Backblaze Inc

Previous wording

While our sales and marketing efforts have primarily focused on the United States, our existing customer base spans more than 175 countries, with 27% of our total revenue originating outside of the United States for thethree months ended March 31, 2024. We believe international expansion may represent a meaningful opportunity to generate further demand for our solutions in international geographies. We may invest in our operations internationally to reach new customers by expanding in targeted key geographies where we believe there are opportunities for significant return on investment.

Current wording

While our sales and marketing efforts have primarily focused on the United States, our existing customer base spans more than 175 countries, with 27% of our total revenue originating outside of the United States for thesix months ended June 30, 2024. We believe international expansion may represent a meaningful opportunity to generate further demand for our solutions in international geographies. We may invest in our operations internationally to reach new customers by expanding in targeted key geographies where we believe there are opportunities for significant return on investment.

Previous wording

Our Net Revenue Retention Rate increased by 6% for B2 Cloud Storage as of March 31, 2024 compared to March 31, 2023, primarily due to the price increase and, to a lesser extent, growth from existing customers. Our Net Revenue Retention Rate decreased by 5% for Computer Backupas of March 31, 2024 compared to March 31, 2023, primarily due to customer churn.

Current wording

Our Net Revenue Retention Rate increased by 5% for B2 Cloud Storage as of June 30, 2024 compared to June 30, 2023, primarily due to the price increase that generally became effective in October 2023 and, to a lesser extent, growth from existing customers. Our Net Revenue Retention Rate increased by 2% for Computer Backupas of June 30, 2024 compared to June 30, 2023, primarily due to the price increase.

Previous wording

Our ARR increased by $17.8 million, or 42.7% for B2 Cloud Storage as of March 31, 2024 compared to March 31, 2023, primarily due to increased storage by our customers and to a lesser extent, the price increase and increased sales from B2 Reserve. Our ARR increased by$8.4 million or 15.5%, for Computer Backup as of March 31, 2024 compared to March 31, 2023, primarily due to the price increase and, to a lesser extent, growth from existing customers.

Current wording

Our ARR increased by $19.3 million, or 44%, for B2 Cloud Storage as of June 30, 2024 compared to June 30, 2023, primarily due to the price increase and increased storage by our customers and to a lesser extent, increased sales from B2 Reserve. Our ARR increased by$9.7 million, or 18%, for Computer Backup as of June 30, 2024 compared to June 30, 2023, primarily due to the price increase and, to a lesser extent, growth from existing customers.

Previous wording

Sales and marketing expenses consist primarily of our investment in personnel costs. Sales and marketing expenses also include investments related to advertising, marketing, our brand awareness activities, commissions paid to marketing partners, and an allocation of our general overhead expenses.

Current wording

Sales and marketing expenses consist primarily of our investment in personnel costs. Sales and marketing expenses also include investments related to advertising, marketing, our brand awareness activities, commissions paid to marketing partners, sales commissions paid to our employees that are recognized as expenses over the period of benefit, and an allocation of our general overhead expenses.

Previous wording

Comparison of the Three Months Ended March 31, 2024 and 2023

Current wording

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

Previous wording

Total revenue increased by$6.6 million, or 28%, for the three months ended March 31, 2024 compared to the same period in 2023. B2 Cloud Storage increased by$4.6 million, approximately $2.2 million of which was due to increased storage, $2.0 million by the price increase in October 2023, and $0.4 million from sales of B2 Reserve. The remaining increase of$1.9 million was from Computer Backup, approximately $2.1 million of which was due to price increases that went into effect in September 2021 and October 2023, and partially offset by $0.2 million due to the decreased license count. Our price increase amounts noted above are inherent estimates that are based on an average price charged per customer and other assumptions that may offset the increase, such as free egress and impact of the price increase on the amount of data stored and customer license count.

Current wording

Total revenue increased by$6.7 million, or 27%, for the three months ended June 30, 2024 compared to the same period in 2023. B2 Cloud Storage increased by$4.6 million, approximately$2.1 million of which was due to increased storage, $2.0 million due to the price increase in October 2023, and $0.5 million from sales of B2 Reserve. The remaining increase of$2.1 million was from Computer Backup, approximately$2.4 million of which was due to price increases that went into effect in October 2023 and$0.2 million of which was due to increased storage fees for version history longer than one year. This increase waspartially offset by$0.5 million due to decreased license count.

