Butterfly Network Q3 2026 Earnings: Embedded Revenue Lifts Sales and Gross Margin

Butterfly Network (NYSE: BFLY) reported Q3 2026 revenue of $32.6 million, up 52% from $21.5 million a year earlier, while basic and diluted EPS improved to a loss of $0.05 from a loss of $0.13. Higher-margin Butterfly Embedded licensing revenue and increased probe volume lifted gross margin to a company record of 73.0%, although operating expenses continued to rise.

Core Financial Results

Revenue growth translated into a substantially smaller loss, with adjusted EBITDA approaching breakeven for the quarter. U.S. revenue and Embedded partnerships were the main growth drivers, while international revenue declined.

The gross-profit comparison benefited from a $17.4 million excess and obsolete inventory write-down recorded in Q3 2025. Even after excluding that charge, adjusted gross margin increased by 9.1 percentage points, indicating that the improvement was not solely the result of an easier prior-year comparison.

Adjusted gross margin, adjusted EBITDA, and adjusted EPS are non-GAAP measures and should be considered alongside the corresponding GAAP results.

Business and Revenue Performance

Product revenue increased approximately 7% to $15.6 million from $14.6 million. Software and other services revenue rose approximately 145% to $17.0 million from $6.9 million, although Butterfly did not disclose exactly how much of that category came from Embedded licensing.

Geographically, U.S. revenue grew 71% to $27.5 million. Butterfly attributed the increase mainly to Embedded partnerships, including its co-development arrangement with Midjourney, and higher probe sales to health systems, distributors, and e-commerce customers. International revenue declined 5% to $5.1 million because of lower probe sales to global health partners.

Enterprise activity also advanced. Butterfly closed five seven-figure and ten six-figure total contract value deals during the quarter. These contract values indicate pipeline conversion but should not be treated as revenue recognized entirely in Q3.

Several commercial developments occurred around or after quarter-end. Mendaera launched the first commercial partner product built on Butterfly technology on October 1, while DeepEcho went live on Butterfly Garden on October 23. Butterfly also obtained FedRAMP authorization, supporting its federal and Department of Veterans Affairs pipeline. Its first Home & Community Care state program was scheduled to begin scanning in November, with initial revenue expected during Q4.

Profitability, Cash Flow, and the Balance Sheet

Operating expenses increased 19% to $37.4 million as Butterfly invested in headcount, internal capabilities, and product and software development. Excluding stock-based compensation and other expenses, operating costs were $26.6 million, up from $23.7 million. The higher gross profit more than offset this expense growth, reducing the operating loss to $13.6 million.

Cash and cash equivalents stood at $122.3 million on September 30, 2026, down from $150.5 million at the end of 2025. For the first nine months of 2026—not the third quarter alone—operating cash outflow increased to $32.4 million from $21.7 million a year earlier despite the narrower net loss.

Working-capital movements contributed to the cash use. Accounts receivable increased to $37.4 million from $26.7 million at year-end, prepaid expenses and other current assets rose to $21.5 million from $8.4 million, and deferred revenue decreased by $9.2 million during the nine-month period. Inventory declined modestly to $59.6 million from $61.4 million.

Embedded Revenue Improved the Mix, but the Comparison Was Also Helped by a Prior-Year Charge

Butterfly’s 73.0% GAAP gross margin represented a major reversal from the negative 17.5% margin in Q3 2025. However, $17.4 million of the year-over-year improvement reflected the absence of the prior-year inventory write-down, making the GAAP comparison unusually favorable.

The adjusted results provide clearer evidence of an underlying change. Adjusted gross margin rose from 63.9% to 73.0%, primarily because Embedded licensing carries higher margins than Butterfly’s core offerings and probe sales volume increased. This mix shift helped reduce the adjusted EBITDA loss to $1.2 million even as the company continued to expand its cost base.

The durability of this margin level will therefore depend partly on the timing and scale of Embedded revenue. Butterfly disclosed the importance of Embedded to Q3 growth but did not provide a separate revenue figure for the business.

Guidance

Butterfly raised its full-year revenue and adjusted EBITDA guidance, though the release did not include the previous numerical ranges, so the size of the increase cannot be determined. The company also issued Q4 guidance that implies considerably slower year-over-year growth than Q3.

The Q4 revenue midpoint of $32.5 million is close to Q3 revenue of $32.6 million, pointing to roughly flat sequential revenue at the midpoint. The adjusted EBITDA outlook also indicates that Butterfly expects to remain loss-making through year-end.

Risks Investors Should Monitor

• Dependence on Embedded revenue: Higher-margin Embedded licensing was central to both U.S. growth and margin expansion, but Butterfly did not disclose the business’s separate revenue contribution. Partnership timing could create variability between quarters.
• Slower Q4 growth: Q4 guidance calls for approximately 3% year-over-year growth at the midpoint, compared with 52% growth in Q3, while the midpoint is roughly flat sequentially.
• Continued cash consumption: Nine-month operating cash outflow increased to $32.4 million even though the net loss narrowed, reflecting working-capital requirements and ongoing investment.
• International weakness: International revenue fell 5% because of lower probe sales to global health partners, contrasting with 71% growth in the U.S.
• Execution on new programs: Federal opportunities, Home & Community Care, partner products, and next-generation technology remain dependent on implementation and commercialization milestones.

Summary

Butterfly Network’s Q3 2026 results showed a meaningful improvement in revenue mix and profitability, led by Embedded licensing and higher U.S. probe sales. The absence of a prior-year inventory charge amplified the GAAP margin comparison, but the increase in adjusted gross margin also points to underlying progress. Investors’ next focus will be whether Embedded and new commercial programs can support the raised full-year outlook while containing operating costs and cash use.