Q3 2023 Backblaze Inc Earnings Call
Good day and welcome to the back place third quarter 2023 earnings Conference call all participants will be in listen only mode.
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Please note. This event is being recorded I would now like to turn the conference over to Mimi Kong Director of Investor Relations. Please go ahead.
Thank you good afternoon, and welcome to back lasers third quarter fiscal year 2023 earnings call.
On the call with me today are glad Beckman co founder CEO and chair person of the board and Frank Patchell Chief Financial Officer.
Today that plays 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 could 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 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 or.
Our discussion today will include non-GAAP financial measures. These non-GAAP financial these non-GAAP financial measures should be considered in addition to and not as a substitute for our GAAP results and 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 S E C.
You can also find a slide presentation related to our comments in the webcast, which will also be posted to our earning our investor Relations page. After the call. Please also see our press release or presentation for definitions of additional metrics such as N R R and gross customer retention rates.
Before I turn the call over to Glen 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 were gathered they say technologies platform.
You for joining us and I would now like to turn the call over to Glenn but.
Thank you Amy and welcome everyone to the call we delivered a strong Q3.
First we believe that we're at an inflection point with higher revenue growth expected in Q4 and 2024.
Second we've made great progress on our financial performance.
Adjusted EBITDA and cash.
It won't be till later.
And third our team continues to innovate on our storage cloud delivery.
Delivering a dramatic increase.
<unk> performance and <unk>.
Making our btu cloud storage up to 30% faster than Amazon web services storage offering while continuing to be just one fifth the price.
Before Frank talks about the financials.
To share some observations on the industry's continued shift towards the open cloud.
We hosted our third annual Tech day, a few weeks ago.
So the idea administrators developers and other cloud architects attended technique, which we co presented with core we've fastly and snowflake.
The event demonstrated how btu cloud storage works with other specialized providers to power a successful open cloud strategy.
This strategy gives customers the power to break free from the constraints and high cost of traditional card providers.
For AI use cases, we presented a session with core weak, especially cloud provider of large scale GPU accelerated workloads to show how pairing our services supports AI workflows, which consume and generate data at an exponential rate.
Beat you caught storage isn't ideal cost effective storage solution for AI workflows and processes, including the AI model training and inference data.
With vastly the presentation showcased how does secure edge workflows.
Serve up data from Btu cloud storage.
And with Snowflake, we shared how their analytics platform efficiently works on data stored within vitro demonstrating how backwards. The interoperability allows users to put industry, leading platforms like snowflake to work on data within our storage cloud.
The thousands of technical decision makers participating attack. They further confirms that customers are more and more interested in moving toward the open cloud where they have the freedom to build the best solutions for their needs at a fraction of the cost.
Turning to our growth strategy, we focus on making it easier for customers to adopt and grow on btu caught storage, while continuing to expand the ecosystem of partners and resellers.
As we've discussed before this strategy includes self serve sales assisted and partnership efforts along with focusing on cultivating applications storage use cases.
Touch on some highlights for each of these.
For self serve we have completed overhauling our website infrastructure and have seen encouraging results with increased year over year growth in new customers.
Our sales assisted motion continues to add and grow larger customers. For example, one such large customers started with 400 terabytes of data earlier in the year and has since fully leaned in increasing their data stored by buybacks, which translates to over $100000 in a or this is.
The trend, we see often where customers start small and move more data to beat you once they realized the full extent of btu cost storage as cost savings and ease of use.
Moving on to our partnership initiatives, we announced new and expanded partnerships with haiku and Kent coat.
The haiku partnership helps extend our reach within the multibillion dollar data protection as a service market and the Kimco partnership adds an additional beech you called storage distribution point for media production customers.
We also continue to make progress with our channel partner program in Q3, we signed our largest multi year Beecher reserve deal with an upfront 1 billion dollar commitment.
And finally, I'd like to share a developer story, which highlights our ability to serve innovators in the AI space and illustrates how we continue to make headway within our application storage initiative.
One of our joint customers with <unk> is an application developer using AI to reinvent how to read the motion capture works.
With this customers SaaS offering there's no need for a special environments clothing sensors creators can simply captures human movement.
And there are AI translates it into usable three D animation.
But they needed a cloud storage provider that could scale with their ambitious growth plans, while also providing free egress for them to easily migrate their data into core we have to run AI workloads and archive those results.
