Q3 2021 Backblaze Inc Earnings Call

December 13, 2021

Thank you for standing by and welcome to the back late Q3, 2021 earnings conference call. At this time, all participants are in a listen only mode.

After the Speakers' presentation there'll be a question and answer session to ask a question at that time. Please press Star then one when you touch tone telephone.

As a reminder, today's conference call is being recorded.

Now I'll turn the conference with you host Mr. James Kisner, Vice President of Investor Relations, Sir you may begin.

Thank you good afternoon, and welcome to backwards as third quarter 2021 earnings call on the call with me today are glib button co founder CEO and chair person of the board and Frank <unk> Chief Financial Officer.

Today back players will discuss the quarterly financial results that were distributed earlier this afternoon.

Statements on this call include forward looking statements.

Future financial results, our goals and expectations regarding future revenue growth profitability use of IPO proceeds and investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements.

Our ability to acquire new customers and successfully engage and expand usage at our existing customers the cost and success of our marketing efforts our ability to promote our brand our reliance on key personnel and ability to identify recruit and retain skilled personnel.

Our ability to effectively manage our growth our ability to compete effectively with existing competitors and new market entrants and the growth rates of the markets in which we compete.

These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call. In particular those described in our risk factors that'll be included in our Form 10-Q for the quarter ended September 30 of 2021 and a recently filed S. One prospectus.

Why on our forward looking statements as predictions 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.

A 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'll also find a slide presentation related to your comments in the webcast viewer.

What I said is currently redirected to a static page while external vendors working to patch for the log for Jabil mobility that is broadly affecting many companies on the global Internet.

We will post a presentation on the static page as well.

I would now like to turn the call over to Glenn Web.

Thank you James and thanks to all of you for joining what is back believes his first quarterly earnings call as a public company. We had a strong Q3 and will delve into the details of the quarter in a moment, but since this is our first earnings call I'd like to spend a few moments introducing our company to those who may be new to the story.

<unk> is building the leading independent cloud for data storage and I'd like to explain why that's so critical.

Today for mid market companies, the cloud storage offerings at the large diversified vendors are complex and expensive.

Also due to the breadth of those vendors they attempt to lock in data to only using their services.

And they are increasingly in competition with their own customers and partners.

Unlike those vendors all we do have storage and we don't compete with our customers.

Customers are increasingly wanting to use their data with best of breed providers in a multi cloud fashion.

This is why we believe the future is being built on independent cloud platforms and ours has been over 14 years in the making.

For each major element of the tech stack and independent cloud platform, such as our partners cloud networking for digital Ocean for compute.

As emerge and built a large business yet no. One has done that for data storage. We believe that data storage is among the most critical of all of these elements since none of them would exist without data.

We believe that we are well positioned to be the independent trusted cloud platform that enables developers and businesses to use their data how they want with whoever they want at the structurally affordable economics.

We have gotten to where we are today through the hard work and dedication of our incredible team of about 250 employees too.

To whom we are incredibly grateful.

Specially during a very challenging global pandemic.

We'd also like to thank our thousands of partners are nearly half a million customers and the millions of you that read our blog.

Thank you also to the many investors big and small who put your trust in us.

We expect this is only the beginning of our journey together and we appreciate your support of our company mission to make it astonishingly easy to store use and protect data.

As I mentioned before we had a strong Q3, which ended September 30 of 2021.

Both of our cloud services performed well led by Btu cloud storage, which grew revenue rapidly at 15, 9% and computer backup which continued strong double digit growth at 13%.

Resulting in total company growth of 25% to $17 $3 million.

B to have higher growth rate and our our and other key metrics than our computer backup business and as the mix shift continues towards be too.

It drives even stronger metrics for the whole company.

Importantly, nearly all of our revenue is recurring which provide good business predictability with annual recurring revenue for <unk> totaling $71 million as of Q3.

Before turning the call over to Frank to discuss the details of our financial and operational results I'd like to share a little more about who we are what we do and our strategy for those on the call that may not be as familiar.

First I'll touch on our history and what makes us unique.

Prior to her back blades I and the other four co founders built them successfully sold to tech companies. We started back in 2007 and largely bootstrap it with minimal outside funding.

Today 14 years later, we're all still working together to build and scale the company.

In a world, where many tech ipos have already burned.

Hundreds of millions of dollars of outside investment prior to going public.

We got here with less than $13 million, an outside equity investment.

We are excited by the opportunity to take the over $100 million and proceeds from our IPO.

And invested towards our large and fast growing market opportunity.

Now, let's talk about that market the market for data storage.

It's a great market to be in because data is growing rapidly and no one wants to delete anything.

We all experienced that everyday everyone has become a data order and all of that data needs to be stored used and protected.

That has resulted in an estimated $91 billion market for.

For public cloud storage in 2025, according to IDC.

Now what is backed by itself.

We have two storage focused cloud offerings.

Our original cloud offering with computer backup, which ended Q3 with $46 million of Ah <unk>.

