Butterfly Network's Q3 2025: Contradictions Emerge on Sales Pipeline, Cycle Delays, and HomeCare Revenue Contributions

Date of Call: October 31, 2025

Financials Results

• Revenue: $21.5M, up 5% YOY (Q3 2025 vs Q3 2024); U.S. $16.1M (slightly up YOY), International $5.4M, product $14.6M up 8% YOY, software & services $6.9M flat YOY
• Gross Margin: GAAP gross margin -17.5% (includes $17.4M noncash inventory write-off) vs 59.5% prior year; adjusted gross margin 63.9% vs 60.0% prior year (excludes write-down)

Guidance:

• Reaffirmed full-year revenue guidance of $91M–$95M.
• Q4 revenue implied at $25M–$29M.
• Tightened full-year adjusted EBITDA loss guidance to $32M–$35M and Q4 adjusted EBITDA loss to $9M–$12M.
• Management noted reaching the higher end requires closing several larger pipeline deals.

Business Commentary:

* Revenue Performance and Product Mix: - Butterfly Network reported revenues of $21.5 million for Q3 2025, reflecting 5% growth over the prior year period. - The increase was primarily driven by higher average selling prices from a larger percentage of iQ3 sales internationally and increased volume in the U.S. - The shift in product mix towards the iQ3 model, which accounts for about 85% of probe volume, contributed to the financial performance.

• Inventory Adjustments and Write-Offs:
• The company recorded a noncash write-off of excess inventory of $17.4 million, leading to a negative gross margin of 17.5%.

• This write-off was attributed to revising assumptions due to the strong market adoption of the iQ3, which prompted a reduction in the forecasted share of iQ+ in the product mix.

• Gross Margin Improvement and Adjusted EBITDA:

• Adjusted gross margin increased to 63.9% from 60% in the prior year, driven by an increase in average selling prices and a reduction in software amortization costs.

• Adjusted EBITDA loss improved to $8.1 million compared with a loss of $8.4 million for the same period in 2024, attributed to the increase in adjusted gross profit.

• AI Initiatives and Market Impact:

• Butterfly's AI initiatives showed significant impact, with the POCUS CARE trial publishing in JAMA, demonstrating a 35% improvement in clinical management and 30% reduction in hospital length of stay.
• This clinical and economic validation is expected to accelerate the enterprise strategy and drive further adoption of the Butterfly iQ platform.

Sentiment Analysis:

Overall Tone: Positive

• Management said Q3 results were at the higher end of revenue guidance, cash burn is falling (normalized cash burn $3.9M), adjusted gross margin improved to 63.9% excl. write-down, reaffirmed FY revenue guidance $91M–$95M, and highlighted multiple AI/clinical milestones (JAMA study) driving enterprise momentum.

Q&A:

• Question from Chase Knickerbocker (Craig-Hallum Capital Group LLC): Maybe first, if there's any way you can help us kind of quantify the size of some of these deals that have pushed because of the macro and kind of what you're seeing from an activity perspective in October as far as it relates to those and the rest of your pipeline as we -- as when we look at kind of guidance, what it implies for Q4, it does imply a nice step-up. And so maybe just speak to kind of your confidence in that pipeline and the activity so far in October.
  Response: Deals have largely been pushed (not lost); typical sizes include ~100–200 probes and larger med‑school orders; activity is increasing and management expects closures to pick up into 2026.

• Question from Chase Knickerbocker (Craig-Hallum Capital Group LLC): And maybe just on the subs and software side of the business. It sounds like there's a little bit of some lower renewal rates. Can you just maybe discuss kind of drivers there and kind of how you think you can kind of improve some of those metrics, particularly with Compass on the horizon here?
  Response: Individual subscription churn continues; enterprise subscription uptake is increasing; timing/recognition differences affect % of revenue; Compass AI rollout in Q4 is expected to improve metrics and adoption.

• Question from Joshua Jennings (TD Cowen): I wanted to just follow up on the sales funnel or pipeline and just ask about -- maybe remind us of the sales cycle and timing and just how the pipeline is shaping up for 2026 in terms of an outlook for growth.
  Response: Sales cycles have lengthened and deals have aged, so the pipeline is larger but slower to close; management expects acceleration and stronger close rates in 2026.

• Question from Joshua Jennings (TD Cowen): Just on the -- just the Robert Wood Johnson and the cost savings and cost effectiveness, I think that cost effectiveness data is accruing nicely for Butterfly iQ platform. But I mean, how powerful can that be in terms of driving stronger interest and closing of deals as we get into 2026 as your team is able to market that Robert Wood Johnson study published in JAMA and others?
  Response: The JAMA RWJ study provides economic and clinical evidence (35% improved management, 30% LOS reduction, ~$750k direct savings) that strengthens enterprise economic arguments and should accelerate adoption when paired with Compass (which increases reimbursement capture to ~70–80%).

• Question from Joshua Jennings (TD Cowen): If I could sneak in one more. I mean it sounds -- I know there's no update on the home program today, but you did complete a pilot program with a major partner and payer. Just to check the box. It's not a matter of if, but when it sounds like, and you'll just provide an update when that partnership kind of finalizes and no diminished kind of optimism or enthusiasm about that channel and that opportunity is my understanding, but I just wanted to clarify that.
  Response: Pilot completed; management remains optimistic but no signed commercial agreement yet—will announce when inked.