Previous wording

Cost of revenue increased by$1.7 million, or 14%, for the three months ended March 31, 2024 compared to the same period in 2023. The increase was primarily attributable to$1.2 million in depreciation of our infrastructure equipment, which resulted from purchasing additional hard drives and related infrastructure in order to support the growth of our business and$0.5 million related to managing and operating our co-location facilities that included new data centers.

Current wording

Cost of revenue increased by$1.5 million, or 12%, for the three months ended June 30, 2024 compared to the same period in 2023. The increase was primarily attributable to$0.9 million in depreciation of our infrastructure equipment, which resulted from purchasing additional hard drives and related infrastructure in order to support the growth of our business and$0.6 million related to managing and operating our co-location facilities.

Previous wording

Gross margin was 53% for the three months ended March 31, 2024 compared to 47% for the same period in 2023. The increase in gross margin was primarily due to our total revenue growth from the price increases as described above.

Current wording

Gross margin was 55% for the three months ended June 30, 2024 compared to 49% for the same period in 2023. The increase in gross margin was primarily due to our revenue growth from the price increases as described above.

Previous wording

Research and development expenses decreased by $0.8 million, or 7%, for the three months ended March 31, 2024 compared to the same period in 2023. The decrease was primarily attributable to$1.2 million related to non-recurring workforce reduction restructuring charges incurred for the three months ended March 31, 2023 and $0.1 million in overhead and general office expenses, and was partially offset by$0.6 million increase in personnel-related expenses as a result of increased headcount to support our storage cloud features and offerings.

Current wording

Research and development expenses decreased by $0.3 million, or 3%, for the three months ended June 30, 2024 compared to the same period in 2023. The decrease was primarily attributable to $1.1 million related to non-recurring workforce reduction restructuring charges incurred for thethree months ended June 30, 2023 and $0.1 million reduction in overhead and general office expenses, and was partially offset by$0.5 million related to stock-based compensation, and a $0.5 million increase in personnel-related expenses, net of capitalization for internal-use software to support our storage cloud features and offerings.

Previous wording

Sales and marketing expenses decreased by$0.5 million, or 5%, for the three months ended March 31, 2024 compared to the same periodin 2023. The decrease in sales and marketing expense was primarily attributable to $1.0 million related to non-recurring workforce reduction restructuring charges incurred for the three months ended March 31, 2023,$0.2 million related to stock-based compensation, and partially offset by an increase of $0.7 million in personnel-related expenses as a result of increased headcount to support our targeted marketing activities.

Current wording

Sales and marketing expenses increased by $0.6 million, or 3%, for the six months ended June 30, 2024 compared to the same periodin 2023. The increase in sales and marketing expense was primarily attributable to$1.5 million in personnel-related expenses as a result of increased headcount and sales commission incentives to support our targeted marketing activities, and$0.6 million due to increased advertising and travel expenses, and was partially offset by$1.0 million related to non-recurring workforce reduction restructuring charges incurred for thesix months ended June 30, 2023, a $0.4 million decrease in fees for consultants and contractors, and a $0.2 million decrease in stock-based compensation.

Previous wording

General and administrative expenses decreased by $0.1 million, or 2%, for the three months ended March 31, 2024 compared to the same period in 2023. The decrease was primarily attrib utable to$0.3 million related to non-recurring workforce reduction restructuring charges incurred for the three months ended March 31, 2023, $0.3 million decrease related to professional fees for accounting and tax services, and was partially offset by $0.2 million increase in indirect tax expense,$0.1 million increase instock-based compensation expenses, $0.1 million in personnel-related expenses as a result of increased headcount to support the growth of our business, and $0.1 million in overhead and general office expenses.

Current wording

General and administrative expenses increased by $0.3 million, or 5%, for the three months ended June 30, 2024 compared to the same period in 2023. The increase was primarily attrib utable to $0.3 million in personnel-related expenses due to increased headcount, a$0.2 million increase instock-based compensation expenses, and a$0.2 million increase in overhead and general office expenses. This was partially offset by a$0.3 million decrease related to insurance expenses, and a$0.2 million decrease related to professional fees for accounting and tax services.

Previous wording

Investment income decreasedby $0.2 million, or 37%, for the three months ended March 31, 2024 compared to the same period in 2023. The decrease was primarily due to a lower average marketable securities portfolio balance, partially offset by increased interest rates on our marketable securities.

