Butterfly Network, Inc. (BFLY) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals mixed signals: strong product revenue growth and improved EBITDA loss contrast with a negative gross margin due to inventory write-off. Optimistic guidance for Compass AI and Octiv initiatives is offset by delayed deals and flat software revenue. Q&A highlights confidence in the pipeline but acknowledges extended sales cycles and uncertain timelines for partnerships. Without a market cap, the impact is hard to gauge, but overall, the balanced positives and negatives suggest a neutral sentiment, indicating a stock price movement between -2% and 2%.
Key Financial Performance
Revenue for Q3 2025 $21.5 million, reflecting 5% growth year-over-year. This growth was primarily driven by higher average selling prices from a larger percentage of iQ3 sales internationally and increased volume mainly in the U.S.
International Revenue for Q3 2025 $5.4 million, a 4% increase year-over-year. The increase was driven by price due to the international launch of iQ3 in Q3 2024.
U.S. Revenue for Q3 2025 $16.1 million, slightly up from the prior year. The increase was due to e-commerce sales and improved performance in the veterinary distribution channel.
Product Revenue for Q3 2025 $14.6 million, an 8% increase year-over-year. This was driven by higher average selling prices in international markets and increased volume in e-commerce and veterinary channels.
Software and Other Services Revenue for Q3 2025 $6.9 million, flat year-over-year. Increased licensing and services revenue from partnerships was offset by lower renewals of individual subscriptions and lower revenue from extended warranties due to longer standard warranties of iQ3 probes.
Gross Margin for Q3 2025 (including inventory write-off) Negative 17.5%, compared to 59.5% in the prior year. This decline was due to a noncash write-off of excess inventory of $17.4 million.
Adjusted Gross Margin for Q3 2025 (excluding inventory write-off) 63.9%, up from 60% in the prior year. The increase was driven by higher average selling prices and reduced software amortization costs.
Adjusted EBITDA Loss for Q3 2025 $8.1 million, compared to a loss of $8.4 million in Q3 2024. The improvement was driven by better adjusted gross profit.
Normalized Cash Burn for Q3 2025 $3.9 million. This reflects reductions and improvements in financial management.
Cash and Cash Equivalents at the End of Q3 2025 $148 million. The trailing 12-month use of cash was $31.5 million.
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Operating Highlights
iQ3 adoption: Strong market adoption of iQ3 has outpaced expectations, accounting for approximately 85% of probe volume in Q3 2025.
HeartFocus launch: HeartFocus, an FDA-cleared Butterfly partner app, launched in Butterfly Garden, enabling faster cardiac scans and improving patient access to timely care.
AI-powered gestational age calculator: Deployed in Malawi and Uganda, this tool calculates gestational age using simple sweeps, improving accessibility and affordability in low-income regions.
P5.1 chip development: Completed development of the next-gen P5.1 chip, expected to debut in the second half of 2026, surpassing performance of piezo handhelds.
International revenue growth: International revenue increased 4% year-over-year to $5.4 million, driven by the international launch of iQ3.
Geographic expansion: Expansion efforts contributed to increased product revenue, particularly in international markets.
Gross margin improvement: Adjusted gross margin increased to 63.9% from 60% in the prior year, driven by higher average selling prices and reduced software amortization costs.
Cash burn reduction: Normalized cash burn reduced to $3.9 million in Q3 2025, reflecting improved financial discipline.
AI strategy: AI initiatives, including Compass AI and Butterfly Garden, are driving clinical and economic impact, improving healthcare access and efficiency.
Transition to solutions model: Shift from selling hardware alone to offering integrated solutions combining software, services, and support.
Octiv partnerships: Exploring partnerships to expand ultrasound-on-chip applications beyond POCUS, potentially transforming the business model.
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Risk or Challenges
Enterprise Sales Strategy: Encountered headwinds as hospitals focused on broader macro issues, impacting sales momentum in Q2 and Q3 of 2025.
Government Shutdown: Prolonged federal government shutdown could delay deal timing for deals relying on government funding and regulatory processing, potentially impacting sales pipeline and FDA submissions.
Macroeconomic Factors: Customers delaying purchase decisions due to macroeconomic uncertainties, affecting U.S. hospital and enterprise channels.
Inventory Write-Off: Noncash charge of $17.4 million for excess inventory write-off due to lower-than-expected demand for iQ+ probes, impacting gross margins.
Revenue Mix Shift: Decreased percentage of revenue from software and services as product revenue growth outpaced software revenue, potentially impacting long-term revenue diversification.
Regulatory Delays: FDA's pause on fee-based submissions during the government shutdown could delay regulatory approvals for new products.