Computer backup as a cloud service that protects data on all laptops and desktops for businesses and consumers.

Computer backup is a great service, it's completely unlimited and cost only $7 per month.

Wire cutter the product review section of the New York Times consistently selected as the best backup service for most people.

Our second cloud service B to cloud storage.

Ended Q3 with $25 million of AR.

<unk> is a storage platform for businesses and developers.

It is a pay as you go storage as a service public cloud offering that serves a wide range of use cases, including application development ransomware protection backup and multi cloud.

While this market includes large diversified cloud vendors, namely Amazon Web services, Google cloud on Microsoft Azure.

They have increasingly focused on the largest enterprises with the most complex use cases.

This has left a void where the mid market is ignored and underserved.

Backwards can scale to any size organization as demonstrated by our two extra bytes of data storage under management, which is over 10 times the amount of data stored by Spotify. When they went public just a few years ago.

But we are optimized for the mid market, which we define as companies with less than 1000 employees and which IDC is estimated to be over 60% of the market or $55 billion in revenue opportunity in 2025.

Built by developers for developers B, two cloud storage is differentiated because it's easy.

Portable and trusted.

We are easy because we focus on just storage on cutting away all the complexity and I'm, making simple to use products, which delivers third party verified savings for customers of up to 92%.

Of operational time.

This can save developers and I T administrative potentially hours from there we could do more value added tasks.

Where affordable Cha.

Just one fifth of the diversified cloud platforms pricing, which we are able to do as a result of the software innovation. We've achieved over 14 years of development on our storage cod.

And our trusted and trust is critical when you were talking about your data.

Unlike the diversified cloud vendors, we do not aim to compete with our customers and partners.

As an independent cloud, we don't lock in customer data too expensive egress fees to get their data out or to other gotcha.

Customers increasingly want their data to not be trapped so that they can use it with best of breed services and also can rest assured that it won't be used against them competitively by their vendor.

Yeah.

In addition to having differentiated products built on our storage cloud we have a unique go to market.

It starts with our content and community we.

We have been publishing storage focused content on our blog for nearly 15 years and built a community of over 3 million readers and fans. We have an entire go to market motion around us, including ahead of publishing publishing calendar and distribution through social Empress.

This content and engagement helps efficiently build brand.

Warehouse and love for the company.

Qualified leads to our site and making our marketing efforts more efficient.

With those efforts, we have two selling motions self serve and sell assistant.

80% of our customers come to back ways via self serve which enables prospects as show up try the service enter a credit card and scale nearly infinitely without talking to a person.

Wood sales assisted we are inside salespeople, helping prospects along their journey.

And they are typically working with customers with storage needs that are about 20 times.

Larger than that of our self serve customers from a revenue perspective.

Both of these motions are scaling and will further benefit from IPO proceeds.

Another key aspect of our go to market strategy is our partnerships.

We have developer partners and alliance partners.

Developer partners tend to be cloud platforms, with whom we work to jointly enable developers to build applications.

<unk> is an example developer partner for us where customers moving away from Amazon Web services build on us and our developer partner.

Alliance partners are typically software that key deploys to solve some specific use cases.

And through which customers select to have their data flow to back please.

The team at <unk>.

Data protection software Company is an example of an alliance partner where customers run VM software simpler.

Simply enter their backwards credentials.

And the customers data flows to and is protected in our cloud.

We also do joint go to market activities with these partners and as they get more customers as those customers have more data and as more of those customers choose to use cloud all of these stack to drive more revenue for us.

This unique content and community with our self serve and sales assisted motions and powerful partnerships is shared among both cloud services and it's how we drive efficiency and scale in our go to market.

Now, let me highlight a few of our beta customers and how they use our service.

One such customer is a developer of a popular music app competitor Spotify in Japan that came to us from Google cloud and now stores over half a petabyte and be too.

We've become a critical part of this developers technology stack.

We also have many customers choosing <unk> for their offsite backups to protect against ransomware.

One notable customer with a school system in Illinois they have.

<unk> been using legacy on premise storage system for years and it was at the end of its life.

They have to decide whether to spend tens of thousands of dollars paying to upgrade a technology that debuted in the 19 seventies or move to cloud storage.

They decided to move to backwards b, two because it was easy and affordable.

Another example, a university in the Midwest was told that they could receive a discount on their cyber security insurance premiums if they instituted an offsite immutable backup of their servers.

They chose back please because it was the easiest and most affordable service to get them that insurance premium discount.

These are just.

Three examples of the wide variety of use cases and opportunities that we have to help customers store use and protect their data.

If you'd like more examples we share many more on the customer stories section of our website and periodically on our blog.

I now want to highlight three important topics.

Our IPO partnership efforts and.

And developer focus.

First our IPO in November we completed our initial public offering which was a tremendous success.

For a company that was effectively bootstraps it was an especially important financial event raising over $100 million in net proceeds, which we plan to use to accelerate our growth.

It was also a significant awareness generating and branding event.