Current wording

Investment income decreasedby $0.2 million, or 30%, for the three months ended June 30, 2024 compared to the same period in 2023. The decrease was primarily due to a lower average marketable securities portfolio balance, partially offset by increased interest rates on our marketable securities.

Previous wording

Interest expense was relatively flat for the three months ended March 31, 2024 compared to the same periods in 2023.

Current wording

Interest expense was relatively flat for the three and six months ended June 30, 2024 compared to the same periods in 2023.

Previous wording

Our provision for income taxes was relatively flat for the three months ended March 31, 2024, compared to the same periods in 2023.

Current wording

Our provision for income taxes was immaterial for the three and six months ended June 30, 2024 and 2023.

Previous wording

(1) During the three months ended March 31, 2023, $125 thousand of stock-based compensation expense is classified as workforce reduction and related severance charges in the table above as it was incurred as part of our restructuring program. See Note 16 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information regarding restructuring charges.

Current wording

(1) $125 thousand of stock-based compensation expense is classified as workforce reduction and related severance charges in the table above for the six months ended June 30, 2024, as it was incurred as part of our restructuring program. See Note 16 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information regarding restructuring charges.

Previous wording

Since inception, we have financed operations primarily through payments received from our customers and, in later periods from the net proceeds from our IPO. As of March 31, 2024 and December 31, 2023, our principal sources of liquidity were cash, short-term investments and restricted cash, non-current of $32.8 million and $33.4 million, respectively. In general, our restricted cash may only be used to pay down its debt facility.

Current wording

Since inception, we have financed operations primarily through payments received from our customers and, in later periods from the net proceeds from our IPO. As of June 30, 2024 and December 31, 2023, our principal sources of liquidity were cash, short-term investments and restricted cash, non-current of $28.3 million and $33.4 million, respectively. In general, our restricted cash may only be used to pay down our debt facility.

Previous wording

We believe that our existing cash, cash equivalents, and short-term investments, together with cash provided by operations and our revolving debt facility, will be sufficient to support our working capital and capital expenditure requirements for at least the next 12 months. Our material cash requirements include contractual and other obligations under our debt facility, finance and operating lease agreements, and purchase commitments as discussed below. Our future capital requirements will depend on many factors, including our total revenue growth rate, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, the potential expansion of our data centers, the price at which we are able to purchase or lease infrastructure equipment, the introduction of platform enhancements, and the continuing market adoption of our platform. In the future, we may enter into arrangements to acquire or invest in complementary businesses, products, and technologies. We plan to enter into finance lease agreements for purchase of infrastructure equipment and may also be required or choose to seek additional equity or debt financing in addition to our existing debt facility. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, results of operations, and financial condition.

Current wording

We believe that our existing cash, cash equivalents, and short-term investments, together with cash provided by operations and our revolving debt facility, will be sufficient to support our working capital and capital expenditure requirements for at least the next 12 months. Our material cash requirements include contractual and other obligations under our debt facility, finance and operating lease agreements, and purchase commitments as discussed below. Our future capital requirements will depend on many factors, including our total revenue growth rate, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, the potential expansion of our data centers, the price at which we are able to purchase or lease infrastructure equipment, the introduction of platform enhancements, and the continuing market adoption of our platform. In the future, we may enter into arrangements to acquire or invest in complementary businesses, products, and technologies. We plan to continue to enter into finance lease agreements for purchase of infrastructure equipment and may also be required or choose to seek additional equity or debt financing in addition to our existing debt facility. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, results of operations, and financial condition.

Previous wording

We generally enter into finance lease arrangements to obtain hard drives and related equipment for our data center operations. We also generally enter into leases for our facilities for data centers and office space under non-cancelable operating leases with various expiration dates. As of March 31, 2024, our future minimum commitments for these finance leases and lease financing obligations including interest were approximately $15.7 million and $16.2 million for the remainder of the year ending December 31, 2024 and thereafter, respectively. The weighted average discount rate for finance leases was 11.4% as of March 31, 2024.

Current wording

We generally enter into finance lease arrangements to obtain hard drives and related equipment for our data center operations. We also generally enter into leases for our facilities for data centers and office space under non-cancelable operating leases with various expiration dates. As of June 30, 2024, our future minimum commitments for these finance leases and lease financing obligations including interest were approximately $10.9 million and $19.7 million for the remainder of the year ending December 31, 2024 and thereafter, respectively. The weighted average discount rate for finance leases was 11.4% as of June 30, 2024.

