--- title: "Butterfly Network's record quarter ran on milestone money, and its own Q4 guide says so" description: "Butterfly Network beat every mark this morning, but the filings show the growth came from chip licensing, not the probe business, and the company's own fourth-quarter guide says that money does not repeat. At 17.6 times sales, the market is paying subscription prices for milestone money." publisher: "The Inference" section: "Health" published: 2026-10-29T15:18:23.102Z modified: 2026-10-29T15:18:23.102Z canonical: https://theinference.org/article/butterfly-network-s-record-quarter-ran-on-milestone-money-and-its-own-q4-guide-says-so language: en keywords: "Butterfly Network, Earnings, Medical Devices, Valuation" --- # Butterfly Network's record quarter ran on milestone money, and its own Q4 guide says so > Butterfly Network beat every mark this morning, but the filings show the growth came from chip licensing, not the probe business, and the company's own fourth-quarter guide says that money does not repeat. At 17.6 times sales, the market is paying subscription prices for milestone money. [Butterfly Network](https://theinference.org/markets/companies/butterfly-network), the NYSE-listed maker of the handheld iQ3 ultrasound, printed the best quarter in its history this morning and [beat the high end of its own guidance](https://www.sec.gov/Archives/edgar/data/1804176/000180417626000038/0001804176-26-000038-index.htm) [1]. Revenue grew 52% from a year ago [1]. Gross margin hit a record 73%, and the adjusted EBITDA loss narrowed to essentially breakeven [1]. The decomposition in the filings matters more than the beat: the growth came from chip licensing, not from the probe business [1]. ## The growth came from licensing partners, not the probe business US revenue rose 71%, which management attributes primarily to Embedded chip-licensing partnerships, including [the co-development deal with Midjourney](https://theinference.org/article/butterfly-s-74-million-midjourney-license-rests-on-a-scanner-with-no-fda-clearance-and-no-ai) [1]. International hardware sales went the other way, down 5% [1]. Software and other services revenue, the line that carries Embedded-style licensing, more than tripled year over year while hardware product revenue barely moved [1]. *Chart: **Software and services out-earns hardware, and it took the growth** Column chart comparing Butterfly Network product revenue and software and other services revenue for the three months ended September 30, 2025, and 2026, showing software and other services jumping while product revenue was flat.* *Revenue by line, three months ended September 30, US$ millions. Source: Butterfly Network Q3 2026 press release financial schedules [1]. [1]* Embedded is the bet a decade of semiconductor R&D was building toward. One Ultrasound-on-Chip platform now serves as the input layer for other companies' products: Merge Labs, the brain-computer-interface startup co-founded by [Sam Altman](https://theinference.org/markets/people/sam-altman), [chose Butterfly as its exclusive partner for chip-based ultrasound](https://www.morningstar.com/news/business-wire/20260901999280/merge-labs-and-butterfly-network-partner-to-advance-ultrasound-based-brain-computer-interfaces) in pursuit of "less-invasive ways to interface with the human brain," and partner Mendaera put the first commercial device built on Butterfly technology on the market on October 1 [4][1]. Each partner pays to build on the chip [4]. ## The Q4 guide concedes the boost does not repeat Management guided the fourth quarter to a range implying about 3% growth at the midpoint, alongside a full-year raise [1]. Q3 revenue was also flat against the June quarter [2]. So the record quarter is a mix improvement, not an acceleration: a one-quarter licensing payment sitting on a flat base [1][2]. *Chart: **The record quarter did not grow sequentially** Line chart of Butterfly Network quarterly total revenue over thirteen quarters through Q3 2026, showing growth to a record level that was flat against the prior quarter.* *Quarterly total revenue, US$ millions, from Butterfly Network's SEC filings; the third quarter of 2026 is from the October 29 press release [1][2]. [1][2]* ## The market is paying subscription prices for milestone money The stock has roughly doubled this year and now [trades at 17.6 times sales](https://www.gurufocus.com/news/9148045/butterfly-network-bfly-set-to-report-q3-earnings-amid-elevated-pricetosales-valuation), near triple its historical median [5][3]. GuruFocus's model pegs fair value at $2.50, about a third of the current share price [3]. Insiders were net sellers, unloading $122 million of stock over the past year [3]. The terms of the flagship deal explain why the distinction matters. The Merge Labs agreement pays Butterfly upfront and milestone-based license fees plus hardware purchase commitments, with royalties only expected on future commercial sales [4]. The durable layer, royalties that arrive when partner products actually sell, starts now and starts small [4]. ## The strategy is right; the clock is mispriced I think the strategy is the right one, and I would not bet against the platform: Butterfly pioneered semiconductor ultrasound, and Merge Labs just [made it its exclusive chip-based ultrasound partner](https://theinference.org/article/openai-backed-merge-labs-licensed-butterfly-network-s-ultrasound-chip-for-brain-interfaces-q3-due-october-29) [4]. But a licensing business priced like a subscription while it is paid in milestones is optionality, not a run-rate [3][4]. The honest test is quarters where Embedded revenue repeats without a new deal announcement, and where partner sales show up as royalties rather than license fees [4]. Until then, the $122.3 million cash pile and near-breakeven EBITDA buy management time to prove the recurring layer exists [1]. The multiple does not buy that time for shareholders. ## Takeaway Butterfly Network's record Q3 came from one-time chip licensing payments, not probe sales, and its own Q4 guide of about 3% growth says that money does not repeat, yet the stock trades at 17.6 times sales. ## Sources 1. [SEC EDGAR, Butterfly Network Form 8-K and Q3 2026 press release (Exhibit 99.1), 29 October 2026](https://www.sec.gov/Archives/edgar/data/1804176/000180417626000038/0001804176-26-000038-index.htm) 2. [Butterfly Network, quarterly figures from its SEC filings, retrieved 29 October 2026](https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001804176) 3. [GuruFocus, Butterfly Network (BFLY) Set to Report Q3 Earnings Amid Elevated Price-to-Sales Valuation, 28 October 2026](https://www.gurufocus.com/news/9148045/butterfly-network-bfly-set-to-report-q3-earnings-amid-elevated-pricetosales-valuation) 4. [Business Wire via Morningstar, Merge Labs and Butterfly Network Partner to Advance Ultrasound-Based Brain-Computer Interfaces, 1 September 2026](https://www.morningstar.com/news/business-wire/20260901999280/merge-labs-and-butterfly-network-partner-to-advance-ultrasound-based-brain-computer-interfaces) 5. [Zacks via MSN, Butterfly Network, Inc. (BFLY) reports Q3 loss, beats revenue estimates, 29 October 2026](https://www.msn.com/en-us/money/other/butterfly-network-inc-bfly-reports-q3-loss-beats-revenue-estimates/ar-AA2glifD) --- Butterfly Network's record quarter ran on milestone money, and its own Q4 guide says so — The Inference. Canonical: https://theinference.org/article/butterfly-network-s-record-quarter-ran-on-milestone-money-and-its-own-q4-guide-says-so