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Backblaze Announces Third Quarter 2022 Financial Results

48% Revenue Growth in B2 Cloud Storage, 27% Revenue Growth Overall in Q3 2022

SAN MATEO, Calif., Nov. 09, 2022 (GLOBE NEWSWIRE) -- Backblaze, Inc. (Nasdaq: BLZE), the leading independent storage cloud, today announced results for its third quarter ended September 30, 2022.

“As highlighted in our October 24, 2022 preliminary results, we had a strong Q3. We had 48% revenue growth in B2 Cloud Storage, and total company revenue grew 27%,” said Gleb Budman, CEO of Backblaze. “We also made significant progress in our channel program, including the launch of our channel partner portal and signing of several new national resellers. We are pleased to continue to scale in an uneven macro-economic environment.”

Third Quarter 2022 Financial Highlights:

  • Revenue of $22.1 million, an increase of 27% year-over-year (YoY).
    • B2 Cloud Storage revenue was $8.8 million, an increase of 48% YoY.
    • Computer Backup revenue was $13.1 million, an increase of 17% YoY.
  • Gross profit of $11.2 million, or 51% of revenue, compared to $8.8 million and 51% of revenue, in Q3 2021.
  • Adjusted gross profit of $16.7 million, or 76% of revenue, compared to $12.8 million and 74% of revenue in Q3 2021.
  • Net loss of $(12.8) million compared to a net loss of $(6.0) million in Q3 2021.
  • Net loss per share of $(0.40) compared to a net loss per share of $(0.32) in Q3 2021.
  • Adjusted EBITDA of $(1.9) million, or (8)% of revenue, compared to $0.8 million and 5% of revenue in Q3 2021.
  • Non-GAAP net loss of $(8.0) million compared to non-GAAP net loss of $(4.2) million in Q3 2021.
  • Non-GAAP net loss per share of $(0.25) compared to a non-GAAP net loss per share of $(0.22) in Q3 2021.
  • Cash, short-term investments and restricted cash, non-current totaled $80.0 million as of September 30, 2022.

Third Quarter 2022 Operational Highlights:

  • Annual recurring revenue (ARR) was $88.0 million, an increase of 24% YoY.
    • B2 Cloud Storage ARR was $35.7 million, an increase of 45% YoY.
    • Computer Backup ARR was $52.3 million, an increase of 13% YoY.
  • Net revenue retention (NRR) rate was 114% compared to 110% in Q3 2021.
    • B2 Cloud Storage NRR was 123% compared to 131% in Q3 2021.
    • Computer Backup NRR was 108% compared to 101% in Q3 2021.
  • Gross customer retention rate was 91% in Q3 2022 and Q3 2021.
    • B2 Cloud Storage gross customer retention rate was 90% compared to 89% in Q3 2021.
    • Computer Backup gross customer retention rate was 90% compared to 91% in Q3 2021.

Recent Business Highlights:

  • Channel Partner Program:
    • Launched Partner Portal: providing a dedicated space for partners to access deal registration, discounts, support, and self-service promotional resources
    • Signed Several Major National Resellers and Distributors
  • B2 Reserve: First full quarter of availability
  • Expanded B2 ransomware protection offering with key partner
  • Backblaze Computer Backup 8.5: Complete visual refresh of our applications with performance improvements
  • Hired Experienced Chief Human Resources Officer: Robert Fitt has 20 years of experience in human resources and will lead Backblaze’s effort to increase its competitive advantage in sourcing talent that   stems from its award-winning culture, diversity, and leadership
  • Promoted Experienced Chief Technology Officer: Dr. Brian Beach has 40 years of experience in technology, has been a critical technical leader at Backblaze for nearly a decade, and will lead Backblaze’s architecture to continue providing a powerful storage cloud platform for our customers

Financial Outlook:

Based on information available as of November 9, 2022,

For the fourth quarter of 2022 we expect:

  • Revenue between $22.5 million to $22.9 million.
  • Adjusted EBITDA margin between (14)% to (10)%.
  • Basic weighted average shares outstanding of 32.5 million to 34.5 million shares.

For full-year 2022 we now expect:

  • Revenue between $84.7 million to $85.1 million (vs. prior guidance of $83 million to $86 million).
  • Adjusted EBITDA margin between (12)% to (11)% (vs. prior guidance of (17)% to (13)%).

