Butterfly Network(BFLY) - 2021 Q3 - Quarterly Report

Part I Financial Information Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Butterfly Network, Inc. as of September 30, 2021, and for the three and nine-month periods then ended, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, the business combination, and revenue recognition Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $153,326 | $60,206 | | Marketable securities | $315,099 | $0 | | Total Assets | $580,318 | $147,191 | | Total Liabilities | $129,057 | $148,185 | | Total stockholders' equity (deficit) | $451,261 | $(361,931) | Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $14,621 | $10,135 | $43,578 | $30,597 | | Gross Profit (Loss) | $(5,122) | $(69,251) | $9,514 | $(69,922) | | Loss from Operations | $(56,987) | $(91,828) | $(147,423) | $(139,408) | | Net Loss | $(13,561) | $(92,208) | $(17,193) | $(139,803) | Condensed Consolidated Statements of Cash Flows Highlights (Nine Months Ended, in thousands) | Cash Flow Activity | Sep 30, 2021 | Sep 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(146,410) | $(61,077) | | Net cash used in investing activities | $(319,769) | $(2,597) | | Net cash provided by financing activities | $563,299 | $25,358 | | Net increase (decrease) in cash | $97,120 | $(38,316) | - On February 12, 2021, the company completed its business combination with Longview Acquisition Corp., accounted for as a reverse recapitalization, resulting in a significant increase in cash of $589.5 million[37][38][45] - As of September 30, 2021, the company had $129.5 million in minimum inventory purchase commitments, primarily from an amended supply agreement, and recognized a net loss of $11.6 million on this commitment in Q3 2021[103][104][105] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a 44.3% YoY revenue increase for Q3 2021, driven by both product and subscription sales, and details the significant decrease in net loss, primarily due to a gain on warrant liabilities and a reduction in losses on purchase commitments, while outlining liquidity and operational spending strategy Results of Operations For the three months ended September 30, 2021, total revenue grew 44.3% YoY to $14.6 million, gross loss significantly narrowed to $(5.1) million, operating expenses increased 129.7% to $51.9 million, and net loss decreased dramatically to $(13.6) million from $(92.2) million, aided by a $43.0 million gain on warrant liabilities Revenue Comparison (Three Months Ended Sep 30, in thousands) | Revenue Type | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Product | $10,848 | $8,621 | $2,227 | 25.8% | | Subscription | $3,773 | $1,514 | $2,259 | 149.2% | | Total Revenue | $14,621 | $10,135 | $4,486 | 44.3% | Cost of Revenue Comparison (Three Months Ended Sep 30, in thousands) | Cost of Revenue Component | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Loss on product purchase commitments | $11,623 | $63,993 | $(52,370) | (81.8)% | | Product | $7,584 | $14,619 | $(7,035) | (48.1)% | | Subscription | $536 | $774 | $(238) | (30.7)% | | Total Cost of Revenue | $19,743 | $79,386 | $(59,643) | (75.1)% | - Operating expenses for Q3 2021 rose significantly year-over-year, driven by increased personnel costs across all departments: R&D (+80.9%), Sales & Marketing (+156.5%), and General & Administrative (+215.9%)[166][168][169] - The net loss for Q3 2021 decreased by $78.6 million (85.3%) compared to Q3 2020, primarily due to a $34.8 million reduction in operating loss and a $43.0 million gain from the change in fair value of warrant liabilities[174] Key Performance Metrics The company tracks 'Units fulfilled' and 'Subscription Mix' as key performance indicators, with units fulfilled increasing 40.8% YoY to 5,556 units and subscription mix rising to 25.8% of total revenue in Q3 2021, reflecting growing recurring revenue - Units fulfilled increased by 40.8% to 5,556 for the three months ended September 30, 2021, driven by veterinary, distributor, and direct sales channels, despite slowing e-commerce sales[130][131] - Subscription Mix increased to 25.8% for Q3 2021, a 10.9 percentage point increase from 14.9% in Q3 2020, driven by higher units fulfilled, increased renewals, and revenue recognition timing[132][133] Adjusted Gross Profit Reconciliation (Three Months Ended Sep 30, in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Gross profit | $(5,122) | $(69,251) | | Loss on purchase commitments | $11,623 | $63,993 | | Inventory write-downs | $582 | $2,570 | | Adjusted gross profit | $7,214 | $(2,665) | | Adjusted gross margin | 49.3% | (26.3)% | Liquidity and Capital Resources As of September 30, 2021, the company had $469.4 million in cash, cash equivalents, and marketable securities, significantly bolstered by $589 million from the February 2021 business combination, expected to be sufficient for at least the next 12 months, despite $146.4 million net cash used in operating activities for the first nine months - The company's primary source of liquidity is the approximately $589 million in gross proceeds from the Business Combination completed on February 12, 2021[192] - Cash, cash equivalents, and marketable securities totaled $469.4 million as of September 30, 2021, expected to be sufficient for at least the next 12 months[194][195] Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(146,410) | $(61,077) | | Net cash used in investing activities | $(319,769) | $(2,597) | | Net cash provided by financing activities | $563,299 | $25,358 | Item 3. Quantitative and Qualitative Disclosures about Market Risk The company has limited exposure to market risk, with minimal interest rate risk due to short-term, capital-preserving investments and no material foreign exchange risk as operations are primarily U.S.-based and transacted in U.S. dollars - Cash flows are not expected to be significantly affected by changes in market interest rates due to the short-term nature of investments in bank deposits, money market accounts, and mutual funds[211] - Foreign currency translation risk is not expected to have a material impact as the company operates primarily in the United States with transactions mainly in U.S. dollars[212] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of September 30, 2021, due to a material weakness in internal control over financial reporting related to warrant accounting, with a remediation plan underway to enhance accounting evaluation processes - Disclosure controls and procedures were deemed ineffective as of September 30, 2021, due to a material weakness in internal control over financial reporting[215][216] - The material weakness relates to inaccurate accounting for public and private placement warrants issued during the company's initial public offering[217] - A remediation plan is underway, focusing on improving processes for evaluating complex accounting standards, enhancing access to research materials, and improving communication with professionals[218][219] Part II Other Information Item 1. Legal Proceedings The company reports that it is not currently a party to any material legal proceedings - As of the filing date, the company is not a party to any material legal proceedings[223] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes have occurred to the risk factors described in the 2020 Annual Report on Form 10-K[224] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities and no repurchases of its equity securities during the three months ended September 30, 2021 - The company did not repurchase any of its equity securities during the third quarter of 2021[225] Item 3. Defaults Upon Senior Securities Not applicable, as there were no defaults upon senior securities Item 4. Mine Safety Disclosures Not applicable Item 5. Other Information Not applicable Item 6. Exhibits This section provides an index of the exhibits filed with the Form 10-Q, including employment agreements, severance plans, and certifications by the CEO and CFO