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What changed in Butterfly Network, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Butterfly Network, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+239 added−526 removedSource: 10-K (2024-03-04) vs 10-K (2023-03-23)

Top changes in Butterfly Network, Inc.'s 2023 10-K

239 paragraphs added · 526 removed · 142 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

68 edited+68 added−326 removed108 unchanged
Biggest changeAny such failure, including the failure of our contract manufacturers, to achieve and maintain the required high manufacturing standards could result in further delays or failures in product testing or delivery, cost overruns, increased warranty costs or other problems that could harm our business and prospects. ​ In addition, any of our products shipped internationally are also required to comply with the International Organization for Standardization (“ISO”) quality system standards as well as EU Regulations and norms in order to produce products for sale in the EU.
Biggest changeIn addition, any of our products shipped internationally are also required to comply with the International Organization for Standardization (“ISO”) quality system standards as well as EU Regulations and norms in order to produce products for sale in the EU. In addition, many countries such as Canada and Japan have very specific additional regulatory requirements for quality assurance and manufacturing.
Our stock price is likely to continue to be volatile and subject to significant price and volume fluctuations in response to market and other factors, including: ​ ● the success of our or competing products or technologies; ● developments or disputes concerning issued patents, patent applications or other intellectual property rights; ● regulatory or legal developments in the U.S. and other countries; ● the recruitment or departure of key personnel; ● the level of expenses related to our products; ● the results of our efforts to discover, develop, manufacture, acquire or in-license our current and additional products; ● actual or anticipated changes in estimates as to financial results, timelines or recommendations by securities analysts; ● variations in our financial results or the financial results of companies that are perceived to be similar to us; ● sales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares; ● changes in the structure of healthcare payment systems; ● general economic, industry and market conditions; and ● the other factors summarized and described in this Risk Factors section. ​ Companies trading in the stock market in general have also experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies.
Our stock price is likely to continue to be volatile and subject to significant price and volume fluctuations in response to market and other factors, including: ​ ● the success of our or competing products or technologies; ● developments or disputes concerning issued patents, patent applications or other intellectual property rights; ● regulatory or legal developments in the U.S. and other countries; ● the recruitment or departure of key personnel; 44 Table of Contents ● the level of expenses related to our products; ● the results of our efforts to discover, develop, manufacture, acquire or in-license our current and additional products; ● actual or anticipated changes in estimates as to financial results, timelines or recommendations by securities analysts; ● variations in our financial results or the financial results of companies that are perceived to be similar to us; ● sales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares; ● changes in the structure of healthcare payment systems; ● general economic, industry and market conditions; and ● the other factors summarized and described in this Risk Factors section. ​ Companies trading in the stock market in general have also experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies.
Our principal obligations under the license agreements with Stanford include the following: ● royalty payments; ● meeting certain milestones pertaining to development, commercialization and sales of products using the licensed technology; ● annual maintenance fees; ● using commercially reasonable efforts to develop and sell a product using the licensed technology and developing a market for such product; and ● providing certain reports. ​ If we breach any of these obligations, Stanford may have the right to terminate the licenses, which could result in us being unable to develop, manufacture and sell products using the licensed technology.
Our principal obligations under the license agreements with Stanford include the following: ● royalty payments; ● meeting certain milestones pertaining to development, commercialization and sales of products using the licensed technology; ● annual maintenance fees; 38 Table of Contents ● using commercially reasonable efforts to develop and sell a product using the licensed technology and developing a market for such product; and ● providing certain reports. ​ If we breach any of these obligations, Stanford may have the right to terminate the licenses, which could result in us being unable to develop, manufacture and sell products using the licensed technology.
As a result, our stockholders may be limited in their ability to obtain a premium for their shares. If prospective takeovers are 62 Table of Contents not consummated for any reason, we may experience negative reactions from the financial markets, including negative impacts on the price of our common stock.
As a result, our stockholders may be limited in their ability to obtain a premium for their shares. If prospective takeovers are not consummated for any reason, we may experience negative reactions from the financial markets, including negative impacts on the price of our common stock.
Termination of our license agreements with Stanford would have a material adverse effect on our business. ​ 54 Table of Contents In addition, we are a party to a number of other agreements that include licenses to intellectual property, including non-exclusive licenses. We may need to enter into additional license agreements in the future.
Termination of our license agreements with Stanford would have a material adverse effect on our business. ​ In addition, we are a party to a number of other agreements that include licenses to intellectual property, including non-exclusive licenses. We may need to enter into additional license agreements in the future.
As part of a business strategy to impede our successful commercialization and entry into new markets, competitors may claim that our products and/or services infringe their intellectual property rights and may suggest that we enter into license agreements.
As part of a business 39 Table of Contents strategy to impede our successful commercialization and entry into new markets, competitors may claim that our products and/or services infringe their intellectual property rights and may suggest that we enter into license agreements.
An interruption in our operations could occur if we encounter delays or difficulties in securing these materials and components, or if the quality of the materials and components supplied do not meet our requirements, or if we cannot then 34 Table of Contents obtain an acceptable substitute.
An interruption in our operations could occur if we encounter delays or difficulties in securing these materials and components, or if the quality of the materials and components supplied do not meet our requirements, or if we cannot then obtain an acceptable substitute.
In addition to FDA implications, the use of comparative claims also presents risk of a lawsuit by the competitor under federal and state false advertising and unfair competition statutes (e.g., the Lanham Act) or unfair and deceptive trade practices law, and possibly also state libel law.
In addition to FDA implications, the use of comparative claims also presents risk of a lawsuit by the competitor under federal and state false advertising and unfair competition statutes (e.g., the Lanham Act) or unfair and deceptive trade practices law, and possibly also state libel law, or other similar foreign laws.
This would allow our competitors to create similar products with less development effort and time and ultimately could result in a loss of product sales. ​ Although we intend to monitor any use of open source software to avoid subjecting our products to conditions we do not intend, the terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that any such licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our products.
Some open source licenses may contain unfavorable requirements that could allow our competitors to create similar products with less development effort and time and ultimately could result in a loss of product sales. ​ Although we intend to monitor any use of open source software to avoid subjecting our products to conditions we do not intend, the terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that any such licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our products.
Further, we cannot assure investors that other parties will not challenge any patents granted to us or that courts or regulatory agencies will hold our patents to be valid or enforceable. We cannot guarantee investors that we will be successful in defending challenges made against our patents and patent applications.
Further, we cannot assure investors that other parties will not challenge any patents granted to us or that courts or regulatory agencies will hold our patents to be valid or enforceable. We cannot guarantee investors that we will be successful in 37 Table of Contents defending challenges made against our patents and patent applications.
If a third party claims that we or any of our licensors, customers or collaboration partners infringe upon a third party’s intellectual property rights, we may have to: ● seek licenses that may not be available on commercially reasonable terms, if at all; ● abandon any infringing product or redesign our products or processes to avoid infringement; ● pay substantial damages including, in an exceptional case, treble damages and attorneys’ fees, which we may have to pay if a court decides that the product or proprietary technology at issue infringes upon or violates the third-party’s rights; ● pay substantial royalties or fees or grant cross-licenses to our technology; or ● defend litigation or administrative proceedings that may be costly whether we win or lose, and which could result in a substantial diversion of our financial and management resources. ​ We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and unsuccessful.
If a third party claims that we or any of our licensors, customers or collaboration partners infringe upon a third party’s intellectual property rights, we may have to: ​ ● seek licenses that may not be available on commercially reasonable terms, if at all; ● abandon any infringing product or redesign our products or processes to avoid infringement; ● pay substantial damages including, in an exceptional case, treble damages and attorneys’ fees, which we may have to pay if a court decides that the product or proprietary technology at issue infringes upon or violates the third-party’s rights; ● pay substantial royalties or fees or grant cross-licenses to our technology; or ● defend litigation or administrative proceedings that may be costly whether we win or lose, and which could result in a substantial diversion of our financial and management resources. ​ Competitors may infringe our patents or the patents that we license.
Product liability claims may be brought by individuals or by groups seeking to represent a class. ​ Although we have insurance at levels that we believe to be appropriate, this insurance is subject to deductibles and coverage limitations.
Product liability claims may be brought by individuals or by groups seeking to represent a class. ​ 43 Table of Contents Although we have insurance at levels that we believe to be appropriate, this insurance is subject to deductibles and coverage limitations.
If we are able to find a replacement supplier, such replacement supplier would need to be qualified and may require additional regulatory inspection or approval, which could result in further delay.
If we are able to find a 28 Table of Contents replacement supplier, such replacement supplier would need to be qualified and may require additional regulatory inspection or approval, which could result in further delay.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. ​ Many of our competitors are larger than we are and have substantially greater resources.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. ​ Patent litigation can be very costly and time consuming. Many of our competitors are larger than we are and have substantially greater resources.
In addition, we are required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting.
In addition, we may be required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting.
Developing and managing a direct sales organization is a difficult, expensive and time-consuming process. 35 Table of Contents To continue to develop our sales and marketing organization to successfully achieve market awareness and sell our products, we must: ● continue to recruit and retain adequate numbers of effective and experienced sales and marketing personnel; ● effectively train our sales and marketing personnel in the benefits and risks of our products; ● establish and maintain successful sales, marketing, training and education programs that educate health care professionals so they can appropriately inform their patients about our products; ● manage geographically dispersed sales and marketing operations; and ● effectively train our sales and marketing personnel on the applicable fraud and abuse laws that govern interactions with healthcare practitioners as well as current and prospective patients and maintain active oversight and auditing measures to ensure continued compliance. ​ We may not be able to successfully manage our sales force or increase our product sales at acceptable rates.
To continue to develop our sales and marketing organization to successfully achieve market awareness and sell our products, we must: ● continue to recruit and retain adequate numbers of effective and experienced sales and marketing personnel; ● effectively train our sales and marketing personnel in the benefits and risks of our products; ● establish and maintain successful sales, marketing, training and education programs that educate health care professionals so they can appropriately inform their patients about our products; ● manage geographically dispersed sales and marketing operations; and ● effectively train our sales and marketing personnel on the applicable fraud and abuse laws that govern interactions with healthcare practitioners as well as current and prospective patients and maintain active oversight and auditing measures to ensure continued compliance. ​ We may not be able to successfully manage our sales force or increase our product sales at acceptable rates.
Further, if 63 Table of Contents additional medical device products are approved or cleared for marketing, or if we launch additional 510(k)-exempt device products or products that are not FDA-regulated medical devices, we may seek additional insurance coverage.
Further, if additional medical device products are approved or cleared for marketing, or if we launch additional 510(k)-exempt device products or products that are not FDA-regulated medical devices, we may seek additional insurance coverage.
These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Even if we pursue and obtain issued patents in particular jurisdictions, our patent claims or other intellectual property rights may not be effective or sufficient to prevent third parties from competing.
Even if we pursue and obtain issued patents in particular jurisdictions, our patent claims or other intellectual property rights may not be effective or sufficient to prevent third parties from competing.
In February 2020, we initiated a voluntary recall of two software tools after being notified by the FDA that each of them required clearance via a 510(k) pre-market notification. The FDA evaluated the recall and subsequently terminated it in June 2020.
In February 2020, we initiated a voluntary recall of two software tools after being notified by the FDA that each of them required 5109(k) clearance. The FDA evaluated the recall and subsequently terminated it in June 2020.
Disputes may arise between us and our licensors regarding intellectual property subject to a license agreement, including: ● the scope of rights granted under the license agreement and other interpretation-related issues; ● whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; ● our right to sublicense patent and other rights to third parties under collaborative development relationships; ● our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our products, and what activities satisfy those diligence obligations; and ● the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners. ​ If disputes over licensed intellectual property prevent or impair our ability to maintain the licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product, or the dispute may have an adverse effect on our results of operations. ​ In addition to agreements pursuant to which we in-license intellectual property, we have in the past, and we may in the future, grant licenses under our intellectual property.
Disputes may arise between us and our licensors regarding intellectual property subject to a license agreement, including: ● the scope of rights granted under the license agreement and other interpretation-related issues; ● whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; ● our right to sublicense patent and other rights to third parties under collaborative development relationships; ● our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our products, and what activities satisfy those diligence obligations; and ● the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners. ​ If disputes over licensed intellectual property prevent or impair our ability to maintain the licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product, or the dispute may have an adverse effect on our results of operations. ​ If we or any of our partners are sued for infringing the intellectual property rights of third parties, such litigation would be costly and time consuming, and an unfavorable outcome in any such litigation could have a material adverse effect on our business.
To the extent that we enter into additional arrangements with third parties to perform sales or marketing services in the United States, Europe or other countries, our product margins could be lower than if we directly marketed and sold our products.
A substantial reduction in sales could have a material adverse effect on our operating performance. To the extent that we enter into additional arrangements with third parties to perform sales or marketing services in the United States, Europe or other countries, our product margins could be lower than if we directly marketed and sold our products.
However, if the FDA determines that our promotional materials or training materials promote a 510(k)-cleared or approved medical device in a manner inconsistent with its labeling, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance of an Untitled Letter, a Warning Letter, injunction, seizure, civil fine or criminal penalties.
Our promotional materials and training methods must comply with FDA and other applicable laws and regulations, including the prohibition of the promotion of unapproved, or off-label, uses.However, if the FDA determines that our promotional materials or training materials promote a 510(k)-cleared or approved medical device in a manner inconsistent with its labeling, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance of an Untitled Letter, a Warning Letter, injunction, seizure, civil fine or criminal penalties.