Finally, as part of our commitment to our community. We executed one of the largest directed share program in the history of U S capital markets by inviting hundreds of thousands of U S based back place customers to participate in our IPO.

Second our partnerships.

In September we announced a new developer partnership with one of the largest privately held cloud vendors.

<unk> Volcker partnership means more developers can build the flexible tech stacks they want.

Organization is now no longer have to tolerate vendor lock in.

<unk> and costs that have traditionally come with legacy options.

And third our developer focus.

<unk> is a storage platform for developers and we continue to empower developers to be successful.

We already have thousands of developers on our platform partnerships with other leading cloud platforms to enable developers to build and.

And our recent partnership with culture is yet another step in supporting developers.

This October we also held our inaugural developer day, which was a great event that help developers connect with Barclays and learn how to further leverage the advantages of our cloud storage solution.

I'll now pass the call to Frank who will review the financial details for the quarter Frank.

Thank you Glenn and thanks, everyone for joining us today.

Start by providing a brief overview of our financial model and then review our third quarter results, concluding with our guidance for the fourth quarter.

We provide cloud based storage solutions, using our proprietary global software platform.

Our products be two cloud storage and computer backup utilize our shared storage cloud technology platform. They also share the same go to market motions with nearly 80% of our revenue generated from the self serve motion.

Our revenue is nearly 100% recurring primarily paid via credit card computer backup clients have monthly one and two year subscriptions with the one and two years build in advance and recognized ratably over the subscription period.

<unk> two customers are billed monthly in arrears based upon the actual storage used <unk>.

<unk> customers tend to have ever larger invoices since data storage is cumulative and seldom purged.

Before I discuss the financial highlights I want to comment on the impact of the Covid pandemic on our business.

Over the long term, we believe the pandemic can serve as an accelerator for the adoption of public cloud solutions like ours.

But over the short term the impact can cause some variability in the amount of the new data created and stored and be too as well as the number of new subscriptions needed for computer backup customers.

We remain fortunate that to date these impacts have been limited.

Turning to our Q3 financial results unless otherwise noted I will be referring to non-GAAP metrics and growth rates mentioned are year on year.

We remain focused on two key metrics revenue growth and adjusted EBITDA.

Adjusted EBITDA is defined as earnings before interest depreciation amortization noncash charges, such as stock based compensation expense and other expenses or benefits, we deem nonrecurring.

Our Q3 revenue totaled $17 3 million, an increase of 25% beat.

<unk> contributed sales of $6 million, reflecting growth of 59%.

And computer backup revenue totaled $11 $2 million, reflecting 13% growth.

In Q3, B two represented 34.5% of total revenue continuing its upward trend.

The primary driver of growth for both products is new customers and secondarily growth in spec in spend by existing customers.

Computer backup also benefited from this from the start of its price increase effective for about half of the quarter.

And since most backup customers are on annual or two year subscriptions. This increase will continue to phase in as they renew across the next two years at the higher price.

Our retention metrics remain strong we call we track two key metrics net revenue retention and RR and gross customer retention.

These metrics are defined more completely in our earnings releases and filings, but basically NR is the growth of the recurring revenue for an initial set of customers, while gross customer retention measures retention of customers.

Both metrics, our trailing four quarter averages.

Total company <unk> was 110% with be two at 129% and computer backup at one 3%.

<unk> customer retention was 91% overall, 92% for <unk> cloud storage and 90, 191% for computer backup.

All of these <unk> and gross customer retention metrics were within a point of the values for quarter two 2021.

Adjusted gross margin, which excludes noncash expenses of depreciation amortization and stock based compensation was 74% improving from 72% last year and in line with our expectations. The increase is due to slower head count growth.

And our data center and support teams.

Adjusted EBITDA totaled zero point $8 million or 5% down from $2 8 million or 28% last year. This reduction reflects expenses for pre IPO professional services and higher investments in both sales and marketing and R&D.

As we continue to increase investments pursuing the large market potential.

Near term investments were funded in part by a $10 million saved financing are simple agreement for accuray equity, which we closed in quarter three.

And we use some of the proceeds to pay off short short term debt.

This instrument converted to equity at the IPO.

In addition, the IPO added $103 million of cash after fees and expenses in quarter four.

Now I'd like to provide our quarter four outlook for.

For the fourth quarter, we expect revenue to be in the range of $17 seven to $18 $2 million. This guidance implies full year 2021 revenue between 66 $5 million to $67 million.

Representing 24% to 25% full year growth.

We expect quarter four adjusted EBITDA margin to be in the range of minus 10% to minus 6%, reflecting new public company expenses and our increased investments to drive future growth.

We will also provide the Q1 and full year 2022 outlook. When we report Q4 earnings in early 2022.

In closing, we believe we are well positioned to take advantage of our large market opportunity and we remain focused on accelerating key growth investments from our recent IPO proceeds to drive shareholder value.

I'll now turn the call back to Glenn for closing comments before Q&A glib.

