Butterfly Network(BFLY) - 2022 Q1 - Quarterly Report

Cautionary Statement Regarding Forward-Looking Statements This report contains forward-looking statements concerning the company's plans, strategies, and future financial performance - This report contains forward-looking statements concerning the company's plans, strategies, and future financial performance, based on management's current beliefs and assumptions[4] - Key areas covered by forward-looking statements include product commercialization, R&D success, regulatory approvals, market growth potential, and financial performance estimates[4] - The company identifies several risks and uncertainties that could cause actual results to differ, such as managing rapid growth, competition, pricing pressures, intellectual property protection, and the ongoing impact of the COVID-19 pandemic[4] Part I: Financial Information Item 1. Financial Statements Unaudited Q1 2022 financial statements reflect decreased assets and equity, a $44.5 million net loss, and $54.2 million cash used in operations Condensed Consolidated Balance Sheets As of March 31, 2022, total assets decreased to $535.4 million due to reduced cash, with stockholders' equity declining to $412.7 million Condensed Consolidated Balance Sheet Data (Unaudited, in thousands) | Balance Sheet Item | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $359,901 | $422,841 | | Inventories | $48,354 | $36,243 | | Total current assets | $474,306 | $511,904 | | Total assets | $535,420 | $571,965 | | Liabilities & Equity | | | | Total current liabilities | $50,707 | $49,829 | | Total liabilities | $122,756 | $124,274 | | Total stockholders' equity | $412,664 | $447,691 | Condensed Consolidated Statements of Operations and Comprehensive Loss Q1 2022 revenue increased to $15.6 million, but net loss significantly widened to $44.5 million due to reduced warrant liability gains and higher operating expenses Condensed Consolidated Statements of Operations (Unaudited, in thousands, except per share data) | Metric | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :--- | :--- | :--- | | Total revenue | $15,574 | $12,443 | | Gross profit | $8,342 | $6,416 | | Loss from operations | $(49,533) | $(53,748) | | Change in fair value of warrant liabilities | $5,163 | $54,112 | | Net loss | $(44,477) | $(690) | | Net loss per share, basic and diluted | $(0.22) | $(0.01) | Condensed Consolidated Statements of Cash Flows Q1 2022 net cash used in operating activities was $54.2 million, leading to a $58.2 million net decrease in cash, ending with $368.7 million Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands) | Cash Flow Activity | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(54,234) | $(63,427) | | Net cash used in investing activities | $(4,506) | $(528,197) | | Net cash provided by financing activities | $550 | $550,268 | | Net (decrease) increase in cash | $(58,190) | $(41,356) | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue disaggregation, $103.8 million in inventory purchase commitments, and ongoing legal proceedings with unpredictable outcomes Disaggregation of Revenue (in thousands) | By Product Type | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Devices and accessories | $11,014 | $9,595 | | Subscription services | $4,560 | $2,848 | | Total Revenue | $15,574 | $12,443 | | By Geographical Market | Q1 2022 | Q1 2021 | | United States | $11,304 | $8,896 | | International | $4,270 | $3,547 | | Total Revenue | $15,574 | $12,443 | - As of March 31, 2022, the company had $22.8 million in remaining performance obligations, with 65% expected to be recognized as revenue in the next twelve months[33] - The company has minimum inventory purchase commitments of $103.8 million as of March 31, 2022[61] - The company is defending against a class action lawsuit alleging false and misleading statements and a patent infringement lawsuit filed by Fujifilm Sonosite, Inc., for which the outcome or range of possible loss is currently unpredictable[67][68] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes 25.2% revenue growth to higher prices and SaaS subscriptions, with increased operating expenses and a $40.0 million Adjusted EBITDA loss, but believes current cash is sufficient for 12 months Key Performance Metrics and Non-GAAP Measures Key performance indicators include 1.9% increase in units fulfilled and 29.3% subscription mix, with Adjusted Gross Margin at 56.3% and Adjusted