If we fail to continue to comply with current good manufacturing requirements, as well as ISO or other regulatory standards, we may be required to cease all or part of our operations until we comply with these regulations.
If we fail to continue to comply with current good manufacturing requirements, as well as ISO or other regulatory standards, we may be required to cease all or part of our operations until we comply with these regulations. Maintaining compliance with multiple regulators adds complexity and cost to our manufacturing and compliance processes.
The GDPR and UK GDPR also confer a private right of action on data subjects and consumer associations to lodge complaints with the supervisory authorities, seek judicial remedies and obtain compensation for damages resulting from violations of the GDPR and UK GDPR.
The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. If we fail to comply with the GDPR, the U.K. GDPR, and the U.K.
We would then be required to comply with those provisions of the NYSE listing requirements. The dual class structure of our common stock has the effect of concentrating voting power with the chairman of our board of directors and founder, which will limit an investor’s ability to influence the outcome of important transactions, including a change in control.
The dual class structure of our common stock has the effect of concentrating voting power with the chairman of our board of directors and founder, which will limit an investor’s ability to influence the outcome of important transactions, including a change in control.
Risks Related to Butterfly’s Intellectual Property ​ If we are unable to protect our intellectual property, our ability to maintain any technological or competitive advantage over our competitors and potential competitors would be adversely impacted, and our business may be harmed. ​ We rely on patent protection as well as trademark, copyright, trade secret and other intellectual property rights protection and contractual restrictions to protect our proprietary technologies, all of which provide limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage.
For example, GPOs and IDNs have also concentrated purchasing decisions for some customers, which has led to downward pricing pressure for medical device companies. ​ ​ Risks Related to Butterfly’s Intellectual Property ​ If we are unable to protect our intellectual property, our ability to maintain any technological or competitive advantage over our competitors and potential competitors would be adversely impacted, and our business may be harmed. ​ We rely on patent protection as well as trademark, copyright, trade secret and other intellectual property rights protection and contractual restrictions to protect our proprietary technologies, all of which provide limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage.
No assurance can be given that our patent applications or granted patents (or those of our licensors) will have priority over any other patent or patent application involved in such a proceeding; ● Others may independently develop similar or alternative products and technologies or duplicate any of our products and technologies; 52 Table of Contents ● It is possible that our owned or licensed pending patent applications will not result in granted patents, and even if such pending patent applications grant as patents, they may not provide a basis for intellectual property protection of commercially viable products, may not provide us with any competitive advantages, or may be challenged and invalidated by third parties; ● We may not develop additional proprietary products and technologies that are patentable; ● The patents of others may have an adverse effect on our business; and ● While we apply for patents covering our products and technologies and uses thereof, as we deem appropriate, we may fail to apply for patents on important products and technologies in a timely fashion or at all, or we may fail to apply for patents in potentially relevant jurisdictions ​ To the extent our intellectual property offers inadequate protection, or is found to be invalid or unenforceable, we would be exposed to a greater risk of direct competition.
No assurance can be given that our patent applications or granted patents (or those of our licensors) will have priority over any other patent or patent application involved in such a proceeding; ● Others may independently develop similar or alternative products and technologies or duplicate any of our products and technologies; ● It is possible that our owned or licensed pending patent applications will not result in granted patents, and even if such pending patent applications grant as patents, they may not provide a basis for intellectual property protection of commercially viable products, may not provide us with any competitive advantages, or may be challenged and invalidated by third parties; ● We may not develop additional proprietary products and technologies that are patentable; ● The patents of others may have an adverse effect on our business; and ● While we apply for patents covering our products and technologies and uses thereof, as we deem appropriate, we may fail to apply for patents on important products and technologies in a timely fashion or at all, or we may fail to apply for patents in potentially relevant jurisdictions ​ Filing, prosecuting and defending patents on current and future products in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States.
Competitors may infringe our patents or the patents that we license. In the event of infringement or unauthorized use, we may file one or more infringement lawsuits, which can be expensive and time-consuming.
In the event of infringement or unauthorized use, we may file one or more infringement lawsuits, which can also be expensive and time-consuming.
Rothberg owns less than a majority of the outstanding shares of our capital stock. ​ These anti-takeover provisions as well as certain provisions of Delaware law could make it more difficult for a third party to acquire the Company, even if the third party’s offer may be considered beneficial by many of our stockholders.
These anti-takeover 42 Table of Contents provisions as well as certain provisions of Delaware law could make it more difficult for a third party to acquire the Company, even if the third party’s offer may be considered beneficial by many of our stockholders.
We could be adversely affected by violations of the FCPA and other worldwide anti-bribery laws by us or our agents. We are subject to the FCPA, which prohibits companies and their intermediaries from making payments in violation of law to non-U.S. government officials for the purpose of obtaining or retaining business or securing any other improper advantage.
We are subject to the FCPA, which prohibits companies and their intermediaries from making payments in violation of law to non-U.S. government officials for the purpose of obtaining or retaining business or securing any other improper advantage.
In addition, as of February 1, 2023, there were 6,853,333 private placement warrants outstanding exercisable for 6,853,333 shares of our Class A common stock at an exercise price of $11.50 per share. In certain circumstances, the public warrants and private placement warrants may be exercised on a cashless basis.
In addition, as of February 1, 2023, there were 6,853,333 private 41 Table of Contents placement warrants outstanding exercisable for 6,853,333 shares of our Class A common stock at an exercise price of $11.50 per share.
If a change to a device addresses a violation of the FDCA, that change would generally constitute a medical device recall and require submission of a recall report to the FDA. ​ Recalls of any of our products would divert managerial and financial resources and have an adverse effect on our reputation, results of operations and financial condition, which could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers’ demands.
Recalls of any of our products would divert managerial and financial resources and have an adverse effect on our reputation, results of operations and financial condition, which could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers’ demands.
In addition to ensuring that the claims we make are consistent with our regulatory clearances or approvals, the FDA also ensures that promotional labeling for all regulated medical devices is neither false nor misleading. ​ It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an off-label use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.
It is also possible that other federal (such as the FTC), state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an off-label use, or to be false, unsubstantiated, or misleading, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.
If we are unable to continue the development of an adequate sales and marketing organization and/or if our direct sales organization is not successful, we may have difficulty achieving market awareness and selling our products in the future.
If we are unable to establish and maintain adequate sales, marketing and distribution capabilities, independently or with others, our future revenue may be reduced and our business may be harmed. 29 Table of Contents If we are unable to continue the development of an adequate sales and marketing organization and/or if our direct sales organization is not successful, we may have difficulty achieving market awareness and selling our products in the future.
As of February 1, 2023, there were 13,799,357 outstanding public warrants to purchase 13,799,357 shares of our Class A common stock at an exercise price of $11.50 per share, which warrants became exercisable 12 months from the closing of our initial public offering, which occurred on May 26, 2020.
As of February 1, 2023, there were 13,799,357 outstanding public warrants to purchase 13,799,357 shares of our Class A common stock at an exercise price of $11.50 per share.
A recall of our products, either voluntarily or at the direction of the FDA, or the discovery of serious safety issues with our products, could have a significant adverse impact on us.
Our current or future products may be subject to product recalls even after receiving FDA clearance or approval. A recall of our products, either voluntarily or at the direction of the FDA, or the discovery of serious safety issues with our products, could have a significant adverse impact on us.
The America Invents Act (“AIA”) was signed into law on September 16, 2011, and many of the substantive changes under the AIA became effective on March 16, 2013.
The America Invents Act (“AIA”) was signed into law on September 16, 2011, and many of the substantive changes under the AIA became effective on March 16, 2013 is the primary governing legislation in the United States and many of the countries we operate within have similar governing legislation.
Inflation could also adversely affect the ability of our customers to purchase our products. An economic downturn could result in a variety of risks to our business, including weakened demand for our products and our inability to raise additional capital when needed on acceptable terms, if at all.
An economic downturn could result in a variety of risks to our business, including weakened demand for our products and our inability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also result in further constraints on our suppliers or cause future customers to delay making payments for our products.
In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise any funds necessary to continue our operations, continue our internal research programs, in-license needed technology, or enter into development partnerships that would help us bring our products to market. ​ In addition, patent litigation can be very costly and time-consuming.
In addition, the uncertainties associated with litigation, or an adverse outcome, could have a material adverse effect on our ability to raise any funds necessary to continue our operations, continue our internal research programs, in-license needed technology, expose us to significant liabilities, or enter into development partnerships that would help us bring our products to market. ​ Changes in patent laws or patent jurisprudence could diminish the value of patents in general, thereby impairing our ability to protect our products.
If we, our contract manufacturers or our component suppliers are unable to manufacture our products in sufficient quantities, on a timely basis, at acceptable costs and in compliance with regulatory and quality requirements, the manufacturing and distribution of our devices could be interrupted, and our product sales and operating results could suffer.
If we, our contract manufacturers or our component suppliers are unable to manufacture our products in sufficient quantities, on a timely basis, at acceptable costs and in compliance with regulatory and quality requirements, the manufacturing and distribution of our devices could be interrupted, and our product sales and operating results could suffer. ​ We, our contract manufacturers and our component suppliers are required to comply with the FDA’s Quality System Regulation (“QSR”), which is a complex regulatory framework that covers the procedures and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage, shipping and servicing of our devices.
Our ultrasound imaging products and associated services are subject to extensive pre-market and post-market regulation by the FDA and various other federal, state, local and foreign government authorities.
Our ultrasound imaging products and associated services are subject to extensive pre-market and post-market regulation by the FDA and various other federal, state, local and foreign government authorities. For example, our operations are subject to regulations governing packaging and labeling requirements, adverse event reporting, quality system and manufacturing requirements, clinical testing and recalls.
Significant changes in our stock price or number of warrants outstanding may adversely affect our net income (loss) in our consolidated statements of operations. Because we are a “controlled company” within the meaning of the NYSE rules, our stockholders may not have certain corporate governance protections that are available to stockholders of companies that are not controlled companies.
Because we are a “controlled company” within the meaning of the NYSE rules, our stockholders may not have certain corporate governance protections that are available to stockholders of companies that are not controlled companies.
Even if such claims are without merit, we could incur substantial costs and the attention of our management, and technical personnel could be diverted in defending us against claims of infringement made by third parties or settling such claims. 55 Table of Contents Any adverse ruling by a court or administrative body, or perception of an adverse ruling, may have a material adverse impact on our ability to conduct our business and our finances.
Even if such claims are without merit, we could incur substantial costs and the attention of our management, and technical personnel could be diverted in defending us against claims of infringement made by third parties or settling such claims.
As we face increasing competition and as our business grows, we will likely face more claims of infringement.
As we face increasing competition and as our business grows, we will likely face more claims of infringement, such as the FujiFilm Sonosite complaint filed against us in 2022.
Our success also depends on our ability to develop, manufacture, market and sell our products and perform our services without infringing upon the proprietary rights of third parties. Numerous U.S. and foreign-issued patents and pending patent applications owned by third parties exist in the fields in which we are developing products and services.
Numerous U.S. and foreign-issued patents and pending patent applications owned by third parties exist in the fields in which we are developing products and services.
Like in-licenses, out-licenses are complex, and disputes may arise between us and our licensees, such as the types of disputes described above. Moreover, our licensees may breach their obligations, or we may be exposed to liability due to our failure or alleged failure to satisfy our obligations. Any such occurrence could have an adverse effect on our business.
Moreover, our licensees may breach their obligations, or we may be exposed to liability due to our failure or alleged failure to satisfy our obligations. Any such occurrence could have an adverse effect on our business. Licensing intellectual property involves complex legal, business and scientific issues.
Our wafer bonding technology for ultrasound applications is licensed to us by Stanford. Any loss of our rights to this technology could prevent us from selling our products. Our wafer bonding technology for use in ultrasound applications is licensed co-exclusively to us from Stanford until the end of December 2023, at which time the license becomes non-exclusive.
Our wafer bonding technology for use in ultrasound applications is licensed co-exclusively to us from Stanford until the end of December 2023, at which time the license becomes non-exclusive. We also license on a non-exclusive basis 7 active patents from Stanford. We do not own the patents that underlie these licenses.
We have experienced pricing increases from our suppliers and we have increased compensation to our employees to help ensure employee retention. To the extent inflation or other factors increase our business costs, it may not be feasible to pass price increases on to our customers or offset higher costs through manufacturing efficiencies.
To the extent inflation or other factors increase our business costs, it may not be feasible to pass price increases on to our customers or offset higher costs through manufacturing efficiencies. Inflation could also adversely affect the ability of our customers to purchase our products.
This could lead to unwanted context for advertising about our products and services, resulting in ineffective advertising or even reputational harm. If we are unable to establish and maintain adequate sales and marketing capabilities or enter into and maintain arrangements with third parties to sell and market our products, our business may be harmed.
If we are unable to establish and maintain adequate sales and marketing capabilities or enter into and maintain arrangements with third parties to sell and market our products, our business may be harmed. We cannot guarantee that we will be able to maintain our current volume of sales in the future.
We also license on a non-exclusive basis 7 active patents from Stanford. We do not own the patents that underlie these licenses. Our rights to use the licensed technology and employ the inventions claimed in the licensed patents are subject to the continuation of and compliance with the terms of the license.
Our rights to use the licensed technology and employ the inventions claimed in the licensed patents are subject to the continuation of and compliance with the terms of the license.
Our ability to use net operating losses and certain other tax assets to offset future income may be subject to certain limitations. As of December 31, 2022, we had federal net operating loss (“NOL”) carryforwards of approximately $552.2 million, of which approximately $73.7 million will begin to expire in 2031 if not utilized.
