Backblaze, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited, U.S. GAAP, consolidated. Backblaze provides cloud storage and computer backup services through B2 Cloud Storage and Computer Backup.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Revenue | $30.0 million | $23.4 million; up 28% |
| Gross profit / margin | $15.8 million / 53% | $11.0 million / 47% |
| Operating expenses | $26.3 million | $27.8 million |
| Operating loss | $10.5 million | $16.8 million |
| Net loss / diluted loss per share | $11.1 million / $0.27 | $17.1 million / $0.50 |
| Adjusted EBITDA, non-GAAP | $1.9 million; 6% margin | $(2.9) million; (12)% margin |
| Operating cash flow | $3.4 million | $(5.2) million |
| Cash and cash equivalents | $6.3 million | $12.5 million at Dec. 31, 2023 |
| Short-term investments | $21.8 million | $16.8 million at Dec. 31, 2023 |
| Debt facility | $4.7 million outstanding; $15.3 million available | $4.1 million outstanding at Dec. 31, 2023 |
Cash, cash equivalents and short-term investments totaled $28.2 million; an additional $4.7 million was restricted as collateral for the revolving credit facility. The company reported $38.7 million of current assets and $55.7 million of current liabilities. Finance lease and lease-financing liabilities totaled $29.0 million, and non-current operating lease liabilities were $8.0 million. Operating cash flow less property and equipment purchases and capitalized software costs was approximately $(0.3) million (calculated from reported cash flows).
Revenue by offering was $14.6 million from B2 Cloud Storage, up 47%, and $15.3 million from Computer Backup, up 14%. Revenue outside the United States was 27%. Total company ARR was $122.1 million, up from $95.9 million; B2 ARR was $59.5 million and Computer Backup ARR was $62.6 million. Overall net revenue retention was 112%; gross customer retention was 91%.
Material changes versus the prior comparable period
- Revenue grew $6.6 million, primarily reflecting increased B2 customer storage, October 2023 price increases, and B2 Reserve sales. Computer Backup growth reflected price increases, partly offset by lower license counts.
- Gross margin increased six percentage points to 53%, with revenue growth from price increases cited as the primary driver. Cost of revenue rose 14%, including higher infrastructure depreciation and colocation costs.
- Operating expenses declined 5%, partly because Q1 2023 included $2.5 million of workforce-reduction charges. The 2023 restructuring payments were completed by year-end 2023.
- Net loss narrowed by $6.1 million. Weighted-average shares rose to 40.2 million from 33.9 million; stock-option exercises issued approximately 1.43 million shares in Q1 2024.
- Operating cash flow improved by $8.6 million, with deferred revenue growth contributing to cash generation. Investing cash outflow was $8.8 million, largely reflecting net purchases of short-term investments and capitalized software.
Outlook, commentary, risks and unusual items
- Management believes cash, investments, operating cash flow and the revolving facility will support working capital and capital expenditure needs for at least 12 months. No numerical full-year revenue or earnings guidance is provided in the supplied filing text.
- Management expects the October 2023 price increases to continue benefiting revenue and gross margin during the remainder of 2024, while stating that customer retention had not been materially affected as of March 31. It also plans infrastructure purchases of a similar magnitude over the remainder of 2024.
- Management says operating expenses are expected to increase in absolute dollars over time, including investment in R&D, sales and marketing, and infrastructure. The company cautions that it does not expect to be profitable for the foreseeable future.
- Key risks include intense competition and possible customer response to pricing, reliance on a limited number of services, customer churn and consumption variability, data-center and hardware supply constraints, outages or cybersecurity incidents, and the need to finance growth. The company also identifies ongoing material weaknesses in internal controls over financial reporting; disclosure controls and procedures were deemed ineffective at quarter-end. Management reports remediation work is underway, but the weaknesses are not yet fully remediated.
- The revolving credit facility was amended in December 2023: maximum borrowing was reduced from $30 million to $20 million; the facility matures in December 2025. Its outstanding balance was 8.1% interest as of March 31, 2024, and is collateralized by an equal amount of restricted cash.
- The filing reports no legal proceedings believed likely to have a material adverse effect. It discloses $1.1 million of accrued VAT liability and $0.8 million and $0.5 million of non-cancelable purchase commitments payable in the remainder of 2024 and 2025, respectively. The company also reports $0.1 million of Q1 marketing-service payments to Meaningful Works, whose executive is an immediate family member of the CEO; services were not yet complete at quarter-end.
Important facts for investors to verify
- Whether B2 storage growth and price increases continue to drive revenue and gross-margin improvement without weakening retention, usage or new-customer acquisition.
- Whether Computer Backup retention and ARR trends improve: its NRR was 101%, down from 106% a year earlier, with management attributing the decline primarily to churn.
- Whether operating cash generation can fund infrastructure investment and lease commitments, and how much additional financing the company may need.
- Progress and independent evidence of remediation of the three disclosed internal-control material weaknesses.
- Potential dilution from equity compensation and stock issuance; compare Q1 share issuance and outstanding awards with future share counts.
- Whether infrastructure suppliers, data-center availability, cybersecurity, and customer concentration risks change; two customers represented 39% of accounts receivable at quarter-end.