Backblaze(US:BLZE)2021-12-14 21:24Part I - Financial Information Financial Statements The unaudited condensed financial statements for Q3 and nine months 2021 show revenue growth, increased net loss from operating investments, and significant post-period IPO proceeds Condensed Balance Sheets Total assets increased to $60.4 million and liabilities to $72.5 million by September 30, 2021, driven by investments and SAFE notes Condensed Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $4,684 | $6,076 | | Total current assets | $8,803 | $9,232 | | Property and equipment, net | $40,395 | $38,746 | | Total assets | $60,397 | $54,469 | | Total current liabilities | $40,860 | $36,374 | | Total liabilities | $72,522 | $58,525 | | Total stockholders' deficit | $(14,909) | $(6,840) | Condensed Statements of Operations Q3 2021 revenue grew 25% to $17.3 million with net loss widening to $6.0 million, reflecting increased R&D and S&M investments Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $17,320 | $13,817 | $48,782 | $39,196 | | Gross Profit | $8,801 | $6,720 | $24,507 | $20,421 | | Loss from operations | $(4,666) | $(1,055) | $(11,217) | $(1,247) | | Net loss | $(5,993) | $(1,860) | $(12,099) | $(3,205) | | Net loss per share | $(0.32) | $(0.10) | $(0.64) | $(0.17) | Condensed Statements of Cash Flows Nine-month operating cash flow decreased to $6.0 million, while investing activities used $9.9 million and financing provided $2.5 million from SAFE notes Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,964 | $9,566 | | Net cash used in investing activities | $(9,889) | $(3,939) | | Net cash provided by (used in) financing activities | $2,533 | $(5,410) | | Net (decrease) increase in cash | $(1,392) | $217 | Notes to Condensed Financial Statements Notes detail revenue growth in B2 Cloud Storage, $2.3 million PPP loan forgiveness, $10.0 million SAFE notes, and a $103 million IPO in November 2021 Revenue Disaggregation (in thousands) | Revenue Source | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | B2 Cloud Storage (Consumption) | $5,977 | $3,757 | $16,026 | $10,018 | | Computer Backup (Subscription) | $11,163 | $9,894 | $32,219 | $28,696 | | Total Revenue | $17,320 | $13,817 | $48,782 | $39,196 | - In June 2021, the company received full forgiveness for its $2.3 million Paycheck Protection Program (PPP) loan and accrued interest, which was recorded as a gain on extinguishment of debt86 - In August 2021, the company issued $10.0 million in Simple Agreement for Future Equity (SAFE) notes, which automatically converted into Class A common stock upon the IPO87 - Subsequent to the quarter end, in November 2021, the company completed its IPO, issuing 7,187,500 shares of Class A common stock and raising net proceeds of approximately $103 million112 Management's Discussion and Analysis (MD&A) MD&A highlights 24% revenue growth, 110% net revenue retention, $70.8 million ARR, increased net loss from growth investments, and $103 million IPO proceeds Factors Affecting Our Performance Performance is driven by customer acquisition, expansion, platform investment, sales-assisted efforts, new products, and international growth - Key growth strategies include: - Scaling self-service customer acquisition through content marketing and a self-serve sign-up model - Expanding sales-assisted efforts to support larger customers and drive volume expansion - Increasing revenue from existing customers through new features, use cases, and natural data growth - Continuing platform investment and launching new adjacent products - Expanding internationally to capitalize on the 28% of revenue already originating outside the U.S125128132 Key Business Metrics Key metrics as of Sep 30, 2021: 110% net revenue retention, 91% gross customer retention, and $70.8 million Annual Recurring Revenue Key Business Metrics as of September 30 | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net revenue retention rate | 110% | 116% | | Gross customer retention rate | 91% | 90% | | Annual recurring revenue (in millions) | $70.8 | $55.3 | Results of Operations Q3 2021 revenue grew 25% to $17.3 million, but 73% operating expense growth from R&D and S&M investments led to a wider operating loss - Total revenue for the nine months ended Sep 30, 2021, increased by $9.6 million (24%) compared to the same period in 2020, primarily due to a $6.0 million increase in B2 Cloud Storage revenue from new customers167 - For the nine months ended Sep 30, 2021, total operating expenses increased by $14.1 million (65%) YoY, driven by higher personnel-related costs from increased