As of December 31, 2023, we had federal net operating loss (“NOL”) carryforwards of approximately $609.7 million, of which approximately $73.7 million will begin to expire in 2031 if not utilized. Unused NOLs may be carried forward to offset future taxable income if we achieve profitability in the future, unless such NOLs expire under applicable tax laws.
In some cases, our licensors may be responsible for, for example, these payments, thereby decreasing our control over compliance with these requirements. 58 Table of Contents If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
These changes may weaken our ability to obtain new patents and/or enforce the rights of our existing patents. ​ 40 Table of Contents If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
We may also be subject to product liability claims, be required to bear other costs, or be required to take other actions that may have a negative impact on our future sales and our ability to generate profits. Companies are required to maintain certain records of recalls, even if they are not reportable to the FDA.
We may also be subject to product liability claims, be required to bear other costs, or be required to take other actions that may have a negative impact on our future sales and our ability to generate profits. 33 Table of Contents We may be subject to enforcement action if we engage in improper or off-label marketing or promotion of our products, including fines, penalties and injunctions.
The FDA requires that promotional labeling be truthful and not misleading, including with respect to any comparative claims made about competing products or technologies.
In some instances in our advertising and promotion, we may make claims regarding our product as compared to competing products, which may subject us to heightened regulatory scrutiny, enforcement risk, and litigation risks. The FDA requires that promotional labeling be truthful and not misleading, including with respect to any comparative claims made about competing products or technologies.
Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, financial condition, results of operations and growth prospects. ​ Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.
Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, financial condition, results of operations and growth prospects. ​ ​ Item 1B. UNRESOLVED STAFF COMMENTS None. ​ ​ ​
Broad-based domestic and international government initiatives to reduce spending, particularly those related to healthcare costs, may reduce reimbursement rates for medical procedures, which will reduce the cost-effectiveness of our products and services.
In addition, the market for such insurance continues to evolve and, in the future, our data privacy and IT security insurance coverage may be prohibitively expensive or not available on acceptable terms or in sufficient amounts, or at all. ​ 36 Table of Contents Broad-based domestic and international government initiatives to reduce spending, particularly those related to healthcare costs, may reduce reimbursement rates for medical procedures, which will reduce the cost-effectiveness of our products and services.
We may become subject to claims that we, a consultant or an independent contractor inadvertently or otherwise used or disclosed trade secrets or other information proprietary to their former employers or their former or current clients.
As is common in the medical device industry, we also engage the services of specialized consultants and employees who are currently providing or previously provided services to our competitors and we may become subject to claims that we, an employee, a consultant or an independent contractor inadvertently or otherwise used or disclosed trade secrets, intellectual property or other information proprietary to their former employers or their former or current clients.
These reforms include a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models. The impact of this healthcare reform legislation, and practices including price regulation, competitive pricing, comparative effectiveness of therapies, technology assessments, and managed care arrangements are uncertain.
The impact of this healthcare reform legislation, and practices including price regulation, competitive pricing, comparative effectiveness of therapies, technology assessments, and managed care arrangements are uncertain.
The adoption of significant changes to the healthcare system in the United States, the EEA or other jurisdictions in which we may market our products and services, could limit the prices we are able to charge for our products and services or the amounts of reimbursement available for our products and services, could limit the acceptance and availability of our products and services, reduce medical procedure volumes and increase operational and other costs. ​ There have been judicial and Congressional challenges to certain aspects of the Affordable Care Act, and as a result, certain sections of the Act have not been fully implemented or were effectively repealed.
The adoption of significant changes to the healthcare system in the United States, the EEA or other jurisdictions in which we may market our products and services, could limit the prices we are able to charge for our products and services or the amounts of reimbursement available for our products and services, could limit the acceptance and availability of our products and services, reduce medical procedure volumes and increase operational and other costs. ​ Healthcare industry cost-containment measures could result in reduced sales of our products and services. ​ Most of our customers rely on third-party payers, including government programs and private health insurance plans, to reimburse some or all of the cost of the procedures in which our products are used.
In that event, our reputation could be damaged, and adoption of our products could be impaired.
In that event, our reputation could be damaged, and adoption of our products could be impaired, in addition to legal consequences, which may include fines, penalties, product liability claims, and other legal actions.
This action may divert management resources, we may incur substantial costs, and any unfavorable outcome may have a material adverse effect on our financial condition, results of operations and cash flows. ​ General Risk Factors Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect the Company’s current and projected business operations and its financial condition and results of operations.
This action may divert management resources, we may incur substantial costs, and any unfavorable outcome may have a material adverse effect on our financial condition, results of operations and cash flows. ​ General Risk Factors The price of our common stock historically has been volatile, which may affect the price at which you could sell any shares of our common stock.
Risks Related to Our Securities and to Being a Public Company The Company’s outstanding warrants became exercisable for the Company’s Class A common stock upon the first anniversary of Longview’s initial public offering. The exercise of these outstanding warrants will increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.
Any failure to do so could adversely impact our ability to deliver reliable products to our customers and could harm our reputation and results of operations. Risks Related to Our Securities and to Being a Public Company The Company’s outstanding warrants became exercisable for the Company’s Class A common stock upon the first anniversary of Longview’s initial public offering.
Any such limitations may result in increased tax liabilities that could adversely affect our business, results of operations, financial position and cash flows. ​ U.S. taxation of international business activities or the adoption of tax reform policies could materially impact our future financial position and results of operations.
State NOLs and other tax attributes may be similarly limited. Any such limitations may result in increased tax liabilities that could adversely affect our business, results of operations, financial position and cash flows. ​ 31 Table of Contents We could be adversely affected by violations of the FCPA and other worldwide anti-bribery laws by us or our agents.
Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business. ​ We have incurred and will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could adversely affect our business, results of operations, and financial condition.
Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business. ​ Changes in applicable tax laws and regulations could adversely affect our business. ​ We are subject to income and other non-income taxes (including sales, excise, and value-added) in the United States and foreign jurisdictions.
In addition, since we sometimes indemnify customers, collaborators or licensees, we may have additional liability in connection with any infringement or alleged infringement of third-party intellectual property. ​ Because patent applications can take many years to issue, there may be pending applications, some of which are unknown to us, that may result in issued patents upon which our products or proprietary technologies may infringe.
In addition, since we sometimes indemnify customers, collaborators or licensees, we may have additional liability in connection with any infringement or alleged infringement of third-party intellectual property. ​ There is a substantial amount of litigation involving patent and other intellectual property rights in the medical device space.
If these requirements divert the attention of our management and personnel from other business concerns, or increase our costs, they could have a material adverse effect on our business, financial condition and results of operations and may require us to reduce costs in other areas of our business or increase the prices of any products or services we may offer in the future.
Additionally, significant capital investment to increase manufacturing capacity may be required to expand our business or meet increased demand for our products in the future. Any of these risks could have a material adverse effect on our business results, cash flows, financial condition, or prospects.
Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries. ​ Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions.
Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries. ​ If we fail to protect our intellectual property, third parties may be able to compete more effectively against us, we may lose our technological or competitive advantage, or we may incur substantial litigation costs in our attempts to recover or restrict use of our intellectual property.
There are a number of federal and state laws protecting the confidentiality and security of individually identifiable health information and PHI and restricting the use and disclosure of that protected information. In particular, the HHS has promulgated privacy rules and security rules under HIPAA.
In particular, regulations promulgated pursuant to HIPAA establish privacy and security standards that limit the use and disclosure of protected health information (“PHI”), require the implementation of safeguards to protect the privacy and security of PHI and ensure the confidentiality, integrity, and availability of electronic PHI, and require the provision of notice in the event of a breach of PHI.
Removed
If we do not adequately predict market demand or otherwise optimize and operate our sales and distribution channels successfully, this could result in excess or insufficient inventory or fulfillment capacity, increased costs, or immediate shortages in product or component supply, or harm our business in other ways.
Added
We must continue to optimize our sales and marketing organization and enter into partnerships or other arrangements to market and sell our products and/or collaborate with third parties, including distributors and others, to market and sell our products to maintain the commercial success of Butterfly Technologies and to achieve commercial success for any of our future products.
Removed
In addition, if we do not maintain adequate infrastructure to enable us to, among other things, manage our purchasing and inventory, this could negatively impact our operating results and user experience.
Added
Developing and managing a direct sales organization is a difficult, expensive and time-consuming process.
Removed
Our use of programmatic digital advertising platforms for our eCommerce sales may lead to unwanted advertising and to reputational harm. Currently, we use programmatic digital advertising platforms that automatically place advertisements for our products on websites visited by those who have visited and/or made purchases from our website.
Added
Developing and managing a direct sales organization is a difficult, expensive and time-consuming process.
Removed
We cannot guarantee that we will be able to maintain our current volume of sales in the future. A substantial reduction in sales could have a material adverse effect on our operating performance.
Added
We operate in highly competitive markets, competition may increase in the future, and our industry may be further disrupted. Healthcare markets are characterized by rapidly evolving technology, frequent introduction of new products, intense competition, and pricing pressures. We face competition from international and domestic companies of all sizes.
Removed
The market for our products and services is new, rapidly evolving, and increasingly competitive, as the healthcare industry in the United States is undergoing significant structural change, which makes it difficult to forecast demand for our products and services.
Added
Competition is primarily focused on cost effectiveness, price, service, product performance, and technological innovation.
Removed
The market for our products and services is new and rapidly evolving, and it is uncertain whether we will achieve and sustain high levels of demand and market adoption. Our future financial performance will depend in part on growth in this market and on our ability to adapt to the changing demands of customers.
Added
Our ability to compete successfully may be adversely affected by factors such as: ● the introduction of new products or product enhancements by competitors ● the development of new technology or the application of known or unknown technology ● a failure to satisfy local market conditions and regulations, such as mandatory IP transfers, protectionist measures, and other government policies supporting increased local competition; ● the emergence of new market entrants; ● a failure to maintain or expand relationships with existing customers or attract new customers; 30 Table of Contents ● cost of production or delivery, whether due to geographic location, currency fluctuations, taxes, duties, or otherwise, which may enable our competitors to offer greater discounts or lower prices; ● the perception of our brand and image in the market; ● a failure to successfully enter new geographic or adjacent product markets; ● changing regulatory standards, legal requirements, or enforcement rigor; or ● consolidation among customers, suppliers, channel partners, or competitors. ​ Our inability to obtain and maintain regulatory authorizations for and supply commercial quantities of our offerings as quickly and effectively as our competitors could limit market acceptance.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

23 edited+8 added−34 removed46 unchanged
Biggest changeWe anticipate that our expenses will increase substantially if and as we: ● continue to build our sales, marketing and distribution infrastructure to commercialize our products and services; ● continue to develop our products and services; ● seek to identify, assess, acquire, license and/or develop other products and services and subsequent generations of our current products and services; ● seek to maintain, protect and expand our intellectual property portfolio; ● seek to attract and retain skilled personnel; and ● support our operations as a public company. ​ Our ability to generate future revenue from product and service sales depends heavily on our success in many areas, including, but not limited to: ​ ● launching and commercializing current and future products and services, either directly or in conjunction with one or more collaborators or distributors; ● obtaining and maintaining marketing authorization with respect to each of our products and maintaining regulatory compliance throughout relevant jurisdictions; ● maintaining clinical and economical value for end-users and customers in changing environments; ● addressing any competing technological and market developments; ● negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter; ● establishing and maintaining distribution relationships with third-parties that can provide adequate (in amount and quality) infrastructure to support market demand for our products; and ● maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how. ​ We have incurred significant losses since inception.
Biggest changeOur ability to generate future revenue from product and service sales depends heavily on our success in many areas, including, but not limited to: ​ ● launching and commercializing current and future products and services, either directly or in conjunction with one or more collaborators or distributors; ● obtaining and maintaining marketing authorization with respect to each of our products and maintaining regulatory compliance throughout relevant jurisdictions; ● maintaining clinical and economical value for end-users and customers in changing environments; ● addressing any competing technological and market developments; ● negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter; ● establishing and maintaining distribution relationships with third-parties that can provide adequate (in amount and quality) infrastructure to support market demand for our products; and ● maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how. ​ We have incurred significant losses since inception.
In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds sooner than planned. We cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all.
In addition, our 23 Table of Contents operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds sooner than planned. We cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all.
If any of the following risks, either alone or taken together, or other risks not presently known to us or that we currently believe to not be significant, develop into actual events, then our business, financial condition, results of operations or 26 Table of Contents prospects could be materially adversely affected.
If any of the following risks, either alone or taken together, or other risks not presently known to us or that we currently believe to not be significant, develop into actual events, then our business, financial condition, results of operations or prospects could be materially adversely affected.
An interruption in our ability to sell and deliver our products or instruments to customers could occur if we encounter delays or difficulties in securing these components, or if the quality of the components supplied do not meet our specifications, or if we cannot then obtain an acceptable substitute.
An interruption 27 Table of Contents in our ability to sell and deliver our products or instruments to customers could occur if we encounter delays or difficulties in securing these components, or if the quality of the components supplied do not meet our specifications, or if we cannot then obtain an acceptable substitute.
Since commercialization of the Butterfly iQ, we also engaged in the continued development and sales of our enterprise software. We have financed our operations primarily through the issuance of equity securities and convertible debt. We have incurred net losses of $168.7 million, $32.4 million and $162.7 million in the years ended December 31, 2022, 2021 and 2020, respectively.
