Backblaze, Inc. (NASDAQ:BLZE) Q1 2024 Earnings Call Transcript May 8, 2024
Backblaze, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello, and welcome to the Backblaze First Quarter 2024 Conference Call. All participants will be in listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to hand the call to Mimi Kong, Director of Investor Relations and Corporate Development. Please go ahead.
Mimi Kong: Thank you. Good afternoon, and welcome to Backblaze’s first quarter 2024 earnings call. On the call with me today are Gleb Budman, Co-Founder, CEO and Chairperson of the Board; and Frank Patchel, Chief Financial Officer. Today, Backblaze will discuss the financial results that were distributed earlier this afternoon. Statements on this call include forward-looking statements about our future financial results, use of our IPO proceeds, results from new features and offerings and the impact of price changes, partnerships and sales and marketing initiatives. Our ability to compete effectively and manage our growth and our strategy to acquire new customers and retain and expand our business with existing customers. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including those described in our risk factors that are included in our Annual Report on Form 10-K and our other financial filings.
You should not rely on our forward-looking statements as of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of today and we undertake no obligation to update them except as required by law. Our discussion today will include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for our GAAP results. Reconciliation of GAAP to non-GAAP results may be found in our earnings release, which was furnished with our Form 8-K filed today with the SEC. You can also find a slide presentation related to our comments in the webcast, which will also be posted to our Investor Relations page after the call. Please also see our press release or presentation for definitions of additional metrics such as NRR and gross customer retention.
Before I turn the call over to Gleb, I’d also like to mention that in the latter portion of our call, as in prior calls, we will be addressing questions from investors that we gathered through the Say Technologies platform. Thank you for joining us and I would now like to turn the call over to Gleb.
Gleb Budman: Thanks, Mimi. Good afternoon, everyone, and thank you for joining us today. We had a record start across our key financial metrics. This quarter, revenue grew at 28%, 8 percentage points better than last year. We achieved an adjusted EBITDA margin of positive 6% versus negative 12% a year ago. And finally, cash usage this quarter was only $600,000 a dramatic improvement from the $13 million of cash used this same period last year. Not only have we delivered accelerated business growth and improved efficiency, but we have also delivered product innovations that serve our mission of supporting customers and partners with the best storage cloud. Before diving into our business results, I want to speak to a customer trend that we’re already benefiting from today and which we see accelerating.
A few months ago, we conducted a survey of more than 400 IT decision makers. A majority of the respondents indicated that they prefer to choose from best of breed solutions when selecting vendors. And yet, the cloud landscape has been historically defined by Cloud 1.0, where a few diversified cloud providers aim to lock customers into their platforms and take away customer choice. You may have heard that Google Cloud, AWS, and Azure recently announced free egress for their customers. They may have done this to mollify regulators because the Cloud 1.0 model is a walled garden by design, but this move does not at all address what customers actually want because it only applies to customers who leave those platforms completely. What customers really want is to freely use their data with multiple cloud services.
These fake free egress announcements are only free exit, not free egress and underscore that Cloud 1.0 just doesn’t work that way. Businesses want Cloud 2.0, an open cloud ecosystem where businesses can use their data wherever and however they want to. It’s better for them, better for innovation, and ultimately better for the broader economy. And Backblaze is built for Cloud 2.0. First, our egress is actually free, allowing customers to use their data without fear of crippling bills or limits on who they work with. Second, we have a robust partner ecosystem, which gives customers easy access to the best of breed platforms they need. Third, we provide a trusted durable platform that provides strong performance. And last, we continue to deliver innovations that support customers in using the best of breed services they want.
A great example of this last point is our newest innovation called event notifications. Event notifications gives customers the ability to build automated workflows across different best of breed cloud providers. For example, a customer can upload a video to B2 Cloud Storage, and event notifications will automatically trigger a compute process at another provider that prepares the file for streaming. Currently, similar offerings in the market only trigger actions within one platform or require complex and restricted workarounds to work with other providers. We designed event notifications to be platform agnostic, empowering customers to build workflows from the services they want, cutting out significant inefficiencies and costs in the process.
The product launched in private preview just 3 weeks ago, and we already have over 100 organizations that have requested to join the early release. Event notifications was also recognized as product of the year for cloud computing and storage at the National Association of Broadcasters Conference, a major trade show for the media and entertainment industry. I’m very encouraged by the early reception and the potential for our services to become increasingly strategic for our customers. Including event notifications, Backblaze has announced 4 major releases over the past 6 months from the shard stash performance upgrade to enterprise control for business backup to our powered by Backblaze program, I am proud of our team for delivering features that differentiate us and strategically position us as the de facto cloud storage provider for the open cloud.
In Q1, we also made significant progress in our compliance and security programs, including and the Motion Picture Association’s trusted partner network. Focusing on compliance and security is another key element in our effort to make our services as easy to adopt as possible. In this case, for the state and local government and educational industries and the media and entertainment industry. At the same time, we continue to expand and enrich our partner network. Recently, Backblaze and Carahsoft, which is one of the largest privately held IT software and services companies in the world announced that we’ve been added to their NASPO ValuePoint contract, which eases the procurement process in government and education. Our partners also continue to help us facilitate and win deals with larger customers.
