Q2 2024 Backblaze Inc Earnings Call

Speaker Change: Good day and welcome to the Backblaze second quarter 2022-4 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Operator: 22-4 Ernie's call. All participants will be in the Sononi mode. Should you need assistance, please hit a conference specialist by pressing the star key, followed by zero.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you invest star than one on your telephone keypad. To throw your question, please press star, then two.

Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note, this event is being recorded.

Operator: Please note, this event is being recorded.

Operator: All participants will be in the Sonali mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Mimi Kong, Investor Relations. Please go ahead, ma'am.

Mimi Kong: Oh, now I turn the conference over to Mimi Kong, Investor Relations. Please go ahead, ma'am.

Speaker Change: I would now like to turn the conference over to Mimi Kong, Investor Relations. Please go ahead, ma'am.

Mimi Kong: Thank you. Good afternoon and welcome to Backblaze's second quarter's 2024 Ernie's call. On the call with me today are Gleb Budman, co-founder, CEO and chairperson of the board, and Frank Patchel, chief financial officer.

Mimi Kong: Thank you. Good afternoon, and welcome to Backblaze's second quarter 2024 earnings call. On the call with me today are Gleb Budman, co-founder, CEO, and chairperson of the board, and Frank Patchel, chief financial officer. Today, Backblaze will discuss the financial results that were distributed earlier this afternoon. Statements on this call include forward-looking statements about our future financial results, the use of our IPO proceeds, results from new features and offerings, 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.

Mimi Kong: Thank you. Good afternoon and welcome to Backblaze's second quarter 2024 earnings call. On the call with me today are Gleb Budman, co-founder, CEO , and chairperson of the board, and Frank Patchel, chief financial officer.

Mimi Kong: These statements are subject to risks and uncertainties that could cause actual results to differ materially, including those described in our risk factors that are included in our quarterly report on Form 10-Q and our other financial filings. You should not rely on our forward-looking statements as predictions of future events.

Mimi Kong: Today, Backblaze will discuss the financial results that were deteriorated 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, 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 risk and uncertainties that could cause actual results to differ materially, including those described in our risk factors that are included in our quarterly report on Form 10-Q and our other financial filing.

Speaker Change: Today, Backblaze will discuss the financial results that were distributed earlier this afternoon.

Mimi Kong: All forward-looking statements that we make on this call are based on assumptions and beliefs as of today, and we undertake no obligation to update them, except as required by law. Our discussion today will include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for our GAAP results. Reconciliation of GAAP to non-GAAP results may be found in our earnings release, which was filed with our Form 8K file today with the SEC.

Mimi Kong: You can also find a slide presentation related to our comments in the webcast, which will also be posted to our Investor Relations page after the call. Please also see our press release or presentation for definitions of additional metrics such as NRR and gross customer retention rate. Thank you for joining us. And I would now like to turn the call over to Gleb.

Speaker Change: Statements on this call include forward-looking statements about our future financial results.

Speaker Change: use of our IPO proceeds, results from new features and offerings, 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.

Speaker Change: These statements are subject to risks and uncertainties that could cause actual results to differ materially, including those described in our risk factors that are included in our quarterly report on Form 10-Q and our other financial filings.

Mimi Kong: 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 obligations to update them, except as required by law. Our discussion today will include non-gas financial measures. These non-gas measures should be considered in addition to, and not as a substitute for our gas results. Reconciliation of gas to non-gas results may be found in our earnings release, which was furnished with our Form 8-K file today with the SEC. You can also find a slide presentation related to our comments in the webcast, which will also be posted to our Investor Relations page after the call.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: Reconciliation of GAAP to non-GAAP results may be found in our earnings release, which was furnished with our Form 8K file today with the SEC.

Speaker Change: You can also find a slide presentation related to our comments in the webcast, which will also be posted to our Investor Relations page after the call.

Mimi Kong: Please also see our press release or presentation for definitions of additional metrics such as NRR and growth customer retention rate.

Speaker Change: Please also see our press release or presentation for definitions of additional metrics such as NRR and gross customer retention rate.

Mimi Kong: Thank you for joining us, and I would now like to turn the call over to Glad.

Speaker Change: Thank you for joining us and I would now like to turn the call over to Gleb.

Gleb Budman: Thanks Mimi. Good afternoon everyone, and thanks for joining us today. We had a great second quarter with strong growth in both revenue and EBITDA, beating our guidance on both. Revenue grew 27% with 43% growth for B2 cloud storage. As you may have heard, various tech companies have talked about a difficult macro environment that is negatively impacting their business.

Gleb Budman: Thanks, Mimi.

Gleb Budman: Good afternoon, everyone, and thanks for joining us today. We had a great second quarter with strong growth in both revenue and EBITDA, beating our guidance on both. Revenue grew 27% with 43% growth for B2 Cloud Storage. As you may have heard, various tech companies have talked about a difficult macro environment that was negatively impacting their business. However, we are not seeing that impact on our business.

Gleb Budman: Thanks, Mimi. Good afternoon, everyone, and thanks for joining us today. We had a great second quarter with strong growth in both revenue and EBITDA, beating our guidance on both.

Gleb Budman: Revenue grew 27% with 43% growth for B2 cloud storage.

Speaker Change: As you may have heard, various tech companies have talked about a difficult macro environment that was negatively impacting their business. However, we are not seeing that impact on our business. As our numbers show, we beat our Q2 guidance, guided strongly for Q3, and raised guidance for the year.