Since commercialization of the Butterfly iQ, we also engaged in the continued development and sales of our enterprise software. We have financed our operations primarily through the issuance of equity securities and convertible debt. We have incurred net losses of $133.7 million, $168.7 million, and $32.4 million in the years ended December 31, 2023, 2022, and 2021, respectively.
During the years ended December 31, 2022, 2021 and 2020, approximately 30%, 31% and 28%, respectively, of our product and service revenue was generated from customers located outside of the United States. We believe that a substantial percentage of our future revenue will come from international sources as we expand our sales and marketing opportunities internationally.
During the years ended December 31, 2023, 2022, and 2021, approximately 21%, 30%, and 31%, respectively, of our product and service revenue was generated from customers located outside of the United States. We believe that a substantial percentage of our future revenue will come from international sources as we expand our sales and marketing opportunities internationally.
We will be dependent upon the success of our sales and customer acquisition and retention strategies. Our business is dependent upon the success of our sales and customer acquisition and retention strategies, and our marketing efforts are focused on developing a strong reputation with healthcare providers and increasing awareness of our products and services.
Our business is dependent upon the success of our sales and customer acquisition and retention strategies, and our marketing efforts are focused on developing a strong reputation with healthcare providers and increasing awareness of our products and services.
If any of these events occur, our business and operating results could be harmed. 33 Table of Contents We rely on a single contract manufacturer, Benchmark, to test, assemble and supply our finished products.
If any of these events occur, our business and operating results could be harmed. We rely on a single contract manufacturer, Benchmark, to test, assemble and supply our finished products.
We have limited experience operating internationally, and engaging in international business involves a number of difficulties and risks, including: ​ ● the challenges associated with building local brand awareness, obtaining local key opinion leader support and clinical support, implementing reimbursement strategies and building local marketing and sales teams; ● required compliance with foreign regulatory requirements and laws, including regulations and laws relating to patient data and medical devices; ● trade relations among the United States and those foreign countries in which our current or future customers, distributors, manufacturers and suppliers have operations, including protectionist measures such as tariffs and import or export licensing requirements, whether imposed by the United States or such foreign countries, in particular the strained trade relations between United States and China since 2018; ● difficulties and costs of staffing and managing foreign operations; ● difficulties protecting, procuring or enforcing intellectual property rights internationally; ● required compliance with anti-bribery laws, such as the FCPA and the UK Bribery Act of 2010, data privacy requirements, labor laws and anti-competition regulations; ● laws regulating the confidentiality of sensitive personal information and the circumstances under which such information may be released and/or collected, such as HIPAA, the HITECH Act, the GDPR and the UK GDPR; ● laws and business practices that may favor local companies; ● longer payment cycles and difficulties in enforcing agreements and collecting receivables through certain foreign legal systems; ● political and economic instability and war or other military conflict, including the ongoing conflict occurring in Ukraine, which could have a material adverse impact on our sales in Europe and elsewhere; and 30 Table of Contents ● potentially adverse tax consequences, tariffs, customs charges, bureaucratic requirements and other trade barriers. ​ If we dedicate significant resources to our international operations and are unable to manage these risks effectively, our business, operating results and financial condition may be adversely affected.
We have limited experience operating internationally, and engaging in international business involves a number of difficulties and risks, including: ​ ● required compliance with foreign regulatory requirements and laws, including regulations and laws relating to patient data and medical devices; ● trade relations among the United States and those foreign countries in which our current or future customers, distributors, manufacturers and suppliers have operations, including protectionist measures such as tariffs and import or export licensing requirements, whether imposed by the United States or such foreign countries, in particular the strained trade relations between United States and China since 2018; ● difficulties protecting, procuring or enforcing intellectual property rights internationally; ● required compliance with anti-bribery laws, such as the FCPA and the UK Bribery Act of 2010, data privacy requirements, labor laws and anti-competition regulations; ● laws regulating the confidentiality of sensitive personal information and the circumstances under which such information may be released and/or collected; ● longer payment cycles and difficulties in enforcing agreements and collecting receivables through certain foreign legal systems; ● political and economic instability and war or other military conflict, including the ongoing conflict occurring in Ukraine, which could have a material adverse impact on our sales in Europe and elsewhere; and ● potentially adverse tax consequences, tariffs, customs charges, bureaucratic requirements and other trade barriers. ​ If we dedicate significant resources to our international operations and are unable to manage these risks effectively, our business, operating results and financial condition may be adversely affected.
Any number of factors could negatively affect customer retention, growth and engagement, including: ● customers increasingly engaging with competing products; 29 Table of Contents ● failure to introduce new and improved products and services; ● inability to continue to develop products for mobile devices that customers find engaging, that work with a variety of mobile operating systems and networks and that achieve a high level of market acceptance; ● changes in customer sentiment about the quality or usefulness of our products and services or concerns related to privacy and data sharing, safety, security or other factors; ● inability to manage and prioritize information to ensure customers are presented with content that is engaging, useful and relevant to them; ● adverse changes in our products that are mandated by legislation or regulatory agencies, both in the United States and internationally; or ● technical or other problems preventing us from delivering products or services in a rapid and reliable manner or otherwise affecting the user experience. ​ If we do not successfully manage the development and launch of new products, we will not meet our long term forecasts, and operating and financial results and condition could be adversely affected.
Any number of factors could negatively affect customer retention, growth and engagement, including: ● customers increasingly engaging with competing products; ● failure to introduce new and improved products and services; ● inability to continue to develop products for mobile devices that customers find engaging, that work with a variety of mobile operating systems and networks and that achieve a high level of market acceptance; ● changes in customer sentiment about the quality or usefulness of our products and services or concerns related to privacy and data sharing, safety, security or other factors; ● inability to manage and prioritize information to ensure customers are presented with content that is engaging, useful and relevant to them; ● adverse changes in our products that are mandated by legislation or regulatory agencies, both in the United States and internationally; or ● technical or other problems preventing us from delivering products or services in a rapid and reliable manner or otherwise affecting the user experience. ​ 25 Table of Contents Our research and development efforts may not succeed in developing commercially successful products and technologies, which could adversely affect our business.
A failure to adequately develop or acquire device enhancements or new devices that will address changing technologies and customer requirements adequately, or to introduce such devices on a timely basis, may have a material adverse effect on our business, financial condition and results of operations.
A failure to adequately develop or acquire device enhancements or new devices that will address changing technologies and customer requirements adequately, or to introduce such devices on a timely basis, may have a material adverse effect on our business, financial condition and results of operations. 24 Table of Contents We might have insufficient financial resources to improve existing devices, advance technologies and develop new devices at competitive prices.
We may encounter significant competition across our existing and future planned products and services and in each market in which we sell or plan to sell our products and services from various companies, many of which have greater financial and marketing resources than we do.
We may encounter significant competition across our existing and future planned products and services and in each market in which we sell or plan to sell our products and services from various companies, many of which have greater financial and marketing resources than we do. Our primary competitors include the top five manufacturers of legacy cart-based incumbent ultrasound devices.
If the market for our current products and services or any future products and services fails to develop or develops more slowly than expected, or if any of the services and standards supported by us do not achieve or sustain market acceptance, our business and operating results would be materially and adversely affected. 28 Table of Contents Medical device development is costly and involves continual technological change, which may render our current or future products obsolete.
If the market for our current products and services or any future products and services fails to develop or develops more slowly than expected, or if any of the services and standards supported by us do not achieve or sustain market acceptance, our business and operating results would be materially and adversely affected.
The market for point-of-care medical devices is characterized by rapid technological change, medical advances and evolving industry standards. Any one of these factors could reduce the demand for our devices or services or require substantial resources and expenditures for research, design and development to avoid technological or market obsolescence.
Any one of these factors could reduce the demand for our devices or services or require substantial resources and expenditures for research, design and development to avoid technological or market obsolescence.
We might have insufficient financial resources to improve existing devices, advance technologies and develop new devices at competitive prices. Technological advances by one or more competitors or future entrants into the field may result in our current devices becoming non-competitive or obsolete, which may decrease revenues and profits and adversely affect our business and results of operations.
Technological advances by one or more competitors or future entrants into the field may result in our current devices becoming non-competitive or obsolete, which may decrease revenues and profits and adversely affect our business and results of operations.
Risks Related to Our Financial Condition and Capital Requirements We have a limited operating history on which to assess the prospects for our business, we have generated limited revenue from sales of our products, and we have incurred losses since inception.
Unless the context otherwise requires, references in this section to “we,” “us,” “our” and the “Company” refer to Butterfly Network, Inc. and its subsidiaries. 22 Table of Contents Risks Related to Our Financial Condition and Capital Requirements We have a limited operating history on which to assess the prospects for our business, we have generated limited revenue from sales of our products, and we have incurred losses since inception.
We may need to raise additional funding to expand the commercialization of our products and services and to expand our R&D efforts. This additional financing may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product commercialization or development efforts or other operations.
We may be unable to achieve any or all of these goals. We may need to raise additional funding to expand the commercialization of our products and services and to expand our R&D efforts. This additional financing may not be available on acceptable terms, or at all.
Our operations have consumed substantial amounts of cash since inception. We expect to expend substantial additional amounts to commercialize our products and services and to develop new products and services.
Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product commercialization or development efforts or other operations. Our operations have consumed substantial amounts of cash since inception. We expect to expend substantial additional amounts to commercialize our products and services and to develop new products and services.
These legal proceedings may involve allegations of illegal, unfair or inconsistent employment practices, including wage and hour, discrimination, harassment, wrongful termination, retaliation, violations of law or other concerns. Even if the allegations against us are unfounded or we ultimately are not held liable, we may experience related negative publicity resulting in damage to our reputation.
Even if the allegations against us are unfounded or we ultimately are not held liable, we may experience related negative publicity resulting in damage to our reputation.
Competitors may also possess the ability to commercialize additional lines of products, bundle products or offer higher discounts and incentives to customers in order to gain a competitive advantage. If the prices of competing products are lowered as a result, we may not be able to compete effectively.
In addition, many of our competitors are well-established manufacturers with significant resources and may engage in aggressive marketing tactics. Competitors may also possess the ability to commercialize additional lines of products, bundle products or offer higher discounts and incentives to customers in order to gain a competitive advantage.
Our ability to generate revenue 27 Table of Contents and achieve profitability depends upon our ability to accelerate the commercialization of our products and service offerings in line with the demand from current and future customers and our aggressive business strategy. We may be unable to achieve any or all of these goals.
Our accumulated deficit as of December 31, 2023 was $729.6 million. We do not know whether or when we will become profitable. Our ability to generate revenue and achieve profitability depends upon our ability to accelerate the commercialization of our products and service offerings in line with the demand from current and future customers and our aggressive business strategy.
If that happens, the market price of our common stock could decline, and stockholders may lose all or part of their investment. Unless the context otherwise requires, references in this section to “we,” “us,” “our” and the “Company” refer to Butterfly Network, Inc. and its subsidiaries.
If that happens, the market price of our common stock could decline, and stockholders may lose all or part of their investment.
From time to time, our efforts to attract, recruit, train, retain, integrate and motivate key personnel may also subject us to litigation or other legal proceedings that may adversely affect our business. These legal proceedings may involve claims brought by current or former employees, government agencies or others, through private actions, class actions, administrative proceedings or other litigation.
There can be no assurance that we will be successful in retaining existing personnel or recruiting new personnel. 26 Table of Contents From time to time, our efforts to attract, recruit, train, retain, integrate and motivate key personnel may also subject us to litigation or other legal proceedings that may adversely affect our business.
Removed
Our accumulated deficit as of December 31, 2022 was $595.9 million. We do not know whether or when we will become profitable.
Added
Medical device development is costly and involves continual technological change, which may render our current or future products obsolete. The market for point-of-care medical devices is characterized by rapid technological change, medical advances and evolving industry standards.
Removed
Our primary competitors include GE HealthCare, Philips, Canon Medical Systems (f/k/a Toshiba Medical), Hitachi and Siemens Healthineers, which, per IHI Markit data, are the top five manufacturers of legacy cart-based incumbent ultrasound devices. In addition, many of our competitors are well-established manufacturers with significant resources and may engage in aggressive marketing tactics.
Added
If the prices of competing products are lowered as a result, we may not be able to compete effectively. We will be dependent upon the success of our sales and customer acquisition and retention strategies.
Removed
We are subject to export and import control laws and regulations that could impair our ability to compete in international markets or subject us to liability if we violate such laws and regulations.
Added
If we are unable to attract, recruit, train, retain, motivate and integrate key personnel, we may not achieve our goals. There is substantial competition for key personnel, senior management, and qualified employees in the healthcare industry, and we may face increased competition for such a highly qualified scientific, technical, clinical, and management workforce in a highly competitive environment.
Removed
We are required to comply with export and import control laws, which may affect our ability to enter into or complete transactions with certain customers, business partners, and other persons. In certain circumstances, export control regulations may prohibit the export of certain products, services, and technologies.
Added
While the increased availability of flexible, hybrid, or work-from-home arrangements has afforded us the ability to attract and retain talent from geographies remote from our physical offices, it has also expanded competition by allowing qualified employees within those same regions to pursue job opportunities throughout the country without the need to relocate.
Removed
We may be required to obtain an export license before exporting a controlled item, and granting of a required license cannot be assured. Compliance with the import laws that apply to our businesses may restrict our access to, and may increase the cost of obtaining, certain products and could interrupt our supply of imported inventory.
Added
To help attract, retain, and motivate qualified employees in senior roles, we use equity-based awards and performance-based cash incentive awards. Sustained declines in our stock price, or lower stock price performance relative to competitors, can reduce the retention value of our equity-based awards, which can impact the competitiveness of our compensation.