After considering other traditional providers they found it back place could best serve their needs.
This is a great example of how AI use cases require both powerful servers for processing large volumes of data as well as affordable accessible object storage.
Next I'm excited to share our recent important innovation in our storage platform, which we called Shard stash.
That led to a significant performance improvements for beat to cloud storage.
Small file uploads, which redefined as upload smaller than one megabyte.
The majority of upload activity for Btu.
With this type of upload backwards is now up to 30% faster than Amazon S. Three.
This breakthrough increases efficiency for customers and helps free up resources for other tasks.
Btu called storage continues to be one fifth the cost of the traditional cloud providers, while delivering more value to customers across our platform.
Additionally for computer backup we launched version nine point out which features improvements to performance and usability as well as the highly requested new local restore experience.
As we announced in August we're looking forward to continued improvements with our advanced groups administration, which delivers features to free enterprise I T managers from the burden of complex and expensive endpoint workstation backup solutions.
Now I'd like to share some of the feedback we received from the price changes and product upgrades, we announced in August which became effective in October.
While it is still early churn was generally in line with our expectations. Our customers. Appreciate our continued investments in the platform and value to our recent upgrades and improvements to popular features such as complementary one year extended version history for our computer backup service.
And three times free egress for Btu called storage.
As we have shared previously we believe an open cloud will serve customers best and our free egress helps make that a reality.
Our announcement, we saw new customers engage with us directly because high egress fees charged by other providers.
A major pain point for them.
Offering free egress cut through the noise and spoke to what customers really cared about the freedom to choose best of breed solutions for how they want to store and use their data.
And before I hand, the call over to Frank I'm excited to welcome Crystal Pet.
Our new senior Vice President of cloud operations Tabak. Please.
Chris is a customer centric leader with over 25 years of industry experience in edge computing data Center management, and multi cloud enablement at companies like stack path and cloud reach Kris.
Christy oversees the strategy and operations of our global cloud storage platform.
<unk> already seen Christmas impact on accelerating the deployment of the performance improvements I mentioned earlier, we're all very excited to have him aboard.
Now I'd like to turn the call over to Frank.
Yeah.
Thank you Glenn and thanks, everyone for joining us today.
Q3 was highlighted by surpassing the 100 million dollar in a our milestone.
As Cliff mentioned, we also believe it is an important inflection point for the company.
Next quarter, we expect to accelerate revenue growth reduced cash usage by about half sequentially and reach positive adjusted EBITDA.
Which I will discuss in further detail.
Turning to our third quarter financial results, unless otherwise noted I'll be referring to non-GAAP metrics and the growth rates mentioned are year on year.
We remain focused on two key metrics revenue growth and adjusted EBITDA, which is defined in our earnings release.
I will provide some initial thoughts on 2024 later in this call and full year 2020 for guidance on our Q4 earnings call in February.
Our quarter three revenue totaled $25 3 million an increase of 15%.
The two cloud storage revenue was $11 6 million, reflecting a 31% growth computer backup revenue totaled $13 7 million, reflecting 4% growth.
In Q3 D to cloud storage represented 46% of total revenue.
Turning to retention metrics, we track net revenue retention or NR are and gross customer retention.
Total company at all or was 108% with be two cloud storage at 120% and get them to go back up at 100%.
Gross customer retention was 91% overall consistent with the prior year with 90% for be two cloud storage and 91% for computer backup.
Working down the P&L adjusted gross margin was 74% down from 76% last year Sim.
Similar to prior quarters. The primary driver of the decrease in gross margin year on year is due to the costs associated with our new and expanded data centers.
This quarter adjusted EBITDAR.
Loss of 841000 were negative 3% of revenue compared to a loss of $1 9 million or negative 8% in quarter three of 2022.
The beat was due to gains in operating efficiencies and to a lesser extent some one time gains.
Turning to the balance sheet cash and short term investments, including restricted cash totaled 36 million at the end of Q3 2023 versus 45 million at the end of Q2 2023.
Now I'd like to provide our outlook for Q4.
Regarding our recent price increase while still early churn has generally been in line with our expectations and we see the price change as a net positive for revenue adjusted EBITDA gross margin and cash usage.
The fourth quarter, we expect revenue to be in the range of 27.9 to $28 7 million.