Conference Call Information:

Backblaze will host a conference call today, November 9, 2022 at 1:30 p.m. PT (4:30 p.m. ET) to review its financial results.

Attend the webcast here: https://edge.media-server.com/mmc/p/dxgk6h46 
Register to listen by phone here: https://dpregister.com/sreg/10170521/f41c667a97 

Phone registrants will receive dial-in information via email.

An archive of the webcast will be available shortly after its completion on the Investor Relations section of the Backblaze website at https://ir.backblaze.com.

About Backblaze

Backblaze makes it astonishingly easy to store, use, and protect data. The Backblaze Storage Cloud provides a foundation for businesses, developers, IT professionals, and individuals to build applications, host content, manage media, back up and archive data, and more. With over two billion gigabytes of data storage under management, the company currently works with more than 500,000 customers in over 175 countries. Founded in 2007, the company is based in San Mateo, CA. For more information, please go to www.backblaze.com.

Cautionary Note Regarding Forward-looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties. These forward-looking statements are frequently identified by the use of forward-looking terminology, including the terms “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would,” or other similar terms or expressions that relate to our future performance, expectations, strategy, plans or intentions, and include statements in the section titled “Financial Outlook” and statements regarding the use and impact of our IPO proceeds.

Our actual results could differ materially from those stated in or implied by the forward-looking statements in this press release due to a number of factors, including but not limited to: market competition, including competitors that may have greater size, offerings, and resources; effectively managing growth; disruption in our service or loss of availability of customers’ data; cyberattacks; ability to attract and retain customers; continued growth consistent with historical levels; ability to successfully execute go-to-market strategies and offer new features on a timely basis; material defects or errors in our software; supply chain disruption; achieve success with our existing and new partnerships; ability to remediate and prevent material weaknesses in our internal controls over financial reporting; the impact of inflation, the COVID-19 pandemic, geopolitical tensions including Russia-Ukraine and China-Taiwan, and other factors relating to our business and the business of our customers, partners, vendors, and supply chain; and general market, political, economic, and business conditions. Further information on these and additional risks, uncertainties, assumptions, and other factors that could cause actual results or outcomes to differ materially from those included in or implied by the forward-looking statements contained in this release are included under the caption “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2021, updates reflected in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, and other filings and reports we make with the SEC from time to time.  

The forward-looking statements made in this release reflect our views as of the date of this press release. We undertake no obligation to update any forward-looking statements in this press release, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

To supplement the financial measures prepared in accordance with generally accepted accounting principles (GAAP), we use non-GAAP adjusted gross margin and adjusted EBITDA margin. These non-GAAP financial measures exclude certain items and are not prepared in accordance with GAAP; therefore, the information is not necessarily comparable to other companies and should be considered as a supplement to, not a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP. We present these non-GAAP measures because management believes they are a useful measure of the company’s performance and provide an additional basis for assessing our operating results. Please see the appendix attached to this press release for a reconciliation of non-GAAP adjusted gross margin and adjusted EBITDA margin to the most directly comparable GAAP financial measures.

A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort due to the uncertainty regarding, and the potential variability of, expenses and other factors in the future. For example, stock-based compensation expense-related charges are impacted by the timing of employee stock transactions, the future fair market value of our common stock, and our future hiring and retention needs, all of which are difficult to predict with reasonable accuracy and subject to constant change.

Adjusted EBITDA

We define adjusted EBITDA as net loss adjusted to exclude depreciation and amortization, stock-based compensation, interest expense, income tax provision, unrealized loss on SAFE and gain on extinguishment of debt. We use adjusted EBITDA to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that adjusted EBITDA, when taken together with our GAAP financial results, provides meaningful supplemental information regarding our operating performance by excluding certain items that may not be indicative of our business, results of operations, or outlook. We consider adjusted EBITDA to be an important measure because it helps illustrate underlying trends in our business and our historical operating performance on a more consistent basis.

Adjusted Gross Profit (and Margin)

We believe adjusted gross profit (and margin), when taken together with our GAAP financial results, provides a meaningful assessment of our performance and is useful to us for evaluating our ongoing operations and for internal planning and forecasting purposes.