Gleb Budman: However, we are not seeing that impact on our business. As our numbers show, we beat our Q2 guidance, guided strongly for Q3, and raised guidance for the year. So let's talk about our business now. I'm going to start with three key areas of focus for us. The first is our accelerated pace of innovation. In Q2, we continue to deliver new services that win us customers and open new markets with our launch of B2 Live Read. Second, we're growing our team in exciting ways.

Gleb Budman: As our numbers show, we beat our Q2 guidance strongly for Q3 and raise guidance for the year. So let's talk about our business now.

Gleb Budman: I'll tell you more about Jason Wakeham, our new chief revenue officer, and Mark Sweden, our new CFO, later in the call. But Jason is well suited to help us accelerate our up market momentum and mark to drive efficient growth. Finally, we are winning more deals with larger customers. I'll share stories from an AI company, an app developer, and an NFL team to explain how we're succeeding in our move up market. But for now, I'll quickly highlight that we grew the number of large customers we serve by 55% year over year. Now, let me tell you more about each of these areas of focus.

Gleb Budman: I'm going to start with three key areas of focus for us. First is our accelerated pace of innovation. In Q2, we continue to deliver new services that win us customers and open new markets with our launch of B2 Live Reads.

Gleb Budman: So let's talk about our business now.

Gleb Budman: I'm going to start with three key areas of focus for us.

Gleb Budman: First is our accelerated pace of innovation.

Gleb Budman: In Q2, we continue to deliver new services that win us customers and open new markets with our launch of B2 Live Read.

Gleb Budman: Second, we're growing our team in exciting ways. I'll tell you more about Jason Wakeham, our new Chief Revenue Officer, and Mark Sweden, our new CFO later in the call, but Jason is well suited to help us accelerate our upmarket momentum and Mark to drive efficient growth. Finally, we are winning more deals with larger customers.

Gleb Budman: Second, we're growing our team in exciting ways. I'll tell you more about Jason Wakeham, our new Chief Revenue Officer, and Mark Sweeden, our new CFO , later in the call. But Jason is well-suited to help us accelerate our up-market momentum.

Gleb Budman: and Mark to drive efficient growth.

Gleb Budman: I'll share stories from an AI company and app developer and an NFL team to explain how we're succeeding in our move upmarket. But for now, I'll quickly highlight that we grew the number of large customers we served by 55% year over year.

Gleb Budman: Finally, we are winning more deals with larger customers. I'll share stories from an AI company, an app developer, and an NFL team to explain how we're succeeding in our move up market.

Gleb Budman: But for now, I'll quickly highlight that we grew the number of large customers we serve by 55% year-over-year.

Gleb Budman: Now let me tell you more about each of these areas of focus. First, I'll begin with innovation. So why is innovation important? It helps us solve our customers' problems; it expands our strategic value to current and future customers; and it differentiates us in the market. In June, we launched B2 Live Read. This patent-pending cloud service lets customers access files while they're still being uploaded. Here's why this is really valuable for customers. Take, for example, a news reporter working in the field. If they want their in-house editors to work on the footage they're recording, like adding graphics or cutting something, the editors either need to be on-site to get direct access to the camera feed so they can edit it live, or they need to pay for some pretty expensive and complicated solutions to enable remote editing.

Gleb Budman: Now let me tell you more about each of these areas of focus.

Gleb Budman: So why is innovation important? It helps us solve our customers' problems, it expands our strategic value to current and future customers, and it differentiates us in the market. In June, we launched B2 Libraries. This patent-pending cloud service lets customers access files while they're still being uploaded. Here's why this is really valuable for customers. Take, for example, a news reporter working in the field. If they want their in-house editors to work on the footage they're recording, like adding graphics or cutting something, the editors either need to be on site to get direct access to the camera feed so they can edit it live, or they need to pay for some pretty expensive and complicated solutions to enable remote editing. With Live Read, all of that goes away.

Gleb Budman: First, I'll begin with innovation.

Gleb Budman: So why is innovation important? It helps us solve our customers' problems, it expands our strategic value to current and future customers, and it differentiates us in the market.

Gleb Budman: In June we launched B2 Live Read. This patent-pending cloud service lets customers access files while they are still being uploaded.

Gleb Budman: Here's why this is really valuable for customers.

Gleb Budman: Take for example a news reporter working in the field.

Gleb Budman: If they want their in-house editors to work on the footage they're recording, like adding graphics or cutting something,

Gleb Budman: The editors either need to be on-site to get direct access to the camera feed so they can edit it live, or they need to pay for some pretty expensive and complicated solutions to enable remote editing.

Gleb Budman: With Live Read, all of that goes away. The footage can start to be uploaded to backways, and producers anywhere in the world can start working with it before the event and upload is complete. No waiting, no complicated hardware or big price tags, no on-site producers necessary. We see a promising opportunity here. We innovated this technology, and we're the only company that offers it. We believe this functionality can help a broad set of customers, but we're initially focusing on media customers such as broadcasters, event producers, and news outlets. We already have several industry leaders in media and entertainment, including TeleStream, who are integrating Live Read into their products to bring this benefit to their customers.

Gleb Budman: With Live Read, all of that goes away.

Gleb Budman: The footage can start to be uploaded to Backblaze, and producers anywhere in the world can start working with it before the event and upload are complete. No waiting, no complicated hardware or big price tags, and no on-site producers necessary. We see a promising opportunity here. We invented this technology, and we're the only company that offers it. We believe this functionality can help a broad set of customers, but we're initially focusing on media customers such as broadcasters, event producers, and news outlets.

Gleb Budman: The footage can start to be uploaded to Backblaze, and producers anywhere in the world can start working with it before the event and upload is complete. No waiting, no complicated hardware or big price tags, no on-site producers necessary.