Thanks Frank.

We're excited about the opportunity to be the leading independent cloud for data storage.

Our strong Q3 financial results and other accomplishments highlight our building momentum and we're thrilled to be at this inflection point.

Operator, we're now ready to take questions.

Thank you again, ladies and gentlemen would you like to ask a question. Please press Star then one when you touch tone telephone again to ask a question. Please press Star then one.

One moment please.

Our first question comes from I pad Kid, one of Oppenheimer and company. Your line is open.

Thanks, Hey, guys and congrats on the first quarter out of the gate well done.

I wanted to spend some element of time on your go to market motion, especially on B, two and your investment in the direct sales force, maybe you could talk about.

The hiring over there.

And what pieces are you moving in.

And perhaps more importantly, what are you seeing as far as productivity gains and the adjustment to this new model.

How would you characterize progress overall here.

And how is that driving.

Perhaps more visibility from a pipeline standpoint for your business.

Hi.

Good to hear from you thanks for the questions.

So we have the two different go to market motions is the self serve motion in the cells assist motion on the sales assisted motion.

We had started in the beginning of 2021, and we started the outbound sales effort.

And inside team, reaching out using E mail and phone calls to reach out to prospective.

And we also started our customer success management team at the top.

At the beginning of 2021.

Been scaling those through 2021 and there are definitely areas that we are scaling faster with proceeds. So we are actively doing that now.

We also have our partnership team, which we started a couple of years ago and is another area of investment with proceeds.

So.

We have both of those.

Components of the sales assistant model are ones, which we're excited about the opportunity to grow faster with the proceeds that we've just we've just closed.

Can you perhaps elaborate on the investments you've made before the proceeds and how have you seen productivity improve through this timeframe is it developing to your expectations.

Yes, when we started the.

Outbound sales effort at the beginning of the year, we started carefully we hired one person at the very beginning of the year just run that experiment.

So we thought it might take a few months, we actually saw that pipeline was being built quicker.

And so we ended up hiring two additional people and as we saw additional pipeline being built with those two we hired.

Another two people and so we've been excited by the what we call opportunity potential.

That that team is scaling up and it's actually been.

We believe quite successful in doing that.

That group the sales assistant group overall drives.

Is that about 20 times the size of our self serve customers and so we're excited by the fact that.

As the sales assist motion scales. It brings more of the larger customers onto the platform.

And the sales assistant motion in particular with our outbound efforts and our customer success efforts are ones, where more directly we can put dollars behind people to generate output.

Very good good luck I'll jump back in line. Thanks.

Thanks Vivek. Thank you.

Thank you. Our next question comes from Jason <unk> of William Blair Your line.

Oh, Yeah, Hey, guys.

Good afternoon.

Thanks for the questions.

Mike I wanted to talk about AWS.

In particular I saw it reinvent they announced a kind of new.

Our lower cost incident retrieval storage class I think it's.

The S three glacier, but with faster retrieval times I'm just wondering.

First what's your reaction to that is that.

That is competitive with.

With your <unk> with the <unk> service.

And then what's the risk over time that.

AWS continue to kind of.

Chip away at the price cap that you have.

And also.

Introduce.

I guess they also introduced.

Well they cut some of the less fees correct. So.

Those are kind of the two areas, where it seems like there's a big gap between what you offer and what's the risk that they could narrow that gap over time.

Good insights Jason Thank you.

So.

I think there were two separate parts of the question here.

Hit on each of them separately on the on the product announcements.

AWS has hundreds of different services.

And they've had many different offerings on the storage side as well.

When we look at it.

The complexity.

Around the pricing for that offering the footnote alone to explain the pricing for that one sub product.

Component.

You can get out of it.

Okay.

Yeah.

Okay.

Differentiator between us.

And the other diversified cloud platforms and I think this new announcement is just another example of that where they've.

Added yet another layer with yet another bit of complexity for customers to try and figure out.

Which is potentially fine and maybe even useful for a large the largest enterprises, but is just additional complexity for mid market companies.

With <unk>, it's one simple offering at one simple price point, they just use the service in their all of their data is instantly available.

On the egress side.

<unk>.

Amazon made one small step forward in reducing the cost of egress fees, we look at that as a positive a lot of the data today is stored and locked inside of Amazon.

They continue to make.

Further steps in that path it will free more customers to use other breast a breed services like ours. So we are.

Excited about that one little motion.

We believe in multi cloud, we believe customer should be able to use their data with who they want how they want and thats part of why we were pushing for reduced the gross fees and part of why we were a founding member with cloud flair of the bandwidth allowance and so this is they made one very very.

Small step in that direction, but we view that as a positive step for us.

And for the customers great great Great and then one quick follow up.

You guys done any PERC.

Performance benchmarking.

For your <unk> service relative to S. Three and other some of the other cloud storage services I'm just wondering how your performance compares to kind of the standard S. Three and some of the other cloud storage services out there.