Removed
Exported technologies necessary to develop and manufacture certain products are subject to U.S. export control laws and similar laws of other jurisdictions. We may be subject to adverse regulatory consequences, including government oversight of facilities and export transactions, monetary penalties, and other sanctions for violations of these laws.
Added
These legal proceedings may involve claims brought by current or former employees, government agencies or others, through private actions, class actions, administrative proceedings or other litigation. These legal proceedings may involve allegations of illegal, unfair or inconsistent employment practices, including wage and hour, discrimination, harassment, wrongful termination, retaliation, violations of law or other concerns.
Removed
In certain instances, these regulations may prohibit us from developing or manufacturing certain of our products for specific applications outside the United States.
Added
Having diverse representation and an inclusive workplace can also impact our ability to attract and retain talent and is an important driver of our ability to compete and innovate. As such, our ability to attract and retain diverse talent can impact our corporate reputation and have adverse consequences to our business.
Removed
Failure to comply with any of these laws and regulations could result in civil and criminal, monetary, and nonmonetary penalties; disruptions to our business; limitations on our ability to import and export products and services; or damage to our reputation.
Added
The loss of one or more key employees, our inability to attract or develop additional qualified employees and any delay in hiring key personnel could have a material adverse effect on our business results, cash flows, financial condition, or prospects.
Removed
If we experience decreasing prices for our products and are unable to reduce our expenses, including the per unit cost of producing our products, there may be a material adverse effect on our business, results of operations, financial condition and cash flows.
Removed
We may experience decreasing prices for our products due to pricing pressure from managed care organizations and other third-party payors and suppliers, increased market power of our payors as the medical device industry consolidates, and increased competition among suppliers, including manufacturing services providers.
Removed
If the prices for our products and services decrease and we are unable to reduce our expenses, including the cost of sourcing materials, logistics and the cost to manufacture our products, our business, results of operations, financial condition and cash flows may be adversely affected.
Removed
To the extent that we engage in enterprise sales, we may be subject to procurement discounts, which could have a negative impact on the prices of our products.
Removed
Interim or preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
Removed
From time to time, we may publicly disclose interim or preliminary data from any clinical studies that we may conduct in the future, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a full analysis of all data related to the particular trial.
Removed
We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data.
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As a result, the interim or preliminary results that we report may differ from future results of the same trials, or different conclusions or considerations may qualify such results once additional data have been received and fully evaluated.
Removed
Interim or preliminary data also remain subject to audit and verification procedures that may result in the final data being materially different from the interim or preliminary data we previously published. As a result, interim or preliminary data should be viewed with caution until the final data are available. We may also disclose interim data from our clinical trials.
Removed
Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available.
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Adverse differences between preliminary or interim data and final data could significantly harm our business prospects. 31 Table of Contents Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular investigational device or device and our business in general.
Removed
In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular device, investigational device or our business.
Removed
If the interim or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to use such results to support the marketing of our products may be jeopardized. If we are unable to attract, recruit, train, retain, motivate and integrate key personnel, we may not achieve our goals.
Removed
Our future success depends on our ability to attract, recruit, train, retain, motivate and integrate key personnel as well as our management team and our R&D, manufacturing, software engineering and sales and marketing personnel. Competition for qualified personnel is intense. Several members of our senior management team ended their service with us during the past year.
Removed
The loss or incapacity of existing members of our executive management team could adversely affect our operations if we experience difficulties in hiring qualified successors. Our executive officers have signed offer letters or employment agreements with us, but their service is at-will and may end at any point in time.
Removed
In addition, all of our employees are at-will, which means that either we or the employee may terminate their employment at any time. We believe that our management team must be able to act decisively to apply and adapt our business model in the rapidly changing markets in which we will compete.
Removed
In addition, we rely upon technical and scientific employees or third-party contractors to effectively establish, manage and grow our business. Consequently, we believe that our future viability will depend largely on our ability to attract and retain highly skilled managerial, sales, scientific and technical personnel.
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In order to do so, we increased our employee compensation in 2022 and in the future we may need to pay higher compensation or fees to our employees or consultants than we currently expect, and such higher compensation payments may have a negative effect on our operating results.
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Competition for experienced, high-quality personnel is intense, and there is no assurance that we will be able to recruit and retain such personnel.
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Our growth depends, in particular, on attracting and retaining highly-trained sales personnel with the necessary technical background and ability to understand our products and services at a technical level to effectively identify and sell to potential new customers and develop new products.
Removed
Because of the technical nature of our products and the dynamic market in which we compete, any failure to attract, recruit, train, retain, motivate and integrate qualified personnel could materially harm our operating results and growth prospects. Recruiting, training and retention difficulties can limit our ability to support our R&D and commercialization efforts.
Removed
We will need to expand our organization, and we may experience difficulties in recruiting needed additional employees and consultants, which could disrupt our operations. As our development and commercialization plans and strategies develop, we will need additional managerial, operational, sales, marketing, financial, legal and other resources. The competition for qualified personnel in the medical device industry is intense.
Removed
Due to this intense competition, we may be unable to attract and retain the qualified personnel necessary for the development of our business or to recruit suitable replacement personnel. 32 Table of Contents Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities.
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We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional products.
Removed
If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenue could be reduced and we may not be able to implement our business strategy.
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Our future financial performance and our ability to commercialize products and services and compete effectively will depend, in part, on our ability to effectively manage any future growth.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe lease expires in 2032. ​ Additionally, we occupy other office space domestically in New York City and Palo Alto, California. We also occupy office space internationally in Taiwan. We lease the office space under operating leases. We consider our current office space adequate for our current operations. ​
Biggest changeThe lease expires in 2032. ​ Additionally, we occupy other office space domestically in New York City and Sunnyvale, California. We also occupy office space internationally in Taiwan. We lease the office space under operating leases. We consider our current office space adequate for our current operations. ​

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeMINE SAFETY DISCLOSURES Not applicable. ​ 67 Table of Contents PART II
Biggest changeMINE SAFETY DISCLOSURES Not applicable. ​ PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeWe do not intend to pay cash dividends to our stockholders in the foreseeable future. ​ Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offerings ​ Not applicable. ​ Issuer Purchases of Equity Securities ​ Not applicable. ​ Securities Authorized for Issuance Under Equity Compensation Plans ​ Information about our equity compensation plans will be included in our definitive proxy statement to be filed with the SEC with respect to our 2023 Annual Meeting of Stockholders and is incorporated herein by reference. ​ Item 6. [RESERVED] ​
Biggest changeWe do not intend to pay cash dividends to our stockholders in the foreseeable future. ​ Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offerings ​ Not applicable. ​ 47 Table of Contents Issuer Purchases of Equity Securities ​ Not applicable. ​ Securities Authorized for Issuance Under Equity Compensation Plans ​ Information about our equity compensation plans will be included in our definitive proxy statement to be filed with the SEC with respect to our 2024 Annual Meeting of Stockholders (the “Proxy Statement”) and is incorporated herein by reference to Item 12 of Part II of this Annual Report on Form 10-K. ​ Item 6. [RESERVED] ​
As of February 1, 2023, the Company had 13,799,357 public warrants held of record by one holder and 6,853,333 private placement warrants issued in connection with Longview’s initial public offering held of record by four holders, with each warrant exercisable for one share of Class A common stock at a price of $11.50 per share.
As of February 9, 2024, the Company had 13,799,357 public warrants held of record by one holder and 6,853,333 private placement warrants issued in connection with Longview’s initial public offering held of record by six holders, with each warrant exercisable for one share of Class A common stock at a price of $11.50 per share.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our Class A common stock and warrants to purchase Class A common stock are traded on the NYSE under the symbols “BFLY” and “BFLY WS” respectively. ​ Stockholders ​ As of February 1, 2023, the Company had 175,689,123 shares of Class A common stock issued and outstanding held of record by 54 holders, 26,426,937 shares of Class B common stock issued and outstanding held of record by six holders.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our Class A common stock and warrants to purchase Class A common stock are traded on the NYSE under the symbols “BFLY” and “BFLY WS” respectively. ​ Stockholders ​ As of February 9, 2024, the Company had 181,707,275 shares of Class A common stock issued and outstanding held of record by 49 holders, 26,426,937 shares of Class B common stock issued and outstanding held of record by six holders.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe accounting policies are described in Note 2 “Summary of Significant Accounting Policies” in our consolidated financial statements included in this Annual Report on Form 10-K. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2022 ​ ​ 2021 ​ 2020 ​ ​ ​ ​ ​ % of ​ ​ ​ ​ ​ % of ​ ​ ​ ​ % of (in thousands) ​ Dollars ​ revenue ​ ​ Dollars ​ revenue ​ Dollars ​ revenue Revenue: Product ​ $ 50,263 68.5 % ​ $ 47,868 76.5 % ​ $ 38,347 82.9 % Software and other services ​ ​ 23,127 31.5 ​ ​ ​ 14,697 23.5 ​ ​ ​ 7,905 17.1 ​ Total revenue ​ ​ 73,390 100.0 ​ ​ ​ 62,565 100.0 ​ ​ ​ 46,252 100.0 ​ Cost of revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ Product ​ ​ 26,804 36.5 ​ ​ ​ 29,308 46.8 ​ ​ ​ 46,294 100.1 ​ Software and other services ​ ​ 7,126 9.7 ​ ​ ​ 2,238 3.6 ​ ​ ​ 1,068 2.3 ​ Loss on product purchase commitments ​ ​ — ​ — ​ ​ ​ 13,965 ​ 22.3 ​ ​ ​ 60,113 ​ 130.0 ​ Total cost of revenue ​ ​ 33,930 46.2 ​ ​ ​ 45,511 72.7 ​ ​ ​ 107,475 232.4 ​ Gross profit (loss) ​ ​ 39,460 53.8 ​ ​ ​ 17,054 27.3 ​ ​ ​ (61,223) (132.4) ​ Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Research and development ​ ​ 89,121 121.4 ​ ​ ​ 74,461 119.0 ​ ​ ​ 49,738 107.5 ​ Sales and marketing ​ ​ 59,888 81.6 ​ ​ ​ 49,604 79.3 ​ ​ ​ 26,263 56.8 ​ General and administrative ​ ​ 83,471 113.7 ​ ​ ​ 85,717 137.0 ​ ​ ​ 24,395 52.7 ​ Total operating expenses ​ ​ 232,480 316.8 ​ ​ ​ 209,782 335.3 ​ ​ ​ 100,396 217.1 ​ Loss from operations ​ ​ (193,020) (263.0) ​ ​ ​ (192,728) (308.0) ​ ​ ​ (161,619) (349.4) ​ Interest income ​ ​ 3,384 4.6 ​ ​ ​ 2,573 4.1 ​ ​ ​ 285 0.6 ​ Interest expense ​ ​ (2) (0.0) ​ ​ ​ (651) (1.0) ​ ​ ​ (1,141) (2.5) ​ Change in fair value of warrant liabilities ​ ​ 20,859 ​ 28.4 ​ ​ ​ 161,095 ​ 257.5 ​ ​ ​ — ​ — ​ Other income (expense), net ​ ​ 98 0.1 ​ ​ ​ (2,577) (4.1) ​ ​ ​ (231) (0.5) ​ Loss before provision for income taxes ​ ​ (168,681) (229.8) ​ ​ ​ (32,288) (51.6) ​ ​ ​ (162,706) (351.8) ​ Provision for income taxes ​ ​ 42 0.1 ​ ​ ​ 121 0.2 ​ ​ ​ 39 0.1 ​ Net loss ​ $ (168,723) (229.9) % ​ $ (32,409) (51.8) % ​ $ (162,745) (351.9) % ​ Comparison of the Years Ended December 31, 2022 and 2021 ​ Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ (in thousands) ​ 2022 ​ 2021 ​ Change ​ % Change Revenue: ​ ​ ​ ​ Product $ 50,263 ​ $ 47,868 ​ $ 2,395 5.0 % Software and other services ​ 23,127 ​ ​ 14,697 ​ ​ 8,430 57.4 % Total revenue: ​ $ 73,390 ​ $ 62,565 ​ $ 10,825 17.3 % ​ 72 Table of Contents Product revenue increased by $2.4 million, or 5.0%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Biggest changeThe accounting policies are described in Note 2 “Summary of Significant Accounting Policies” in our consolidated financial statements included in this Annual Report on Form 10-K. ​ 51 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2023 ​ ​ 2022 ​ 2021 ​ ​ ​ ​ ​ % of ​ ​ ​ ​ ​ % of ​ ​ ​ ​ % of (in thousands) ​ Dollars ​ revenue ​ ​ Dollars ​ revenue ​ Dollars ​ revenue Revenue: Product ​ $ 40,036 60.8 % ​ $ 50,263 68.5 % ​ $ 47,868 76.5 % Software and other services ​ ​ 25,864 39.2 ​ ​ ​ 23,127 31.5 ​ ​ ​ 14,697 23.5 ​ Total revenue ​ ​ 65,900 100.0 ​ ​ ​ 73,390 100.0 ​ ​ ​ 62,565 100.0 ​ Cost of revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product ​ ​ 40,655 61.7 ​ ​ ​ 26,804 36.5 ​ ​ ​ 29,308 46.8 ​ Software and other services ​ ​ 8,389 12.7 ​ ​ ​ 7,126 9.7 ​ ​ ​ 2,238 3.6 ​ Loss on product purchase commitments ​ ​ — ​ — ​ ​ ​ — ​ — ​ ​ ​ 13,965 ​ 22.3 ​ Total cost of revenue ​ ​ 49,044 74.4 ​ ​ ​ 33,930 46.2 ​ ​ ​ 45,511 72.7 ​ Gross profit ​ ​ 16,856 25.6 ​ ​ ​ 39,460 53.8 ​ ​ ​ 17,054 27.3 ​ Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Research and development ​ ​ 55,616 84.4 ​ ​ ​ 88,044 120.0 ​ ​ ​ 74,461 119.0 ​ Sales and marketing ​ ​ 39,073 59.3 ​ ​ ​ 59,494 81.1 ​ ​ ​ 49,604 79.3 ​ General and administrative ​ ​ 49,613 75.3 ​ ​ ​ 77,596 105.7 ​ ​ ​ 85,717 137.0 ​ Other ​ ​ 18,164 ​ 27.6 ​ ​ ​ 7,346 ​ 10.0 ​ ​ ​ — — ​ Total operating expenses ​ ​ 162,466 246.5 ​ ​ ​ 232,480 316.8 ​ ​ ​ 209,782 335.3 ​ Loss from operations ​ ​ (145,610) (221.0) ​ ​ ​ (193,020) (263.0) ​ ​ ​ (192,728) (308.0) ​ Interest income ​ ​ 7,450 11.3 ​ ​ ​ 3,384 4.6 ​ ​ ​ 2,573 4.1 ​ Interest expense ​ ​ — — ​ ​ ​ (2) (0.0) ​ ​ ​ (651) (1.0) ​ Change in fair value of warrant liabilities ​ ​ 4,544 ​ 6.9 ​ ​ ​ 20,859 ​ 28.4 ​ ​ ​ 161,095 ​ 257.5 ​ Other income (expense), net ​ ​ (2) (0.0) ​ ​ ​ 98 0.1 ​ ​ ​ (2,577) (4.1) ​ Loss before provision for income taxes ​ ​ (133,618) (202.8) ​ ​ ​ (168,681) (229.8) ​ ​ ​ (32,288) (51.6) ​ Provision for income taxes ​ ​ 82 0.1 ​ ​ ​ 42 0.1 ​ ​ ​ 121 0.2 ​ Net loss and comprehensive loss ​ $ (133,700) (202.9) % ​ $ (168,723) (229.9) % ​ $ (32,409) (51.8) % ​ Comparison of the Years Ended December 31, 2023 and 2022 ​ Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ (in thousands) ​ 2023 ​ 2022 ​ Change ​ % Change Product $ 40,036 ​ $ 50,263 ​ $ (10,227) (20.3) % Software and other services ​ 25,864 ​ ​ 23,127 ​ ​ 2,737 11.8 ​ ​ ​ $ 65,900 ​ $ 73,390 ​ $ (7,490) (10.2) % ​ Product revenue decreased by $10.2 million, or 20.3%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Our Ultrasound-on-Chip™ makes ultrasound more accessible outside of large healthcare institutions, while our software is intended to make the product easy to use and fully integrated with the clinical workflow, accessible on a user’s smartphone, tablet and almost any hospital computer system connected to the Internet.
