enabling whole-body imaging from a single handheld probe, is the cornerstone of Butterfly's strategy to make medical imaging accessible anywhere, from hospital bedsides to remote clinics and eventually, patient homes.

The company's journey has seen it evolve from early product development and market entry with its iQ+ probe to a strategic pivot unveiled at its March 2024 Investor Day. This plan outlined a clear path for accelerating core business growth, expanding into new markets and care settings, investing heavily in semiconductor innovation, and driving towards profitability and significant revenue scale within five years. This strategic shift, coupled with aggressive cost reduction initiatives that have slashed annual cash requirements by approximately $180 million since 2022, underscores Butterfly's determination to control its destiny and capitalize on the vast potential of digital imaging.

The Engine of Innovation: Ultrasound-on-Chip and the Technological Roadmap

At the heart of Butterfly's disruptive potential lies its proprietary Ultrasound-on-Chip technology. Unlike traditional ultrasound probes that rely on vibrating piezoelectric crystals to generate and receive sound waves, Butterfly's chip uses thousands of tiny, programmable membranes (CMUTs) etched onto a silicon wafer. This fundamental difference offers several tangible benefits. Quantitatively, it enables a single probe to perform imaging across a wide range of frequencies, effectively replacing multiple traditional probes required for different applications (e.g., cardiac, abdominal, vascular). While specific manufacturing cost advantages were not detailed quantitatively, the technology's inherent scalability and simpler manufacturing process compared to hand-assembling piezoelectric arrays suggest a potential for lower production costs at scale. The technology also facilitates miniaturization and portability, allowing the device to fit in a healthcare professional's pocket and connect to a smartphone or tablet, a stark contrast to traditional cart-based systems or even many other handheld devices.

Butterfly continues to push the boundaries of this technology through ongoing R&D. The launch of the iQ3 probe marked a significant step forward, addressing previous perceptions about image quality and demonstrating performance characteristics that management believes bring it to parity with, and in some cases surpassing, traditional handheld devices, particularly enhancing cardiac and OB presets. Looking ahead, the development of the fourth-generation P5 chip is particularly exciting. Management reported seeing the first images from the P5 in late 2024, noting that it dramatically increases mechanical pressure and, for the first time in digital imaging, achieves harmonics – described as the "Holy Grail" for digital imaging. This breakthrough is expected to clear the path for Butterfly to enter the ultrasound cart business with a planned Butterfly iQ Station and further enhance the capabilities of future handheld probes. The P5 chip is targeted for production by the end of 2025, with regulatory processes expected to follow, aiming for readiness by the end of 2026. Active development is also underway on wearable ultrasound solutions, linked strategically to the emerging HomeCare use case, though the company is prioritizing market development before rushing the wearable to market.

These technological advancements are critical to Butterfly's competitive moat. While competitors like GE HealthCare (GEHC), Philips (PHG), and Siemens Healthineers (SHLS) possess significant scale, established distribution networks, and advanced AI capabilities integrated into their existing platforms, Butterfly's chip technology provides a fundamental architectural advantage. It enables a more affordable, portable, and versatile device. The ability to achieve harmonics with the P5 chip could directly challenge the image quality perceived advantage of traditional piezo-based systems, potentially eroding the competitive edge of incumbent cart systems. Furthermore, Butterfly's focus on a cloud-connected, software-centric ecosystem, including the upcoming Compass 2.0 software launch in the second half of 2025 with new features and workflows, differentiates it from competitors often seen as extensions of traditional cart workflows. This digital foundation supports AI integration (via Butterfly Garden) and new service models (HomeCare), areas where Butterfly aims to out-innovate larger, more hardware-centric rivals.

Accelerating Core Business Growth and Expanding Reach

Butterfly's strategic focus on accelerating its core POCUS business is yielding tangible results. The company reported Q1 2025 revenue of $21.225 million, a robust 20.2% increase compared to Q1 2024. This growth was fueled by a 25.4% surge in product revenue to $14.164 million, driven primarily by higher sales volume in the US, the impact of the iQ3's higher selling price following its launch, and initial deliveries of semiconductor chips to a new partner. Software and other services revenue also contributed, growing 10.9% to $7.061 million, benefiting from higher enterprise software sales and increased licensing revenue from partnerships, partially offset by a decline in individual subscription renewals. This performance builds on a strong FY 2024, where revenue grew 25% year-over-year to $82.1 million, largely attributed to increased device sales volume and the higher average selling price of the iQ3.