So performance is something that customers need for their different offerings and if you look at all the different ways that customers use our service our performance support them in all of their different needs I think one of the key things with object storage is that you can architect your.

Service to use as many threads <expletive>.

Needed.

And so customers can get any kind of performance they want out of our system by using additional threads with our service. So we have hundreds and hundreds of gigabits of bandwidth available for them and they can simply.

Use more threads from their service to get additional performance out of the system.

Great. Thank you.

Thank you.

Thank you. Our next question comes from Simon Leopold of Raymond.

Raymond James Your line is open.

Thanks for taking the question.

Wanted to ask about really two things one is you talked about the trend of the.

Basically revenue per customer on an annualized basis.

Trending higher could you help us understand how to think about that metric.

Where are you and where do you expect to be in say a year, just trying to get a better handle on that.

The second thing is maybe a follow on you talked a little bit about the sales assist in the hiring.

Just like to hear about what Youre doing in terms of maybe the branding and the marketing efforts around promoting the back please brand and.

Raising your profile. Thank you.

Thanks Amy.

Let me touch on each of those and then maybe Frank will want to add color as well so on the revenue per customer.

<unk>.

As you saw on the.

At least.

Our revenue per customer on both our cloud services has been increasing quarter over quarter.

Consistently.

And the revenue per customer of be too.

Is roughly three times that of computer backup.

And so as we continue to have the individual cloud services grow their own customer and ads B two becomes a more dominant part of the overall company both of those things drive the revenue per customer for the overall company.

And some of the things that drive that increased revenue per customer are the following.

We have customers that are larger that are joining us.

Partially as as just our continued efforts.

Acquiring new customers.

The sales assistant motions behind them.

Partially it's the result of customers using additional services through cross sell and upsell. So for example on a computer.

Extended version history adoption.

Also the cross sell of computer backup to be two customers in the B to cross sell to computer backup customers.

And then currently the price increase on computer backup is going to be driving that at just mechanically as over time as more of the customer base moves onto that price increase and finally, the new features and functionality. So we mentioned that we are.

Shipping cloud application expanding expect them to ship that in the first half of 2022 and that is an upsell feature so all those things drive revenue per customer.

Your other question was how do we.

What are we doing on the marketing side.

So we have we are investing in the efforts that we have been doing so.

Scaling up the content and content engagement side, but were also.

Investing now in paid advertising. So we created a campaign around the time of the IPO.

It was the blaze on campaign and we're investing in getting that.

Spread envied by more people, so leveraging the IPO itself and then leveraging pay.

Paid methods to build the brand awareness as we continue to establish us as the independent cloud for data storage.

I would just say that we.

Hiring front, which we didn't really touch on and this is Marty and adult all.

The.

We are more well known right away, we have seen that we did invest in more recruiting so that we could find the best and brightest and attract them to back plays so as we're opening all of these positions that we're talking about and using our proceeds to accelerate crowd, we are better known.

But.

The big thing for US is still finding the right people and getting them onboard.

Thank you very much.

Our next question comes from Eric Thank you Sir.

Securities Your line is open.

Yes, thanks for taking the question.

I wanted to follow up on the response on AWS.

In your log you had noted that.

Customer might save up to $9 per month.

On egress fees.

And that seems to be a pretty nominal amount.

Would suggest that they really made more of a symbolic.

Price reductions and really a meaningful reduction in and I'm curious what is your what is your perspective in terms of their objective with making that change and do you think that there might be more reductions.

Not too far down the line.

Thanks for the question Eric.

Good to hear from you as well.

I will say I, obviously don't sit inside of the boardroom at AWS. So I don't know exactly what their specific thinking was but I will say that.

There is certainly pressure in the marketplace.

To have the egregious egress fees that they charge.

Be dropped or removed.

I don't know exactly what ended up causing it but.

I will say that.

Customers are starting to realize.

That paying the equivalent of 20 months.

<unk> of back please be two storage just to be allowed to get your own data out.

It doesn't feel fair.

And as companies want to use more of the best of breed services and want to have access to their data to use the way they want they can do that with <unk> today.

And they are locked inside of AWS, So I think that.

There is certainly pressure for them to reduce those fees.

But as you said the the actual move that they made is very nominal and helping their customers.

Okay and then.

The NR of 110% I'm curious.

Where do you anticipate that to go its trailed off over.

Over the course of the last year, and I'm curious and I think even from last quarter down 1%.

I'm curious where do you anticipate that will be going as we look ahead over the next say 12 months.

Well NR is an important metric for us.

And we do think of ourselves, especially at that 129% in <unk> two as best in class.

So.

We don't project it.

Into the future, but we do understand that it can move a little bit upward and downward and that the COVID-19 pandemic and the amount of data that individual customers are adding can have a near term impact.

But overall, we expect customers to adding that because thats been the history.

That drives the IRR for us.

Also remember that we do have an upcoming product called cloud replication within be too and that is <unk>.

Projected to come online for us.

Mid year and that will also add a lot of NR for us.