We define adjusted gross margin as gross profit, exclusive of stock-based compensation expense, depreciation expense of our property and equipment, and amortization expense of capitalized internal-use software included within cost of revenue, as a percentage of adjusted gross profit to revenue. We exclude stock-based compensation, which is a non-cash item, because we do not consider it indicative of our core operating performance. We exclude depreciation expense of our property and equipment and amortization expense of capitalized internal-use software, because these may not reflect current or future cash spending levels to support our business. We believe adjusted gross margin provides consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as this metric eliminates the effects of depreciation and amortization.

Non-GAAP Net Income (Loss)

We define non-GAAP net income (loss) as net income adjusted to exclude stock-based compensation and other items we deem non-recurring. We believe that non-GAAP net income (loss), when taken together with our GAAP financial results, provides meaningful supplemental information regarding our operating performance by excluding certain items that may not be indicative of our business, results of operations, or outlook.

Key Business Metrics:

Annual Recurring Revenue (ARR)

We define annual recurring revenue (ARR) as the annualized value of all Backblaze B2 and Computer Backup arrangements as of the end of a period. Given the renewable nature of our business, we view ARR as an important indicator of our financial performance and operating results, and we believe it is a useful metric for internal planning and analysis. ARR is calculated based on multiplying the monthly revenue from all Backblaze B2 and Computer Backup arrangements, which represent greater than 98% of our revenue for the periods presented (and excludes Physical Media revenue), for the last month of a period by 12. Our annual recurring revenue for Computer Backup and B2 Cloud Storage is calculated in the same manner as our overall annual recurring revenue based on the revenue from our Computer Backup and B2 Cloud Storage solutions, respectively.

Net Revenue Retention Rate (NRR)

Our overall net revenue retention rate (NRR) is a trailing four-quarter average of the recurring revenue from a cohort of customers in a quarter as compared to the same quarter in the prior year. We calculate our overall net revenue retention rate for a quarter by dividing (i) recurring revenue in the current quarter from any accounts that were active at the end of the same quarter of the prior year by (ii) recurring revenue in the current corresponding quarter from those same accounts. Our overall net revenue retention rate includes any expansion of revenue from existing customers and is net of revenue contraction and customer attrition, and excludes revenue from new customers in the current period. Our net revenue retention rate for Computer Backup and B2 Cloud Storage is calculated in the same manner as our overall net revenue retention rate based on the revenue from our Computer Backup and B2 Cloud Storage solutions, respectively.

Gross Customer Retention Rate

We use gross customer retention rate to measure our ability to retain our customers. Our gross customer retention rate reflects only customer losses and does not reflect the expansion or contraction of revenue we earn from our existing customers. We believe our high gross customer retention rates demonstrate that we serve a vital service to our customers, as the vast majority of our customers tend to continue to use our platform from one period to the next. To calculate our gross customer retention rate, we take the trailing four-quarter average of the percentage of cohort of customers who were active at the end of the quarter in the prior year that are still active at the end of the current quarter. We calculate our gross customer retention rate for a quarter by dividing (i) the number of accounts that generated revenue in the last month of the current quarter that also generated recurring revenue during the last month of the corresponding quarter in the prior year, by (ii) the number of accounts that generated recurring revenue during the last month of the corresponding quarter in the prior year.

Additional Key Business Metrics Calculation Notes

The metrics for net revenue retention rate and gross customer retention rate are currently calculated using only those customers paying by credit card and exclude customers paying by invoice utilizing a different system. The amounts related to the number of customers paying by invoice has historically been immaterial.

Investors Contact
James Kisner,
Vice President of Investor Relations
ir@backblaze.com 

Press Contact
Jeanette Foster
Communications Manager, Backblaze
jfoster@backblaze.com 


BACKBLAZE, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share and per share data)