Our Ultrasound-on-Chip™ makes ultrasound more accessible outside of large healthcare institutions, while our software is intended to make the product easy to use, fully integrated with the clinical workflow, and accessible on a user’s smartphone, tablet, and almost any hospital computer system connected to the Internet.
This increase was primarily driven by a higher volume of SaaS subscriptions sold in conjunction with new device sales, current year subscription renewals and expanded service offerings. ​ Cost of revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ (in thousands) ​ 2022 ​ 2021 ​ Change ​ % Change Cost of revenue: ​ ​ ​ ​ Product $ 26,804 ​ $ 29,308 ​ $ (2,504) (8.5) % Software and other services ​ 7,126 ​ ​ 2,238 ​ ​ 4,888 218.4 % Loss on product purchase commitments ​ ​ — ​ ​ 13,965 ​ ​ (13,965) ​ (100.0) % Total cost of revenue: ​ $ 33,930 ​ $ 45,511 ​ $ (11,581) (25.4) % Percentage of revenue ​ 46.2 % 72.7 % ​ ​ Cost of product revenue decreased by $2.5 million, or 8.5%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
This increase was primarily driven by a higher volume of SaaS subscriptions sold in conjunction with new device sales, current year subscription renewals and expanded service offerings. ​ Cost of revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ (in thousands) ​ 2022 ​ 2021 ​ Change ​ % Change Product $ 26,804 ​ $ 29,308 ​ $ (2,504) (8.5) % Software and other services ​ 7,126 ​ ​ 2,238 ​ ​ 4,888 218.4 ​ Loss on product purchase commitments ​ ​ — ​ ​ 13,965 ​ ​ (13,965) ​ (100.0) ​ ​ ​ $ 33,930 ​ $ 45,511 ​ $ (11,581) (25.4) % Percentage of revenue ​ 46.2 % 72.7 % ​ ​ Cost of product revenue decreased by $2.5 million, or 8.5%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Our future spending on capital resources may vary from those currently planned and will depend on various factors, including our rate of revenue growth and the timing and extent of spending on strategic business initiatives. ​ We have restricted cash of $4.0 million as of December 31, 2022 to secure a letter of credit for one of our leases, which is expected to be maintained as a security deposit for the duration of the lease.
Our future spending on capital resources may vary from those currently planned and will depend on various factors, including our rate of revenue growth and the timing and extent of spending on strategic business initiatives. ​ We have restricted cash of $4.0 million as of December 31, 2023 to secure a letter of credit for one of our leases, which is expected to be maintained as a security deposit for the duration of the lease.
Personnel costs increased by $7.8 million due to having a higher headcount in 2022 than 2021, primarily comprised of increases in salaries and bonuses of $6.9 million. Travel and entertainment costs increased by $2.1 million as our salesforce increased its in-person engagement with our customers and attendance at sales conferences and events.
Personnel costs increased by $7.4 million due to having a higher headcount in 2022 than 2021, primarily comprised of increases in salaries and bonuses of $6.9 million. Travel and entertainment costs increased by $2.1 million as our salesforce increased its in-person engagement with our customers and attendance at sales conferences and events.
Manufacturing overhead costs are capitalized to inventory and are recognized as cost of revenues in future periods based on our rate of inventory turnover. ​ Recently Adopted Accounting Pronouncements ​ A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 “Summary of Significant Accounting Policies – Recent Accounting Pronouncements Adopted” to our consolidated financial statements contained in this Annual Report on Form 10-K. ​
Manufacturing overhead costs are capitalized to inventory and are recognized as cost of revenues in future periods based on our rate of inventory turnover. ​ 59 Table of Contents Recently Adopted Accounting Pronouncements ​ A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 “Summary of Significant Accounting Policies – Recent Accounting Pronouncements Adopted” to our consolidated financial statements contained in this Annual Report on Form 10-K. ​
The increase was primarily due to an increase of $73.5 million in purchases and sales of marketable securities and an increase in purchases of property and equipment of $10.4 million related to the Company’s new office space and additional investments into our software platform. ​ Cash flows provided by financing activities ​ Net cash provided by financing activities decreased by $562.8 million, or 99.5%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
The increase was primarily due to an increase of $73.5 million in purchases and sales of marketable securities and an increase in purchases of property and equipment of $10.4 million related to the Company’s new office space and additional investments into our software platform. ​ 57 Table of Contents Cash flows provided by financing activities ​ Net cash provided by financing activities decreased by $562.8 million, or 99.5%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
We expect our cost of product revenue to fluctuate over time due to the level of units fulfilled in any given period and fluctuate as a percentage of product revenue over time as our focus on operational efficiencies in our supply chain may be offset by increased prices of certain inventory components. ​ Cost of software and other services revenue consists of personnel costs, cloud hosting costs and payment processing fees.
We expect our cost of product revenue to fluctuate over time due to the level of units fulfilled in any given period and fluctuate 50 Table of Contents as a percentage of product revenue over time as our focus on operational efficiencies in our supply chain may be offset by increased prices of certain inventory components. ​ Cost of software and other services revenue consists of personnel costs, cloud hosting costs and payment processing fees.
Our software subscriptions and extended warranties are stand-ready obligations that are satisfied over time, and we use the time-elapsed (i.e., straight-line) measure of progress 78 Table of Contents to recognize revenue for these services.
Our software subscriptions and extended warranties are stand-ready obligations that are satisfied over time, and we use the time-elapsed (i.e., straight-line) measure of progress to recognize revenue for these services.
We consider a variety of factors and data points when determining the existence and scope of a loss for the minimum purchase commitment. The factors and data points include Company-specific forecasts which are reliant on our limited sales history, agreement-specific provisions, macroeconomic factors and market and industry trends.
We consider a variety of factors and data points when determining the existence and scope of a loss for the minimum purchase commitment. The factors and data points include Company-specific forecasts which are reliant on our limited sales history, agreement-specific provisions, macroeconomic factors and market and industry trends. Determining the loss is subjective and requires significant management judgment and estimates.
These increases in sales and marketing expenses were partially offset by decreased digital and social marketing expenses of $1.5 million as we shifted our strategic focus from the eCommerce channel to our direct sales channel. ​ General and administrative ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ (in thousands) ​ 2022 ​ 2021 ​ Change ​ % Change General and administrative $ 83,471 $ 85,717 $ (2,246) (2.6) % Percentage of revenue ​ 113.7 % 137.0 % ​ ​ General and administrative expenses decreased by $2.2 million, or 2.6%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
These increases in sales and marketing expenses were partially offset by decreased digital and social marketing expenses of $1.5 million as we shifted our strategic focus from the eCommerce channel to our direct sales channel. ​ General and administrative ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ (in thousands) ​ 2022 ​ 2021 ​ Change ​ % Change General and administrative $ 77,596 $ 85,717 $ (8,121) (9.5) % Percentage of revenue ​ 105.7 % 137.0 % ​ ​ General and administrative expenses decreased by $8.1 million, or 9.5%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
We view software and other services mix as a key indicator of the profitability of our business, and thus we believe that this measure is useful to investors. ​ ​ Software and other services mix increased by 9.2 percentage points, to 33.3% for the three months ended December 31, 2022 compared to the three months ended December 31, 2021.
We view software and other services mix as a key indicator of the profitability of our business, and thus we believe that this measure is useful to investors. ​ 49 Table of Contents ​ Software and other services mix increased by 5.2 percentage points, to 38.5% for the three months ended December 31, 2023 compared to the three months ended December 31, 2022.
We believe that this measure is useful to investors because it presents our core growth and performance of our business period over period. ​ 69 Table of Contents ​ Units fulfilled decreased by 955, or 14.2%, for the three months ended December 31, 2022 compared to the three months ended December 31, 2021, primarily due to decreased device sales volume from our direct sales and eCommerce channels.
We believe that this measure is useful to investors because it presents our core growth and performance of our business period over period. ​ ​ Units fulfilled decreased by 1,498, or 26.0%, for the three months ended December 31, 2023 compared to the three months ended December 31, 2022, primarily due to decreased device sales volume from our direct sales and eCommerce channels.
We expect to pay for approximately 40% of these purchase obligations payable within the next 12 months using vendor advances. ​ As of December 31, 2022, we had no obligations, assets or liabilities, which would be considered off-balance sheet arrangements. ​ 76 Table of Contents Cash Flows ​ The following table summarizes our sources and uses of cash for the years ended December 31, 2022, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, (in thousands) ​ 2022 ​ 2021 ​ 2020 Net cash used in operating activities $ (169,115) $ (189,187) $ (81,700) Net cash used in investing activities ​ (93,779) ​ (9,870) ​ (2,376) Net cash provided by financing activities ​ 2,881 ​ 565,692 ​ 54,280 Net (decrease) increase in cash, cash equivalents and restricted cash $ (260,013) $ 366,635 $ (29,796) ​ Comparison of the period for the years ended December 31, 2022 and 2021 ​ Cash flows used in operating activities ​ Net cash used in operating activities represents the cash receipts and disbursements related to our activities other than investing and financing activities.
We expect to pay for approximately 21% of the amount payable within the next 12 months using vendor advances. ​ As of December 31, 2023, we had no obligations, assets or liabilities, which would be considered off-balance sheet arrangements. ​ Cash Flows ​ The following table summarizes our sources and uses of cash for the years ended December 31, 2023, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, (in thousands) ​ 2023 ​ 2022 ​ 2021 Net cash used in operating activities $ (98,820) $ (169,115) $ (189,187) Net cash provided by (used in) investing activities ​ 70,414 ​ (93,779) ​ (9,870) Net cash provided by financing activities ​ 228 ​ 2,881 ​ 565,692 Net decrease in cash, cash equivalents and restricted cash $ (28,178) $ (260,013) $ 366,635 ​ 56 Table of Contents Comparison of the period for the years ended December 31, 2023 and 2022 ​ Cash flows used in operating activities Net cash used in operating activities represents the cash receipts and disbursements related to our activities other than investing and financing activities.
Determining the loss is subjective and requires significant management judgment and estimates. ​ Research and development ​ R&D expenses primarily consist of personnel costs and benefits, facilities-related expenses, depreciation expense, consulting and professional fees, fabrication services, software and other outsourcing expenses.
Determining the loss is subjective and requires significant management judgment and estimates. ​ Research and development ​ Research and development expenses primarily consist of personnel costs and benefits, facilities-related expenses and depreciation, fabrication services, and software costs.
