0001804176-25-000009
SEC filingRevenue grew 4.5% YoY but gross margin turned negative due to a $17.4M inventory obsolescence charge, driving a wider operating loss.
For the three months ended September 30, 2025, total revenue increased 4.5% year-over-year to $21.5 million, driven by a 7.5% increase in product revenue to $14.6 million, primarily from higher average selling prices in international markets and increased volume in eCommerce and vet channels. Software and other services revenue declined slightly by 1.3% to $6.9 million, due to lower individual subscription renewals and extended warranty revenue, partially offset by partnership licensing gains.
Gross margin plummeted from 59.5% in the prior year to negative 17.5%, entirely due to a non-recurring $17.4 million charge for excess and obsolete inventory, representing 80.8% of revenue. Excluding this charge, gross margin would have been approximately 63.3%, reflecting improved product margins and lower software costs. Operating expenses increased 6.4% to $31.4 million, driven by higher sales and marketing investments ($1.0 million increase) and other expenses ($1.1 million increase from litigation costs). As a result, operating loss widened to $35.1 million from $17.2 million, and net loss increased to $34.0 million from $16.9 million.
Butterfly operates as a single reportable segment, but revenue is disaggregated into product and software/services. Product revenue accounted for 67.7% of total revenue in Q3 2025, up from 65.8% a year ago, reflecting stronger hardware sales, particularly from the iQ3 probe international launch and semiconductor chip deliveries to a partner. Software and services mix declined to 32.3% from 34.2%, as hardware revenue growth outpaced subscription growth. Management expects the revenue mix to shift back toward software over the long term as device adoption increases, but near-term hardware momentum is driving the mix lower.
Cost of product revenue surged 288.3% to $23.6 million due to the inventory charge, while cost of software and other services decreased 25.1% to $1.7 million, aided by lower amortization. Consequently, product gross margin was negative, while software gross margin remained healthy at 75.6%.
Management did not provide specific numerical guidance but highlighted several strategic priorities: continued investment in commercial capabilities (sales force and client experience), expansion of healthcare system software offerings, and focus on operational efficiencies. The company expects its existing cash ($144.2 million as of September 30, 2025) and cash flows from operations to fund operations for at least the next 12 months. Key risks include the non-recurring nature of the inventory charge, potential volatility in revenue mix, and litigation costs. The company aims to reduce annual cash requirements to under $50 million, having already reduced them by $180 million since 2022.
Butterfly Network's balance sheet remains solid with $144.2M in cash and cash equivalents and no debt. Total stockholders' equity stands at $203.8M, supported by a $81.0M net share offering in January 2025. Inventory decreased to $62.2M from $70.8M at year-end 2024, driven by $17.6M in write-downs (including $9.6M on vendor advances) recognized in the first nine months of 2025. Deferred revenue totaled $24.3M, while remaining performance obligations (RPO) reached $42.2M, up from $33.3M at December 31, 2024, indicating growing subscription and service commitments.
The company has $4.5M in minimum inventory purchase commitments under a non-cancellable supply agreement with a third-party manufacturer, supported by a $0.9M net vendor advance asset. No material additions to the accrued purchase commitment liability were recorded in 2025. Lease obligations total approximately $2.2M annually, with operating lease assets of $13.1M and liabilities of $21.0M (current + non-current). The company is also exposed to litigation contingencies, including a securities class action and derivative suits, for which no loss accrual has been made due to uncertainty.
Butterfly Network did not repurchase shares or pay dividends in the first nine months of 2025. There is no outstanding debt beyond operating leases. Capital expenditures totaled $2.265M, primarily for property, equipment, and capitalized software (3.4% of revenue). The company did execute a public equity offering in January 2025, raising $81.0M net, which strengthened the balance sheet and liquidity position. The absence of buyback authorization or dividend policy suggests a focus on organic investment and cash preservation.
Butterfly operates as a single reportable segment. The CODM (CEO) evaluates performance through consolidated net loss and key expense categories. Revenue disaggregation shows hardware (point-in-time) contributed $45.3M in product sales for nine months, while software and services (over time) added $20.8M. Geographically, the United States accounted for 77% of total revenue ($50.7M), with international markets contributing $15.4M (23%). The company's longer-term RPO mix (49% expected in next 12 months, 51% thereafter) signals a growing services backlog.