  September 30,   December 31,
    2022       2021  
  (unaudited)
Assets      
Current assets:      
Cash $ 24,813     $ 104,843  
Accounts receivable, net   720       309  
Short-term investments   52,626        
Prepaid expenses and other current assets   6,373       5,930  
   Total current assets   84,532       111,082  
Restricted cash, non-current   2,544        
Property and equipment, net   49,814       43,068  
Operating lease right-of-use assets   4,753        
Capitalized software, net   13,648       7,637  
Other assets   1,622       1,794  
   Total assets $ 156,913     $ 163,581  
Liabilities and Stockholders’ Equity      
Current liabilities:      
Accounts payable $ 2,718     $ 2,075  
Accrued expenses and other current liabilities   7,944       7,620  
Finance lease liabilities and lease financing obligations, current   18,796       13,645  
Operating lease liabilities, current   2,058        
Deferred revenue, current   22,705       21,722  
   Total current liabilities   54,221       45,062  
Finance lease liabilities and lease financing obligations, non-current   17,981       19,603  
Operating lease liabilities, non-current   2,862        
Deferred revenue, non-current   2,784       3,132  
Other long-term liabilities         298  
Debt facility, non-current   2,543        
   Total liabilities $ 80,391     $ 68,095  
Commitments and contingencies      
Stockholders’ Equity      
Class A common stock, $0.0001 par value; 113,000,000 shares authorized as of September 30, 2022 and December 31, 2021, respectively; 15,108,346 and 8,227,992 shares issued and outstanding as of September 30, 2022 and December, 31, 2021, respectively.   1       1  
Class B common stock, $0.0001 par value; 37,000,000 shares authorized as of September 30, 2022 and December 31, 2021, respectively; 17,328,043 and 22,156,842 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively.   2       2  
Additional paid-in capital   149,767       131,826  
Accumulated deficit   (73,248 )     (36,343 )
   Total stockholders’ equity   76,522       95,486  
   Total liabilities and stockholders’ equity $ 156,913     $ 163,581  

BACKBLAZE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)

  Three Months Ended September 30,   Nine Months Ended September 30,
    2022       2021       2022       2021  
  (unaudited)
Revenue $ 22,051     $ 17,320     $ 62,229     $ 48,782  
Cost of revenue   10,836       8,519       30,073       24,275  
Gross profit   11,215       8,801       32,156       24,507  
Operating expenses:              
Research and development   8,152       5,338       24,493       14,314  
Sales and marketing   9,727       5,025       26,125       13,149  
General and administrative   5,396       3,104       16,106       8,261  
Total operating expenses   23,275       13,467       66,724       35,724  
Loss from operations   (12,060 )     (4,666 )     (34,568 )     (11,217 )
Investment income   210             405        
Interest expense   (950 )     (968 )     (2,811 )     (2,686 )
Gain on extinguishment of debt                     2,299  
Unrealized loss on SAFE         (359 )           (359 )
Loss before provision for income taxes   (12,800 )     (5,993 )     (36,974 )     (11,963 )
Income tax (benefit) provision               (69 )     136  
Net loss $ (12,800 )   $ (5,993 )   $ (36,905 )   $ (12,099 )
Net loss per share, basic and diluted $ (0.40 )   $ (0.32 )   $ (1.18 )   $ (0.64 )
Weighted average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted   31,994,391       18,936,698       31,245,069       18,775,908  

BACKBLAZE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)

  Nine Months Ended September 30,
    2022       2021  
  (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES      
Net loss $ (36,905 )   $ (12,099 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:      
Gain on extinguishment of Paycheck Protection Program ("PPP") loan         (2,299 )
Net accretion of discount on investment securities   (367 )      
Unrealized loss on SAFE         359  
Noncash lease expense on operating leases   1,820        
Depreciation and amortization   14,689       12,041  
Stock-based compensation   13,011       3,611  
Loss (gain) on disposal of assets and other adjustments   24       (17 )
Changes in operating assets and liabilities:      
Accounts receivable   (411 )     94  
Prepaid expenses and other current assets   (234 )     (1,406 )
Other assets   56       (256 )
Accounts payable   (137 )     (258 )
Accrued expenses and other current liabilities   (901 )     1,186  
Deferred revenue   635       5,105  
Operating lease liabilities   (1,853 )      
Other long-term liabilities   (69 )     (97 )
Net cash (used in) provided by operating activities   (10,642 )     5,964  
CASH FLOWS FROM INVESTING ACTIVITIES      
Purchases of marketable securities   (113,259 )      
Maturities of marketable securities   61,000        
Purchases of property and equipment, net   (4,061 )     (6,876 )
Capitalized internally-developed software costs   (5,645 )     (3,013 )
Net cash used in investing activities   (61,965 )     (9,889 )
CASH FLOWS FROM FINANCING ACTIVITIES      
Principal payments on finance leases and lease financing obligations   (11,602 )     (8,715 )
Payments of deferred offering costs   (658 )     (1,807 )
Proceeds from debt facility   2,543       3,500  
Repayment of debt facility         (3,500 )
Proceeds from SAFE         10,000  
Proceeds from lease financing obligations         2,907  
Employee payroll taxes paid related to net settlement of equity awards   (130 )      
Proceeds from exercises of stock options   3,439       148  
Proceeds from employee stock purchase plan   1,529        
Net cash (used in) provided by financing activities   (4,879 )     2,533  
Net decrease in cash, restricted cash and restricted cash, non-current   (77,486 )     (1,392 )
Cash and restricted cash at beginning of period   105,012       6,076  
Cash, restricted cash and restricted cash, non-current at end of period $ 27,526     $ 4,684  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:      
Cash paid for interest $ 2,838     $ 2,578  
Cash paid for income taxes $ 26     $  
Cash paid for operating lease liabilities $ 1,948     $  
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES      
Stock-based compensation included in capitalized software $ 1,808     $ 271  
Accrued bonus classified as stock-based compensation $ 1,716     $  
Equipment acquired through finance lease and lease financing obligations $ 15,680     $ 8,895  
Accruals related to purchases of property and equipment $ 337     $ 250  
Lease liabilities arising from right-of-use assets upon adoption of ASC 842 $ 5,220     $  
Extinguishment of PPP loan $     $ 2,299  
RECONCILIATION OF CASH AND RESTRICTED CASH      
Cash $ 24,813     $ 4,684  
Restricted cash - included in prepaid expenses and other current assets $ 169     $  
Restricted cash, non-current $ 2,544     $  
Total cash, restricted cash and restricted cash, non-current $ 27,526     $ 4,684  