Engineering costs increased by $1.8 million, primarily due to increased spending on new product design and development. ​ 73 Table of Contents Sales and marketing ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ (in thousands) ​ 2022 ​ 2021 ​ Change ​ % Change Sales and marketing $ 59,888 $ 49,604 $ 10,284 20.7 % Percentage of revenue ​ 81.6 % 79.3 % ​ ​ Sales and marketing expenses increased by $10.3 million, or 20.7%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Engineering costs increased by $1.8 million, primarily due to increased spending on new product design and development. . ​ Sales and marketing ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ (in thousands) ​ 2022 ​ 2021 ​ Change ​ % Change Sales and marketing $ 59,494 $ 49,604 $ 9,890 19.9 % Percentage of revenue ​ 81.1 % 79.3 % ​ ​ Sales and marketing expenses increased by $9.8 million, or 19.9%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
We expect cash provided by historical financing activities will continue to be our primary source of funds to support operating needs and capital expenditures for the foreseeable future. ​ Net cash used in operating activities increased by $107.5 million, or 131.6%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.
We expect cash provided by historical financing activities will continue to be our primary source of funds to support operating needs and capital expenditures for the foreseeable future. ​ Net cash used in operating activities decreased by $70.3 million, or 41.6%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Most of our R&D expenses are related to developing new products and services, which we define as not having reached the point of commercialization, and improving our products and services that have been commercialized. Consulting expenses are related to general development activities and clinical/regulatory research. Fabrication services include certain third-party engineering costs, product testing and test boards.
Most of our research and development expenses are related to developing new products and services that have not reached the point of commercialization and improving our products and services that have been commercialized. Fabrication services include certain third-party engineering costs, product testing, and test boards. Research and development expenses are expensed as incurred.
Determining the loss is subjective and requires 79 Table of Contents significant management judgment and estimates. Future events may differ from those assumed in our assessment, and therefore the loss may change in the future. ​ We capitalize manufacturing overhead expenditures as part of inventory costs.
Future events may differ from those assumed in our assessment, and therefore the loss may change in the future. ​ We capitalize manufacturing overhead expenditures as part of inventory costs.
We expect to continue to make substantial investments in our product development, clinical and regulatory capabilities. ​ 71 Table of Contents Sales and marketing ​ Sales and marketing expenses primarily consist of personnel costs and benefits, third party logistics, fulfillment and outbound shipping costs, advertising, promotional costs, conferences and events and related facilities and information technology costs.
We expect to continue to make substantial investments in our product and software development, clinical, and regulatory capabilities. ​ Sales and marketing ​ Sales and marketing expenses primarily consist of personnel costs and benefits, advertising, conferences and events, facilities-related expenses, and software costs. We expect to continue to make substantial investments in our sales capabilities.
The loss on product purchase commitments did not recur in 2022. ​ Research and development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ (in thousands) ​ 2022 ​ 2021 ​ Change ​ % Change Research and development $ 89,121 $ 74,461 $ 14,660 19.7 % Percentage of revenue ​ 121.4 % 119.0 % ​ ​ Research and development expenses increased by $14.7 million, or 19.7%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
The loss on product purchase commitments did not recur in 2022. ​ 54 Table of Contents Research and development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ (in thousands) ​ 2022 ​ 2021 ​ Change ​ % Change Research and development $ 88,044 $ 74,461 $ 13,583 18.2 % Percentage of revenue ​ 120.0 % 119.0 % ​ ​ Research and development expenses increased by $13.5 million, or 18.2%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
The decrease was primarily due to the non-recurrence of net proceeds from the Business Combination of $548.4 million and an $18.7 million decrease in option exercises, partially offset by the non-recurrence of the $4.4 million repayment of the Paycheck Protection Program loan. ​ Comparison of the period for the years ended December 31, 2021 and 2020 ​ Cash flows used in operating activities ​ Net cash used in operating activities represents the cash receipts and disbursements related to our activities other than investing and financing activities.
The decrease was primarily due to the non-recurrence of net proceeds from exercise of stock options and warrants of $2.7 million, partially offset by $0.1 million from other financing activities. ​ Comparison of the period for the years ended December 31, 2022 and 2021 ​ Cash flows used in operating activities ​ Net cash used in operating activities represents the cash receipts and disbursements related to our activities other than investing and financing activities.
Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” appearing elsewhere in this Annual Report on Form 10-K. ​ 68 Table of Contents Overview ​ We are an innovative digital health business transforming care with handheld, whole-body ultrasound.
Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” appearing elsewhere in this Annual Report on Form 10-K. ​ Overview ​ We are an innovative digital health business transforming care through a unique combination of portable, semiconductor-based ultrasound technology, intuitive software, services and educational offerings that can make medical imaging more accessible than ever before.
Personnel costs increased by $9.2 million due to having a higher headcount in 2022 than 2021, primarily comprised of increases in salaries and bonuses of $4.5 million and stock-based compensation expenses of $3.8 million as well as reduction in force related severance and benefits costs of $1.0 million that were incurred only in 2022.
This increase was primarily driven by increased personnel costs of $8.1 million due to having a higher headcount in 2022 than 2021. Personnel costs primarily comprised of increases in salaries and bonuses of $4.5 million and stock-based compensation expenses of $3.8 million.
Outside services consist of professional services, legal fees and other professional fees. ​ Results of Operations ​ We operate as a single reportable segment to reflect the way our chief operating decision maker reviews and assesses the performance of the business.
These other expenses primarily consist of employee severance and benefits costs related to our reductions in force, litigation costs, and legal settlements. Results of Operations ​ We operate as a single reportable segment to reflect the way our chief operating decision maker reviews and assesses the performance of the business.
Powered by our proprietary Ultrasound-on-Chip™ technology, our solution enables the acquisition of imaging information from an affordable, powerful device that fits in a healthcare professional’s pocket with a unique combination of cloud-connected software and hardware technology that is easily accessed through a mobile app. ​ Butterfly iQ+ is an ultrasound device that can perform whole-body imaging in a single handheld probe using semiconductor technology.
Butterfly’s solution enables the practical application of ultrasound information into the clinical workflow through affordable hardware that fits in a healthcare professional’s pocket and is paired with cloud-connected software that is easily accessed through a mobile application. ​ Butterfly iQ+ and iQ3 are ultrasound devices that can perform whole-body imaging in a single handheld probe using semiconductor technology.
The decrease was driven by a $99.1 million increase in net working capital cash usage and an $8.5 million increase in net loss adjusted for certain noncash items, primarily driven by the change in fair value of warrant liabilities and stock-based compensation expense.
The decrease was driven by a $9.3 million decrease in net working capital cash and $60.9 million decrease in net loss adjusted for certain noncash items, primarily driven by the loss on excess inventory, the change in fair value of warrant liabilities, and net income.
We market and sell the Butterfly system, which includes probes and related accessories and software subscriptions, to healthcare systems, physicians and healthcare providers through a direct sales force, distributors and our eCommerce channel. ​ Business Combination ​ On February 12, 2021 we completed the Business Combination.
We market and sell the Butterfly system, which includes probes, related accessories, and software subscriptions, to healthcare systems, physicians, and healthcare providers through a direct sales force, distributors, and our eCommerce channel. ​ In 2023 and 2022, we took significant actions to reduce our cost of operations and extend our cash runway.
This decrease was primarily due to certain unique events from 2021 not reoccurring in 2022. Stock-based compensation expense decreased by $6.9 million, primarily due to the expense recognized in 2021 for awards that vested alongside the closing of the Business Combination. Recruiting expenses decreased by $3.2 million, primarily due to the recruiting expenses incurred during our CEO transition in 2021.
This decrease was primarily due to lower stock-based compensation expense of $6.9 million as a result of the expense recognized in 2021 for awards that vested alongside the closing of the Business Combination. Consulting expenses decreased by $3.8 million as more activities were brough in-house during 2022.
Additionally, the proceeds from the exercise of stock options increased by $19.7 million, which was partially offset by a $4.4 million repayment of a loan under the Paycheck Protection Program that was issued in fiscal 2020, the non-recurrence of $50.0 million of proceeds from the issuance of convertible debt in fiscal 2020 and $4.4 million of proceeds from the loan payable issued in fiscal 2020. ​ Critical Accounting Policies and Estimates ​ Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S.
The decrease was primarily due to the non-recurrence of net proceeds from the Business Combination of $548.4 million and an $18.7 million decrease in option exercises, partially offset by the non-recurrence of the $4.4 million repayment of the Paycheck Protection Program loan. ​ Critical Accounting Policies and Estimates ​ Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S.
In addition, the increase is due to the timing of revenue 70 Table of Contents recognition for our SaaS and other software subscription contracts as revenue from such contracts is deferred and recognized over the service period. ​ Description of Certain Components of Financial Data ​ Revenue ​ Revenue consists of revenue from the sale of products, such as medical devices and accessories, and the sale of software related services, classified as software and other services revenue on our consolidated statements of operations and comprehensive loss, which are SaaS subscriptions and product support and maintenance (“Support”).
For the full year 2023 versus 2022 enterprise licenses accounted for 32.9% of licenses versus 26.7% respectively. ​ Description of Certain Components of Financial Data ​ Revenue ​ Revenue consists of revenue from the sale of products, such as medical devices and accessories, and the sale of software related services, classified as software and other services revenue on our consolidated statements of operations and comprehensive loss, which are SaaS subscriptions and product support and maintenance (“Support”).
We expect to be cash flow negative on an annual basis, although we may have quarterly results where cash flows from operations are positive. ​ We expect that our existing cash and cash flows from operations will be sufficient to meet our liquidity, capital expenditure, and anticipated working capital requirements and fund our operations for at least the next 12 months. ​ Our cash and cash equivalents and investments in marketable securities balance as of December 31, 2022 was $237.8 million.
We expect that our existing cash and cash flows from operations will be sufficient to meet our liquidity, capital expenditure, and anticipated working capital requirements and fund our operations for at least the next 12 months. ​ During the year ended December 31, 2023, the Company utilized $103.4 million of cash, cash equivalents, and marketable securities.
We estimate variable consideration using the expected value method based on a portfolio of data from similar contracts. ​ Stock-based compensation ​ Our stock-based compensation program includes restricted stock units and stock option grants to our employees, directors and consultants.
We estimate variable consideration based on the individual contract characteristics or may apply a portfolio approach depending on the circumstances. ​ 58 Table of Contents Stock-based compensation ​ Our stock-based compensation program includes restricted stock units and stock option grants to our employees, directors and consultants.
These decreases were partially offset by increases in other personnel costs of $5.1 million due to having a higher headcount in 2022 than 2021 and increases in software costs of $1.3 million to support our internal resources as we shifted our administrative functions away from external service providers. ​ Comparison of the Years Ended December 31, 2021 and 2020 ​ Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ (in thousands) ​ 2021 ​ 2020 ​ Change ​ % Change Revenue: ​ ​ ​ ​ Product $ 47,868 ​ $ 38,347 ​ $ 9,521 24.8 % Software and other services ​ 14,697 ​ ​ 7,905 ​ ​ 6,792 85.9 % Total revenue: ​ $ 62,565 ​ $ 46,252 ​ $ 16,313 35.3 % ​ Product revenue increased by $9.5 million, or 24.8%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.
These decreases were partially offset by increases in other personnel costs of $4.7 million due to having a higher headcount in 2022 than 2021 and increases in software costs of $1.3 million to support our internal resources as we shifted our administrative functions away from external service providers. ​ Other ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ (in thousands) ​ 2022 ​ 2021 ​ Change ​ % Change Other $ 7,346 $ — $ 7,346 ​ ​ Percentage of revenue ​ 10.0 % — % ​ ​ 55 Table of Contents Other increased by $7.3 million for the year ended December 31, 2023 driven by $5.3 million of legal expenses and $2.0 million of severance expenses related to the Company’s reduction in force in July of 2022.
The increase in net working capital cash 77 Table of Contents usage was mainly due to a $65.6 million increase in cash used by accrued purchase commitments, a $30.8 million increase in cash used by accounts payable and accrued expenses and a $10.6 million increase in cash used by prepaid expenses and other assets, partially offset by a $12.2 million decrease in cash used by inventories. ​ Cash flows used in investing activities ​ Net cash used in investing activities increased by $7.5 million, or 315.4%, for the year ended December 31, 2021 compared to year ended December 31, 2020.
The decrease in net working capital cash usage was driven by a $17.7 million reduction in cash used for changes in our inventory and the related vendor advances and accrued purchase commitments, partially offset by a $4.5 million increase in cash used by accrued expenses and other liabilities, $2.9 million increase in cash used by operating lease assets and liabilities, and a $0.8 million increase in cash used by prepaid expenses and other assets. ​ Cash flows used in investing activities ​ Net cash used in investing activities decreased by $164.1 million, or 175.1%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
The quarterly revenue mix may be impacted by the timing of device sales. ​ To date, we have invested heavily in building out our direct salesforce, with the ultimate goal of growing adoption at large-scale healthcare systems.
In 2024, due to the launch of our next generation device iQ3, we are expecting our software as a percentage of total revenue to remain flat or decrease. ​ To date, we have invested heavily in building out our direct salesforce, with the ultimate goal of growing adoption at large-scale healthcare systems.
The restriction is expected to lapse as we fulfill our obligations in the grant agreement with BMGF. ​ Our material cash requirements include contractual obligations with third parties for facility lease arrangements for office space and inventory supply agreements. As of December 31, 2022, we had fixed lease payment obligations of $40.6 million, with $3.5 million payable within 12 months.
In addition, we have restricted cash of $0.2 million as of December 31, 2023 for an agreement with the Gates Foundation. The restriction is expected to lapse as we fulfill our obligations in the agreement with the Gates Foundation. ​ Our material cash requirements include contractual obligations with third parties for office leases, technology licensing agreements, and inventory supply agreements.