Speaker Change: We see a promising opportunity here.

Speaker Change: We innovated this technology, and we're the only company that offers it.

Speaker Change: We believe this functionality can help a broad set of customers.

Speaker Change: But we are initially focusing on media customers such as broadcasters, event producers, and news outlets.

Gleb Budman: We already have several industry leaders in media and entertainment, including Telestream, who are integrating LiveRead into their products to bring this benefit to their customers. Whether it's live read or event notifications, which we announced last quarter, or the integration we launched last month with Internet2, which gives large institutions easier and faster access to B2Cloud Storage, or any of the numerous other innovations we've announced recently, we're delivering innovation that drives customer value. Along with enhancing our products and services, we're also strengthening our team to take advantage of these opportunities. I'm excited to welcome Jason Wakeham as our Chief Revenue Officer.

Speaker Change: We already have several industry leaders in media and entertainment, including Telestream, who are integrating LiveRead into their products to bring this benefit to their customers.

Gleb Budman: Whether it's Live Read or event notifications, which we announced last quarter, or the integration we launched last month with Internet 2, which gives large institutions easier and faster access to B2 cloud storage, or any of the numerous other innovations we've announced recently, we are delivering innovation that drives customer value.

Speaker Change: whether it's live read or event notifications, which we announced last quarter, or the integration we launched last month with Internet2, which gives large institutions easier and faster access to B2Cloud Storage.

Speaker Change: or any of the numerous other innovations we've announced recently, we are delivering innovation that drives customer value.

Gleb Budman: Along with enhancing our products and services, we're also strengthening our team to take advantage of these opportunities. I'm excited to welcome Jason Wakeham as our Chief Revenue Officer. Jason has decades of experience building and guiding teams focused on helping customers with their data. He led direct sales, channels, partnerships, and OEM groups at large tech companies, including HP and Microsoft, and at growth stage companies, Cloud Error and Snap Logic. At CRO, he's bringing that experience to drive accelerated growth and upmarket momentum to Backwave. As we mentioned on the last call, Nile Patel, who previously served as our Vice President of Sales, will now lead our efforts on our AI opportunities.

Speaker Change: Along with enhancing our products and services, we're also strengthening our team to take advantage of these opportunities.

Gleb Budman: Jason has decades of experience building and guiding teams focused on helping customers with their data. He's led direct sales, channels, partnerships, and OEM groups, at large tech companies including HP and Microsoft, and at growth stage companies, Cloudera and SnapLogic. As CRO, he's bringing that experience to drive accelerated growth and upmarket momentum to Backblaze. As we mentioned on the last call, Neelay Patel, who previously served as our Vice President of Sales, will now lead our efforts on our AI opportunities.

Jason Wakeham: I'm excited to welcome Jason Wakeham as our Chief Revenue Officer.

Jason Wakeham: Jason has decades of experience building and guiding teams focused on helping customers with their data.

Speaker Change: He's led direct sales, channels, partnerships, and OEM groups.

Jason Wakeham: at large tech companies including HP and Microsoft.

Jason Wakeham: and at growth stage companies, Cloudera and SnapLogic.

Speaker Change: As CRO, he's bringing that experience to drive accelerated growth and upmarket momentum to backwaves.

Jason Wakeham: As we mentioned on the last call, Neelay Patel, who previously served as our Vice President of Sales, will now lead our efforts on our AI opportunities.

Gleb Budman: The great news is that the go-to-market teams are already generating significant momentum, especially when it comes to winning larger customers. At the end of the quarter, the number of customers contributing over $50,000 in ARR now stands at $115,000. A 55% increase over last year. Here's why these customers choose Backblaze. First, whether you look at our performance or reliability or security or functionality, the strength of our platform and our continued innovation helps us win deals. Second, our support for open cloud solutions enables customers to build their businesses using the cloud services they prefer. And third, with free egress, no delete fees, no complex tiers, and pricing at just $1.50, the cost of traditional clouds.

Gleb Budman: The great news is that the go-to-market teams are already generating significant momentum, especially when it comes to winning larger customers. At the end of the quarter, the number of customers contributing over $50,000 in ARR now stands at 115, a 55% increase over last year.

Speaker Change: The great news is that the go-to-market teams are already generating significant momentum, especially when it comes to winning larger customers.

Jason Wakeham: At the end of the quarter, the number of customers contributing over $50,000 in ARR now stands at 115, a 55% increase over last year.

Gleb Budman: Here's why these customers choose Backblaze. First, whether you look at our performance or reliability or security or functionality, the strength of our platform and our continued innovation helps us win deals. Second, our support for open cloud solutions enables customers to build their businesses using the cloud services they prefer. And third, with free egress, no delete fees, no complex tiers, and pricing at just one-fifth the cost of traditional clouds.

Speaker Change: Here's why these customers choose Backblaze.

Jason Wakeham: First, whether you look at our performance, or reliability, or security, or functionality, the strength of our platform and our continued innovation helps us win deals.

Jason Wakeham: Second, our support for open cloud solutions enables customers to build their businesses using the cloud services they prefer.

Jason Wakeham: And third, with free egress, no delete fees, no complex tiers, and pricing at just one-fifth the cost of traditional clouds.

Gleb Budman: Our total cost of ownership lets customers save a tremendous amount, with which they can increase their margins or reinvest elsewhere in their business.

