Butterfly Network Gets Its Wings Clipped After First Quarter Results

Medical imaging company Butterfly Network (NYSE: BFLY) reported first-quarter results on Thursday and investors were not impressed. Butterfly Network went public by merging with special purpose acquisition company (SPAC) Longview Acquisition, which closed in February. 

SPACs have fallen out of favor in recent months, with investors shunning nearly all companies remotely related to SPACs. Prominent growth investor Cathie Wood has been aggressively buying the stock as well in various ARK Invest ETFs, and many of Wood’s picks have been similarly under intense selling pressure.

As of 1 p.m. EST on Thursday, Butterfly Network shares were down 15.14%.

Here’s how Butterfly Network performed in the first quarter

Revenue in the first quarter increased 43% to $12.4 million, which resulted in a net loss of $690,000, or $0.01 per share. No Wall Street analysts cover Butterfly Network, so there are no formal expectations to compare the results to. 

The company sells a handheld ultrasound device known as the Butterfly iQ+, and total units sold increased to 5,013 in the first quarter. The expanding installed base is helping Butterfly Network grow subscription revenue, which totaled $2.9 million during the quarter. That segment is far more profitable than product sales. Subscription gross margin was 87%, compared to the 41% gross margin associated with product revenue.

Butterfly Network is expanding its team, building a commercial team dedicated to selling Butterfly iQ Vet to the veterinary market. The company believes it can disrupt the veterinary imaging market, which is expected to grow to $450 million by 2025, since Butterfly Network offers the only handheld ultrasound device that can accommodate a wide variety of animal anatomies. The company is also partnering with Sientra Health to promote Butterfly iQ+ into the plastic surgery market. 

“During the quarter we made excellent progress expanding our commercial and organizational capabilities, driving partnerships that expand our reach across different care settings and specialties, as well as creating a dedicated team to transform veterinary medicine,” CEO Dr. Todd Fruchterman commented in a release. “I am excited by the breadth of opportunities in front of us to democratize imaging, drive fundamental change in healthcare across care settings, and advance global health equity.”

Looking ahead

Butterfly Network is guiding 2021 revenue to a range of $76 million to $80 million, which represents growth of 64% to 73%. Adjusted gross margin is forecast at 42% to 46%. That should all result in a net loss of $135 million to $155 million. Adjusted EBITDA for the year is expected to be negative $140 million to negative $160 million.

However, competition is intensifying. In March General Electric (NYSE: GE) unveiled a competing Vscan Air ultrasound device that similarly features a handheld form factor. The conglomerate’s healthcare unit has high hopes of dominating the ultrasound market, targeting 30% market share by 2025. It won’t be easy for a small player like Butterfly Network to keep up with a juggernaut like GE.

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Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Millennial Money is part of The Motley Fool network. Millennial Money has a disclosure policy.

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