We continue to closely monitor the developments of COVID-19 for any material impact on our business. ​ Key Performance Measures ​ We review the key performance measures discussed below to evaluate the business and measure performance, identify trends, formulate plans and make strategic decisions.
As a result of the Business Combination, we received gross proceeds of approximately $589 million. ​ 48 Table of Contents Key Performance Measures ​ We review the key performance measures discussed below to evaluate the business and measure performance, identify trends, formulate plans and make strategic decisions.
The increase was due to increases in software subscription renewals and an expansion of software subscription offerings.
The increase was due to increases in software subscription renewals and an expansion of software subscription offerings. In addition, the increase is due to the timing of revenue recognition for our SaaS and other software subscription contracts as revenue from such contracts is deferred and recognized over the service period.
Our primary uses of liquidity are operating expenses, working capital requirements and capital expenditures. Cash flows from operations have been historically negative as we continue to develop new products and services and increase our sales and marketing efforts.
Our primary uses of liquidity are operating expenses, working capital requirements and capital expenditures. The Company has incurred net losses and negative cash flows from operating activities in each year since inception, and we expect to continue to incur losses and negative cash flows for a few years as we continue to commercialize existing and new products and services.
We expect to continue to make substantial investments in our sales capabilities. ​ General and administrative ​ General and administrative expenses primarily consist of personnel costs and benefits, insurance, patent fees, software costs, facilities costs and outside services.
General and administrative ​ General and administrative expenses primarily consist of personnel costs and benefits, insurance, patent fees, software costs, facilities costs and outside services. Outside services consist of professional services, legal fees and other professional fees. ​ Other Operating expenses classified as other are expenses which we do not consider representative of our ongoing operations.
This decrease was primarily driven by our second-generation device, the Butterfly iQ+, being less costly to produce due to operational efficiencies, partially offset by increased prices of certain inventory components. ​ Cost of subscription revenue increased by $1.2 million, or 109.6%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.
This was partially offset by lower probe volume and operating efficiencies in manufacturing Butterfly iQ+. ​ Cost of subscription revenue increased by $1.3 million, or 17.7%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Recruiting expenses increased by $3.5 million, professional service fees increased by $6.6 million and other costs related to becoming a public company of $3.3 million also contributed to the overall increase as we completed the Business Combination and a CEO transition in 2021. ​ Liquidity and Capital Resources ​ Since our inception, our primary sources of liquidity are cash flows from operations, proceeds from the Business Combination and issuances of preferred stock and convertible notes.
Expenses classified as “Other” are not representative of ongoing operations. Such expenses were insignificant for the year ended December 31, 2021. ​ Liquidity and Capital Resources ​ Since our inception, our primary sources of liquidity are cash flows from operations, proceeds from the Business Combination and issuances of preferred stock and convertible notes.
As of December 31, 2022, we had fixed inventory purchase obligations of $56.5 million, all of which is payable within 12 months.
Our fixed technology license payment obligations were $15.5 million as of December 31, 2023, with $1.5 million payable within the next 12 months. Our fixed purchase obligations for inventory supply agreements were $14.8 million as of December 31, 2023, with $6.8 million payable within the next 12 months.
The increase was also due to the investment activity for the funds received from the Business Combination. ​ Cash flows provided by financing activities ​ Net cash provided by financing activities increased by $511.4 million or 942.2%, for the year ended December 31, 2021 compared to year ended December 31, 2020.
Additionally, there was a $12.5 million decrease in purchases of fixed assets. ​ Cash flows provided by financing activities ​ Net cash provided by financing activities decreased by $2.6 million, or 92.1%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
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As a result of the Business Combination, we received gross proceeds of approximately $589 million. ​ COVID-19 ​ The COVID-19 pandemic that began in 2020 has created significant global economic uncertainty regarding the extent, timing and duration of the pandemic. The uncertainty and potential economic volatility impact our customer base and supply chains.
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Over the two years, we reduced our annual cash requirements by approximately $170 million, to approximately $60 million assuming no revenue growth or further reductions in expenses. As such, we conservatively expect our cash to last into 2026. As we look forward, we expect to continue to invest our business in order to grow revenue.
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The pandemic has caused financial strain on our customer base due to decreased funding, revenue shortfalls, and new variants requiring immediate attention. As a result, we have experienced longer sales cycles and slower adoption in the near term.
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Before we reach 2026, we expect to raise capital in order to reach profitability. We expect to first seek nondilutive capital in the form of grants or debt and then potentially in the form of equity securities. ​ Business Combination ​ On February 12, 2021 we completed the Business Combination.
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We have not experienced any significant constraints in the availability of inventory components within our supply chains, but we have been subject to increasing costs for some components.
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We saw an increase in our enterprise software sales while our individual licenses where flat.
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Research and development expenses are expensed as incurred.
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The quarterly revenue mix may be impacted by the timing of device sales.
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This increase was primarily driven by our continued investment in improving our chip technology, enhancing our AI capabilities and advancing our software applications, resulting in increased spend on personnel, software and engineering to expand our overall product development capabilities and resources.
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This decrease was primarily driven by a decline in probe sales in our distribution, global health and ecommerce channels. Additionally, there were a number of large sales in these channels in 2022 that did not reoccur in 2023.
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This increase was primarily driven by our continued focus on expanding adoption of our product and software solutions among healthcare systems while continuing to support our existing customers, resulting in increased spend on personnel and travel and entertainment.
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Partially offsetting these declines were increases in overall prices. ​ Software and other services revenue increased by $2.7 million, or 11.8%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
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This increase was primarily driven by increased investment in our sales and marketing activities and higher prices of products sold due to a price increase at the end of the third quarter of 2021. ​ Software and other services revenue increased by $6.8 million, or 85.9%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.
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This increase was primarily driven by a higher volume of SaaS subscriptions sold in conjunction with new device sales, current year subscription renewals and expanded service offerings. We saw an increase in enterprise software sales of $2.4 million while individual subscriptions were flat.
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This increase was primarily driven by a higher volume of SaaS subscriptions sold in conjunction with new device sales and current year subscription renewals. ​ 74 Table of Contents Cost of revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ (in thousands) ​ 2021 ​ 2020 ​ Change ​ % Change Cost of revenue: ​ ​ ​ ​ Product $ 29,308 ​ $ 46,294 ​ $ (16,986) (36.7) % Software and other services ​ 2,238 ​ ​ 1,068 ​ ​ 1,170 109.6 % Loss on product purchase commitments ​ ​ 13,965 ​ ​ 60,113 ​ ​ (46,148) ​ (76.8) % Total cost of revenue: ​ $ 45,511 ​ $ 107,475 ​ $ (61,964) (57.7) % Percentage of revenue ​ 72.7 % 232.4 % ​ ​ Cost of product revenue decreased by $17.0 million, or 36.7%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.
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Enterprise as percentage of software sales increased 6%. 52 Table of Contents Cost of revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ (in thousands) ​ 2023 ​ 2022 ​ Change ​ % Change Product $ 40,655 ​ $ 26,804 ​ $ 13,851 51.7 % Software and other services ​ 8,389 ​ ​ 7,126 ​ ​ 1,263 17.7 ​ ​ ​ $ 49,044 ​ $ 33,930 ​ $ 15,114 44.5 % Percentage of revenue ​ 74.4 % 46.2 % ​ ​ Cost of product revenue increased by $13.9 million, or 51.7%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
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This increase was primarily driven by increases in cloud hosting costs and amortization expenses. ​ Loss on product purchase commitments decreased by $46.1 million, or 76.8%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.
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This increase was primarily driven by a $21 million loss on excess inventory related to inventory on-hand that was deemed excess due to a shift in our strategy and market conditions.
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The loss on product purchase commitments is related to an inventory supply agreement expected to result in excess inventory due to a shift in our strategy and market conditions. For the year ended December 31, 2021, we estimated a $39.1 million lower loss for future excess inventory compared to the year ended December 31, 2020.
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This increase was primarily driven by higher amortization expenses related to newly deployed internally developed software that supports our SaaS offerings. ​ Research and development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ (in thousands) ​ 2023 ​ 2022 ​ Change ​ % Change Research and development $ 55,616 $ 88,044 $ (32,428) (36.8) % Percentage of revenue ​ 84.4 % 120.0 % ​ ​ Research and development expenses decreased by $32.4 million, or 36.8%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
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The decrease is also due to $7.0 million of losses on purchase commitments with other third-party vendors that did not recur in 2021. ​ Research and development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ (in thousands) ​ 2021 ​ 2020 ​ Change ​ % Change Research and development $ 74,461 $ 49,738 $ 24,723 49.7 % Percentage of revenue ​ 119.0 % 107.5 % ​ ​ Research and development expenses increased by $24.7 million, or 49.7%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.
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This decrease was primarily driven by reductions of $23.5 million in personnel costs resulting from our reductions in force over the past year, a decrease of $2.6 million in engineering and testing costs, and a decrease of $4.6 million in consulting fees as we developed our internal capabilities to perform previously outsourced functions. ​ Sales and marketing ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ (in thousands) ​ 2023 ​ 2022 ​ Change ​ % Change Sales and marketing $ 39,073 $ 59,494 $ (20,421) (34.3) % Percentage of revenue ​ 59.3 % 81.1 % ​ ​ Sales and marketing expenses decreased by $20.4 million, or 34.3%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
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This increase was primarily driven by our continued investment in improving our chip technology, enhancing our artificial intelligence capabilities, and advancing our software applications, resulting in increased spend on personnel, professional services and software to expand our overall product development capabilities and resources.
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This decrease was primarily driven by reductions of $13.6 million in personnel costs resulting from our reductions in force over the past year. Reductions of $3.3 million in marketing expenses and $2.3 million reduction in travel expenses also contributed to the decrease.
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Personnel costs increased by $19.8 million as we increased headcount, primarily comprised of increases in salaries and bonuses of $14.2 million and stock-based compensation expenses of $4.8 million.
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We have started to reinvest in direct sales to drive top-line growth. ​ General and administrative ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ (in thousands) ​ 2023 ​ 2022 ​ Change ​ % Change General and administrative $ 49,613 $ 77,596 $ (27,983) (36.1) % Percentage of revenue ​ 75.3 % 105.7 % ​ ​ General and administrative expenses decreased by $28.0 million, or 36.1%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
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Additionally, professional service fees increased by $3.5 million, primarily due to increases in fees for product development consulting and outsourcing services, and costs of software for use in research and development activities increased by $1.2 million, due to new tools being implemented to enhance productivity and purchases of additional licenses to support the higher headcount. ​ Sales and marketing ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ (in thousands) ​ 2021 ​ 2020 ​ Change ​ % Change Sales and marketing $ 49,604 $ 26,263 $ 23,341 88.9 % Percentage of revenue ​ 79.3 % 56.8 % ​ ​ Sales and marketing expenses increased by $23.3 million, or 88.9%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.
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This decrease was primarily driven by reductions of $22.0 million in personnel costs resulting from our reductions in force over the past year and $4.9 million in professional service fees for legal and other administrative services. 53 Table of Contents ​ Other ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ (in thousands) ​ 2023 ​ 2022 ​ Change ​ % Change Other $ 18,164 $ 7,346 $ 10,818 147.3 % Percentage of revenue ​ 27.6 % 10.0 % ​ ​ Other increased by $10.8 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.
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This increase was primarily driven by our investments in promoting sales growth for our product and software solutions among healthcare systems, resulting in increased spend on personnel, digital and social 75 Table of Contents marketing, professional service fees, and travel and entertainment.
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This increase was primarily driven by $6.7 million of higher employee severance and benefits costs resulting from our reductions in force in 2023 and $4.1 million of higher legal costs due to litigation and other legal matters.
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Personnel costs increased by $14.8 million due to having a higher headcount in 2021 than 2020, primarily comprised of increases in salaries and bonuses of $5.0 million and stock-based compensation expense of $5.5 million. Digital and social marketing costs increased by $4.7 million as we invested more heavily in demand generation for our growing sales force.
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These costs are not representative of our ongoing operations. ​ Comparison of the Years Ended December 31, 2022 and 2021 ​ Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ (in thousands) ​ 2022 ​ 2021 ​ Change ​ % Change Product $ 50,263 ​ $ 47,868 ​ $ 2,395 5.0 % Software and other services ​ 23,127 ​ ​ 14,697 ​ ​ 8,430 57.4 ​ ​ ​ $ 73,390 ​ $ 62,565 ​ $ 10,825 17.3 % ​ Product revenue increased by $2.4 million, or 5.0%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
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Professional service fees increased by $1.4 million, primarily due to increases in fees for marketing and sales consulting.
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Recruiting expenses decreased by $3.2 million, primarily due to the recruiting expenses incurred during our CEO transition in 2021.
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Travel and entertainment costs also increased by $1.1 million as our salesforce increased its in-person engagement with our customers and attendance at sales conferences and events. ​ General and administrative ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ ​ (in thousands) ​ 2021 ​ 2020 ​ Change ​ % Change General and administrative $ 85,717 $ 24,395 $ 61,322 251.4 % Percentage of revenue ​ 137.0 % 52.7 % ​ ​ General and administrative expenses increased by $61.3 million, or 251.4%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk We did not have any floating rate debt as of December 31, 2022. Our cash and cash equivalents are comprised primarily of bank deposits and money market accounts. The primary objective of our investments is the preservation of capital to fulfill liquidity needs.
Biggest changeItem 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk We did not have any floating rate debt as of December 31, 2023. Our cash and cash equivalents are comprised primarily of bank deposits and money market accounts. The primary objective of our investments is the preservation of capital to fulfill liquidity needs.

Other BFLY 10-K year-over-year comparisons