Previous wording

As of March 31, 2024, our future minimum commitments for operating leases, which include both lease and non-lease components, were $4.8 million and $23.7 million for the remainder of the year ending December 31, 2024 and thereafter, respectively. For further information and our future minimum commitments on our finance leases and operating leases, see Note 10 and Note 11 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Current wording

As of June 30, 2024, our future minimum commitments for commenced operating leases, which include both lease and non-lease components, were $2.9 million and $24.0 million for the remainder of the year ending December 31, 2024 and thereafter, respectively. For further information and our future minimum commitments on our finance leases and operating leases, see Note 10 and Note 11 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Previous wording

In addition, we have purchase commitments that relate mainly to infrastructure agreements used to facilitate our operations. As of March 31, 2024, we had non-cancelable purchase commitments of $0.8 million and $0.5 million payable during the remainder of the year ending December 31, 2024 and the year ending December 31, 2025, respectively.

Current wording

In addition, we have purchase commitments that relate mainly to infrastructure agreements used to facilitate our operations. As of June 30, 2024, we had non-cancelable purchase commitments of $0.7 million and $0.6 million payable during the remainder of the year ending December 31, 2024 and the year ending December 31, 2025, respectively.

Previous wording

For the three months ended March 31, 2024, cash provided by operating activities was $3.4 million, which resulted from a net loss of $11.1 million, adjusted for non-cash charges of $12.9 million and net cash inflow of $1.5 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $6.9 million for depreciation and amortization expense and $5.5 million for stock-based compensation expense. The net cash inflow from changes in operating assets and liabilities was primarily the result of a $3.2 million increase of deferred revenue, which increased due to our growing customer base and timing of collections from our customers, and a $0.5 million decrease in accrued expenses and other current liabilities, which decreased primarily due to our accrued compensation and due to timing of payment of our expenses, offset in part by a $0.8 million increase in accounts receivable, $0.6 million increase in prepaid and other current assets, $0.5 million decrease in accounts payable and $0.3 million decrease of operating lease liabilities. Cash provided by operations increased for the three months ended March 31, 2024, as compared to the same period in 2023 primarily due to our growing customer base, increased storage from existing customers and the price increase that began to take effect in October 2023 offset by increased expenditures related to managing and operating our co-location facilities, and increase spending in support of our expanded research and development and sales and marketing spending to support business growth.

Current wording

For the six months ended June 30, 2024, cash provided by operating activities was $5.6 million, which resulted from a net loss of $21.4 million, adjusted for non-cash charges of $26.0 million and net cash inflow of $1.0 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $13.9 million for depreciation and amortization expense and $11.1 million for stock-based compensation expense. The net cash inflow from changes in operating assets and liabilities was primarily the result of a $4.0 million increase of deferred revenue, which increased due to our growing sales and timing of collections from our customers, offset in part by a $1.0 million increase in accounts receivable, a $0.8 million decrease of operating lease liabilities, a $0.7 million decrease in accounts payable, and a $0.3 million decrease in accrued expenses and other current liabilities, which decreased primarily due to our accrued compensation and due to timing of payment of our expenses. Cash provided by operations increased for the six months ended June 30, 2024, as compared to the same period in 2023 primarily due to our growing customer base, increased storage from existing customers and the price increase that began to take effect in October 2023, partially offset by increased expenditures related to managing and operating our co-location facilities, and increased spending in support of our expanded research and development and sales and marketing spending to support business growth.

Previous wording

For the three months ended March 31, 2023, cash used in operating activities was $5.2 million, which resulted from a net loss of $17.1 million, adjusted for non-cash charges of $11.7 million and net cash inflow of$0.3 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of$5.7 million for depreciation and amortization expense and $5.8 million for stock-based compensation expense. The net cash inflow from changes in operating assets and liabilities was primarily the result of a $1.0 million increase of deferred revenue, which increased due to our growing customer base and timing of collections from our customers and a $0.5 million increase in prepaid and other current assets, offset in part by a $0.7 million decrease of operating lease liabilities and a $0.6 million decrease in accrued expenses and other current liabilities, which decreased primarily due to our accrued compensation and due to timing of payment of our expenses.