This is a wider range than typical for our fourth quarter guidance due to the price increase that just started and is rolling through quarter four.
We expect Q4, adjusted EBITDA margin between a positive 1% and a positive 3% Q.
Q4 is expected to be our first quarter of positive adjusted EBITDA as the public company.
As an additional highlight we also expect gross margin to trend up and cashew sheets to decreased by half sequentially due to revenue growth and the impact of the price increase as well as further operational efficiencies.
For the full year of 2023, we are raising the bottom end of our full year revenue guidance by 1.2 million to 101 point to two $102 million.
We are also improving our full year adjusted EBITDA guidance to a range of negative 6% to negative 4%.
We are still in the process of finalizing our 2020 budget and we will provide our full 2024 guidance in February.
However, we expect Q3 2023 to be the inflection point with revenue growth trending up in Q4 and in 2024.
Additionally, we anticipate adjusted EBITDA will be positive for the full year next year as we continued to drive top and bottom line growth.
Now pass the call back to Glenn Club.
Thanks, Frank we had a strong Q3 expect to see higher revenue growth in Q4, and 2024 and are on track to be adjusted EBITDA positive in quarter, four with dramatically lower cash usage I want to extend a huge thank you tore team both for delivering these financial results and for developing the <unk>.
<unk> performance innovation that is now enabling us to offer upload speeds up to 30% faster than AWS.
These are major accomplishments to be proud of.
Operator, we're now ready to take questions on our call.
Thank you.
We'll now begin the question and answer session.
You ask a question you May press Star then one on you touched on phone.
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To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our bobcat.
Yeah.
My first question comes from Simon Leopold with Raymond James. Please go ahead.
Thank you for taking the question I wanted to see if maybe you could help us think about how the price increases could play out in 'twenty 'twenty four and I appreciate youre not ready to guide to 'twenty 'twenty four but what might be helpful. Is if you could walk us through the timeline and impact when you.
You've done price increases in the past thank you.
Sure we've had two price increases in the past in our computer backup.
Business and the way that computer backup the price increase rolls through is that 75% of those customers are on one and two year contracts. So as they renew the price increase phases AD and the same will be this time on that computer backup there'll be a continued.
And of the price increase it's started in October this year and will phase in across that period.
On the computer backup side and then on the beach.
<unk> cloud storage side. This is the first time that we're having a price increase is.
It's for our pay as you go customers and all of those customers had their price increases become effective immediately in October. So that's there. So that's really how it will go the b two is already engaged and the computer backup will phase in.
Great and then I guess the thing I'm trying to get a better handle on is if you're providing the free egress and I understand why that would be attractive to your customers is there some way to help us understand the cost to you.
As Frank said, they have seen the price increases take effect and we do have customers that are using beat your reserve and customers that aren't committed contracts and they do not have the price increase effect them.
Great and then just just as a quick follow up.
Just trying to understand if your allowing free egress I assume that means you're absorbing those costs can you give us some sense of how to estimate the magnitude of the cost to you.
Well, yes, we remember as far as the kras for all of our partner accounts. They had free egress all ratty, so and egress is not immaterial, it's certainly a cost of the business.
We think that.
Going forward the customers now get three times their storage amount in free egress. We think this is very important to the Ogden open cloud concept and it's really going to boost the business overall for that reason. So the upsides are much more positive than any limited downside in the cost so if there.
It's not immaterial, but it's very absorbable.
Thank you very much.
Our next question comes from E kicked around with.
Oppenheimer. Please go ahead.
Thanks, guys nice results.
Follow up on fine once coal question I guess.
Why do you feel free groceries, even needed given the significant cost advantage you already you could lever relative to where dws one by itself.
Over very quickly and at a gross cost of the customer would incur and transferring over.
Hey, Terry this is Glen Thank you for the question.
We we believe that we provided obviously a tremendous amount of value to the customer simply because we provide a very easy to use storage platform and that sort of supply for them is one fifth the price point of AWS for the storage. So that's certainly strong material value to the customer one of the things that we have found with <unk>.
<unk> is that customers can be confused at times about what <unk> is going to cost for them because they don't necessarily know it is a little bit hard for them to sometimes predict and because they are.
Because they've been burned by the egress fees on the traditional cloud providers. They just worried so it's a point of mental friction for them and so with our goal of making it easy for customers and our goal really driving the open cloud movement, where customers get to choose where.
