Backblaze(US:BLZE)2025-08-07 11:49Part I Part I - Financial Information Item 1. Condensed Consolidated Financial Statements (Unaudited) The unaudited condensed consolidated financial statements present Backblaze's financial position, operations, and cash flows, highlighting a 16% revenue increase, improved gross margin, and narrowed net loss Condensed Consolidated Balance Sheets Total assets increased to $186.0 million as of June 30, 2025, driven by property and equipment, while total liabilities and stockholders' equity also rose Condensed Consolidated Balance Sheet Data (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $32,187 | $45,776 | | Total current assets | $64,453 | $65,748 | | Property and equipment, net | $49,938 | $42,949 | | Total assets | $186,045 | $168,558 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $59,914 | $59,803 | | Total liabilities | $106,403 | $90,936 | | Total stockholders' equity | $79,642 | $77,622 | | Total liabilities and stockholders' equity | $186,045 | $168,558 | Condensed Consolidated Statements of Operations and Comprehensive Loss Q2 2025 revenue grew 16% to $36.3 million, with gross profit up 34% and gross margin expanding to 63%, significantly narrowing the net loss Statement of Operations Highlights (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $36,298 | $31,285 | $70,911 | $61,253 | | Gross Profit | $23,041 | $17,229 | $42,297 | $33,040 | | Loss from operations | $(6,717) | $(9,809) | $(15,637) | $(20,319) | | Net loss | $(7,097) | $(10,348) | $(16,421) | $(21,401) | | Net loss per share | $(0.13) | $(0.25) | $(0.30) | $(0.52) | Condensed Consolidated Statements of Changes in Stockholders' Equity Total stockholders' equity increased to $79.6 million by June 30, 2025, driven by stock-based compensation and option exercises, partially offset by net loss - The accumulated deficit grew to $(212.4) million as of June 30, 2025, from $(196.0) million at the end of 2024, reflecting the net loss for the period20 Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities improved to $8.5 million for the first six months of 2025, though overall cash and equivalents decreased by $13.6 million due to investing and financing activities Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $8,488 | $5,643 | | Net cash used in investing activities | $(14,689) | $(4,942) | | Net cash used in financing activities | $(7,388) | $(3,376) | | Net decrease in cash and cash equivalents | $(13,589) | $(2,675) | Notes to Condensed Consolidated Financial Statements (Unaudited) Notes detail accounting policies, including a change in equipment useful life, strong B2 Cloud Storage revenue growth, a new $20 million credit facility, and a $10 million share repurchase program - Effective April 1, 2025, the company extended the estimated useful lives of its data center equipment to a uniform 6 years, reducing depreciation expense by approximately $2.4 million for the three and six months ended June 30, 20253233 Revenue by Product (in thousands) | Product | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | B2 Cloud Storage | $19,841 | $15,415 | 28.7% | | Computer Backup | $16,457 | $15,870 | 3.7% | | Total revenue | $36,298 | $31,285 | 16.0% | - In June 2025, the company entered into a new $20.0 million senior secured revolving credit facility with Citizens Bank, N.A., maturing in June 202774 - In August 2025, the company announced a share repurchase program to purchase up to $10.0 million of its common stock through August 1, 2026, intended to be cash neutral by using proceeds from employee stock option exercises and ESPP purchases109 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strategic shift to up-market, 16% revenue growth driven by B2 Cloud Storage, improved gross margin and non-GAAP metrics, and solid liquidity with a new $20 million credit facility Overview Backblaze is transforming its go-to-market strategy to target up-market enterprise and AI customers with new product launches, serving over 500,000 customers globally - The company is actively moving up-market, evidenced by signing multiple deals with total contract values over $1.0 million each117 - Recent product launches include B2 Overdrive, a premium high-throughput storage solution for AI/ML workloads, and a suite of enterprise cybersecurity features to expand the addressable market118 Key Business Metrics Total Annual Recurring Revenue (ARR) reached $145.9 million as of June 30, 2025, driven by 29% growth in B2 Cloud Storage ARR, with overall NRR at 109% Key Business Metrics as of June 30 | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Total Company | | | | Net revenue retention rate | 109% | 114% | | Gross customer retention rate | 90% | 90% | | Annual recurring revenue (in millions) | $145.9 | $126.3 | | B2 Cloud Storage | | | | Net revenue retention rate | 112% | 126% | | Annual recurring revenue (in millions) | $80.7 | $62.8 | | Computer Backup | | | | Net revenue retention rate | 106% | 105% | | Annual recurring revenue (in millions) | $65.2 | $63.5 | - The decrease in the NRR for B2 Cloud Storage is largely attributed to lapping the impact of the October 2023 price increase129 Results of Operations