The one other thing just to mention is also in addition to the cloud application, which is a functionality that Frank mentioned for <unk> on the computer backup side the price increase that we did do this quarter.

Is that going to flow through the customer base over the course of approximately two years.

So there'll be some some assistance from that as well.

Great. Okay. Thank you.

Thank you.

Thank you. Our next question, Eric <unk> of Lake Street Capital. Your line is open.

Hey, congrats on the good Q3 in that healthy guide.

My question has to do with.

Where you're investing in the business, but first wanted to figure out the the 250 person head count.

September 30th or was that a November 30th number.

Okay.

And it's.

It's really October so September 30th we had a little over and we're in the two four days. So we're just we're just approximating it at 250.

Okay, and then I know based on the asphalt when you were at 220 APAC in June so roughly.

A 10% increase sequentially.

The head count.

I would imagine youre definitely putting your shoulder into the go to market I would imagine, it's probably easier to get a sales assist side as opposed to the partnership side, but I wanted to drill down more on the partnership head count investment how is the hiring going there.

Yes, it's actually it's an interesting question and I appreciate the detail follow up so on the partnership side, we've actually had good success in bringing the team members onto that team. When in fact, we had a number of them out at the IPO event.

In New York, and we were able to actually meet in person which was great.

The types of people that were hiring for that are ones, who are both looking to bring on new partners into the fold as well as ones that are working to do activities with those partners the joint marketing types of activities.

That team doesn't need to scale at the same rate as the outbound.

Because of the nature of just how that works.

There's more.

The leverage with the individuals.

But we have actually been able to scale up that team already.

And you are correct that it's easier to find sales executives, who why I joined great companies with big futures. So.

We do see more candidates.

Regular executive stock.

Understood. Thanks for taking my question.

Thank you.

Thank you. Our next question comes from Zach Cummins of B Riley Securities. Your line is open.

Yes, hi, good afternoon, thanks for taking my questions and congrats on a solid first quarter out of the gate here.

Just really following up on a lot of similar questions that have been asked so I mean, Glenn how should we think about the growth potential for be two just given the expected investments from the IPO. It sounds like much of the growth. Thus far has been driven by new customer growth, but how should we think about that balance between new customer growth and expand.

And with that existing base going forward.

Yes, it's.

A good question and I think the first part of it is we.

Expect to continue driving new customer growth.

And we expect that new customer growth continues to be the dominant part of where the.

The revenue and the growth comes from at the same time, having a net revenue retention rate of around 130%, obviously as material in.

Drives a lot of a lot of upside for us.

We continue to invest in both areas. So on the net revenue retention side.

Customer success management team that I mentioned that we started in the earlier part of 2021 on the sales side as well as the customer journey management, which is more on the self serve side, but serves a similar type of function.

Of increasing opportunity with existing customers as well as the cloud application that's coming in the first half are all things, which helped drive net revenue retention for that base.

But we do believe that the dominant part continues to come from new customer acquisition.

Understood and just a final question for me on the computer backup side with the recent price increase.

I know, it's still very early on just a few months in but have you seen any notable uptick in attrition with that recent price increase.

We haven't actually.

We've seen very consistent gross customer retention and thats consistent with what we saw when we did a price increase back in 2019. So I think it really speaks to the value that our customers see from the services.

That that we don't see.

We haven't seen an impact from the price increase.

Understood well, thanks for taking my questions and congrats again on the solid results.

Thank you appreciate it.

Okay.

Thank you I'm showing no further questions at this time, let's turn the call back over to Glenn platinum for any closing remarks.

Thank you operator.

Just wanted to say thank you everybody for taking the time to.

With us on our first earnings call as a public company, we're very excited to be taking this next step.

And wishing you a happy holidays, and we'll look forward to talking to you in a couple of months.

Thank you thank.

Thank you.

Thank you ladies and gentlemen, this does conclude today's conference. Thank you all participating you may now disconnect everyone else has left the call.

Okay.

[music].

Sure.

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Thank you for standing by and walk them through the back late Q3, 2021 earnings conference call. At this time, all participants are in a listen only mode.

After the Speakers' presentation there'll be a question and answer session to ask a question at that time. Please press Star then one when you touch phone telephone.

As a reminder, today's conference call is being recorded.

Now I'll turn the conference with your hosts Mr. James Kisner, Vice President of Investor Relations you may begin.

Thank you good afternoon, and welcome to <unk> third quarter 2021 earnings call.

On the call with me today are Glenn Button, then co founder CEO and chair person of the board and Frank <unk> Chief Financial Officer.

Today back players will discuss the quarterly financial results that were distributed earlier this afternoon.

Payments on this call include forward looking statements.

Nice results, our goals and expectations regarding future revenue growth and profitability, you said IPO proceeds and investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements.

Our ability to acquire new customers and successfully engage and expanding usage of our existing customers the cost and success of our marketing efforts our ability to promote our brand our reliance on key personnel and ability to identify and recruit and retain skilled personnel.