Are they want to keep it or to how they want to use it we wanted to make that easy like Frank said, it's not the egress.
The revenue that we collected was not immaterial, but we're certainly not very significant because one we already offered completely free aggressively through our partners companies like Fastly and cloud player in Volcker and others and.
It works well.
We're providing up to three <unk> on any any piece.
Are you guys today so.
Not a huge financial impact for us, but it is we believe a huge benefit to customers.
And kind of how do we think about the open cloud.
Bruce you required them to sign multiyear.
Tracks publication or one can be month to month and have you pay for you Chris.
So the then there's this doesn't change the requirement for what for how we work with the customers the customers can still sign up for a pay as you go.
They can still sign up for it they can still purchase Beecher reserve and they can still kind of committed contract with us for a for a longer period of time, so that the freight doesn't change with that now what we do offer is a universal data migration, which is where we cover the cost of egress to get the data out.
From the traditional cloud providers to get the data out from Amazon or Azure or Google cloud and we and if we're providing the customer the ability to do that than we do ask for a one year commitment on their data to us, but in terms of free us from back place up to.
<unk>, there's no there's no requirement for them to sign a contract for that.
Okay and regarding the pricing.
B to what percent of your B to reopen you use pay as you go versus contracted ahead of time.
It's about majority currently.
Dorothy Okay.
When you talk about being there.
Nobody else has that before the price increase or after I suddenly, becoming a quarter rather than the fifth the price Sofia AWS. After this price increase.
So we believe that were still approximately one fifth the price point to date.
AWS has a variety of different cost with transaction fees and everything else as well all of which are added costs and added complexity. So we believe that we're still approximately one fifth of.
The price plan.
And then last one for me Glenn just from a big picture standpoint.
Macro wise.
About.
Your line is looking like.
Backlog looking like an average deal size looking like and also.
Clothing rates.
Help me understand you know.
I'm, an execution standpoint, where you stand on that front I appreciate it.
Sure absolutely so we've talked in prior quarters about.
How the pipelines.
The close rates were good the timelines, we're good that we werent seeing we weren't seeing those get longer or worse, whereas others have had seen that what we're seeing now is in line with our prior quarters. So I think quite quite strong.
And the pipeline itself is the largest pipeline that we've ever had at the at the company. So I'm feeling feeling pretty good about where where things stand from a macro for us.
Thank you.
Can you just go from it's naturally as the company grows from quarter to quarter, you're going to have the biggest back but maybe you could talk about the growth of the backlog number one and number two the quality how.
Mature is it.
Oh for Ya.
Okay.
Yeah. So what can I say about that I think that from from the pipeline is the biggest that we've had at the company and it is bigger.
The pipeline has accelerated more.
Then the than the growth of the company. So it is it has actually grown relative to the company not just relative not just in sheer dollars.
And I think from from the conversations that we've had with the sales team.
They still feel good about the deals in there obviously like every like all the deals that they have the different stages that they are marked through them, but in terms of the quality based on the stages that they are at the pipeline has grown for each of the stages.
Great. Good stuff. Thank you guys appreciate it good luck.
Thanks.
Yeah.
Our next question comes from Chad Bennett with Craig Hallum. Please go ahead.
Great. Thanks for taking my questions. So just on on kind of a price increase impacted at least how youre looking at mix in the fourth quarter here between the Btu side and and computer backups.
So you see more immediate impact on the Btu side of the price increase with pay as you go. So should we expect the mix revenue mix or be too to increase in the fourth quarter is that a fair way to think about it.
The.
Not necessarily looking at scale the overall churn.
So Chris we've never had a b two price increase although to date for one month it looks fine.
So and the second thing is that the computer backup price increases higher than the b to b.
So when we're looking at it what we're seeing right now is about the same but overall remember that the two with a growth rate.
Using the growth rates from this quarter it was growing at 31%.
And computer backup was growing at 4%, so and <unk> is already 46% of the total business. So long term b two is overtaking as the dominant product quickly.
I guess, maybe maybe to ask so I think the way you talked about a pre price increase last quarter. You know is b two <unk> gross.
You know would be in the low thirties, this quarter, but accelerated up to 40% in in the December quarter is that still the kind of ballpark, we should think about.