A key driver of this core growth is the company's evolving strategy in the medical education market. Recognizing the long-term value of training future clinicians on its platform, Butterfly is actively transitioning from placing a few probes in labs to a "one probe per student" model. This transformation is gaining traction, with more schools signing up for student probe programs, including a commitment from one of the country's largest colleges of osteopathic medicine. The ScanLab AI training app is a critical enabler here, providing AI-guided instruction that helps students learn independently, addressing the historical barrier of limited ultrasound educators. This strategy is expected to create a more stable, recurring revenue stream and build a loyal user base, with the first graduating class trained on Butterfly expected in 2025.

Simultaneously, Butterfly is making inroads into the enterprise hospital market, a segment traditionally dominated by larger players. Leveraging the validated clinical and economic benefits demonstrated by early adopters like the University of Rochester Medical Center, Butterfly is on the verge of signing its second major hospital enterprise customer – a globally recognized top five hospital. This customer plans to integrate Butterfly's Compass software across its network and commit to Butterfly as its preferred POCUS probe, representing a significant win and potential tailwind for future enterprise deals.

International expansion also remains a priority, with the company focusing on bringing the iQ3 to more regions and expanding its footprint in Asia and Latin America, as well as high-potential global health markets. The successful launch of iQ3 in Europe in Q3 2024, following EU MDR certification, is expected to contribute to international growth in 2025.

Diversifying for Future Scale: New Growth Vectors

Beyond its core POCUS business, Butterfly is actively cultivating new growth vectors outlined in its strategic plan. The formation of Octiv as a wholly-owned subsidiary highlights the company's recognition that its Ultrasound-on-Chip technology is foundational, with potential applications far exceeding medical imaging. Octiv is focused on licensing this technology to partners in non-competitive markets, including medical device, generative AI, defense, and other industries. With 5 partners signed as of Q1 2025 and discussions underway with over 25 prospects, Octiv is positioned to become a material driver of future value. The company intends to sell a minority stake in Octiv, aiming to bring in non-dilutive capital that could potentially bridge Butterfly to cash flow independence.

The Butterfly Garden AI marketplace is another strategic initiative designed to leverage the company's ecosystem and vast image repository (21 million images, growing daily). By partnering with third-party AI developers (23 partners as of Q1 2025), Butterfly is creating an independent marketplace where users can access a growing suite of AI-powered applications for tasks like cardiac echo studies (e.g., DESKi's FDA-cleared HEART Focus app, aiming for Q3 2025 commercialization) and DVT training. This approach allows Butterfly to offer diverse AI tools without the need for costly acquisitions, enhancing the value proposition for its users and creating a new revenue stream from partner commercialization efforts expected to begin contributing in 2025.

Perhaps one of the most potentially transformative initiatives is Butterfly HomeCare. This service business aims to utilize Butterfly's technology, training, and AI tools to support caregivers in managing chronic conditions outside the hospital, initially focusing on reducing readmissions for congestive heart failure (CHF) patients in long-term care and assisted living facilities. A pilot program launched in Q4 2024 is showing promising early results, with no readmissions reported among the scanned CHF pilot population. This initiative demonstrates the feasibility of training non-specialists to perform ultrasound scans and receive remote clinical assistance, potentially leading to significant cost savings for the healthcare system. Management is building confidence to move towards commercial terms this summer, targeting the first agreement by the end of 2025. HomeCare, if successful, has the potential to rival Butterfly's current revenues in the future, representing a substantial new PMPM (per member per month) revenue stream.

Financial Performance and Outlook

Butterfly's recent financial performance reflects its strategic execution and focus on efficiency. In Q1 2025, the company reported a gross profit of $13.380 million, resulting in a gross margin of 63.0%, an improvement from 58.2% in Q1 2024. This margin expansion was primarily driven by the decrease in capitalized software amortization and lower cloud hosting costs, alongside the impact of higher average selling prices for products. Operating expenses totaled $31.848 million in Q1 2025, a decrease from $32.897 million in Q1 2024. This reduction was mainly due to lower R&D personnel costs (resulting from a 2024 business transformation initiative) and decreased general and administrative expenses (lower insurance, personnel, and professional fees), partially offset by increased sales and marketing investments to support growth. The net result was a Q1 2025 net loss of $13.967 million, an improvement from a $21.761 million net loss in Q1 2024. Adjusted EBITDA loss also significantly improved, narrowing to $9.1 million in Q1 2025 from $13.2 million in Q1 2024.