headcount across R&D, Sales & Marketing, and G&A177180182 Non-GAAP Financial Measures Nine-month Adjusted Gross Margin was 75%, while Adjusted EBITDA decreased to $4.4 million from $9.1 million due to increased operating investments Adjusted EBITDA Reconciliation (in thousands) | Metric | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | | Net loss | $(12,099) | $(3,205) | | Depreciation and amortization | $12,041 | $9,111 | | Stock-based compensation | $3,611 | $1,214 | | Interest expense | $2,686 | $1,946 | | Gain on extinguishment of debt | $(2,299) | — | | Adjusted EBITDA | $4,435 | $9,078 | Liquidity and Capital Resources Liquidity as of Sep 30, 2021 was $4.7 million cash, significantly boosted by a $103 million IPO and a new $9.5 million credit facility - The company's principal source of liquidity as of September 30, 2021 was $4.7 million in cash and cash equivalents197 - In November 2021, the company completed its IPO, resulting in net proceeds of approximately $103 million after underwriting discounts and offering expenses197 - In October 2021, the company entered into a new $9.5 million revolving credit agreement with City National Bank, maturing in September 2024200 Quantitative and Qualitative Disclosures About Market Risk Market risks include interest rate fluctuations from leases and credit facilities, and minimal foreign currency risk from USD-denominated sales - Interest rate risk is primarily related to capital lease arrangements and a new variable-rate credit facility entered into in October 2021225226 - Foreign currency exchange rate risk is minimal as sales are denominated in U.S. dollars; however, a stronger U.S. dollar could adversely affect international demand227 Controls and Procedures Disclosure controls were ineffective as of Sep 30, 2021, due to four material weaknesses in internal controls, with remediation plans underway - Management concluded that disclosure controls and procedures were not effective as of the end of the period due to material weaknesses in internal control over financial reporting231 - Four material weaknesses were identified relating to: (i) lack of timely review of significant accounting transactions, (ii) inadequate consideration of revenue recognition criteria, (iii) errors in recording equity transactions, and (iv) inaccurate recording of value-added and sales taxes233 - Remediation plans include enhancing accounting policies, implementing a new ERP system, and hiring additional experienced accounting personnel, including a new CFO and Corporate Controller234 Part II - Other Information Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financials - The company is not presently a party to any legal proceedings that are expected to have a material adverse effect on its business240 Risk Factors Key risks include a history of losses, intense competition, service disruptions, cybersecurity threats, material internal control weaknesses, and concentrated voting power - The company has a history of cumulative losses ($26.7 million accumulated deficit as of Sep 30, 2021) and does not expect to be profitable for the foreseeable future due to continued investments in growth246 - The company faces intense competition from larger, more established cloud service providers like Amazon Web Services, Google Cloud Platform, and Microsoft Azure248 - The company has identified four material weaknesses in its internal controls over financial reporting, which could harm the business and impact the stock's value if not remediated effectively242328330 - The dual-class stock structure concentrates approximately 97% of voting power with pre-IPO stockholders, limiting the influence of new Class A stockholders on major corporate decisions244361 Unregistered Sales of Equity Securities and Use of Proceeds Disclosures cover unregistered equity sales, including $10.0 million SAFE notes, and the use of $103 million net IPO proceeds for general corporate purposes - In August 2021, the company issued $10.0 million of convertible SAFE notes, which converted into approximately 725,000 shares of Class A common stock upon the IPO402 - The company's IPO in November 2021 generated net proceeds of approximately $103 million after deducting underwriting discounts and commissions406 Other Items (Items 3-6) This section confirms no defaults on senior securities, no mine safety disclosures, no other material information, and lists report exhibits - The company reports no defaults upon senior securities, no mine safety disclosures, and no other information required to be disclosed under Item 5408409410