Gleb Budman: Our total cost of ownership lets customers save a tremendous amount with which they can increase their margins or reinvest elsewhere in their business. Let me share a few examples of customers that chose Backblaze this quarter in the AI space. Companies have large volumes of data that they need to be able to park somewhere that is inexpensive, but that data has to be accessible immediately when it's needed. It also needs to be transferable without egress fees to a customer's desired GPU cloud. The characteristics of Backblaze's platform make it ideal for these AI use cases. A good illustration of this from Q2 is a company that uses AI to render 3D landscapes for major gaming franchises.

Jason Wakeham: Our total cost of ownership lets customers save a tremendous amount with which they can increase their margins or reinvest elsewhere in their business.

Gleb Budman: Let me share a few examples of customers that chose Backblaze as quarter. In the AI space, companies have large volumes of data that they need to be able to park somewhere that is inexpensive, but that data has to be accessible immediately when it's needed. It also needs to be transferable without egress fees to a customer's desired GPU cloud. The characteristics of Backblaze's platform make it ideal for these AI use cases. A good illustration of this from Q2 is a company that uses AI to render 3D landscapes for major gaming franchises. They previously used both AWS and Azure, but migrated all their data to Backblaze to simplify their storage platform, keep their data readily available, and decrease their storage spend by about $300,000 per year.

Gleb Budman: They previously used both AWS and Azure but migrated all their data to Backblaze to simplify their storage platform, keep their data readily available, and decrease their storage spend by about $300,000 per year. We continue to win developer business also. In Q2, a photo storage and sharing app developer signed a quarter million dollar ARR deal with AWS. When this developer is designing products and features, a major consideration is how the data is accessed. Because they were working within AWS's storage tiers, they had to worry about retrieval fees, timing, and egress fees, which meant product decisions were driven by AWS's complicated pricing structure instead of by what customers wanted.

Jason Wakeham: Let me share a few examples of customers that chose Backblaze this quarter.

Jason Wakeham: in the AI space.

Jason Wakeham: Companies have large volumes of data that they need to be able to park somewhere that is inexpensive.

Jason Wakeham: But that data has to be accessible immediately when it's needed.

Jason Wakeham: It also needs to be transferable without egress fees to a customer's desired GPU cloud.

Jason Wakeham: The characteristics of Backblaze's platform make it ideal for these AI use cases.

Jason Wakeham: A good illustration of this from Q2 is a company that uses AI to render 3D landscapes.

Jason Wakeham: for major gaming franchises.

Jason Wakeham: They previously used both AWS.

Jason Wakeham: and Azure.

Jason Wakeham: but migrated all their data to Backblaze to simplify their storage platform, keep their data readily available, and decrease their storage spend by about $300,000 per year.

Gleb Budman: We continue to win developer business also. In Q2, a photo storage and sharing app developer signed a quarter-million dollar ARR deal with us. When this developer is designing products and features, a major consideration is how the data is accessed. Because they were working within AWS's storage tiers, they had to worry about retrieval fees, timing, and egress fees, which meant product decisions were driven by AWS's complicated pricing structure instead of by what customers wanted. With Backblaze's performance and pricing, they can now focus on building features that solve their customers' problems instead of AWS's data retrieval and pricing puzzles.

Speaker Change: We continue to win developer business also.

Jason Wakeham: In Q2, a photo storage and sharing app developer signed a $250,000 ARR deal with us.

Operator: 22-4 Ernie's call. All participants will be in the Sononi mode. Should you need assistance, please hit a conference specialist by pressing the star key, followed by zero.

Jason Wakeham: When this developer is designing products and features, a major consideration is how the data is accessed.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you invest star than one on your telephone keypad. To throw your question, please press star than two.

Speaker Change: Because they were working within AWS's storage tiers, they had to worry about retrieval fees, timing, and egress fees, which meant product decisions were driven by AWS's complicated pricing structure instead of by what customers wanted.

Operator: Please note, this event is being recorded.

Mimi Kong: Oh, now I turn the conference over to Mimi Kong, investor relations. Please go ahead, ma'am. Thank you.

Gleb Budman: With Backblaze's performance and pricing, they can now focus on building features that solve their customers' problems instead of AWS's data retrieval and pricing puzzles, in the media and entertainment space. You may remember that we shared the story of an NFL team that we won last quarter. In Q2, we won another $50,000 plus ARR deal with a different championship NFL team. This team had some footage in AWS, which had expensive retrieval fees, and had other footage locked up in an older storage platform that used proprietary formats.

Speaker Change: With Backblaze's performance and pricing, they can now focus on building features that solve their customers' problems instead of AWS's data retrieval and pricing puzzles.

Mimi Kong: Good afternoon and welcome to Backblaze's second quarter's 2024 Ernie's call. On the call with me today are Gleb Budman, co-founder, CEO and chairperson of the board and Frank Patchel, chief financial officer. Today, Backblaze will discuss the financial results that were deteriorated earlier this afternoon. Statements on this call includes forward-looking statements about our future financial results. Use of our IPO proceeds results from new features and offerings, 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.

Gleb Budman: In the median entertainment space, you may remember that we shared the story of an NFL team that we won last quarter. In Q2, we won another $50,000 plus ARR deal with a different championship NFL team. This team had some footage in AWS, which had expensive retrieval fees, and had other footage locked up in an older storage platform that used proprietary formats. They migrated to Backblaze and now have all their data in one easily accessible place that works seamlessly with their tools.

Speaker Change: In the media and entertainment space, you may remember that we shared the story of an NFL team that we won last quarter.

Jason Wakeham: In Q2, we won another $50,000 plus ARR deal with a different championship NFL team.

Speaker Change: This team had some footage in AWS, which had expensive retrieval fees, and had other footage locked up in an older storage platform that used proprietary formats.

