Backblaze, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022; unaudited. Backblaze provides cloud storage and computer backup services through B2 Cloud Storage and Computer Backup.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $20.7 million | $16.2 million | $40.2 million | $31.5 million |
| Gross margin | 54% | 51% | 52% | 50% |
| Operating loss | $10.8 million | $3.7 million | $22.5 million | $6.6 million |
| Net loss | $11.6 million | $2.4 million | $24.1 million | $6.1 million |
| Adjusted EBITDA, non-GAAP | $(1.9) million | $1.5 million | $(4.9) million | $3.6 million |
- Q2 revenue rose 28% year over year. B2 Cloud Storage revenue grew 45% to $7.7 million, primarily from greater existing-customer consumption; Computer Backup grew 20% to $12.8 million, reflecting the September 2021 price increase and new customers.
- Q2 operating expenses increased 84% to $22.0 million. For the first half, operating expenses rose to $43.4 million from $22.3 million, driven by increased hiring, stock-based compensation, advertising, insurance and other growth-related costs.
- First-half operating cash flow was $(8.2) million, versus $2.6 million provided in the prior-year period. Investing cash flow was $(85.0) million, primarily reflecting purchases of short-term investments; financing cash flow was $(4.4) million, including $7.2 million of lease principal payments.
- At June 30, cash was $7.2 million and short-term investments were $80.8 million, totaling $88.1 million in cash and investments. Current assets were $94.6 million and current liabilities $52.0 million. The company reported $37.2 million in finance lease and lease-financing liabilities and no borrowings on its revolving credit facility.
- Total assets were $160.5 million, total liabilities $77.5 million, and accumulated deficit $60.4 million. Deferred revenue was $25.4 million.
- At June 30, total-company ARR was $82.7 million, up from $64.8 million a year earlier; NRR was 113% versus 110%, and gross customer retention was 91% in both periods. ARR is a company-defined metric, not a revenue forecast.
Changes, outlook and material matters
- Revenue growth outpaced cost of revenue, lifting gross margin, while substantially higher operating spending widened operating and net losses. The prior-year comparison also included a $2.3 million gain from forgiveness of the PPP loan.
- Management said cash, short-term investments, expected operating cash and the credit facility should fund working capital and capital needs for at least 12 months. The facility was increased to $30 million in April 2022, matures in September 2024, and requires cash collateral before advances. The filing provides no specific revenue or earnings guidance and says the company does not expect profitability for the foreseeable future.
- Management expects continued investment in sales and marketing, research and development, personnel and infrastructure. Risks include competition, customer retention and usage, cybersecurity or service interruptions, supply constraints and infrastructure costs, inflation and economic uncertainty, and international and geopolitical conditions.
- A data-center provider, Sungard Availability Services, filed for Chapter 11 bankruptcy in April 2022. The provider continued operating Backblaze’s location, but the filing warns of potential closure, relocation or less favorable terms.
- On July 15, 2022, investors in the 2021 $10 million SAFE financing demanded repayment. Backblaze disputed the demand, and the investors withdrew it without prejudice on August 11; the company said a loss could not be estimated.
- Management disclosed that disclosure controls were not effective because of previously identified material weaknesses in financial reporting controls. Remediation measures were underway, but the weaknesses were not considered remediated pending successful operating-effectiveness testing.
- The company corrected a prior-period depreciation error involving approximately $0.5 million of excess expense and an understatement of property and equipment; management said the adjustment was not material to previously presented financial statements. Backblaze adopted lease accounting standard ASC 842 on January 1, 2022, recognizing operating lease assets and liabilities.
Important facts for investors to verify
- Whether customer growth, B2 consumption and retention sustain ARR and revenue growth, and whether Computer Backup pricing and customer additions continue contributing.
- Whether expense growth moderates and gross-margin improvement persists as infrastructure, depreciation and operating costs rise; review both GAAP losses and the company’s non-GAAP reconciliations.
- Cash burn and liquidity composition, including the maturity, credit quality and fair-value movement of the commercial-paper portfolio, and the collateral condition on the $30 million facility.
- Progress in remediating the material weaknesses and the reliability of financial reporting following the depreciation correction.
- Developments affecting the Sungard data-center location, infrastructure supply and the withdrawn SAFE demand.
- Potential dilution and governance implications: Class B shares carry ten votes per share, compared with one vote for each Class A share.