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01/10 16:38
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals mixed signals: while there's optimism with raised revenue guidance and strong B2 growth, concerns arise from AI customer variability, delays in large deals, and lack of clear timelines for growth targets. The restructuring and focus on operational efficiency are positive, but uncertainties remain. Given these factors, the overall sentiment is neutral, reflecting both potential and risks.
Total Revenue $37.2 million, a 14% year-over-year growth. This exceeded expectations and was driven by the first phase of the go-to-market transformation.
B2 Revenue 28% year-over-year growth, compared to 19% organic growth in the same period last year. This represents an acceleration of about 900 basis points, driven by the first phase of the go-to-market transformation.
Computer Backup Revenue Flat year-over-year, reflecting the final roll-off of the price increase implemented in 2023.
Net Revenue Retention (NRR) Trailing 4-quarter company NRR for Q3 was 106%, compared to 109% in Q2. In-quarter NRR for B2 improved to 116% from 109% in Q2, driven by a large AI customer.
Gross Margin 62%, up from 55% a year ago, reflecting operating leverage and the benefit from the recent useful life study.
Adjusted Gross Margin 79%, compared to 78% last year, showing stable margin performance.
Operating Expenses 71% of revenue, an improvement from 92% a year ago, due to structural changes, including restructuring and zero-based budgeting.
R&D Spending 30% of revenue, down from 33% a year ago. When combined with capitalized R&D, it was 35% of revenue, down from 43% a year ago.
Sales and Marketing Expenses 24% of revenue, down from 36% a year ago, reflecting improved efficiency in the go-to-market model.
G&A Expenses 17% of revenue, down from 23% last year, due to efficiencies in corporate functions and general administrative spend.
GAAP Net Loss $3.8 million, a 70% improvement from a loss of $12.8 million in the prior year.
Non-GAAP Net Income $1.9 million, compared to a loss of $4.1 million last year.
Adjusted EBITDA Margin 23%, almost double the 12% from a year ago, reflecting financial discipline and operating leverage.
Adjusted Free Cash Flow Negative $3.5 million, improving by roughly $0.5 million year-over-year.
Cash and Marketable Securities $50 million, largely unchanged from last quarter, providing flexibility for growth and investment.
B2 Cloud Storage: Delivered strong results with a 28% year-over-year growth. Recognized for cloud security and technology innovation, including an award for B2 Overdrive.
New Features: Introduced B2 Overdrive, which provides high performance and cost-effective solutions for AI startups and other customers.
AI Industry: AI is becoming central to customers and Backblaze's opportunities. The company is helping AI companies manage exploding data sizes and storage needs.
Customer Wins: Secured a 6-figure deal with an AI startup, a 7-figure deal with a surveillance AI company, and another 6-figure deal with a media app developer, all highlighting Backblaze's competitive pricing and performance.
Revenue Growth: Total revenue grew 14% year-over-year, reaching $37.2 million, exceeding expectations.
Operational Efficiencies: Gross margin improved to 62% from 55% a year ago. Operating expenses reduced to 71% of revenue from 92% last year. Adjusted EBITDA margin reached 23%, almost double from a year ago.
Go-to-Market Transformation: Launched Phase 2 to accelerate self-serve and direct sales motions, including developer relations and sales efficiency improvements.
Financial Strategy: On track to achieve positive adjusted free cash flow in Q4. Initiated a share repurchase program to manage equity dilution.
Revenue growth below target: B2 revenue growth is expected to be between 25% and 28% in Q4, which is below the 30% target set at the beginning of the year. This indicates challenges in meeting growth expectations.
Customer variability: Usage from one of the larger AI customers has been variable, with fluctuating data storage needs, creating uncertainty in revenue projections.
Data center cost pressures: Data center costs are generally rising, which could impact gross margins despite efforts to offset these increases through operational efficiencies.
Dependence on large customers: Revenue variability is influenced by certain large customers, which introduces risk if these customers reduce or change their usage patterns.
Competitive pressures: Backblaze faces competition from hyperscalers and other cloud providers, which could impact its ability to retain and attract customers.
Operational execution risks: The company is undergoing a go-to-market transformation, including adding talent and upgrading systems. These changes carry execution risks and may not deliver the expected growth acceleration.
Economic uncertainties: The company is exposed to broader economic uncertainties that could impact customer spending on data storage solutions.
Revenue Expectations: For Q4, revenue is expected to be in the range of $37.3 million to $37.9 million. B2 growth in Q4 is projected to be between 25% and 28% year-over-year.
Growth Goals: The company aims to achieve a 30% B2 growth target, though current projections for Q4 are slightly below this goal. Efforts are being made to accelerate growth through Phase 2 of the go-to-market transformation.
Go-to-Market Transformation: Phase 2 of the transformation focuses on accelerating self-serve and direct sales motions. This includes making the platform more frictionless for AI use cases, initiating robust developer relations, adding sales talent, upgrading core systems, and partnering with advisors and consulting teams.
Financial Goals: The company is on track to achieve positive adjusted free cash flow in Q4 and is progressing towards operating at a Rule of 40 profile. B2's Rule of 40 score is expected to triple by Q4 compared to the start of the year.
Market Trends: Industry-wide demand for data storage is expected to grow rapidly, driven by AI-related workloads and the expansion of data sizes beyond text to images, audio, and video.
Share Repurchase Program: As we announced last quarter, we initiated a modest share repurchase program. In Q3, we repurchased $1.2 million of shares as part of our ongoing work to manage equity dilution.
The earnings call reveals mixed signals: while there's optimism with raised revenue guidance and strong B2 growth, concerns arise from AI customer variability, delays in large deals, and lack of clear timelines for growth targets. The restructuring and focus on operational efficiency are positive, but uncertainties remain. Given these factors, the overall sentiment is neutral, reflecting both potential and risks.
The earnings call summary highlights several positive aspects, such as growth in AI-related opportunities, strong customer retention, strategic alliances, and progress in go-to-market transformation. The Q&A section reveals management's focus on customer needs and value, with no immediate plans for price increases, maintaining stability. Despite some unclear responses, the overall sentiment is positive, supported by strategic investments and optimistic guidance on financial health and market strategies. The prediction is a positive stock movement of 2% to 8%.
The earnings call presents strong financial performance with 18% revenue growth and improved cash flow, alongside optimistic guidance for B2 growth and EBITDA margins. The Q&A reveals stable gross margins and strategic AI use cases, though there's a minor concern about Computer Backup's decline. Despite a secondary offering, the positive outlook for cash flow and B2 growth, plus the new data center, indicates a likely positive stock reaction.
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