Q2 2025 revenue grew 16% to $36.3 million, with gross margin expanding to 63% due to extended asset life, leading to a reduced operating loss - The 16% YoY revenue growth in Q2 2025 was primarily driven by a $4.4 million (29%) increase in B2 Cloud Storage revenue, stemming from higher usage by existing customers and sales to new customers154155156 - Gross margin improved to 63% in Q2 2025 from 55% in Q2 2024, with the extension of infrastructure equipment's useful life contributing 7 percentage points to the margin improvement for the quarter159 - Sales and Marketing expenses decreased by $0.8 million (7%) in Q2 2025 compared to Q2 2024, due to reduced headcount and more efficient, targeted marketing efforts161163 Non-GAAP Financial Measures Non-GAAP financial performance improved significantly, with Adjusted Gross Margin at 79% and Adjusted EBITDA more than doubling to $6.6 million (18% margin) in Q2 2025 Reconciliation to Adjusted EBITDA (in thousands) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net loss and comprehensive loss | $(7,097) | $(10,348) | | Adjustments (Depreciation, Stock-Comp, etc.) | $13,703 | $13,091 | | Adjusted EBITDA | $6,610 | $2,743 | | Adjusted EBITDA Margin | 18% | 9% | Reconciliation to Adjusted Free Cash Flow (in thousands) | Metric | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $8,488 | $5,643 | | Capital expenditures | $(5,471) | $(7,522) | | Principal payments on finance leases | $(9,277) | $(9,711) | | Other adjustments | $242 | $0 | | Adjusted Free Cash Flow | $(6,018) | $(11,590) | | Adjusted Free Cash Flow Margin | (8)% | (19)% | Liquidity and Capital Resources Liquidity as of June 30, 2025, totaled $50.5 million in cash and marketable securities, supplemented by a new $20.0 million revolving credit facility, deemed sufficient for the next 12 months - Principal sources of liquidity as of June 30, 2025, were cash, cash equivalents, and marketable securities totaling $50.5 million181 - On June 4, 2025, the company entered into a new $20.0 million senior secured revolving credit facility with Citizens Bank, N.A., which was undrawn as of June 30, 2025184187 - In August 2025, the company announced a new share repurchase program of up to $10 million, intended to be funded by proceeds from employee stock exercises to be cash neutral196 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposures are primarily interest rates and foreign currency, both considered minimal due to short-term investments and U.S. dollar-denominated sales - Interest rate risk primarily relates to future finance lease arrangements, with a 100 basis point change not expected to materially affect financial position due to the short-term nature of investments212 - Foreign currency risk is considered minimal as most sales are denominated in U.S. dollars, despite some expenses in foreign currencies213 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report (June 30, 2025)216 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls217 Part II Part II - Other Information Item 1. Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financial condition - From time to time, the company may be involved in legal proceedings in the ordinary course of business, but it is not presently a party to any that are considered material220 Item 1A. Risk Factors This section details numerous risks, including cumulative losses, intense competition, service disruptions, cybersecurity threats, and reliance on third-party vendors for critical infrastructure - The company has a history of cumulative losses ($212.4 million accumulated deficit as of June 30, 2025) and does not expect to be profitable for the foreseeable future due to continued investments in scaling the business223 - The markets for cloud services are intensely competitive, with major competitors like AWS, Google Cloud, and Microsoft Azure having significantly greater resources, brand recognition, and broader service offerings224 - The business relies on third-party vendors for critical components and services, including data centers and hard drives from limited sources, exposing it to potential supply chain and service disruptions272 - Cybersecurity attacks, data breaches, or other system disruptions could damage the company's reputation, harm the business, and lead to significant costs and liabilities225229 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities, no use of proceeds from registered securities, and no purchases of its equity securities during the period - There were no unregistered sales of equity securities during the reporting period324 Item 5. Other Information CEO Gleb Budman terminated a Rule 10b5-1 trading plan on May 5, 2025 - CEO Gleb Budman terminated a previously adopted Rule 10b5-1 trading plan on May 5, 2025327 Item 6. Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including officer certifications and Interactive Data Files (XBRL) - The report includes certifications from the Principal Executive Officer and Principal Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act329 Signatures - The report was duly signed on August 7, 2025, by Gleb Budman, Chief Executive Officer, and Marc Suidan, Chief Financial Officer333