Yes, 14th week Okay.
<unk>, Okay I just wanted to make sure we're still on track with that.
And then.
And then in terms of.
You know as much as I can.
Kind of Directionally think about you know at the midpoint of your fourth quarter.
Our revenue guidance range you Reaccelerate, you know from 15% this quarter to call. It you know, maybe 23, 24% year over year in the fourth quarter here.
When we think about next year I assume you're talking about next year accelerating beyond that fourth quarter growth rate is is that how you think about it.
So the youre right about the midpoint, so we see that midpoint growth rate of around 24% and our.
Our quarter four.
And we are seeing.
Both rates similar to that going forward as we enter 2024.
Okay.
So it is.
Just in terms of the price increase on an a and b to it doesn't sound like you know again, small dataset and and a timeline, but it doesn't sound like you're seeing increased churn.
Hum.
E. I don't know if you've seen anything in terms of data usage or data growth changes you know, whether it's because it would be to the price increase or not but I'm just conceptually thinking about you.
You know effectively a 20% price increase.
And if you.
Believe that business.
You know axa price increase could grow.
Now 35, 40% next year.
You know it is there is there anything changing in terms of your assumptions of growth.
Kinda non price increase on that part of the business.
No if you understand what I'm asking.
I think so the so.
So we always look at growth in new revenue coming from new customers amplification, which is growth in crane customers and then we have a price increase so those are the three factors in this question the churn in there and so because our churn so far appears Fi our trend assumptions the other.
Areas of growth are.
As expected.
So so data growth through new logo growth you aren't seeing any any deceleration is what you're saying.
Correct.
Okay, and then last one for me if I could.
So I think this might be related to the very large b to reserve a deal you talked about on the call, but your long term deferred revs are I think.
Effectively almost doubled sequentially.
That related to that deal you know it was about almost a $4 million sequential increase or were there were there more b two reserve deals kind of multiyear deals yeah on top of that thanks.
Yes.
That single deal is the largest reason for the increase and then there are other.
What was that.
Yeah.
Hello.
Hello did you hear me.
Yeah, you cut out at the other there were other deals I assume you said, Frank Yes, yes, yes, but that was the largest.
Okay, Great that's great to hear okay. Thanks, nice job again on the quarter guys.
Thank you.
Our next question comes from Eric to pick at all with JMP.
JMP Securities. Please go ahead.
Yeah. Thanks for taking the question and congrats on a good quarter.
So one you said that the churn is is about what you had expected can you give us any any sense for whether you were expecting a change or how much you think it does change.
From what you've seen so far and then too.
Can you remind us what your performance was relative to AWS before you made the enhancements were you at parity and now you're 30% faster or or where you know what what was the relative change.
And do you think that youre going to continue to improve your relative performance to our to the S. Three performance.
So Eric just on the on the performance side of it.
We really focused on measuring our performance versus our Amazon. Once we had charts I should put in place. So we think we were probably a little bit on the slower side before and now were quite a bit faster than than they are at this point in terms of can we continue.
To innovate further down the performance side. The answer is yes, we have we have.
Uh huh.
We'll see whether to what extent those continue to make.
The scale of those improvements, but we do have items that we we see as possibilities for us to continue to drive further performance improvements and then on the other question that you had I believe you paid out for a second but I believe it was the question of how was what where we where our expectations around insurance.
The price increase.
Yes, that's correct.
Yeah, and we were we had history on the computer backup.
Hmm.
Price increase although this one had a R.
Scented version history being bundled into the product. So you are actually getting a product innovation on top of.
And then.
The increase to that so.
We were modeling in just a modest more modest today are and we are.
And our <unk> was.
We modeled in our churn rate and so far we are better than that model churn rate, but it's very early and that's why we didn't want to say more about it yet.
Okay, and then coming back to a performance question.
Is is this the type of thing where S.
S. Threes performance is steadily improving over time or is it a fairly stagnant kind of performance metric that you that on.
On the <unk> side.
So I would say I am not sure that we have good data on that we during our testing it.
It was very stable. So it's not the kind of thing where it has it moved around wildly during our testing nor did we see any performance improvements on their front during that period, but that period was fairly short in terms of how <unk> performance compared this year to last year to two years ago.
I don't I'm not sure that we have that that data and maybe there is some public information available on that.
But in general I think that is.