Current wording

For the six months ended June 30, 2023, cash used in operating activities was $10.4 million, which resulted from a net loss of $31.5 million, adjusted for non-cash charges of $22.9 million and net cash outflow of $1.9 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $11.9 million for depreciation and amortization expense and $10.7 million for stock-based compensation expense. The net cash outflow from changes in operating assets and liabilities was primarily the result of a $1.6 million decrease in accrued expenses and other current liabilities, which decreased primarily due to our accrued compensation and due to timing of payment of our expenses, a $1.4 million decrease of operating lease liabilities, and a $0.2 million decrease in accounts payable, offset in part by a $0.9 million increase in prepaid and other current assets and a $0.3 million increase of deferred revenue, which increased due to our growing sales and timing of collections from our customers.

Previous wording

Cash used in investing activities during the three months ended March 31, 2024 was $8.8 million, resulting primarily from the purchase of short-term maturity investments of $14.8 million, $3.3 million related to the development of internal-use software for adding new features and enhanced functionality to our platform, and capital expenditures of $0.4 million in support of infrastructure deployments to support our growing business, offset in part by the $9.8 million maturity of our short-term investments.

Current wording

Cash used in investing activities during the six months ended June 30, 2024 was $4.9 million, resulting primarily from the purchase of short-term maturity investments of $24.1 million, $6.8 million related to the development of internal-use software for adding new features and enhanced functionality to our platform, and capital expenditures of $0.7 million in support of infrastructure deployments to support our growing business, offset in part by the $26.5 million maturity of our short-term investments and $0.2 million from the disposition of certain hard drives.

Previous wording

Cash provided by investing activities during the three months ended March 31, 2023 was $7.3 million, resulting primarily from the $23.5 million from the maturity of our short-term investments, offset in part by the purchase of short-term maturity investments of $9.7 million, $3.4 million related to the development of internal-use software for adding new features and enhanced functionality to our platform, and capital expenditures of$3.0 million in support of infrastructure deployments to support our growing business.

Current wording

Cash provided by investing activities during the six months ended June 30, 2023 was $17.0 million, resulting primarily from the $38.5 million maturity of our short-term investments, offset in part by the purchase of short-term maturity investments of $9.7 million, $7.1 million related to the development of internal-use software for adding new features and enhanced functionality to our platform, and capital expenditures of $4.7 million in support of infrastructure deployments to support our growing business.

Previous wording

Cash used in financing activities for the three months ended March 31, 2024 was $0.3 million. Cash used in financing activities was primarily due to principal payments on our finance lease agreements and lease financing obligations of $4.8 million related to hard drives and other infrastructure equipment used in our co-location facilities and $0.3 million related to repayment of principal on financed insurance premiums, offset in part by $4.3 million in proceeds from the exercise of employee stock option and $0.6 million in proceeds from our debt facility.

Current wording

Cash used in financing activities for the six months ended June 30, 2024 was $3.4 million. Cash used in financing activities was primarily due to principal payments on our finance lease agreements and lease financing obligations of $9.7 million related to hard drives and other infrastructure equipment used in our co-location facilities and $0.6 million related to repayment of principal on financed insurance premiums, offset in part by $5.0 million in proceeds from the exercise of employee stock options, $1.4 million in proceeds from our ESPP and $0.6 million in proceeds from borrowings under our debt facility.

Previous wording

Cash used in financing activities for the three months ended March 31, 2023 was $1.8 million. Cash used in financing activities was primarily due to principal payments on our finance lease agreements and lease financing obligations of $5.1 million related to hard drives and other infrastructure equipment used in our co-location facilities, $0.5 million related to repayment of principal on financed insurance premiums, offset in part by $3.0 million in proceeds from our debt facility and $0.9 million in proceeds from the exercise of employee stock options.

Current wording

Cash used in financing activities for the six months ended June 30, 2023 was $3.9 million. Cash used in financing activities was primarily due to principal payments on our finance lease agreements and lease financing obligations of $9.7 million related to hard drives and other infrastructure equipment used in our co-location facilities, $1.0 million related to repayment of principal on financed insurance premiums, offset in part by $3.5 million in proceeds from borrowings under our debt facility, $2.2 million in proceeds from the exercise of employee stock options, and $1.2 million in proceeds from our employee stock purchase plan.