Backblaze(BLZE) - 2021 Q4 - Annual Report

Part I Item 1. Business Backblaze operates a storage cloud platform offering data storage and protection services to businesses and consumers - Backblaze provides cloud storage services to approximately 500,000 customers across 175+ countries, managing around 2 exabytes of data as of year-end 2021[22] - The company offers two main cloud services: Backblaze B2 Cloud Storage, an IaaS for data storage and application development, and Backblaze Computer Backup, a SaaS for automated data backup from laptops and desktops[24][25] - The go-to-market model is primarily self-serve, driven by content marketing through its popular blog, with over 80% of 2021 revenue from self-serve customers[27][32][33] Key Service Metrics (as of Dec 31, 2021) | Metric | Value | | :--- | :--- | | B2 Cloud Storage Revenue Growth (YoY) | 59% | | Computer Backup Revenue Growth (YoY) | 13% | | Overall Net Revenue Retention Rate | 110% | - The company's customer base is highly diversified, with no single customer accounting for more than 1% of revenue in 2021 or 2020[48] - As of December 31, 2021, Backblaze had 270 full-time employees, with a majority focused on software engineering and cloud operations[42][64] Item 1A. Risk Factors The company faces significant risks including a history of net losses, intense competition, and material weaknesses in internal controls - Financial Performance: The company has a history of cumulative losses, incurring a net loss of $21.7 million in 2021, and does not expect to be profitable in the foreseeable future due to continued investments in growth[81] - Competition: The market is intensely competitive, with major rivals including AWS, Google Cloud Platform, and Microsoft Azure, which have greater resources and brand recognition[84] - Operational Risks: Significant service disruptions, data loss, or cybersecurity breaches could damage the company's reputation and business, which relies on third-party data centers and a limited number of hard drive suppliers[85][91][156] - Internal Controls: Material weaknesses in internal controls over financial reporting have been identified, particularly related to accounting, revenue recognition, and IT general controls[78][164][165] - Corporate Structure: A dual-class stock structure concentrates approximately 96% of voting power with pre-IPO stockholders, limiting the influence of new investors on corporate matters[198] Item 1B. Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[235] Item 2. Properties The company leases its corporate headquarters in California and data center facilities in the US and the Netherlands - The company's headquarters is a leased 22,000 sq ft office in San Mateo, CA[237] - Data center facilities are leased in California, Arizona, and Amsterdam, Netherlands[237] Item 3. Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not presently a party to any material legal proceedings[238] Item 4. Mine Safety Disclosures This item is not applicable to the company - None[239] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock began trading on Nasdaq in November 2021, and it does not anticipate paying dividends - Class A common stock listed on Nasdaq under "BLZE" since November 11, 2021[242] - The company has never declared or paid dividends and does not plan to in the foreseeable future[244] - The November 2021 IPO resulted in net proceeds of approximately $103.0 million after deducting underwriting discounts and commissions[247] Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue grew 25% to $67.5 million in 2021, but the net loss widened to $21.7 million due to increased operating expenses Key Financial Metrics | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Total Revenue | $67.5M | $53.8M | | Net Loss | ($21.7M) | ($6.6M) | | Gross Margin | 51% | 52% | | Adjusted EBITDA | $3.2M | $11.1M | - Revenue growth was primarily driven by a 59% increase in B2 Cloud Storage revenue, reflecting expansion from existing customers[326] - Operating expenses increased significantly to $53.1 million in 2021 from $31.7 million in 2020, with R&D up 57% and Sales & Marketing up 65% due to increased headcount and advertising[331][332][333] Key Business Metrics | Key Business Metric | As of Dec 31, 2021 | As of Dec 31, 2020 | | :--- | :--- | :--- | | Total NRR | 110% | 114% | | Total Gross Customer Retention | 91% | 90% | | Total ARR (in millions) | $75.4 | $59.2 | | Total Customers | 498,933 | 466,298 | - Cash and cash equivalents increased to $104.8 million at the end of 2021, largely due to $103.0 million in net proceeds from the November 2021 IPO[347] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposures relate to interest rates and foreign currency exchange rates - Interest Rate Risk: Exposure is primarily from capital lease arrangements and a variable-rate credit facility, but a 100 basis point change is not expected to have a material effect[391][392] - Foreign Currency Exchange Rate Risk: Risk is currently minimal as sales and most operating expenses are denominated in U.S. dollars but may increase with international expansion[393] Item 8. Financial Statements and Supplementary Data This section presents the audited financial statements for 2021 and 2020, including key balance sheet and income statement figures - The report includes the opinion of the independent registered public accounting firm, BDO USA, LLP, which states the financial statements are presented fairly in all material respects[398] Balance Sheet (Dec 31, 2021) | Balance Sheet (Dec 31, 2021) | Amount (in thousands) | | :--- | :--- | | Total Assets | $163,581 | | Total Current Assets | $111,082 | | Total Liabilities | $68,095 | | Total Current Liabilities | $45,062 | | Total Stockholders' Equity | $95,486 | Statement of Operations (Year Ended Dec 31, 2021) | Statement of Operations (Year Ended Dec 31, 2021) | Amount (in thousands) | | :--- | :--- | | Revenue | $67,479 | | Gross Profit | $34,341 | | Loss from Operations | ($18,794) | | Net Loss | ($21,704) | | Net Loss Per Share | ($1.07) | Cash Flows (Year Ended Dec 31, 2021) | Cash Flows (Year Ended Dec 31, 2021) | Amount (in thousands) | | :--- | :--- | | Net cash provided by operating activities | $3,520 | | Net cash used in investing activities | ($11,190) | | Net cash provided by financing activities | $106,606 | - In June 2021, the company received full forgiveness for its $2.3 million Paycheck Protection Program (PPP) loan, which was recorded as a gain on extinguishment of debt[523] Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants - None[577] Item 9A. Controls and Procedures Management concluded disclosure controls were not effective as of year-end 2021 due to material weaknesses in internal controls - Management concluded that disclosure controls and procedures were not effective as of December 31, 2021, due to identified material weaknesses[579] - Material weaknesses were identified in several areas: timely review of significant accounting transactions, revenue recognition criteria, accounting for equity transactions, tax recording, and IT general controls[580][581] - Remediation efforts are underway, including strengthening internal controls and hiring additional personnel, but these weaknesses were not fully remediated as of December 31, 2021[582][583] Item 9B. Other Information The company reports no other information for this item - None[588] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[589] Part III Items 10-14 Information for these items is incorporated by reference from the company's 2022 Proxy Statement - Information for Items 10 through 14 is incorporated by reference from the definitive Proxy Statement for the 2022 Annual Meeting of Stockholders[592][593][594] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements and exhibits filed with the Form 10-K - This section includes the list of financial statements and exhibits filed with the report[601] - Financial statement schedules are omitted because the information is not applicable or is included elsewhere in the report[601] Item 16. Form 10-K Summary This item is not applicable - Not Applicable[607]