What they've been doing it is.
S trade that has kind of been the default offering and then they've had slower versions things like glacier.
Chip, which are slower, but not necessarily things that are faster. So this is currently faster than than their top tier of service.
Alright, very good thank you.
Yeah.
Our next question comes from Eric Martin.
Street capital market. Please go ahead.
Yeah in the renewals.
You talked about the at least with based on the one month of evidence that youre seeing customer the churn in line with expectations and then kind of a macro perspective, we've got data growth that there hasn't been any deceleration there on the computer backup side at least for the one month of observation have you seen any push back on.
People asking for terms on there one or two year.
I know, it's a one or two year upfront payment any pushback there.
You know what's funny is we've actually seen some.
Some we've got some customers wanting to.
Switch from monthly to one and two year to lock in the price point ahead of ahead of the pricing.
Yeah.
Okay.
So the.
Dollar amounts that are not an issue for people okay.
And then shifting over to the 'twenty.
24, I know you're going to give us a full year outlook in February but.
One of the things that.
We've seen here in 2023 is on the gross margin side has some data center investments how should we be thinking about that for 2024.
Yes, gross but we have always said that gross margin was going to be in the mid 70% on the non-GAAP and now we think of it is in the upper.
70% range.
Got it.
Thanks for taking my question.
Our next question comes from back coming with B Riley Security. Please go ahead.
Great Hi, glad hi, Frank Thanks for taking my questions.
Just starting off Brent can you talk a little bit more about the cash usage I know it sounds like it's supposed to fall by about half in Q4, I think you gave a target near the end of August of at least $20 million exiting next year are you still feeling pretty good about that target or how should we think about cash usage.
That we provided last time was that we would exit 2024 with $20 million and we still feel very good about that and the cash breakeven would be in the first half of 2025, so that remains the same.
Got it helpful and one question for Glenn just around the opportunity with <unk> with the AI training models are interesting to see kind of your closer partnership with Corey can you just talk about the potential opportunity youre seeing there and any potential tailwind you could see is as more people look for ways to train AI models.
Yeah, absolutely I mean, I think we've all seen that debt.
<unk> uses data at large scale and the growth in data and the data and data needs and data usage data evaluation.
<unk> is growing exponentially, we've shared customer and how their use cases are on this call and prior calls and others.
That where our customers are using our storage.
Two.
Keeping the data that's being used.
<unk> B to cloud storage has a play in different parts of the workflow for AI and I think it was it was interesting that in the example that we brought that we shared of the customer and they were a customer that started looking for how do I find a.
Place to keep my data somewhere where it's affordable to keep it but also easily accessible to court and so core we've actually introduced them to us.
We've had customers that have come to us off of some of the traditional card providers and looked for it.
He used us first for the storage and then we've introduced them to court for the compute side of it. So I think the the overall opportunity is data growth and lots of different areas as a result of.
The AI use cases.
Usage of that data, increasing and the fact that you want your data to be accessible to the different places where you want to run models and do analysis and that therefore, it needs to be part of this open cloud ecosystem that if your data is locked inside of.
But a traditional cloud like AWS, then it becomes expensive to leverage it with other providers like <unk> and others, where you want the data to be accessible to them. So.
I believe that that position open cloud provider for storage is an increasingly good place to be when customers want their data accessible to all of these different model providers.
Got it well thanks for taking my questions and best of luck with the rest of the year.
Okay.
Our next question comes from Jason.
Either way.
That'd be William Blair. Please go ahead.
Yeah. Thank you hey, guys.
Just a few ones for me first off could you just remind us of the specific details on the price increases for both computer backup and be too.
Yes.
The details on Kim.
B two were only for pay as you go customers. So our customers that are locked in on B to reserve or other committed contracts had no impact and it was 20%.
And then on a computer backup side.
We were really doing is chegg.
Taking R E V H R.
China, our extended version history product, which was $2 per month.
And we were bundling that ends we're adding $2 per month too.
The accounts for all of those that didn't have it it was a very popular product already so it was only for those who didnt have it.
And then we just get a little bit of rounding here and there that make it difficult market friendly priced well.
Discounts, we have a regular discounts for one year and two year.
What percentage of customers didn't have E V H.
But we've never shared the specifics there, but what I'll say is <unk>.