Gleb Budman: They migrated to Backblaze and now have all their data in one easily accessible place that works seamlessly with their tools. Three last items before I hand off the call. First, I wanted to call out our recent inclusion in the Russell 2000 Index, which is another milestone in the company's growth. Second, as we announced in a press release just before the call, I'm happy to share that Mark Sweden will join Backblaze as our next CFO.

Speaker Change: They migrated to Backblaze and now have all their data in one easily accessible place that works seamlessly with their tools.

Mimi Kong: These statements are subject to risk and uncertainties that could cause actual results to differ materially, including those described in our risk factors that are included in our quarterly report on form 10Q and our other financial filing. 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 obligations to update them, except as required by law.

Gleb Budman: Three last items before I hand off the call to Frank.

Gleb Budman: First, I wanted to call out our recent inclusion in the Russell 2000 Index, which is another milestone in the company's growth. Second, as we announced in a press release just before the call, I'm happy to share that Mark Sweden will join Backblaze as our next CFO. Mark brings more than 20 years of financial and strategic leadership as a public company CFO and also as a senior partner at PricewaterhouseCoopers. His wealth of knowledge across tech, from identifying growth opportunities to driving strategic initiatives, is impressive, and we're all excited for Mark to help lead Backblaze forward. He'll be officially starting on August 16th.

Speaker Change: Three last items before I hand off the call to the Frank.

Frank Patchel: First, I wanted to call out our recent inclusion in the Russell 2000 Index, which is another milestone in the company's growth.

Speaker Change: Second, as we announced in a press release just before the call, I'm happy to share that Mark Sweden will join Backblaze as our next CFO .

Gleb Budman: His wealth of knowledge across tech, from identifying growth opportunities to driving strategic initiatives, is impressive, and we're all excited for Mark to help lead Backblaze forward. He'll be officially starting in August. Finally, I want to give special thanks to Frank ahead of his retirement. He built our finance team, led us through our IPO, and guided us successfully for the following 11 quarters. This is his last earnings call with us, and I'm grateful for all that we accomplished together. With that, I'll turn the call over to Frank. Frank.

Speaker Change: Mark brings more than 20 years of financial and strategic leadership as a public company CFO and also as a senior partner at Pricewaterhouse Cooper's.

Mimi Kong: Our discussion today will include non-gas financial measures. These non-gas measures should be considered in addition to and not as a substitute for our gas results. Reconciliation of gas to non-gas results may be found in our earnings release, which was furnished with our form 8K file today with the SEC. You can also find a slide presentation related to our comments in the webcast, which will also be posted to our investor relations page after the call. Please also see our press release or presentation for definitions of additional metrics such as NRR and growth customer retention rate.

Speaker Change: His wealth of knowledge across tech from identifying growth opportunities to driving strategic initiatives is impressive, and we're all excited for Mark to help lead Backblaze forward.

Speaker Change: He'll be a fish hoistiding on August 16th

Gleb Budman: Finally, I want to give a special thanks to Frank ahead of his retirement. He built our finance team, led us through our IPO, and guided us successfully the following 11 quarters. This is his last earnings call with us, and I'm grateful for all that we accomplished together.

Speaker Change: Finally, I want to give a special thanks to Frank, ahead of his retirement.

Speaker Change: He built our finance team, led us to our IPO, and guided us successfully to follow in 11 quarters.

Speaker Change: This is his last earnings call with us, and I'm grateful for all that we accomplished together.

Gleb Budman: Thank you for joining us and I would now like to turn the call over to glad. Thanks Mimi.

Frank Patchel: With that, I'll turn the call over to Frank. Thank you, Glaube, and thanks everyone for joining us today. As a reminder, unless otherwise noted, I will 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. Our Q2 revenue totaled 31.3 million, above the high end of our guidance. The B was driven by a faster than expected ramp up in storage for a new B2 deal signed in quarter one. Better than expected renewals and expansions from B2 reserve and lower churn for computer backup.

Speaker Change: With that, I'll turn the call over to Frank. Frank?

Francis Patchel: Thank you, Gleb, and thanks, everyone, for joining us today. As a reminder, unless otherwise noted, I will 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. Our Q2 revenue totaled $31.3 million, above the high end of our guide. The B was driven by a faster-than-expected ramp-up in storage for a new B2 deal signed in Q1.

Gleb Budman: Good afternoon everyone and thanks for joining us today. We had a great second quarter with strong growth in both revenue and EBITDA, beating our guidance on both. Revenue grew 27% with 43% growth for B2 cloud storage. As you may have heard, various tech companies have talked about a difficult macro environment that was negatively impacting their business. However, we are not seeing that impact on our business. As our numbers show, we beat our Q2 guidance strongly for Q3 and raise guidance for the year.

Frank Patchel: Thank you, Gleb, and thanks, everyone, for joining us today.

Frank Patchel: As a reminder, unless otherwise noted, I will be referring to non-GAAP metrics, and the growth rates mentioned are year-on-year.

Frank Patchel: We remain focused on two key metrics, revenue growth and adjusted EBITDA, which is defined in our earnings release.

Frank Patchel: Our Q2 revenue totaled $31.3 million, above the high end of our guidance.

Speaker Change: The BEEP was driven by a faster-than-expected ramp-up in storage for new B2 deals signed in Q1, better-than-expected renewals and expansions from B2 Reserve, and lower churn for computer backup.

Francis Patchel: Better Than Estimated Renewals and Expansions from B2 Reserve and Lower Churn from Computer Backup. This represents an increase of 27% year-over-year versus 19% for the same period last year. B2Cloud storage revenue was $15.4 million, reflecting 43% growth. Computer backup revenue totaled $15.9 million, reflecting 15% growth.