• Question from Andrew Brackmann (William Blair & Company L.L.C.): Can you maybe just sort of talk to us about what's needed to get to the point of launch [for P5.1] between now and then what you're going to be working on to sort of derisk that launch? And then when you get there, anything you can share on just sort of the product build ahead of that launch or anything on pricing that you might expect for P5.1?
  Response: P5.1 is in fab production and execution risk is viewed as low; teams will tune chip, software and AI for the probe; pricing not set and will be determined closer to launch.

• Question from Andrew Brackmann (William Blair & Company L.L.C.): On the info security piece, how does this help you win business? Is this table stakes for the market or a meaningful differentiator for Butterfly?
  Response: Cloud security (ISO 27001 etc.) is a competitive advantage and differentiator for large fleet/enterprise deals; management expects HITRUST and FedRAMP in 2026, enabling better data management, integrations and model deployment.

• Question from Benjamin Haynor (Lake Street Capital Markets, LLC): On Apollo AI, have there been upgrades to the original design as far as the edge AI aspects beyond what was discussed at Investor Day last year?
  Response: Apollo has been enhanced to support local/on-device AI processing (edge), delivering ~20x the processing power of P5.1 and enabling real‑time, on‑device inference.

• Question from Benjamin Haynor (Lake Street Capital Markets, LLC): Dovetails with pushing/pulling models to the device; any updates to IQ Station or the RoHS situation with the European Commission?
  Response: IQ Station remains in active development with timing to be announced; RoHS submissions closed and are under third‑party review with a decision expected next summer.

Contradiction Point 1

Sales Pipeline and Deal Closure

It involves the nature of delays in deal closure and the confidence in the sales pipeline, which directly impacts revenue projections and investor expectations.

Can you quantify the size of deals delayed due to macro factors and update us on October activity levels and confidence in the pipeline, especially as guidance suggests a significant increase? - Chase Knickerbocker(Craig-Hallum Capital Group LLC)

2025Q3: We're definitely seeing that the opportunities are stacking up, which is good. And we're very hopeful -- we wouldn't guide to the quarter if we didn't feel confident with what we put out there. - Joseph DeVivo(CEO)

Are there competitive threats from other handheld platforms in the U.S. or globally? - Joshua Thomas Jennings(TD Cowen)

2025Q2: We have a very strong pipeline, and the revisions are not due to competition. The larger deals we are involved in, however, are not replicated by competitors. - Joseph DeVivo(CEO)

Contradiction Point 2

Change in Sales Cycle Length

It involves changes in the anticipated length of the sales cycle, which could impact the timing and predictability of revenue generation.

Can you clarify the sales cycle and timing, and provide an update on the 2026 pipeline's growth outlook? - Joshua Jennings(TD Cowen)

2025Q3: Clearly, the time to close has extended. So we have -- we definitely have a lot of deals that have aged beyond what we would normally have an age. - Joseph DeVivo(CEO)

Are there competitive challenges from other handheld platforms domestically or internationally? - Joshua Thomas Jennings(TD Cowen)

2025Q2: We are in a competitive market, and there are good competitors. The larger deals we are involved in, however, are not replicated by competitors. - Joseph DeVivo(CEO)

Contradiction Point 3

Deal Closing Timeframe and Sales Cycle

It involves the company's sales process and timeline for closing deals, which impacts revenue projections and investor expectations.

Can you update us on the sales pipeline, including the sales cycle timing and growth outlook for 2026? - Joshua Jennings (TD Cowen)

2025Q3: Clearly, the time to close has extended. So we have -- we definitely have a lot of deals that have aged beyond what we would normally have an age. So if anything, we're stacking up more and more deals, but we haven't been closed fast enough. - Joseph DeVivo(CEO)

Explain the process for securing the second hospital contract and key learnings for future opportunities? - Andrew Brackmann (William Blair)

2025Q1: The second deal was due to a groundswell of activity, as doctors selected Butterfly more and more. The hospital realized it needed to compile data and ensure compliance. Many institutions now see Butterfly as their primary probe choice. This deal marks a shift to institutions selecting a winner rather than displacing an incumbent, as POCUS is a new market. - Joseph DeVivo(CEO)

Contradiction Point 4

HomeCare's Revenue Contribution

It involves differing assertions about the revenue contributions from HomeCare, which could impact financial projections and investor expectations.

Can you quantify the size of deals delayed by macroeconomic factors, update us on October activity related to these and your overall pipeline, and share your confidence in the pipeline given guidance implies a significant increase? - Chase Knickerbocker(Craig-Hallum Capital Group LLC)

2025Q3: We have some pretty large medical school deals also. So it's kind of across the board when it comes to anything over 100 probes. - Joseph DeVivo(CEO)

What steps are needed to convert the HomeCare channel to a profitable franchise and share any timeline details? - Joshua Jennings(TD Cowen)

2024Q4: The HomeCare model is scalable with high training efficiency and low execution time. The pilot's success has been encouraging, with no readmissions needed for scanned patients. - Joseph DeVivo(CEO)