Recently, the media team of one of the world’s largest retailers needed a trusted location to hold their creative work. Their preferred reseller recommended adopting Backblaze. Our performance, ease of use and affordability won the deal. In addition, our sole focus is a best of breed provider for cloud storage means that this retailer doesn’t need to worry about any conflict of interest. With a vendor like Amazon that obviously wouldn’t be the case. Additionally, a number of meaningful partners have already joined our powered by Backblaze program, which we announced just last quarter. One of the most recent companies to join powered by is Axle AI. Their new Axle AI Cloud leverages our cloud platform to deliver AI powered media search tools.
In the broader AI space, we’re seeing a growing number of partners and customers utilizing the value of B2 cloud storage for AI workflows. Since the beginning of 2023, the number of AI companies using B2 for data storage has doubled with a wide range of use cases such as wild fire management and monitoring, manufacturing optimization, satellite data analysis and much more. I’m very proud of what the team has achieved to not only reach our record financial results, but to also deliver our platform and product innovations. I believe these put us in a strong position to deliver the transformational power of Cloud 2.0. I love seeing what businesses can do after we help to free their data from legacy platforms. Before I hand off the call, today we announced that our CFO, Frank is planning to retire this year.
A search for his successor is already underway and Frank intends to remain with us to help ensure a smooth transition to our new CFO. We’re all hugely thankful for everything Frank has brought to the team, but we’ll save our gratitude and celebration of his many accomplishments for his departure later this year. Until we hire and onboard his replacement, Frank will continue to help us drive great results. I’ll pass the call to Frank now to review our financial results. Frank?
Frank Patchel: Thank you, Gleb, and thanks, everyone, for joining us today. As Gleb mentioned, I’m planning to retire once we’ve identified my replacement and completed the onboarding process. There will be time for goodbyes when we get there, but until then, it will be business as usual. And I’m happy to turn to the record business results we have to share today. As a reminder, unless otherwise noted, I will be referring to non-GAAP metrics and the growth rates mentioned are year-on-yea . We remain focused on 2 key metrics, revenue growth and adjusted EBITDA, which is defined in our earnings release. As Glenn mentioned, we have made significant strides in strengthening our financials from a year ago. This quarter compared to last year, we accelerated our growth rate, while expanding our adjusted gross margin, significantly improving adjusted EBITDA margins and meaningfully reducing cash usage.
The tremendous strides made over the year were positively impacted by the operating leverage inherent in our business. We have continued to execute and build a strong and consistent track record as a public company. Our Q1 revenue totaled $30 million an increase of 28% year-over-year versus 20% the same period last year. V2 cloud storage revenue was $14.6 million reflecting 47% growth. Computer backup revenue totaled 15.3 million reflecting 14% growth. Turning to our net revenue retention or NRR, total company NRR was 112% with B2 cloud storage at 126% and computer backup at 101%, which continued to show quarter-on-quarter improvement. Working down the P&L, adjusted gross margin increased about 500 basis points year-over-year to 77%, reflecting the price increase we put in place in Q4 of last year and further operating efficiencies at our data centers.
This quarter, adjusted EBITDA was a positive 1.9 million or 6% of revenue, reflecting a substantial 18 points higher than the same period last year. Over the past year, we have significantly grown revenue, while carefully managing expenses and increased operating efficiencies. This quarter, we also had slower headcount additions, which was offset by an increase in payroll taxes related to the recent stock price appreciation. Turning to the balance sheet, cash and short-term investments, including restricted cash, totaled 32.8 million at the end of Q1 2024 versus 33.4 million at the end of Q4 2023, reflecting just $600,000 in cash usage. Even after removing the benefit of options proceeds, cash usage for the quarter was about 4.9 million, compared to 13.7 million in Q1 of last year, an almost $9 million improvement.
The reduction in cash usage benefited from the price increases we put in place last quarter and operating expense discipline. Moving on to our guidance, for the second quarter, we expect revenue to be in the range of 30.7 million to 31.1 million. We expect Q2 adjusted EBITDA margin between 6% and 8%. For the full year 2024, we are reiterating revenue guidance of $126 million to $128 million and adjusted EBITDA guidance range of 8% to 10%. For year-end ’24, we continue to project having at least $20,000,000 in cash. So to wrap it up, we are very pleased with our Q1 performance. We had a record start to the year where we accelerated growth and continued to drive more operating leverage. I will now pass the call back to Gleb.
Gleb Budman: Thanks, Frank. I’m proud of our record financial results and technology innovation. Thank you to our employees, customers, partners and investors for joining us on this journey as we help lead the industry shift to Cloud 2.0. I’m excited to see many of you at the Oppenheimer Conference tomorrow and the Needham and Craig-Hallum Investor Conferences later this month. And with that, I’d like to open it up for questions. Operator?
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