<unk> had good adoption I mean, it was definitely a material percentage of the customers that had adopted it but it was significantly.
Yeah, it's definitely less than half of.
The customer base.
That had already taken it and it was getting good adoption, continuing which was why we felt like it was a good option to include it in because customer likes it.
So now it's just completely baked in when somebody signs up for this product it's.
Forget the exact rate okay.
Yes.
Alright, and then.
As we look forward what is the outlook for the computer backup business.
You're having a good year this year I guess, a lot of that must be due to the price increase.
How should we think about next year just broadly speaking do you think the I know youre going to give more specific guidance, but do you think the growth rate.
Could moderate somewhat just because of the impact of the price increase won't be as material. In 2024, just help us think through some of the puts and takes on computer back up in 2024.
Well as we look at the puts and takes there as you described it.
We've said that we're going to have a growth rate in the upper single digits.
For computer backup.
So that would include in new accounts, you know additional subscriptions and the price increase for Q4 for Q4, So Q4 it gotcha.
But for next year I was thinking yeah.
Yeah, I think for for next year.
One of the things is that the price increase it's still going to be rolling out for computer backup like Frank said over the course of two years. So all of them monthly customers will have already on it now, but the one year customers in the two year customers will continue to be okay I see.
This increase over the next two year period.
Okay. So the single digit growth that you talked about for this year.
And I think you have talked about it for next year as well. So that's so at this point that still holds it sounds like.
Well, we'll we'll give that growth kind of outlook in the February timeframe.
Okay.
Okay. Good and then the last question for me is just.
You talked about sort of the inflection point in growth in the business in Q4, and then moving into next year.
Can you just sort of.
Rank order the drivers there that is creating this inflection point.
Oh sure it's always.
The business itself, the new logos that are coming on it's always growth in existing business, which we call amplification B two added subscriptions and computer backup and then the price increase.
Okay. Good.
Okay and the.
And the B.
B to reserve is that cause that.
Of that.
Yes, yes.
Yes, yes, because it's continuing to be a larger and larger portion of our growth sample amplification piece.
Now <unk> serve as the win itself through our resellers, that's usually when customers are taking a year contract for a stated amount of storage and that's bundled in with the resellers other products that they're selling at.
And it has a different revenue recognition if you recall.
Okay. Thank you guys.
Yeah.
No further question online.
Copper had grew up with further questions.
Thanks to all of the analysts joining today's call.
As I mentioned, we're going to move onto some great questions that we received from our retail investors on a state technologies platform.
First question is for glad.
But I understand that that <unk> plays mostly in the small mid market space.
Has there been a trend or a push towards larger pose your customers.
Yes, that's probably we talked about that we're focused on the mid market.
And that we're increasingly focused on moving up in the mid market and so last quarter, we talked about having 74 customers with over $50000 of AUR or in this quarter, we continue to add to that number.
The compared to our average.
Our multi year commit that we signed this quarter. So we're continuing to focus on and move up market.
With our services.
The next question is also for you Glenn.
The company seems fairly quiet and not very strong when it comes to marketing are there any plans to up the marketing game to attract new customers and companies to your products.
So we actually believe we're getting good awareness within our target market.
3 million people annually read our storage focused blog, we've also scaled our presence and our success outcomes at events and trade shows.
As I mentioned earlier, our pipeline is the highest ever and on top of that we are planning to ramp up our brand building efforts in 2024, and we've recently been laying the groundwork to do just that.
Now how do you see AI aligning tier strategy and financial results.
So we and.
And we've talked about the AI opportunity for us a little bit earlier in the call. So just touching on that for a second because it's obviously a massive use case for data backwards, but you as an ideal platform for those storage use cases, we help customers at various places in their workflows and our partnership with <unk> <unk>.
<unk> customers, who wish to use back please for storage, where we for specialized Gpus and we certainly believe that we have a significant opportunity to continue to help in that space.
What do you anticipate will be the hardest hurdles in the coming years and what are the challenges that should be anticipated.
So as we scale and we continue to become a much larger business ensuring that we continue to maintain our great culture is certainly something that I'm paying a lot of attention to our people care deeply about our customers each other.
There are mission and.
I want to make sure that we don't lose that as we become a larger and larger company.
Thank you this question for you.
What many other ways are you planning to bring in cash and expand the company. So we could see a healthy share price growth.