This margin expansion was primarily driven by the decrease in capitalized software amortization and lower cloud hosting costs, alongside the impact of higher average selling prices for products. Operating expenses totaled $31.848 million in Q1 2025, a decrease from $32.897 million in Q1 2024. This reduction was mainly due to lower R&D personnel costs (resulting from a 2024 business transformation initiative) and decreased general and administrative expenses (lower insurance, personnel, and professional fees), partially offset by increased sales and marketing investments to support growth. The net result was a Q1 2025 net loss of $13.967 million, an improvement from a $21.761 million net loss in Q1 2024. Adjusted EBITDA loss also significantly improved, narrowing to $9.1 million in Q1 2025 from $13.2 million in Q1 2024.

Liquidity was significantly enhanced by a public offering completed on January 31, 2025, which generated net proceeds of $81.1 million. As of March 31, 2025, cash and cash equivalents stood at $155.2 million. This capital infusion, combined with ongoing cost discipline (including an additional $10 million annualized reduction from a July 2024 initiative), has extended the company's cash runway into 2027. Management expects existing cash and cash flows to fund operations for at least the next 12 months, providing a bridge to cash flow independence. Material cash requirements include fixed obligations for leases ($27.1M total, $3.7M current), technology licenses ($14.0M total, $3.5M current), and inventory purchase commitments ($2.9M total, all current).

For the full year 2025, Butterfly reiterated its guidance, projecting revenue between $96 million and $100 million, representing approximately 20% growth. Adjusted EBITDA loss is guided to be in the range of $37 million to $42 million. This guidance prudently excludes incremental revenue from new Octiv licensing deals signed in 2025 and commercial HomeCare agreements, framing these as potential upside. Q2 2025 guidance anticipates revenue of $23 million to $24.5 million and an adjusted EBITDA loss of $9 million to $10 million. Management's confidence in achieving these targets is based on the momentum in the core business and the diversification provided by new initiatives, while acknowledging potential headwinds.

Risks and Challenges

Despite the positive momentum and strategic vision, Butterfly faces notable risks. Macroeconomic pressures and uncertainties regarding healthcare funding (NIH, USAID, Medicaid) could cause deals to take longer to close, potentially impacting revenue growth, particularly in the near term as institutions seek clarity on funding plans. While direct tariff exposure is currently small, potential changes could increase costs. The company also faces ongoing litigation and legal matters, the outcomes of which are uncertain and could result in significant costs or liabilities.

Competition remains intense, with larger, well-funded players like GE HealthCare, Philips, and Siemens Healthineers dominating the broader medical imaging market. While Butterfly's technology offers unique advantages in portability and affordability, these competitors possess established customer relationships, extensive sales channels, and robust R&D budgets. Butterfly's ability to execute its strategy and gain market share will depend on its continued technological innovation, effective commercialization, and successful navigation of complex healthcare procurement processes. The success of new ventures like Octiv, Garden, and HomeCare is not guaranteed and will require significant investment and execution to translate potential into material revenue contributions.

Conclusion

Butterfly Network is at a pivotal juncture, transitioning from a single-product company focused on handheld ultrasound to a diversified digital health platform leveraging its unique semiconductor technology across multiple markets and service models. The company's Ultrasound-on-Chip provides a foundational technological advantage, enabling portability, affordability, and future advancements like harmonics, positioning Butterfly to challenge traditional players in both the handheld and potentially the cart-based ultrasound markets. Recent financial performance demonstrates solid execution, with strong revenue growth and improving profitability metrics, supported by strategic cost reductions and a significant capital raise that provides a runway to pursue its growth ambitions.

The investment thesis hinges on Butterfly's ability to continue accelerating its core POCUS business through successful iQ3 adoption, medical school penetration, and enterprise wins, while simultaneously scaling its new growth vectors in chip licensing (Octiv), AI marketplaces (Garden), and virtual chronic care services (HomeCare). While risks related to macroeconomic conditions, funding uncertainty, and intense competition persist, the company's differentiated technology, expanding product and service portfolio, and demonstrated operational discipline offer a compelling narrative for long-term value creation. Investors should closely monitor the progress of the HomeCare pilot towards commercialization, the timing and impact of new Octiv partnerships, the adoption of Garden AI applications, and the development timeline and performance of the P5 chip and iQ Station as key indicators of Butterfly's potential to unlock the full promise of digital imaging.