BACKBLAZE, INC.
RECONCILIATION OF GAAP TO NON-GAAP DATA
(unaudited)

Adjusted Gross Profit and Adjusted Gross Margin

  Three Months Ended September 30,   Nine Months Ended September 30,
    2022       2021       2022       2021  
  (in thousands, except percentages)
Gross profit $ 11,215     $ 8,801     $ 32,156     $ 24,507  
Adjustments:              
Stock-based compensation   353       139       977       333  
Depreciation and amortization   5,131       3,896       14,178       11,580  
Adjusted gross profit $ 16,699     $ 12,836     $ 47,311     $ 36,420  
   Gross margin   51 %     51 %     52 %     50 %
   Adjusted gross margin   76 %     74 %     76 %     75 %

Adjusted EBITDA

  Three Months Ended September 30,   Nine Months Ended September 30,
    2022       2021       2022       2021  
  (in thousands, except percentages)
Net loss $ (12,800 )   $ (5,993 )   $ (36,905 )   $ (12,099 )
Adjustments:              
Depreciation and amortization   5,357       4,059       14,790       12,041  
Stock-based compensation   4,830       1,448       13,011       3,611  
Net interest expense   740       968       2,406       2,686  
Income tax (benefit) provision               (69 )     136  
Unrealized loss on SAFE         359             359  
Gain on extinguishment of debt                     (2,299 )
Adjusted EBITDA $ (1,873 )   $ 841     $ (6,767 )   $ 4,435  
Adjusted EBITDA margin (8)%     5 %   (11)%     9 %

Non-GAAP Net Loss

  Three Months Ended September 30,   Nine Months Ended September 30,
    2022       2021       2022       2021  
  (in thousands, except share and per share data)
Net loss $ (12,800 )   $ (5,993 )   $ (36,905 )   $ (12,099 )
Adjustments:              
Stock-based compensation   4,830       1,448       13,011       3,611  
Unrealized loss on SAFE         359             359  
Gain on extinguishment of debt                     (2,299 )
Non-GAAP net loss $ (7,970 )   $ (4,186 )   $ (23,894 )   $ (10,428 )
Non-GAAP net loss per share, basic and diluted $ (0.25 )   $ (0.22 )   $ (0.76 )   $ (0.56 )
Weighted average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted   31,994,391       18,936,698       31,245,069       18,775,908  

BACKBLAZE, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(unaudited)

Stock-based Compensation

  Three Months Ended September 30,   Nine Months Ended September 30,
    2022     2021     2022     2021
  (In thousands, unaudited)
Cost of revenue $ 353   $ 139   $ 977   $ 333
Research and development   1,828     466     5,066     1,377
Sales and marketing   1,539     489     3,906     1,057
General and administrative   1,110     354     3,062     844
Total stock-based compensation expense $ 4,830   $ 1,448   $ 13,011   $ 3,611

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