Our ability to effectively manage our growth our ability to compete effectively with existing competitors and new market entrants and the growth rates of the markets in which we compete.

You should not rely on our forward looking statements as predictions 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.

[noise] artificially they 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.

A reconciliation of GAAP to non-GAAP results can be found in our earnings release, which was furnished with our form 8-K filed today with the SEC.

You'll also find the slide presentation related to our comments in the webcast viewer.

That is currently redirected to a static page while external vendors working to patch for the log for Jay vulnerability that is broadly affecting many companies on the global Internet.

We will post a presentation on the static page as well.

I would now like to turn the call over to Glenn Web.

Thank you James and thanks to all of you for joining what is back with his first quarterly earnings call as a public company. We had a strong Q3 and will delve into the details of the quarter in a moment, but since this is our first earnings call I'd like to spend a few moments introducing our company to those who may be new to the story.

<unk> is building the leading independent cloud for data storage and I'd like to explain why that is so critical.

Today for mid market companies the CRO.

Storage offerings at the large diversified vendors are complex and expensive.

Also due to the breadth of those vendors they attempt to lock it in data to only using their services.

And they are increasingly in competition with their own customers and partners.

Unlike those vendors all we do have storage and we don't compete with our customers.

Customers are increasingly wanting to use their data with best of breed providers in a multi cloud fashion.

This is why we believe the future is being built on independent cloud platforms and ours has been over 14 years in the making.

For each major element of the tech stack and independent cloud platform, such as our partners cloud flair for networking for digital Ocean for compute.

Has emerged and built a large business yet no one has done that for data storage.

We believe the data storage is among the most critical of all of these elements since none of them would exist without data.

We have gotten to where we are today through the hard work and dedication of our incredible team of about 250 employees.

To whom we are incredibly grateful.

Especially during a very challenging global pandemic.

We'd also like to thank our thousands of partners are nearly half a million customers and the millions of you that read our blog.

Thank you also to the many investors big and small who put your trust in US. We expect this is only the beginning of our journey together and we appreciate your support of our company mission to make it astonishingly easy to store use and protect data.

As I mentioned before we had a strong Q3, which ended September 30 of 2021.

Both of our cloud services performed well led by <unk> cloud storage, which grew revenue rapidly at 59%.

And computer backup, which continued strong double digit growth at 13%.

Resulting in total company growth of 25% to $17 3 million.

<unk> has higher growth rate and our our and other key metrics than our computer backup business and as the mix shift continues towards B to <unk>.

It drives even stronger metrics for the whole company.

Importantly, nearly all of our revenue is recurring which provide good business predictability with annual recurring revenue or <unk>.

Totaling $71 million as of Q3.

First I'll touch on our history and what makes us unique.

Prior to her back planes I and the other four co founders built them successfully sold to tech companies. We started back in 2007 and largely bootstrap it with minimal outside funding.

Today 14 years later, we're all still working together to build and scale the company.

In a world, where many tech ipos have already burned.

Through hundreds of millions of dollars of outside investment prior to going public.

We got here with less than $13 million, an outside equity investment.

We are excited by the opportunity to take the over $100 million and proceeds from our IPO and invested towards our large and fast growing market opportunity.

Let's talk about that market the market for data storage.

It's a great market to be in because data is growing rapidly and no one wants to delete anything.

We all experienced that everyday everyone has become a data harder and all of that data needs to be stored used and protected.

That has resulted in an estimated 91 billion dollar market for.

For public cloud storage in 2025, according to IDC.

Now what is backed by itself.

We have two storage focused cloud offerings.

Our original cloud offering with computer backup, which ended Q3 with $46 million of Ah <unk>.

Computer backup as a cloud service that protects data on all laptops and desktops for businesses and consumers.

Computer backup is a great service, it's completely unlimited and cost only $7 per month.

Wire cutter the product review section of the New York Times consistently selected as the best backup service for most people.

Our second cloud service Btu cloud storage.

Ended Q3 with $25 million of AR.

<unk> is a storage platform for businesses and developers.

It is a pay as you go storage as a service public cloud offering that serves a wide range of use cases, including application development ransomware protection backup and multi cloud.

While this market includes large diversified cloud vendors, namely Amazon Web services, Google cloud on Microsoft Azure.

They have increasingly focused on the largest enterprises with the most complex use cases.

This has left a void where the mid market is ignored and underserved.

[noise] backwards can scale to any size organization as demonstrated by our two extra bytes of data storage under management, which is over 10 times the amount of data stored by Spotify. When they went public just a few years ago.

Built by developers for developers B, two cloud storage is differentiated because it's easy.

Portable and trusted.

We are easy because we focus on just storage on cutting away all the complexity and I'm, making simple to use products, which delivers third party verified savings for customers of up to 92% of.

Of operational time.

This can save developers and Ikea administrative potentially hours from there we could do more value added tasks.

Our affordable charging just one fifth of the diversified cloud platforms pricing, which we are able to do as a result of the software innovation. We've achieved over 14 years of development on our storage cloud.