Customer Cash Flow Timing: Potential systemic impacts of prolonged government shutdown on customer cash flow timing, indirectly affecting sales.
Purchase Delays: Several large deals in the pipeline delayed, contributing to uncertainties in revenue realization.
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Guidance & Outlook
Revenue Guidance: The company reaffirmed its full-year revenue guidance in the range of $91 million to $95 million, implying $25 million to $29 million in revenue for Q4. Achieving the higher end of this range depends on closing several large deals currently in the pipeline.
Adjusted EBITDA Loss Guidance: The company tightened its full-year adjusted EBITDA loss guidance to a range of $32 million to $35 million, or $9 million to $12 million for Q4.
Pipeline Opportunities: Several large deals in the pipeline are expected to close, including agreements with a large insurance company to reduce readmissions and other deals within the Octiv business. Timing remains uncertain, but these opportunities are active.
AI and Product Development: The next-gen enterprise software, Compass AI, is on track to launch before year-end. The P5.1 chip has entered fab production and is expected to debut in the second half of next year, offering significant advancements in imaging capabilities. Development of the sixth-generation Apollo AI chip has begun, aiming to deliver enhanced ultrasound processing and AI capabilities.
Market Trends and Challenges: The company is monitoring the impact of the federal government shutdown, which could delay deal timing and regulatory processing if prolonged. Additionally, macroeconomic factors are causing some customers to delay purchase decisions, particularly in the U.S. hospital and enterprise channels.
Strategic Shifts: The company is transitioning from selling hardware alone to offering integrated solutions that include software, services, and hands-on support. This approach is expected to drive future revenue growth.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Can you quantify the size of deals that have been delayed due to macroeconomic factors and provide insights into the activity in October and pipeline confidence for Q4?
A:Deals have been delayed, ranging from 100 to 200 probes, including large medical school deals. The company is confident in the pipeline, noting that deals are not being lost to competitors but delayed due to administrative and IT constraints. They anticipate a lift in activity as the year progresses and into the 2026 budget cycle.
Q:What are the drivers of lower renewal rates in the subscription and software side of the business, and how can these metrics be improved?
A:The company has seen churn in individual subscriptions but an uptick in enterprise subscriptions. Timing differences in revenue recognition between software and hardware also play a role. The rollout of Compass AI later in Q4 is expected to improve metrics.
Q:Can you provide an update on the sales cycle, pipeline for 2026, and the impact of delayed capital spending on new projects?
A:The sales cycle has extended, with many deals aging beyond normal timelines. The pipeline for 2026 is expected to be fuller due to delayed projects. The company anticipates increased spending at the end of the year and into 2026.
Q:How impactful is the Robert Wood Johnson study on cost-effectiveness for driving interest and closing deals?
A:The study is significant as it highlights the economic and clinical benefits of using the Butterfly iQ platform, particularly in managing congestive heart failure. It provides strong evidence to support enterprise sales and is expected to drive adoption.
Q:What is the status of the home program pilot with a major partner and payer?
A:The pilot program is complete, but no formal partnership has been finalized yet. The company remains optimistic but acknowledges that the timeline is uncertain until agreements are signed.
Q:What is required to launch the P5.1 chip and new form factor next year, and what are the expectations for pricing and product build?
A:The P5.1 chip will be a specialized product, with pricing yet to be determined. The company is confident in its ability to launch successfully, citing past successes with iQ3. The risk to execution is considered low.
Q:How does the recent info security achievement help win business, and is it a differentiator in the market?
A:The company’s cloud-based architecture and security certifications, including upcoming HITRUST and FedRAMP, are significant differentiators. Competitors are moving towards cloud connectivity, but Butterfly has set a high standard for security, which is expected to be a competitive advantage.
Q:Have there been upgrades to the Apollo AI design, particularly in edge AI capabilities?
A:Yes, Apollo AI now includes local AI processing on the chip, enhancing speed and capability. This is a significant advancement in AI technology, allowing for faster and more dynamic processing.
Q:What is the status of IQ Station development and the RoHS compliance review with the European Commission?
A:IQ Station is under active development, with no specific launch date yet. The RoHS compliance review is in progress, with a decision expected next summer after a third-party review.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer regarding the timeline for finalizing the home program partnership, stating that it will be done when it is done and that they do not control the timeline.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Accounting Officer
CFO Chief
Chief Accounting
Finance Accounting
HeartFocus
Interim CFO
Officer Senior
ScanLab
Senior VP
Software service
VP Finance
age
barrier
calculator
care AI
caregiver
case
closure
com
date
echo
foundation
government shutdown
headwind opportunity
healthcare
increase selling
inventory write
life
noncash
outcome
payer
portion
security
submission
term shutdown
timing deal
volume iQ
warranty
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