EBITDA loss widening to $40.0 million - Units fulfilled increased by 93 units, or 1.9%, in Q1 2022 compared to Q1 2021, driven by veterinary, distributor, and direct sales channels, partially offset by slowing e-commerce sales[82] - Subscription mix increased by 6.4 percentage points to 29.3% for Q1 2022, up from 22.9% in Q1 2021, due to a higher volume of units fulfilled and increased subscription renewals[84] Non-GAAP Financial Measure Reconciliation (in thousands) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Adjusted Gross Profit | | | | Gross profit (GAAP) | $8,342 | $6,416 | | Adjusted gross profit (Non-GAAP) | $8,768 | $5,945 | | Adjusted gross margin (Non-GAAP) | 56.3% | 47.8% | | Adjusted EBITDA | | | | Net loss (GAAP) | $(44,477) | $(690) | | Adjusted EBITDA (Non-GAAP) | $(39,964) | $(26,501) | Results of Operations Q1 2022 total revenue grew 25.2%, driven by 14.8% product and 60.1% subscription revenue, while R&D and S&M expenses significantly increased, and G&A decreased Revenue Change by Type (in thousands) | Revenue Type | Q1 2022 | Q1 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Product | $11,014 | $9,595 | $1,419 | 14.8% | | Subscription | $4,560 | $2,848 | $1,712 | 60.1% | | Total revenue | $15,574 | $12,443 | $3,131 | 25.2% | Operating Expense Changes (in thousands) | Expense Category | Q1 2022 | Q1 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $23,623 | $15,716 | $7,907 | 50.3% | | Sales and marketing | $15,202 | $9,808 | $5,394 | 55.0% | | General and administrative | $19,050 | $34,640 | $(15,590) | (45.0)% | Liquidity and Capital Resources Primary liquidity sources are operations and 2021 Business Combination proceeds, with $359.9 million cash as of March 31, 2022, deemed sufficient for 12 months, despite $103.8 million in purchase obligations - The company's cash and cash equivalents balance was $359.9 million as of March 31, 2022[120] - Management expects existing cash and cash flows will be sufficient to meet liquidity and capital requirements for at least the next 12 months[119] - As of March 31, 2022, the company had fixed purchase obligations of $103.8 million, with $65.9 million payable within 12 months[122] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company faces limited market risks, with minimal interest rate and foreign exchange exposure, and inflation has not had a material effect to date - Interest Rate Risk: The company does not have floating rate debt and does not expect cash flows to be significantly affected by changes in market interest rates[132] - Inflation Risk: Inflation has not had a material effect, but the company notes it may not be able to fully offset higher costs through price increases if inflationary pressures rise[133] - Foreign Exchange Risk: Risk is limited as the business operates primarily in the U.S. with transactions mainly in U.S. dollars[134] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[137] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[138] Part II: Other Information Item 1. Legal Proceedings A new patent infringement lawsuit was filed by Fujifilm Sonosite, Inc. on March 9, 2022, regarding iQ and iQ+ ultrasound products, with an unpredictable outcome - On March 9, 2022, Fujifilm Sonosite, Inc. filed a complaint against the company alleging that its iQ and iQ+ ultrasound products infringe on certain Fujifilm patents[139] - The company intends to vigorously defend against the lawsuit, which seeks unspecified damages, an injunction, and litigation costs[139] Item 1A. Risk Factors No material changes to risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K - The company states there have been no material changes to the risk factors described in its 2021 Annual Report on Form 10-K[141] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales or repurchases of equity securities occurred during the three months ended March 31, 2022 - The company did not repurchase any of its equity securities during the three months ended March 31, 2022[142] Item 3. Defaults Upon Senior Securities Not applicable - Not applicable[142] Item 4. Mine Safety Disclosures Not applicable - Not applicable[142] Item 5. Other Information Not applicable - Not applicable[142] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including executive agreements and required SOX certifications - Lists exhibits filed with the report, including executive employment agreements and required SOX certifications[144]