And our trusted and trust is critical when you were talking about your data.

Unlike the diversified cloud vendors, we do not aim to compete with our customers and partners.

As an independent cloud, we don't lock in customer data too expensive egress fees to get their data out or through other gotcha.

In addition to having differentiated products.

Built on our storage crowd, we have a unique go to market.

It starts with our content and community.

We have been publishing storage focused content on our blog for nearly 15 years and built a community of over 3 million readers and fans.

We have an entire go to market motion around us, including ahead of publishing publishing calendar and distribution through social and press.

This content and engagement helps efficiently build brand.

Warehouse and love for the company.

Qualified leads to our site and making our marketing efforts more efficient.

With those efforts, we have two selling motions self serve and sell assistant.

80% of our customers come to back ways via self serve which enables prospects a show up try the service enter a credit card and scale nearly infinitely without talking to a person.

Wood sales assisted we are inside salespeople, helping prospects along their journey.

And they're typically working with customers with storage needs that are about 20 times.

Larger than that of our self serve customers from a revenue perspective.

Both of these motions are scaling and will further benefit from IPO proceeds.

Another key aspect of our go to market strategy is our partnerships.

We have developer partners and alliance partners.

Developer partners tend to be cloud platforms, with whom we work to jointly enable developers to build applications.

<unk> is an example developer partner for us where customers moving away from Amazon Web services built on us and our developer partner.

Alliance partners are typically software that key deploys to solve some specific use cases.

And through which customers select to have their data flow to back please.

Jim a data protection software company is an example of an alliance partner where customers run the software.

Simply enter their backwards credentials.

And the customers data flows to and is protected in our cloud.

We also do joint go to market activities with these partners and as they get more customers as those customers have more data and as more of those customers choose to use cloud.

All of these stack to drive more revenue for us.

This unique content and community with our self serve and sales assisted motions and powerful partnerships is shared among both cloud services.

And it's how we drive efficiency and scale in our go to market.

Now, let me highlight a few of our beta customers and how they use our service.

One such customer is a developer of a popular music app competitor Spotify in Japan that came to us from Google cloud and now stores over half a petabyte and be too.

We've become a critical part of this developers technology stack.

We also have many customers choosing <unk> for their offsite backups to protect against ransomware.

One notable customer with a school system in Illinois.

Been using legacy on premise storage system for years and it was at the end of its life.

They have to decide whether to spend tens of thousands of dollars paint to upgrade a technology that debuted in the 19 seventies or moved to cloud storage.

They decided to move to backwards b, two because it was easy and affordable.

Another example, a university in the Midwest was told that they could receive a discount on their cyber security insurance premiums if they instituted an offsite immutable backup of their servers.

They chose <unk> because it was the easiest and most affordable service to get them that insurance premium discount.

These.

Three examples of the wide variety of use cases and opportunities that we have to help customers store use and protect their data.

If you'd like more examples we share many more on the customer stories.

<unk> of our web site and periodically on our blog.

I now want to highlight three important topics our IPO partnership efforts.

And developer focus.

First our IPO in November we completed our initial public offering which was a tremendous success.

For a company that was effectively bootstraps it was an especially important financial event raising over $100 million in net proceeds, which we plan to use to accelerate our growth.

It was also a significant awareness generating and branding event.

Second our partnerships.

In September we announced a new developer partnership with one of the largest privately held cloud vendors.

The back please volcker partnership means more developers can build the flexible tech stacks they want.

Organization is now no longer have to tolerate vendor lock in complexity and costs that have traditionally come with legacy options.

And third our developer focus.

<unk> is a storage platform for developers and we continue to empower developers to be successful.

We already have thousands of developers on our platform partnerships with other leading cloud platforms to enable developers to build.

And our recent partnership with <unk> is yet another step in supporting developers.

This October we also held our inaugural developer day.

Which was a great event that help developers connect with pathways and learn how to further leverage the advantages of our cloud storage solution.

I'll now pass the call to Frank who will review the financial details for the quarter.

Thanks.

Thank you Glenn and thanks, everyone for joining us today.

I'll start by providing a brief overview of our financial model and then review our third quarter results, concluding with our guidance for the fourth quarter.

We provide cloud based storage solutions, using our proprietary global software platform our.

Our revenue is nearly 100% recurring primarily paid via credit card <unk>.

Peter backup clients have monthly one and two year subscriptions with the one and two years build in advance and recognized ratably over the subscription period.

<unk> two customers are billed monthly in arrears based upon the actual storage used.

The two customers tend to have ever larger invoices since data storage is cumulative and seldom purged.

Before I discuss the financial highlights I want to comment on the impact of the Covid pandemic on our business.

Over the long term, we believe the pandemic conserve as an accelerator for the adoption of public cloud solutions like ours.

But over the short term the impact can cause some variability in the amount of the new data created in storage, indeed, too as well as the number of new subscriptions needed for computer backup customers.