Backblaze, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report; it does not provide standalone fourth-quarter results. Backblaze sells B2 Cloud Storage and Computer Backup services through its storage-cloud platform. The company reported more than 500,000 customers across 175-plus countries; approximately 80% of 2022 revenue came from self-serve customers.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $85.2 million | $67.5 million |
| Gross profit / gross margin | $43.9 million / 52% | $34.3 million / 51% |
| Operating expenses | $92.0 million | $53.1 million |
| Loss from operations | $(48.1) million | $(18.8) million |
| Net loss | $(51.4) million | $(21.7) million |
| Adjusted EBITDA (non-GAAP) | $(9.4) million | $3.2 million |
| Cash from operations | $(13.8) million | $3.5 million |
| Cash used in investing activities | $(73.9) million | $(11.2) million |
| Cash from (used in) financing activities | $(6.2) million | $106.6 million |
- Revenue rose 26%: B2 Cloud Storage grew 46% to $33.0 million; Computer Backup grew 17% to $51.4 million. Physical Media revenue was $0.7 million.
- Operating expenses increased 73% overall, with research and development up 61%, sales and marketing up 80%, and general and administrative up 82%. Stock-based compensation expense increased to $17.0 million from $5.6 million.
- Gross margin improved one percentage point, as revenue grew slightly faster than cost of revenue. Adjusted gross margin, a non-GAAP measure, was 76% versus 75%.
- Cash, cash equivalents and short-term investments totaled $65.4 million at year-end; cash and cash equivalents were $6.7 million and short-term investments were $58.7 million. An additional $4.3 million was restricted cash securing the credit line.
- Year-end debt included $4.3 million drawn on the revolving facility and $34.0 million of finance lease and lease-financing liabilities. The facility had $25.7 million available and matures in September 2024. Future minimum finance lease and financing payments were $37.4 million; operating lease commitments were $8.4 million, excluding separately disclosed non-lease service commitments.
Business trends and material changes
- Total company net revenue retention was 113%, up from 111%; gross customer retention was 91%, unchanged. ARR rose to $92.0 million from $75.4 million.
- B2 Cloud Storage ARR increased to $38.6 million from $26.8 million; Computer Backup ARR rose to $53.4 million from $48.6 million. Reported customer counts were approximately 86,900 and 436,100, respectively; some customers use both services.
- Operating cash flow turned negative, from $3.5 million provided in 2021 to $13.8 million used in 2022, primarily reflecting higher spending on growth, research and development, and sales and marketing.
- Investing outflows included $145.9 million of investment purchases, partly offset by $88.0 million of maturities, plus $7.3 million of property and equipment purchases and $8.6 million of capitalized software costs. Financing outflows included $16.5 million of finance lease and lease-financing principal payments.
- The company adopted ASC 842 lease accounting in 2022 using a modified retrospective approach; the auditor identified this as a change in accounting principle. Comparative 2021 balance-sheet amounts were not adjusted for adoption.
Outlook, risks and unusual items
- Management said cash, investments, expected operating cash flows and the revolving facility should support working capital and capital expenditure needs for at least 12 months. No specific revenue, margin, earnings or cash-flow guidance is provided in the filing.
- Management expects continued investment in infrastructure, product development, sales and marketing, customer acquisition, partners and international expansion. The company stated it does not expect to be profitable for the foreseeable future.
- In February 2023, Backblaze settled a SAFE-related dispute for $1.5 million, recorded as FY2022 general and administrative expense. A third-party data-center operator’s 2022 bankruptcy was resolved without operational disruption.
- Beginning in January 2023, the company initiated a workforce reduction and estimated $3.5–$4.0 million of termination and related costs, with most expected in Q1 2023.
- Management reported two remaining material weaknesses in internal controls: review of significant accounting transactions and reconciliations, and controls over certain equity transactions. Disclosure controls and internal control over financial reporting were deemed ineffective at year-end. The auditor gave an unqualified opinion on the financial statements but did not attest to internal-control effectiveness.
- Principal risks include sustained losses, intense competition, service outages or customer-data loss, cybersecurity and privacy events, reliance on third-party data centers and hardware suppliers, retention and expansion of customers, and execution of growth investments. Inflation, economic weakness, energy and supply-chain costs, and Russia-Ukraine-related sanctions were also identified as risks.
- The company reported a $1.5 million settlement expense, but no current legal proceeding it believed likely to have a material adverse effect. It also disclosed $10.8 million of non-cancelable purchase commitments due in 2023 and $0.2 million in 2024.
Most important facts for investors to verify
- Whether revenue growth, customer retention and B2 Cloud Storage expansion can continue while operating expenses and losses remain high.
- Cash burn, investment liquidity, restricted cash, finance-lease obligations, and the terms and availability of the revolving credit facility.
- Progress in remediating the two remaining material weaknesses and whether the controls operate effectively over a sufficient period.
- The financial and customer impact of the 2023 workforce reduction and the company’s ability to maintain service reliability and capacity.
- Whether growth in customer data and usage supports margins, particularly for fixed-price Computer Backup, and whether new products and partnerships generate returns.
- Potential dilution from stock-based compensation and the dual-class voting structure, under which Class B shares carry ten votes per share versus one vote for Class A shares.