Butterfly Network's Q3 2025: Contradictions Emerge on Subscription Renewals, Enterprise Strategy, and Sales Pipeline

Date of Call: September 30, 2025

Financials Results

• Revenue: $21.5M, up 5% YOY
• Gross Margin: Negative 17.5% (includes $17.4M non-cash inventory write-off) vs 59.5% prior year; adjusted gross margin 63.9% vs 60.0% prior year

Guidance:

• Reaffirmed full-year revenue guidance of $91M–$95M (implies Q4 revenue of $25M–$29M)
• Tightened full-year adjusted EBITDA loss guidance to $32M–$35M (Q4 adjusted EBITDA loss $9M–$12M)
• Achieving the higher end requires closing several large pipeline deals

Business Commentary:

* Revenue and Product Trends: - Butterfly Network reported revenue of $21.5 million for Q3 2025, reflecting a 5% year-on-year growth, driven by higher average selling prices and increased volume. - The product revenue reached $14.6 million, an increase of 8% versus Q3 2024, primarily due to higher average selling prices internationally and increased volume in the U.S.

• Enterprise Sales Strategy and Challenges:
• The company faced headwinds in enterprise sales due to hospitals focusing on broader macro issues, which persisted into the third quarter.

• However, opportunities in the enterprise pipeline have increased, and there is an expectation of return to momentum in 2026.

• AI and Product Innovation:

• Butterfly Network's AI strategy advanced with significant milestones, including a published study showing improvements in patient care and hospital efficiency.

• The development of the next-gen enterprise software, Compass AI, is on track to launch before year-end, aiming to enhance large-scale hospital use.

• Financial Performance and Cash Management:

• Despite a negative 17.5% gross margin due to a non-cash inventory write-off, the adjusted gross margin increased to 63.9%.
• The company maintained a normalized cash burn of $3.9 million, with cash and cash equivalents at the end of Q3 being $148 million.

Sentiment Analysis:

Overall Tone: Positive

• Management stated results were "at the higher end of revenue guidance," highlighted reduced cash consumption and improving adjusted gross margins, emphasized AI and P5.1 chip milestones (P5.1 entering fab production) and JAMA-published clinical/economic benefits, and reaffirmed guidance while describing a clear path to return to momentum in 2026.

Q&A:

• Question from Chase Richard Knickerbocker (Craig-Hallum Capital Group): Can you quantify sizes of deals that have pushed due to the macro and comment on confidence in the pipeline and October activity? Also, what's driving lower subscription renewals and how will Compass help?
  Response: Deals are largely delayed, not lost—many are ~100–200 probe deals and larger medical school orders; management is confident the pipeline will convert (more into 2026). Separately, individual subscription churn persists while enterprise subscriptions are rising; Compass AI rollout in Q4 is expected to help.

• Question from Joshua Thomas Jennings (TD Cowen): How has the sales cycle/timing changed and how is the pipeline shaping up for 2026? How impactful is the Rutgers RWJ JAMA study for closing deals? Any update on HomeCare?
  Response: Sales cycles have lengthened and deals have aged, so the pipeline is larger going into 2026; the JAMA study provides strong clinical and economic evidence (reduced LOS, cost savings) that materially strengthens enterprise sales arguments; HomeCare pilot progress continues but no finalized commercial update.

• Question from Andrew Frederick Brackmann (William Blair & Company): What remains to de-risk the P5.1 launch and any thoughts on pricing? And on information security, is certification a differentiator?
  Response: P5.1 development is complete and entering fab production with low execution risk; pricing to be determined closer to launch. On security, Butterfly's cloud certifications are a competitive advantage and critical for enterprise adoption (FedRAMP/HIDEFRAST planned).

• Question from Benjamin Charles Haynor (Lake Street Capital Markets): Has Apollo AI been upgraded for edge/local AI beyond prior descriptions, and any updates on iQ Station or the RoHS/European review?
  Response: Apollo has been enhanced to support local on-device AI (management cited ~20x the processing power vs prior chips) to enable faster edge inference; iQ Station is in active development and the RoHS/European review is in a third‑party evaluation with a decision expected next summer.

