Summary
Backblaze's third quarter showed solid top-line momentum but continued bottom-line strain. Revenue rose 14.7% to $25.3 million. Annual recurring revenue crossed the $100 million milestone at $100.9 million, up 15% year over year. B2 Cloud Storage ARR reached $46.8 million, up 31%, and Computer Backup ARR was $54.1 million, up 3%. Adjusted gross profit was $18.7 million, or 74% of revenue, compared with $16.7 million and 76%. Adjusted EBITDA was negative $0.8 million, or negative 3% of revenue, compared with negative $1.9 million and negative 8%. Non-GAAP net loss was $7.8 million, compared with $8.0 million, and non-GAAP net loss per share was $0.21, compared with $0.25. The company still reported a net loss of $16.1 million, which widened from $12.8 million. Backblaze also said it is on track to achieve adjusted EBITDA profitability in the fourth quarter.
Gross profit increased 4.8% to $11.8 million. Gross margin fell to 46.5% from 50.9%. The decline reflects higher costs tied to new data centers and infrastructure purchases. Operating loss widened to $15.6 million from $12.1 million, and operating margin slipped to -61.5% from -54.7%. Diluted EPS was -$0.44, compared with -$0.40. Deferred revenue rose 6.7% to $27.2 million. Remaining performance obligations stood at $29.5 million.
Cash generation improved in the quarter. Operating cash flow was negative $0.2 million, better than negative $2.5 million in the prior-year quarter. Capital expenditures dropped 86.4% to $0.35 million. For the first nine months, operating cash flow was flat at negative $10.6 million. Revenue rose 17.8% to $73.28 million. Net loss for the nine-month period widened to $47.5 million from $36.9 million. The company said its existing cash, cash equivalents, and short-term investments, together with cash provided by operations and its revolving credit facility, will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. Backblaze also said it plans to purchase additional infrastructure equipment of a similar magnitude over the next 12 months to support growth.
Operational metrics showed mixed retention trends. Overall net revenue retention was 108%, down from 115%. B2 Cloud Storage NRR was 120%, down from 125%. Computer Backup NRR fell to 100% from 109%. Gross customer retention was 91% in both periods, with B2 at 90% and Computer Backup at 91% versus 90%. The company signed its largest multi-year commitment, an upfront $1 million deal through a channel partner. It also launched a price increase effective October 3, 2023, added free egress, and introduced performance upgrades including shard stash. Management expects the price increase to support revenue and gross margin over the next 12 months. Backblaze presented Tech Day with Coreweave, Fastly, and Snowflake, expanded partnerships with HYCU and Qencode, released Computer Backup 9.0 with a new restore app, and hired Chris Opat as SVP of Cloud Operations. The company said it had more than 500,000 customers as of December 31, 2022, and over 3 exabytes of data storage under management across more than 175 countries.
Management guided fourth-quarter 2023 adjusted EBITDA margin to 1% to 3%. For full-year 2023, the company guided adjusted EBITDA margin to negative 6.0% to negative 4.0%, which was raised. Revenue guidance for the fourth quarter and for the full year was also provided, with the full-year midpoint raised. Basic weighted average shares outstanding for the fourth quarter are expected to be 38.0 million to 39.0 million. Risks include intense competition, managing growth, service disruption or loss of customer data, cyberattacks, difficulty attracting and retaining larger customers, delays in new features, supply chain disruption, partner reliance, material weaknesses in internal controls, key employee retention, the Israel-Hamas conflict, litigation, and general market, political, economic, and business conditions. The company also faces a credit facility maturing in September 2024 and banking industry uncertainty.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $25.3M | $24.6M | +2.9% | $22.1M | +14.7% |
| Gross profit | $11.8M | $12.1M | -2.5% | $11.2M | +4.8% |
| Gross margin | 46.5% | 49.0% | -2.5 pp | 50.9% | -4.4 pp |
| Research & development | $9.6M | $9.9M | -2.9% | $8.2M | +18.2% |
| Sales & marketing | $10.7M | $9.9M | +8.7% | $9.7M | +10.4% |
| General & administrative | $6.9M | $6.2M | +12.6% | $5.4M | +28.7% |
| Total operating expenses | $27.3M | $26.0M | +5.2% | $23.3M | +17.4% |
| Operating income (loss) | -$15.6M | -$13.9M | -11.9% | -$12.1M | -29.1% |
| Operating margin | -61.5% | -56.6% | -4.9 pp | -54.7% | -6.8 pp |
| Net income (loss) | -$16.1M | -$14.3M | -12.0% | -$12.8M | -25.4% |
| Net margin | -63.5% | -58.3% | -5.1 pp | -58.0% | -5.4 pp |
| Diluted EPS | -$0.44 | -$0.41 | -$0.03 | -$0.40 | -$0.04 |
| Customers | 500,000 | 500,000 | ±0.0% | 500,000 | ±0.0% |
| Net retention rate | 108.0% | 110.0% | -2.0 pp | 114.0% | -6.0 pp |
Risks
The company announced price increases across Computer Backup and B2 Cloud Storage effective October 3, 2023. Management acknowledges these increases could cause loss of existing customers, reduce new customer acquisition, or decrease data stored, as reflected in total company net revenue retention rate declining to 108% from 115% year over year.
The market is intensely competitive with AWS, Google Cloud, and Microsoft Azure, which have greater resources and brand recognition. Competitors could offer lower prices or bundled services, pressuring the company's pricing and margins.
Gross margin declined to 46.5% for the quarter ended September 30, 2023 from 50.9% for the quarter ended September 30, 2022, primarily due to new data centers and increased depreciation from infrastructure equipment purchases. The company plans to continue purchasing infrastructure equipment, which may further pressure margins.
The company has identified material weaknesses in its internal controls over financial reporting. Failure to remediate these weaknesses could harm business and negatively impact the value of Class A common stock.
Net revenue retention rates declined across B2 Cloud Storage (120% vs 125%) and Computer Backup (100% vs 109%) as of September 30, 2023 compared to September 30, 2022. The company's ability to retain and expand revenue from existing customers is critical to growth.
The company relies on a limited number of third-party data centers and hard drive suppliers. Toshiba's buyout by private equity firms and Western Digital's announced spin-out of its hard drive business create uncertainty about supply continuity and potential cost increases.
Inflation and potential recession could reduce spending on cloud storage, particularly among mid-market organizations that are more vulnerable to economic downturns. The company derives a significant portion of revenue from mid-market organizations.
The company has experienced cybersecurity incidents including a Log4j vulnerability and an incorrectly configured marketing campaign that shared file metadata with Facebook. Future breaches could result in reputational harm, litigation, and fines.
SaaS KPIs
All quarters →Adjusted Gross Margin
Adjusted EBITDA Margin
B2 Cloud Storage Gross Customer Retention Rate
Computer Backup Gross Customer Retention Rate
Gross Customer Retention Rate
Adjusted EBITDA
Annual Recurring Revenue (ARR)
Net Revenue Retention (NRR)
B2 Cloud Storage Net Revenue Retention (NRR)
Computer Backup Net Revenue Retention (NRR)
B2 Cloud Storage ARR
Computer Backup ARR
Summary, forecast, risks and KPIs are extracted from Backblaze, Inc.'s SEC filings for Q3 FY2023 (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.