Backblaze(US:BLZE)2024-05-08 20:21Financial Performance - The company incurred net losses of $11.1 million and $17.1 million for the three months ended March 31, 2024 and 2023, respectively, with an accumulated deficit of $158.5 million as of March 31, 2024 [583]. - Adjusted gross profit for the three months ended March 31, 2024 was $22.971 million, compared to $16.955 million for the same period in 2023, reflecting an increase in adjusted gross margin from 72% to 77% [587]. - The company does not expect to be profitable for the foreseeable future due to ongoing investments in scaling its business, including sales, marketing, and data center infrastructure [583]. - The company’s gross margin improved from 47% in Q1 2023 to 53% in Q1 2024, indicating better operational efficiency [587]. Revenue Recognition - The company recognizes revenue from subscription agreements ratably over the terms of the agreements, making it difficult to rapidly increase revenue through new sales [324]. - The increase in deferred revenue by $3.2 million was attributed to the growing customer base and timing of collections [591]. Internal Controls and Compliance - The company reported that it did not maintain effective internal controls over financial reporting as of December 31, 2023, with outstanding material weaknesses identified [319]. - The company has identified material weaknesses in its internal controls over financial reporting, which could lead to misstatements in financial statements if not remediated [321]. - The company has identified material weaknesses in internal control over financial reporting and is taking measures to remediate them [600]. - The company is subject to significant legal and compliance costs as a public entity, which may impact its financial condition and operational focus [347]. Market and Competitive Landscape - The market price of the company's Class A common stock has been volatile, influenced by fluctuations in technology stock prices [310]. - The trading market for the company's Class A common stock may be influenced by analysts' reports, and any adverse changes in recommendations could lead to a decline in stock price [342]. - The company operates in a highly competitive market with major competitors like Amazon, Google, and Microsoft, which could pressure pricing and market share [584]. Tax and Legal Risks - As of December 31, 2023, the company had net operating loss carryforwards for U.S. federal income tax purposes of $91.4 million and for state income tax purposes of $66.0 million, which will begin to expire in 2027 if not utilized [326]. - The company may be subject to significant tax liabilities if states or countries assert that it should have been collecting additional sales or use taxes [325]. - The company faces potential litigation risks related to intellectual property claims, which could divert management attention and resources [305]. - The company does not own any issued patents and relies on limited protections for its intellectual property, which may not provide a competitive advantage [306]. Cash Flow and Financing - For the three months ended March 31, 2024, cash provided by operating activities was $3.4 million, resulting from a net loss of $11.1 million, adjusted for non-cash charges of $12.9 million [591]. - Cash used in investing activities during the same period was $8.8 million, primarily due to the purchase of short-term maturity investments of $14.8 million and $3.3 million for internal-use software development [592]. - Cash used in financing activities for the three months ended March 31, 2023, was $1.8 million, mainly due to principal payments on finance lease agreements totaling $5.1 million [593]. - The company plans to enter into finance lease agreements for infrastructure equipment purchases and may seek additional equity or debt financing [589]. - The company may face challenges in raising additional capital or generating necessary cash flows to support operations and innovation [589]. - As of March 31, 2024, the company has future minimum commitments for finance leases and lease financing obligations totaling approximately $15.7 million for the remainder of 2024 and $16.2 million thereafter [590]. - The weighted average discount rate for finance leases was 11.4% as of March 31, 2024 [590]. Customer Relationships and Pricing - The company anticipates continued dependence on relationships with third parties, which are crucial for its sales and marketing strategy, but faces risks from competitors potentially incentivizing these partners [314]. - The company announced price increases for its Computer Backup and B2 Cloud Storage offerings in Q3 2023, which took effect in Q4 2023, but did not experience a material impact on customer retention as of March 31, 2024 [584]. - Cash flows increased due to a growing customer base and increased storage from existing customers, offset by higher expenditures related to co-location facilities and R&D [591].