Now for our current growth plans, we don't expect to need to raise cash and thats because of our overall growth the price increase and the operating efficiencies that continue to phase in but we are actively investing in growing the company. Because you may remember, we have a huge market at the $100 billion in.
Front of us.
But how.
How do you plan to compete with the massive cloud companies, such as Microsoft Amazon and alphabet.
So we've competed with them since the day, we launched speech your cloud storage seven years ago, and we continuously win customers away from them, we are easier to use them.
The analysis that found them.
Our customers pay 90% of their time by using that we're dramatically less expensive, we now have three egress and which.
Yeah.
<unk>, which is something that they are trying to do the observed they're trying to lock customers in and now we are also faster.
Then then Amazon so we.
We feel very good about our ability to compete successfully.
Now considering the current conflicts the U S is economically or otherwise involved and how do you see the company being affected both short term and long term.
Okay.
So we have about half a million customers spread across 175 countries.
We don't have any parts of our concentration in conflict areas. So I don't think the company is directly affected.
Looking at the U S economy, specifically.
Which is obviously experiencing some economic pressure on interest rates inflation et cetera.
That challenge in many ways is an opportunity for us as we believe that we're well positioned to help customers. When they are affected by those pressures and since we are such a good value for them as as customers look to optimize there.
Cost in their workflows, we are a great way to do that.
Well, Glenn Nowadays, we rely more on remote storage by our data.
With that being said we have also progressed two terabyte.
Five micron memory cards.
Is that ladies interested in onsite server or alternative note storage options for its clients.
So we always listen to customer needs.
For the most part we see customers shifting from.
From traditional cloud providers and from on premises to backwards, we don't see a lot of interest in redeploying on premises equipment, but always always listening to clients always paying attention to what they're trying to do and if something shifts on that front, we'll certainly we'll certainly look to considered for our roadmap.
Are there any plans to change pricing model or tiered pricing.
No current plans, we just successfully rolled out the price increase that we've talked about it on this call. We have a very simple pricing model. That's what are the reasons our customers like us. We don't have that same complicated pricing structure that Amazon has which can result in expenses running away from customers. So no plans to change that.
No Frank this one's for you what is the growth of the company.
Well as we reported we have 15% overall growth, but our day two flagship product grew 31%.
We also made a substantial increase in our guidance for Q4, and we discussed that we really are at an inflection point.
So due to that continued growth that we're getting in new logos and the price increase.
We see that growth continuing and carrying into 2024.
Narcolepsy is back placed prices are competitive then what do you see as the biggest hangups conversion and adoption tier services.
Historically, we haven't spent a lot on branding and awareness, but we're taking steps in that direction as I mentioned earlier about our brand building efforts.
When customers do evaluate pathways, we have a high rate of success.
And I think one of the important things is that we're starting to see the shift toward the open cloud it.
For a long time years and years ago that was the outage of no one got fired for buying I B M.
Then it became you did get fired for buying a b M.
Because.
The over time customer needs change and technology is changing and these shifts.
Sometimes take time, but when they do they become significant and we see the pendulum shifting back to customers wanting to break free from that lock in of the traditional crowds.
And so that's that's a trend that I think we're seeing and see a lot of opportunity in.
And this is our last question, we're ready we're getting close to the time now Frank what is being done to limit cost of operations to better the p/e ratio as it sits in the negative.
Well first of all we are focused on growing revenue.
Remember, we have enormous opportunity out there, but we are driving operational efficiencies to you can see it in our operating costs our opex.
Which is fairly flat quarter on quarter. This quarter it was actually below the previous.
And part of that is that our head count growth has really been slowing but really fairly flat to last year in comparison, and we're also going to be able to leverage that expanded footprint in our data centers, which remember we expanded them. During this year and now we can grow into them.
But overall, we're a growth company and we continue to drive growth with our investments and we do still expect to reach cash flow positive by mid 2025 with all of that.
Now before I hand, the call back to grab a I understand there were some audio issues today, we will definitely look into it by our next call, but if there any questions that you need any clarity on please feel free to reach out to me at IR at <unk> Dot com.
Now I will hand, I'll hand, the call back over to Glenn but.
Alright. Thanks, maybe thank you everybody for joining us today on our on our earnings call and we'll look forward to chatting with you on our next one in February.
Operator.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.