Contradiction Point 1

Software Subscription Renewal Rates and Churn

It involves differing perspectives on the state of software subscription renewals and churn rates, which directly impact revenue projections and investor expectations.

Can you discuss the lower renewal rates in the software and subscription business and potential improvements? - Chase Richard Knickerbocker(Craig-Hallum Capital Group)

2025Q3: We are experiencing churn in individual subscriptions and an uptick in enterprise subscription churn. This timing is due to different revenue patterns for software and hardware. - Megan Carlson(CFO)

Could you break down the enterprise software and individual subscription revenues? - Chase Richard Knickerbocker(Craig-Hallum)

2025Q2: Individual subscription renewals have a churn issue, but enterprise software is growing. - Joseph M. DeVivo(CEO)

Contradiction Point 2

Enterprise Sales and Software Strategy

It reflects differing views on the strategic focus and expected outcomes for enterprise sales and software integration, which could impact market penetration and revenue growth.

Can you quantify the size of deals delayed by macro factors and confirm confidence in Q4 guidance? - Chase Richard Knickerbocker(Craig-Hallum Capital Group)

2025Q3: We're confident in our pipeline because we're not losing deals; they're simply extending in timing...We expect to close some deals soon, which could drive further growth. - Joseph M. DeVivo(CEO)

Can you break down subscription revenues by enterprise and individual segments? - Chase Richard Knickerbocker(Craig-Hallum)

2025Q2: The enterprise strategy involves making software easy to use and integrate into existing workflows, with automation reducing documentation steps. - Joseph M. DeVivo(CEO)

Contradiction Point 3

Subscription and Renewal Rates

It highlights a discrepancy in the company's narrative regarding subscription and renewal rates, which are crucial for revenue forecasting and investor expectations.

Can you discuss lower renewal rates and potential improvements on the software and subscription side? - Chase Richard Knickerbocker (Craig-Hallum Capital Group)

2025Q3: We are experiencing churn in individual subscriptions and an uptick in enterprise subscription churn. - Megan Carlson(CFO)

Can you clarify the mix between iQ3 and iQ+ and the strategy for offering both platforms? - Josh Jennings (TD Cowen)

2025Q1: Software revenue increased by 17% year-over-year, driven primarily by individual and enterprise probe subscribers. - Heather Getz(CFO)

Contradiction Point 4

Sales Cycle and Pipeline Outlook

It involves differing perspectives on the sales cycle and pipeline outlook, which impact the company's growth trajectory and market positioning.

Can you outline the 2026 sales cycle and pipeline outlook and the impact of Rutgers' recent study on your sales strategy? - Joshua Thomas Jennings (TD Cowen)

2025Q3: Our sales cycle is extended, but we have a higher number of aged deals, indicating a strong pipeline. - Joseph DeVivo(CEO)

What impact have the clinical and economic benefits publications had on the hospital channel, and can you provide insights into the pipeline and conversion rates? - Josh Jennings (TD Cowen)

2025Q1: Our sales cycle has been about 6 months, of which the last 3 months have been largely on the enterprise side. - Joseph DeVivo(CEO)

Contradiction Point 5

Software and Subscription Churn

It highlights different views on the software and subscription churn, which could affect revenue growth expectations.

How are you addressing lower software/subscription renewal rates and potential improvements? - Chase Richard Knickerbocker (Craig-Hallum Capital Group)

2025Q3: We are experiencing churn in individual subscriptions and an uptick in enterprise subscription churn. This timing is due to different revenue patterns for software and hardware. - Megan Carlson(Interim CFO)

What steps will convert the HomeCare pilot into a revenue-generating franchise? - Joshua Jennings (TD Cowen)

2024Q4: From an iQ platform perspective, we're off to a very, very strong start. The iQ platform, which includes the iQ2 and iQ3, drove 45% of our total revenue in Q4. - Heather Getz(CFO & Operations Officer)