Gleb Budman: So let's talk about our business now. I'm going to start with three key areas of focus for us. First is our accelerated pace of innovation. In Q2, we continue to deliver new services that win us customers and open new markets with our launch of B2 Live Reads. Second, we're growing our team in exciting ways. I'll tell you more about Jason Wakeham, our new chief revenue officer, and Mark Sweden, our new CFO later in the call, but Jason is well suited to help us accelerate our upmarket momentum and mark to drive efficient growth.

Frank Patchel: This represents an increase of 27% year-over-year versus 19% the same period last year. B2 cloud storage revenue was 15.4 million, reflecting 43% growth. Computer backup revenue totaled 15.9 million, reflecting 15% growth. Turning now to our revenue retention or NRR, total company NRR increased to 114% from 110% a year ago. With B2 cloud storage at 126% and computer backup at 105%. Growth's customer retention was 90% overall, with 89% for B2 cloud storage and 90% for computer backup. Moving down the P&L, both adjusted growth margin and gap growth margin reached all time highs at 78% and 55% respectively, up from 75% and 49% last year.

Speaker Change: This represents an increase of 27% year-over-year versus 19% the same period last year.

Speaker Change: B2 cloud storage revenue was $15.4 million reflecting 43% growth. Computer backup revenue totaled $15.9 million reflecting 15% growth.

Francis Patchel: Turning now to our Net Revenue Retention, or NRR. Total company NRR increased to 114% from 110% a year ago, with B2 cloud storage at 126% and computer backup at 105%. Gross customer retention was 90% overall, with 89% for B2 cloud storage and 90% for computer backup.

Speaker Change: Turning now to our Net Revenue Retention, or NRR, total company NRR increased to 114% from 110% a year ago.

Gleb Budman: Finally, we are winning more deals with larger customers. I'll share stories from an AI company and app developer and an NFL team to explain how we're succeeding in our move upmarket. But for now, I'll quickly highlight that we grew the number of large customers we served by 55% year over year.

Speaker Change: with B2 cloud storage at 126% and computer backup at 105%.

Speaker Change: Gross customer retention was 90% overall with 89% for B2 cloud storage and 90% for computer backup.

Francis Patchel: Moving down the P&L, both Adjusted Gross Margin and Gap Gross Margin reached all-time highs, at 78% and 55%, respectively, up from 75% and 49% last year. This improvement was driven by the price increase and data center optimization. The GAAP gross margin also benefited from low capital additions, causing nearly identical depreciation expenses to quarter one. This quarter marked our third consecutive adjusted EBITDA profit, this time rising to $2.7 million or 9% of revenue. The results were a new high and a 16-point improvement over the same period last year. It also was a one point beat to the top end guide, driven by higher revenue performance and continued low operating expense growth, principally from prudent headcount management.

Gleb Budman: Now let me tell you more about each of these areas of focus. First, I'll begin with innovation. So why is innovation important? It helps us solve our customers' problems, it expands our strategic value to current and future customers, and it differentiates us in the market. In June, we launched B2 Live Read. This patent-pending cloud service lets customers access files while they're still being uploaded. Here's why this is really valuable for customers.

Speaker Change: Moving down the piano, both adjusted gross margin and gap gross margin reached all time highs at 78% and 55% respectively, up from 75% and 49% last year.

Frank Patchel: This improvement was driven by the price increase and data center optimization. The gap gross margin also benefited from low capital additions, causing nearly identical depreciation expenses to quarter one. This quarter marked our third consecutive adjusted EBITDA profit, this time rising to 2.7 million, or 9 percent of revenue. Results were a new high and a 16 point improvement over the same period last year. It also was a one point beat to the top end guidance, driven by the higher revenue performance and continued low operating expense growth, principally from prudent head count management. Turning to the balance sheet, cash, investments, and restricted cash total 28.3 million at quarter end.

Speaker Change: This improvement was driven by the price increase and data center optimization.

Speaker Change: The GAAP gross margin also benefited from low capital additions, causing nearly identical depreciation expenses to Q1.

Gleb Budman: Take for example, a news reporter working in the field. If they want their in-house editors to work on the footage they're recording like adding graphics or cutting something, the editors either need to be on-site to get direct access to the camera feed so they can edit it live, or they need to pay for some pretty expensive and complicated solutions to enable remote editing. With Live Read, all of that goes away. The footage can start to be uploaded to backways and producers anywhere in the world can start working with it before the event and upload is complete.

Speaker Change: This quarter marked our third consecutive adjusted EBITDA profit, this time rising to $2.7 million or 9% of revenue.

Speaker Change: Results were a new high and a 16-point improvement over the same period last year.

Speaker Change: It also was a one-point beat to the top end guidance driven by the higher revenue performance and continued low operating expense growth, principally from prudent headcount management.

Francis Patchel: Turning to the balance sheet, cash, investments, and restricted cash totaled $28.3 million at quarter end. Total cash usage for the first half was $5.1 million, an approximate 80% improvement from last year's first half. We continue to have strong confidence in our forecast for total cash of at least $20 million a year. Our improving total cash usage was impacted by a rise in accounts receivable, now at $1.8 million, a $1 million increase since the beginning of the year. This increasingly affects our move-up market, as larger accounts are now billed with payment terms versus immediately collected by credit card.

Speaker Change: Turning to the balance sheet, cash, investments, and restricted cash, total 28.3 million at quarter-at.

