BFLY - Butterfly Network: Progress But No Cigar Yet

2023-05-14 07:26:02 ET

Summary

• Today, we put Butterfly Network in the spotlight for the first time since our initial article on the small-cap imaging concern back in April of last year.
• 20% revenue growth is projected for both FY2023 and FY2024, and the company has brought in new management. However, it continues to bleed cash.
• Can Butterfly fulfill its considerable promise? An updated investment analysis follows in the paragraphs below.

Far too often, the best thing I can have in my hand when someone makes a promise is a really big broom so that I can sweep up the broken pieces. "? Craig D. Lounsbrough

Today, we circle back on Butterfly Network, Inc. (BFLY). Our initial piece on the imaging firm called it a SPAC birthed ' dumpster fire '. It concluded thusly on the company:

"The company should probably get a mini-mulligan for the ongoing headwinds to sales traction the Covid pandemic has created. That said, the company should burn through just over half of its net cash hoard in FY2022 and probably will come back to raise additional capital at some point over the coming 12 months. Therefore, the bet here is to sit on the sidelines for now ."

That turned out to be the right call as the stock has dropped just over 60% in the 13 months since that summary. However, the company just named a new CEO last month and Cathie Wood's Ark Investment Management also added to its significant stake in BFLY in April. In addition, the company improved its AI capabilities six weeks ago via a FDA clearance. Are these signs of a nascent turnaround for this company or will the stock remain a 'falling knife'? Butterfly Network posted their latest quarterly results this week, making it a good time to provide an updated analysis that follows below.

Company Overview:

This Connecticut based firm has developed the world's only single-probe, whole-body handheld device, powered by Ultrasound-on-Chip™ technology. The mobility and much lower costs it offers compared to other ultrasound solutions has always offered great promise and has utilization in many settings such as third world medical clinics and at veterinary practices. Butterfly Network generates sales both from product sales and support/software services. The stock currently trades just above $1.75 a share and sports an approximate market capitalization of $370 million.

First Quarter Results:

The company posted their first quarter numbers on May 11th. Butterfly Network had a GAAP net loss of 17 cents a share, four pennies above the consensus. Revenues fell ever so slightly from the same period a year ago to $15.48 million, a bit under expectations.

Revenues from product sales dropped nearly 20% from 1Q2022 to $8.8 million while sales from software and services rose just over 45% to $6.6 million results in flattish sales overall. Total operational expenses dropped significantly from $57.9 million in the first quarter of 2022 to $44.1 during the quarter. The cost reduction was largely the result of two workforce reductions, one last August and on this January as well as some cost rationalization in other parts of the company.

Analyst Commentary & Balance Sheet:

Over the past couple of months, TD Cowen ($6 price target), Oppenheimer ($4.50 price target) and B. Riley Financial ($5 price target) have maintained Buy ratings on the stock while UBS initiated the shares with Neutral rating and $2.25 a share price target.

Just over 16% of the outstanding float is currently held short, or one out of every six shares. Three insiders have sold shares in the company so far in 2023, collectively totaling just over $230,000. Butterfly Network ended the first quarter with just under $200 million in cash and marketable securities on the balance sheet after posting a net loss of $33.5 million in the quarter. The company has no long-term debt.

Verdict:

The current analyst firm consensus has Butterfly Network losing 69 cents a share in FY2023 even as revenues rise 20% to approximately $88 million. Another 20% rise in sales is forecast in FY2024 as losses are projected to fall to 62 cents a share.

It is hard not to like the potential of Butterfly's technology. Part of the company's stated mission is to ' to democratize medical imaging and contribute to the aspiration of global health equity '. Unfortunately, that lofty vision has not resulted in shareholder value to this point even as the company has shipped nearly 100,000 ultrasound probes over the past three years.

The company has invested heavily in the development of novel AI applications to empower practitioners wherever they may be using Butterfly's products. The firm has also built and developed the largest ultrasound image repository in the world which its AI developers can use to develop additional capabilities. The FDA clearance in early April will further enhance the company's ability to developed other tools that are in queue for regulatory submission.

Butterfly made some progress on the cost front in the first quarter, albeit mostly via layoffs. Hopefully the new CEO can accelerate efforts in this area and also can boost sales growth. However, until substantial traction is achieved in both areas, BFLY remains a stock to avoid.

A graceful refusal is better than a lengthy promise. "? Hazrat Ali Ibn Abu-Talib A.S

For further details see: