Butterfly Network, Inc.BFLY
Butterfly Network, Inc. Income Taxes Disclosure
Income Taxes
Income (loss) before provision for income taxes consisted of the following (in thousands):
| Year ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Federal | $ | (78,856) | $ | (72,923) | $ | (133,961) | |||||||||||
| Foreign | 1,902 | 399 | 343 | ||||||||||||||
| Loss before provision for income taxes | $ | (76,954) | $ | (72,524) | $ | (133,618) | |||||||||||
The components of the provision for income taxes are as follows (in thousands):
| Year ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current expense (benefit): | |||||||||||||||||
| Federal | $ | — | $ | — | $ | — | |||||||||||
| State | — | — | — | ||||||||||||||
| Foreign | 110 | 284 | 244 | ||||||||||||||
| Total current expense (benefit) | 110 | 284 | 244 | ||||||||||||||
| Deferred expense (benefit): | |||||||||||||||||
| Federal | — | — | $ | — | |||||||||||||
| State | — | — | — | ||||||||||||||
| Foreign | — | (316) | (162) | ||||||||||||||
| Total deferred expense (benefit) | — | (316) | (162) | ||||||||||||||
| Total income tax expense (benefit) | $ | 110 | $ | (32) | $ | 82 | |||||||||||
The Company recorded a tax provision of $0.1 million, a tax benefit of $0.03 million, and a tax provision of $0.08 million for the years ended December 31, 2025, 2024 and 2023, respectively, due to foreign income and return to provision adjustments. Due to the Company’s loss position domestically, the Company has not recorded a significant federal tax provision for the years ended December 31, 2025, 2024, and 2023.
A reconciliation of the Company’s statutory tax rate and effective tax rate is as follows (in thousands):
| Year ended December 31, | ||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||||||
| Pretax income (loss) | $ | (76,954) | $ | (72,524) | $ | (133,618) | ||||||||||||||||||||||||||||||||
| U.S. federal statutory tax rate | (16,160) | 21.00 | % | (15,230) | 21.00 | % | (28,060) | 21.00 | % | |||||||||||||||||||||||||||||
| State and local income taxes, net of federal income tax effect | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Foreign tax effects: | ||||||||||||||||||||||||||||||||||||||
| Other foreign jurisdictions | (513) | 0.67 | 89 | (0.12) | 10 | (0.01) | ||||||||||||||||||||||||||||||||
| Effect of changes in tax laws or rates enacted in the current period | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Effect of cross-border tax laws: | ||||||||||||||||||||||||||||||||||||||
| Net CFC tested income | 177 | (0.23) | 88 | (0.12) | 90 | (0.07) | ||||||||||||||||||||||||||||||||
| Tax credits: | ||||||||||||||||||||||||||||||||||||||
| Research and development tax credits | (815) | 1.06 | (1,252) | 1.73 | (2,307) | 1.73 | ||||||||||||||||||||||||||||||||
| Change in valuation allowances | 16,609 | (21.58) | 7,758 | (10.70) | 27,798 | (20.80) | ||||||||||||||||||||||||||||||||
| Nontaxable or nondeductible items: | ||||||||||||||||||||||||||||||||||||||
| Change in fair value of warrants | (477) | 0.62 | 390 | (0.54) | (954) | 0.71 | ||||||||||||||||||||||||||||||||
| Stock compensation | 1,484 | (1.93) | 4,711 | (6.50) | 3,436 | (2.57) | ||||||||||||||||||||||||||||||||
| Depreciation | (5) | 0.01 | 1,927 | (2.66) | (1) | — | ||||||||||||||||||||||||||||||||
| Capitalized tax R&E | — | — | (1,706) | 2.35 | — | — | ||||||||||||||||||||||||||||||||
| Software costs | — | — | 2,277 | (3.14) | — | — | ||||||||||||||||||||||||||||||||
| Other | (190) | 0.25 | (47) | 0.06 | 70 | (0.05) | ||||||||||||||||||||||||||||||||
| Changes in unrecognized tax benefits | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Other adjustments: | ||||||||||||||||||||||||||||||||||||||
| Net operating loss | — | — | 963 | (1.33) | — | — | ||||||||||||||||||||||||||||||||
| Effective tax rate | $ | 110 | (0.14) | % | $ | (32) | 0.04 | % | $ | 82 | (0.06) | % | ||||||||||||||||||||||||||
The Company's effective tax rate includes the effects of its foreign subsidiaries which operating at in a cost plus arrangement and are primarily attributable to jurisdictions where the Company has significant business activities.
Net deferred tax assets as of December 31, 2025 and 2024 consisted of the following (in thousands):
| Year ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets | |||||||||||
| Net operating loss carryforwards | $ | 174,383 | $ | 158,097 | |||||||
| Tax credits | 19,439 | 18,114 | |||||||||
| Stock compensation | 3,875 | 3,203 | |||||||||
| Accruals and reserves | 4,247 | 4,106 | |||||||||
| Inventory reserve | 15,217 | 15,114 | |||||||||
| Lease liability | 4,969 | 5,562 | |||||||||
| Depreciation | 292 | 99 | |||||||||
| Capitalized tax R&E | 28,247 | 27,296 | |||||||||
| Other | 4,841 | 4,183 | |||||||||
| Total deferred tax assets | 255,510 | 235,774 | |||||||||
| Valuation allowance | (250,503) | (230,109) | |||||||||
| Total deferred tax assets | 5,007 | 5,665 | |||||||||
| Deferred tax liabilities | |||||||||||
| Right-of-use asset | (3,082) | (3,467) | |||||||||
Software costs | (1,532) | (1,839) | |||||||||
| Net deferred tax assets | $ | 393 | $ | 359 | |||||||
As of December 31, 2025 and 2024, the Company had federal net operating loss (“NOL”) carryforwards of approximately $700.4 million and $634.8 million, respectively. As of December 31, 2025 and 2024, the Company had state NOL carryforwards of approximately $503.7 million and $446.1 million, respectively. Of the $700.4 million of federal NOL carryforwards, $73.7 million will begin to expire at various dates in 2031 and $626.7 million may be carried forward indefinitely. The state NOL carryforwards will begin to expire at various dates in 2031. As of December 31, 2025, the Company also had federal and state tax credits of $16.2 million and $4.1 million, which will begin to expire in 2032 and 2033, respectively.
The Tax Cuts and Jobs Act (“TCJA") requires taxpayers to capitalize and amortize research and development (“R&D") expenditures under Section 174 for tax years beginning after December 31, 2021. This rule became effective for the Company during 2022. These costs were required to be amortized for tax purposes over 5 years for R&D performed in the U.S. and over 15 years for R&D performed outside of the U.S.
The One Big Beautiful Bill Act (“OBBBA") was passed and became effective for the Company during 2025. The legislation includes, among other provisions, permanent full expensing for certain business assets, changes to the interest deduction limitation under Section 163(j), amendments to international tax provisions including the global intangible low-taxed income (“GILTI”) and foreign-derived intangible income (“FDII”) regimes, the permanent extension of the controlled foreign corporation (“CFC”) look-through rule, as well as modifications to the treatment of research and development expenditures mentioned above.
Congress modified the treatment for R&D expenditures by adding new Section 174A, which applies for tax years beginning after December 31, 2024. Section 174A permits the immediate deduction of domestic R&D expenditures or, at the taxpayer’s election, capitalization and amortization over a period of at least five years beginning when the related benefits are first realized. Foreign R&D expenditures continue to be capitalized and amortized over 15 years. Transition provisions allow taxpayers either to continue amortizing amounts capitalized under the TCJA rules or to deduct remaining unamortized domestic R&D expenditures in the first tax year beginning after December 31, 2024. The Company has elected to continue amortizing previously capitalized domestic R&D expenditures over the remaining amortization period permitted under OBBBA.
Future realization of the tax benefits of existing temporary differences and net operating loss carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. As of December 31, 2025 and 2024, the Company performed an evaluation to determine whether a valuation allowance was needed. The Company considered
all available evidence, both positive and negative, which included the results of operations for the current and preceding years. The Company determined that it was not possible to reasonably quantify future taxable income and determined that it is more likely than not that all of the deferred tax assets will not be realized. Accordingly, the Company maintained a full valuation allowance against its net U.S. deferred tax assets as of December 31, 2025 and 2024. The deferred tax asset recognized relates entirely to the Company's foreign entities.
The Company’s valuation allowance increased by $20.4 million and $8.7 million for the years ended December 31, 2025 and 2024, respectively, due primarily to the generation of NOLs.
The utilization of NOLs and tax credit carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that have occurred previously or may occur in the future. Under IRC Sections 382 and 383, a corporation that undergoes an ownership change may be subject to limitations on its ability to utilize its pre-change NOLs and other tax attributes otherwise available to offset future taxable income and/or tax liability. An ownership change is defined as a cumulative change of 50% or more in the ownership positions of certain stockholders during a rolling three-year period. The Company conducted an ownership analysis under IRC Section 382 based upon publicly available information as of December 31, 2025 and determined that there has not been an ownership change since the last ownership change event on February 12, 2021 that would limit the Company’s utilization of its NOLs and tax credits.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations for both federal taxes and the many states in which the Company operates or does business. ASC 740-10 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.
The Company records uncertain tax positions as liabilities in accordance with ASC 740-10 and adjusts these liabilities when the Company’s judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company’s current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. As of December 31, 2025 and 2024, the Company has not recorded any uncertain tax positions in its financial statements.
The Company recognizes interest and penalties related to unrecognized tax benefits within the provision for income taxes on the consolidated statements of operations and comprehensive loss. As of December 31, 2025 and 2024, there was no significant accrued interest or penalties.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state and foreign jurisdictions, where applicable. There are currently no pending tax examinations. The Company’s tax years are still open under statute from December 31, 2021 to the present. Federal and state net operating losses are subject to review by taxing authorities in the year utilized.
The Company does not provide for U.S. Federal, state, and applicable foreign income and withholding taxes on the financial reporting basis over the tax basis of its foreign subsidiary investment because the Company has the intentions and ability to indefinitely reinvest the undistributed earnings of its foreign subsidiaries. As a result, deferred taxes have not been recorded for the outside basis differences in its foreign subsidiary as of December 31, 2025 to the extent such differences are expected to result in future taxable income upon repatriation. The Company reviews its ability and intentions to indefinitely reinvest its foreign earnings at each balance sheet.
For the years ended December 31, 2025, 2024 and 2023, total income taxes paid (net of refunds received) were immaterial to the consolidated financial statements. As a result, the Company has determined that additional disaggregation of income taxes paid by jurisdiction is not required, and such disclosures have not been presented.
The following summarizes the Company's income taxes paid (net of refunds received) for the years presented below (in thousands):
| Year ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Federal | $ | — | $ | — | $ | — | |||||||||||
| State | — | — | — | ||||||||||||||
| Foreign | 101 | 99 | 99 | ||||||||||||||
| Total income taxes paid | $ | 101 | $ | 99 | $ | 99 | |||||||||||
The following summarizes the jurisdictions that exceeded 5% of the Company's total income taxes paid (net of refunds) for the years presented below (in thousands):
| Year ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Foreign: | |||||||||||||||||
| Australia | * | * | $ | 7 | |||||||||||||
| Germany | $ | 13 | $ | 27 | $ | 16 | |||||||||||
| Netherlands | $ | 61 | * | * | |||||||||||||
| Taiwan | $ | 27 | * | $ | 46 | ||||||||||||
| United Kingdom | * | $ | 72 | $ | 30 | ||||||||||||
| * Jurisdiction below the threshold for the period presented. | |||||||||||||||||
Refundable Tax Credits
From time to time, the Company applies for government assistance in the form of non-income tax refundable credits based on meeting various eligibility criteria. To account for government assistance, where there is limited GAAP guidance for for-profit entities, the Company analogizes to International Accounting Standards 20, Accounting for Government Grants and Disclosures of Government Assistance. Under that standard, the Company recognizes government assistance when there is reasonable assurance that it will comply with the relevant conditions and that the assistance will be received.
During the year ended December 31, 2022, the Company received a tax credit paid in cash of $0.9 million under the state of Massachusetts Life Sciences Tax Incentive Program. The government grant is subject to claw-back if the Company fails to meet certain targets in the tax year following the time of the award. During the year ended December 31, 2023, the Company determined that it did not ultimately meet the required targets in 2022 and expects to repay the tax credit received. As a result, the Company has accrued $0.9 million for the expected repayment in other non-current liabilities on the consolidated balance sheets as of December 31, 2025 and 2024, and the Company recognized a corresponding expense in other income (expense), net on the consolidated statements of operations and comprehensive loss for the year ended December 31, 2023.
During the years ended December 31, 2025 and 2024, the Company received tax credits paid in cash of $2.5 million and $0.5 million, respectively, for the U.S. government's Employee Retention Credit plus accrued interest. The tax credit payments received included accrued interest of $0.3 million and an insignificant amount for the years ended December 31, 2025 and 2024. The Company recognized and recorded the accrued interest as interest income and the remainders of the receipts as other income (expense), net on the consolidated statements of operations and comprehensive loss.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Mar 4, 2024 | |
| 2021 | Feb 28, 2022 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.