Gleb Budman: No waiting, no complicated hardware or big price tags, no on-site producers necessary. We see a promising opportunity here. We innovated this technology and we're the only company that offers it. We believe this functionality can help a broad set of customers, but we're initially focusing on media customers such as broadcasters, event producers, and news outlets. We already have several industry leaders in media and entertainment, including TeleStream, who are integrating Live Read into their products to bring this benefit to their customers.

Frank Patchel: Total cash usage for the first half was 5.1 million, and approximate 80 percent improvement from last year's first half. We continued to have strong confidence in our forecast for total cash of at least 20 million at year end. Our improving total cash usage was impacted by a rise in accounts receivable, now at 1.8 million, a 1 million increase since the beginning of the year. This increase affects our move up market as larger accounts are now billed with payment terms versus immediately collected by credit card. From the beginning of the year, cash was positively impacted by the increase in deferred revenue, stemming largely from some computer backup customary rules with 1 or 2 year terms paid for upfront.

Speaker Change: Total cash usage for the first half was $5.1 million, an approximate 80% improvement from last year's first half.

Speaker Change: We continue to have strong confidence in our forecast for total cash of at least $20 million at year end.

Speaker Change: Our improving total cash usage was impacted by a rise in accounts receivable. Now, at 1.8 million, a 1 million increase since the beginning of the year.

Speaker Change: This increase affects our move-up market, as the larger accounts are now built with payment terms versus immediately collected by credit card.

Gleb Budman: Whether it's Live Read or event notifications, which we announced last quarter, or the integration we launched last month with Internet 2, which gives large institutions easier and faster access to B2 cloud storage, or any of the numerous other innovations we've announced recently, we are delivering innovation that drives customer value.

Francis Patchel: From the beginning of the year, cash was positively impacted by the increase in deferred revenue, stemming largely from computer backup customer renewals with one or two-year terms paid for upfront. In the first half, deferred revenue increased $4 million, with Q1 at $3.2 million and Q2 moderating to $0.8 million. This fluctuation reflects the timing of customer renewals, which occur unevenly across the quarters, and were in line with our expectations. Our finance lease liability, including long-term and short-term, decreased by $4.1 million since the beginning of the year.

Speaker Change: From the beginning of the year, cash was positively impacted by the increase in deferred revenue.

Speaker Change: stemming largely from computer backup customer renewals with one- or two-year terms paid for up front.

Frank Patchel: In the first half, deferred revenue increased 4 million, with Q1 at 3.2 million and Q2 moderating to 0.8 million. This fluctuation reflects the timing of customary rules, which occur unevenly across the quarters, and we're in line with our expectations. Our finance lease liability, including long term and short term, decreased by 4.1 million since the beginning of the year. This reduction is due to leases concluding from our pandemic lease build up three years ago, as well as fewer new leases required for new data centric equipment purchases in Q2.

Gleb Budman: Along with enhancing our products and services, we're also strengthening our team to take advantage of these opportunities.

Speaker Change: In the first half, deferred revenue increased $4 million, with Q1 at $3.2 million and Q2 moderating to $0.8 million.

Gleb Budman: I'm excited to welcome Jason Wakeham as our Chief Revenue Officer. Jason has decades of experience building and guiding teams focused on helping customers with their data. He led direct sales, channels, partnerships, and OEM groups at large tech companies, including HP and Microsoft, and at growth stage companies, cloud error and snap logic. At CRO, he's bringing that experience to drive accelerated growth and upmarket momentum to backwave.

Speaker Change: This fluctuation reflects the timing of customer renewals, which occur unevenly across the quarters and were in line with our expectations.

Speaker Change: Our finance lease liability, including long-term and short-term, decreased by $4.1 million since the beginning of the year.

Francis Patchel: This reduction is due to leases concluding from our pandemic lease buildup three years ago, as well as fewer new leases required for new data center equipment purchases in Q2. Looking ahead, we expect third-quarter revenue to be in the range of $32.4 to $32.8 million. Continuing our trend of increasing adjusted EBITDA, third-quarter margin is expected to be between 9% and 11%. For the year, we are raising our annual guidance and now expect total revenue between $126.5 and $128.5 million, an increase from our prior guidance of $126 million to $128 million.

Speaker Change: This reduction is due to leases concluding from our pandemic lease buildup three years ago, as well as fewer new leases required for new data center equipment purchases in Q2.

Gleb Budman: As we mentioned on the last call, Nile Patel, who previously served as our vice president of sales, will now lead our efforts on our AI opportunities. The great news is that the go-to-market teams are already generating significant momentum, especially when it comes to winning larger customers. At the end of the quarter, the number of customers contributing over $50,000 in ARR now stands at $115,000. A 55% increase over last year.

Frank Patchel: Looking ahead, we expect third quarter revenue to be in the range of 32.4 to 32.8 million. Continuing our trends of increasing adjusted EBITDA, third quarter margin is expected to be between 9 and 11%. For the year, we are raising our annual guidance and now expect total revenue between 126.5 and 128.5 million, an increase from our prior guidance of 126 to 128 million. We continue to see full year growth of B2 at about 40%. We also now expect adjusted EBITDA to be in the range of 9 to 11%, an improvement over the prior guidance of 8 to 10%.

Speaker Change: Looking ahead, we expect third quarter revenue to be in the range of 32.4 to 32.8 million.

Speaker Change: Continuing our trends of increasing adjusted evidence, third quarter margin is expected to be between 9 and 11%.

Speaker Change: For the year, we are raising our annual guidance and now expect total revenue between $126.5 and $128.5 million, an increase from our prior guidance of $126 to $128 million.

