Summary
Backblaze closed its first quarter as a public company shortly after the September period ended. Third quarter revenue was $17.32 million, up 25.4% from a year earlier. The storage cloud platform grew on both B2 Cloud Storage and Computer Backup, according to key business metrics. Annual recurring revenue reached $70.8 million, including $24.6 million from B2 and $46.2 million from Computer Backup. Net revenue retention was 110% overall, 129% for B2 and 103% for Computer Backup. Gross customer retention was 91%. The company says its platform spans more than 175 countries and about 2 exabytes of data under management. B2 net revenue retention of 129% suggests existing customers are expanding their storage consumption, while Computer Backup remains the larger ARR contributor at $46.2 million. A Computer Backup price increase took effect during the quarter without a material impact on customer retention.
Margins at the gross line improved, but operating costs overwhelmed that gain. Gross profit rose 31.0% to $8.80 million, and gross margin increased 2.2 percentage points to 50.8%. Research and development expense rose 62%, sales and marketing rose 70%, and general and administrative rose 104%. The company attributed the increases mostly to higher headcount and, for sales and marketing, more advertising. The operating loss widened to $4.67 million, and operating margin fell 19.3 percentage points to -26.9%. Net loss widened to $5.99 million, and diluted EPS was -$0.32. Adjusted EBITDA was $841,000, compared with $2.778 million in the prior-year quarter. Adjusted gross margin was 74%, compared with 72%.
Cash flow and spending present a mixed picture. Operating cash flow for the nine months ended September 30, 2021 was $5.96 million, down 37.7% from the prior-year period. Capital expenditures over the same nine months were $6.89 million, up 288.1%. Deferred revenue was $24.50 million at September 30, 2021. For the nine months, revenue was $48.78 million, up 24.5%, the operating loss widened to $11.22 million, and the net loss widened to $12.10 million. Diluted EPS for the nine months was -$0.64. The company funded operations partly through a $10.0 million convertible note issuance in August 2021 and a $9.5 million revolving credit agreement with City National Bank in October 2021. The November IPO raised about $103 million in net proceeds after underwriting discounts and offering expenses. Management says existing cash, cash from operations and the revolving credit facility should support working capital and capital expenditure needs for at least the next 12 months.
Several risks sit behind the growth. The pandemic continues to create uncertainty for customers and operations. Backblaze began acquiring extra hard drives and related infrastructure through capital leases in April 2020 to limit supply chain disruptions, and those leases have increased depreciation and interest expense. International expansion is a stated opportunity, with 28% of revenue originating outside the United States for the year ended December 31, 2020. The company also expects public company costs to rise after the IPO. Its growth plan relies on self-serve customer acquisition, a sales-assisted motion, expansion within existing customers, and new product launches. Execution on those fronts will matter because operating expenses are growing faster than revenue. Gross margin for the nine months ended September 30, 2021 was 50.2%, down 1.9 percentage points from the prior-year period, as infrastructure investment weighed on margins. COVID-19 was present for the full nine months of 2021 but only part of the same period in 2020, which affects year-over-year comparisons.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2021 | Q2 FY2021 | QoQ | Q3 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $17.3M | — | — | — | — |
| Gross profit | $8.8M | — | — | — | — |
| Gross margin | 50.8% | — | — | — | — |
| Research & development | $5.3M | — | — | — | — |
| Sales & marketing | $5.0M | — | — | — | — |
| General & administrative | $3.1M | — | — | — | — |
| Total operating expenses | $13.5M | — | — | — | — |
| Operating income (loss) | -$4.7M | — | — | — | — |
| Operating margin | -26.9% | — | — | — | — |
| Net income (loss) | -$6.0M | — | — | — | — |
| Net margin | -34.6% | — | — | — | — |
| Diluted EPS | -$0.32 | — | — | — | — |
Risks
Reliance on limited third-party data centers and hard drive and semiconductor suppliers; COVID-19 and cryptocurrency mining demand have constrained component sourcing. Starting in April 2020 the company acquired additional hard drives through capital leases, increasing capital lease liability to $29.2 million as of September 30, 2021 and raising interest and depreciation expense.
The cloud storage market is intensely competitive against larger providers including AWS, Google Cloud Platform, Microsoft Azure, Dell/EMC, and NetApp, which have greater resources and may offer lower prices or bundled services. Increased competition could result in reduced sales, lower margins, or pricing pressure.
Four material weaknesses in internal controls over financial reporting were identified as of December 31, 2019 and remained unremediated as of December 31, 2020. Ongoing remediation may be insufficient, and failure to maintain effective controls could lead to inaccurate financial reporting and loss of investor confidence.
The business is substantially dependent on mid-market organizations and on B2 Cloud Storage and Computer Backup offerings for nearly all revenue. Mid-market customers may have limited budgets, be more vulnerable to economic downturns, and may curtail spending or cease operations.
The ongoing COVID-19 pandemic and resulting global economic downturn have impacted how the company, customers, and partners operate, introduced supply chain and cybersecurity risks, and may disproportionately affect mid-market customers. Weak economic conditions could reduce spending, lengthen sales cycles, and increase customer churn.
Net loss widened to $12.1 million for the nine months ended September 30, 2021 from $3.2 million in the prior-year period, and operating loss widened to $11.2 million from $1.2 million. The company expects continuing investments and does not expect profitability for the foreseeable future.
Customers can terminate cloud services at will with little-to-no notice and generally have no obligation to renew or increase usage. The overall net revenue retention rate was 110% as of September 30, 2021 compared with 116% as of September 30, 2020, and gross customer retention rate was 91% compared with 90%.
In late March 2021 a Backblaze marketing campaign on the Facebook ad network was misconfigured to run on all platform pages, and certain file metadata may have been inadvertently shared with Facebook, though no customer files, file contents, or user account information were shared and less than 2% of customers may have been affected. A future breach could harm reputation and result in liability.
Headcount grew from 188 employees as of December 31, 2020 to 243 employees as of September 30, 2021, and storage deployed has more than doubled in the last two years. Rapid growth places significant strain on management, corporate culture, and administrative, operational, security, and financial infrastructure.
Gross margin decreased to 50% for the nine months ended September 30, 2021 from 52% for the same period in 2020, due to cost of revenue increasing at a higher rate than revenue as the company invested in infrastructure. Continued infrastructure spending could further pressure margins.
Operating cash flow decreased 37.7% to $6.0 million for the nine months ended September 30, 2021 from $9.6 million in the prior-year period, while capital expenditures increased 288.1% to $6.9 million. The company may require additional capital to support growth.
SaaS KPIs
All quarters →Gross Customer Retention Rate
Summary, forecast, risks and KPIs are extracted from Backblaze, Inc.'s SEC filings for Q3 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.