Butterfly Network (BFLY): Revenue +39%, the Core Business +2% | Q2 2026

Butterfly Network, Inc. (BFLY) Q2 2026 — Revenue $32.612M (+39.5%), gross margin 71.4% vs 63.7% (+770bps), adjusted EBITDA loss cut 78% to $1.4M, and FY2026 guidance raised to $119-123M. But the core ultrasound business grew 2.2% ($21.851M vs $21.387M); the other 37 points came from Butterfly Embedded chip licensing, $10.761M vs $1.996M (+439%). Q3 is guided BELOW Q2 at $26-30M. The stock rose 15.1% to $8.17. Butterfly's own revenue disaggregation table splits the quarter two ways, and the second split is the story. Core business — every probe, subscription, health system and medical school — went from $21.387M to $21.851M. That is 2.2%. Butterfly Embedded, the Ultrasound-on-Chip licensing and co-development line, went from $1.996M to $10.761M: +439%, a third of the quarter, and roughly 95% of all year-on-year growth. It is also the entire reason gross margin expanded, because licensing carries almost no cost of sales. Meanwhile units fulfilled rose 22.5% and, by the company's own sentence, that volume produced $0.4M of additional revenue — revenue per device fell about 16%. International revenue fell 14%. Remaining performance obligations fell 13.9% in six months, from $99.6M to $85.8M, while guidance was raised. And the Midjourney co-development agreement driving Embedded is capped at up to $74M over five years, with terms filed in an 8-K on November 17, 2025 — seven months before the stock added roughly $840M of market value on it in a single session. THE CALL: AVOID (4/5, THE CHIP IS REAL. THE PRICE ASSUMES IT ALREADY WON.) — base-case value ~$3.0 vs ~$8.17 today. KEY METRICS: - Revenue $32.612M +39.5% (vs $23.383M); H1 $59.142M vs $44.608M - Core business $21.851M vs $21.387M = +2.2%; Embedded $10.761M vs $1.996M = +439% - Product revenue $15.720M -5.4%; software & other services $16.892M +149.8% (51.8% of revenue) - Gross margin 71.4% vs 63.7% (+770bps); product GM 53.1% vs 59.9%, software GM 88.4% vs 73.1% - Units fulfilled +22.5% (+1,176 devices) produced +$0.4M revenue — revenue per device about -16% - US revenue $27.591M +57%; international $5.021M -14% - Operating expenses $36.952M +19.2%; GAAP operating loss -$13.664M; net loss -$12.910M - Adjusted EBITDA -$1.378M vs -$6.153M, but reached via $10.626M of add-backs = 32.6% of revenue - Operating cash flow H1 -$30.163M vs -$18.844M (60% worse); ex-working-capital burn about -$8.6M - Deferred revenue fell $10.643M in six months; $14.3M of Q2 revenue released from opening deferred (vs $5.6M) - Remaining performance obligations $85.8M vs $99.6M at Dec 31 = -13.9%; 60% converts within 12 months - Cash & equivalents $124.659M, no debt; accumulated deficit $904.781M - Shares: Class A 237,995,479 + Class B 26,426,937 = 264.4M; fully diluted 287.2M (+22.8M options/RSUs/ESPP) - All 20,652,690 SPAC warrants ($11.50 strike) expired unexercised February 12, 2026 - Midjourney co-development agreement capped at up to $74M over 5 years (8-K filed Nov 17, 2025) - FY2026 guidance RAISED to $119-123M revenue (+22-26%) and adj. EBITDA loss $19-23M; Q3 guided $26-30M - EV about $2.22B = 18.4x FY26E revenue and 25.4x annualised core revenue What to watch: Watch CORE business growth, not total revenue. It was 2.2% this quarter. If the September and December quarters show the core ultrasound franchise growing 10%+ with revenue per device stabilising, the platform thesis has a foundation and fair value moves toward $5. What confirms the bear case: Q3 landing in the guided $26-30M range (below Q2's $32.6M), remaining performance obligations falling again from $85.8M, and revenue per device continuing to slide. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.