Butterfly Network: Progress Being Made (NYSE:BFLY)

Chance fights ever on the side of the prudent” – Euripides

Today, we are teeing up coverage on Butterfly Network (NYSE:BFLY) for the first time in 2024. When we last looked at this small cap concern in March of last year, we called the stock an ‘avoid‘. The company had made some progress on reducing costs and hired a new leader. We promised we would circle back on this name at some point to see what progress the firm was making. An updated analysis follows below.

Company Overview:

Butterfly Network, Inc. develops and markets ultrasound imaging solutions and is headquartered just outside of Boston, MA. The company has had several products on the market including the Butterfly Blueprint, Butterfly IQ+ and Butterfly IQ.

The company also provides Butterfly system, which includes probes, and related accessories and software subscriptions to healthcare professionals and facilities. The stock currently trades just over a buck a share and sports an approximate market capitalization of $220 million.

Third Quarter Results:

Butterfly Network reported its Q3 numbers on November 2nd. The company delivered a GAAP loss of 13 cents a share, two pennies a share above the consensus. Revenues fell just over 21% on a year-over-year basis to $15.42 million, roughly in line with the consensus. Product revenue was down 34% from 3Q2022 to $8.8 million. Management noted this was due to a large deployment to the University of Rochester Medical Center in the prior year and a one-time agreement with the Gates Foundation also in the same period a year ago. Software and other services revenue rose three percent to $6.7 million. Operating expenses, excluding stock-based compensation, fell 42% on a year-over-year basis to $25.7 million. Net loss for the quarter was $27.4 million, compared to $54.7 million in 3Q2022.

Butterfly Network had an adjusted EBITDA loss of $12.5 million, a big improvement from its negative adjusted EBITDA of $31.8 million in the same period a year ago. Management provided guidance of FY2023 revenue guidance of between $64 million to $64.7 million, as well as an adjusted EBITDA loss of between $70 million to $75 million. The latter figures were a $5 million improvement from previous adjusted EBITDA guidance. On January 11th, management stated it now believes it will exceed previous guidance.

Earlier this month, the FDA approved the company’s next generation Butterfly IQ3. The new next generation device should quickly become the mainstay of the company’s product portfolio on the device side. The IQ3 offers faster processing time and better imaging capabilities than the IQ+.

During the third quarter, the company also launched Butterfly Garden. This is an AI marketplace with new applications for Butterfly users.

Analyst Commentary & Balance Sheet:

Since third quarter results hit the wires, TD Cowen ($3.00 price target), Oppenheimer ($3.75 price target) and B. Riley Financial ($3.50 price target) have all reissued Buy ratings on the stock.

Just over 10% of the outstanding float in the shares are currently held short. The company ended the third quarter with just under $155 million in cash and marketable securities on its balance sheet. Management has guided this funding is sufficient for all planned activities through 2025. The company carries no long-term debt. Several insiders have been frequent but mostly small sellers of the equity. In the second half of 2023, they sold just over $350,000 worth of stock collectively. So far in 2024, they have disposed of just over $100,000 worth of shares.

Verdict:

Butterfly Network lost 84 cents a share in FY2022 on just over $73 million in revenue. The current analyst firm consensus sees losses shrinking to 57 cents a share in FY2023, even as sales fall to $64.5 million. They project losses of 51 cents a share on FY2024 as revenues rise 14%.

The company is targeting what it believes is a huge and growing potential market. Butterfly has made some progress on the expense front and should see sales growth return in FY2024. Over half the stock’s market capitalization is represented by the current cash on Butterfly’s balance sheet. That said, the company is continuing to lose money and profitability seems many years in the future. As such, the stock should only merit a small ‘watch item’ position with an aggressive portfolio by investors comfortable with the significant risk/reward profile of this small cap, high beta concern.

Chance favors only those who court her” – Charles Nicolle