Gleb Budman: Here's why these customers choose Backblaze. First, whether you look at our performance or reliability or security or functionality, the strength of our platform and our continued innovation helps us win deals. Second, our support for open cloud solutions enables customers to build their businesses using the cloud services they prefer. And third, with free egress, no deletes fees, no complex tiers, and pricing at just $1.50 the cost of traditional clouds. Our total cost of ownership lets customers save a tremendous amount with which they can increase their margins or reinvest elsewhere in their business.

Francis Patchel: We continue to see full-year growth for B2 at about 40%. We also now expect adjusted EBITDA to be in the range of 9 to 11 percent, an improvement over the prior guidance of 8 to 10 percent.

Speaker Change: We continue to see full-year growth for B2 at about 40%.

Speaker Change: We also now expect adjusted EBITDA to be in the range of 9 to 11 percent, an improvement over the prior guidance of 8 to 10 percent.

Frank Patchel: To conclude, I'm very pleased with our Q2 performance and our increase in the outlook for the remainder of the year.

Francis Patchel: To conclude, I'm very pleased with our Q2 performance and our increase in the outlook for the remainder of the year. Before I hand the call back to Gleb, I would like to take a moment to express my thanks. First, I want to thank Gleb and Backblaze for giving me this amazing opportunity. Thanks to our leadership team and board members for being great partners over these past four years, and to the entire Backblaze team for the incredible execution and teamwork. And now, I'll turn the call back over to Gleb.

Speaker Change: To conclude, I'm very pleased with our Q2 performance and our increase in the outlook for the remainder of the year.

Frank Patchel: Before I hand the call back to Gleb, I would like to take a moment to express my thanks. First, I want to thank Gleb and Backblaze for giving me this amazing opportunity. Thanks to our leadership team and board members for being great partners over these past four years, and to the entire Backblaze team for the incredible execution and teamwork.

Speaker Change: Before I hand the call back to Gleb, I would like to take a moment to express my thanks. First, I want to thank Gleb and Backblaze for giving me this amazing opportunity.

Speaker Change: Thanks to our leadership team and board members for being great partners over these past four years and to the entire Backblaze team for the incredible execution and teamwork.

Gleb Budman: Let me share a few examples of customers that chose Backblaze as quarter. In the AI space, companies have large volumes of data that they need to be able to park somewhere that is inexpensive, but that data has to be accessible immediately when it's needed. It also needs to be transferable without egress fees to a customer's desired GPU cloud. The characteristics of Backblaze's platform make it ideal for these AI use cases. A good illustration of this from Q2 is a company that uses AI to render 3D landscapes for major gaming franchises. They previously used both AWS and Azure, but migrated all their data to Backblaze to simplify their storage platform, keep their data readily available and decrease their storage spend by about $300,000 per year.

Gleb Budman: And now I'll turn the call back over to Gleb. Thanks, Frank. I want to take a moment to thank our whole team for working together to build Backblaze and to serve our customers. I also want to thank our investors and customers for putting your trust in us.

Speaker Change: and now I'll turn the call back over to Gleb.

Gleb Budman: Frank, I want to take a moment to thank our whole team for working together to build Backblaze and to serve our customers. I also want to thank our investors and customers for putting your trust in us. We're excited to see many of you at the Oppenheimer Conference next week and the Lake Street Conference in September. And with that, I'd like to open it up to questions.

Gleb Budman: Thanks Frank. I want to take a moment to thank our whole team for working together to build back plays and to serve our customers.

Gleb Budman: I also want to thank our investors and customers for putting your trust in us.

Gleb Budman: We're excited to see many of you at the Oppenheimer Conference next week and Lake Street Conference in September. And with that, I'd like to open it up for questions.

Speaker Change: We're excited to see many of you at the Oppenheimer Conference next week and Lake Street Conference in September . And with that, I'd like to open it up for questions. Operator?

Operator: Operator? Yes, thank you. We will now begin the question and answer session. To ask a question, you may press star on one of your telephone keypads. If you're using a speaker phone, please pick up your hands up before pressing the keys. If any time your question has been addressed and you'd like to withdraw it, please press star on 2.

Operator: Yes, thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star then 2. At this time, we will pause momentarily to assemble the roster. And today's first question comes from Ittai Kidron with Oppenheimer & Co.

Speaker Change: Yes, thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star then 2.

Operator: At this time, we will pause momentarily to assemble the roster.

Speaker Change: At this time, we will pause momentarily to assemble the roster.

Victor Chiu: And today's first question comes to me to take you drawn with the Oppenheimer company. Hey guys, great quarter, and Frank, congratulations and good luck. It's been a pleasure. So maybe I'll start with you, Frank, then. If you can, I appreciate the color around B2. I mean, it's clearly, you're seeing extremely good traction over there. Is there a way for you to break down the upside into the components that you mentioned with respect to your turn, better expansion activity? How do you think the breakdown of the upside, how would you allocate it between the different buckets?

Speaker Change: and today's first press and customer take, he drawn with up an iron company.

Gleb Budman: We continue to win developer business also. In Q2, a photo storage and sharing app developer signed a quarter million dollar ARR deal with us. When this developer is designing products and features, a major consideration is how the data is accessed. Because they were working within AWS's storage tiers, they had to worry about retrieval fees, timing and egress fees, which meant product decisions were driven by AWS's complicated pricing structure instead of by what customers wanted. With Backblaze's performance and pricing, they can now focus on building features that solve their customers problems instead of AWS's data retrieval and pricing puzzles.

Ittai Kidron: Hey guys, great quarter, and Frank, congratulations and good luck. It's been a pleasure. So maybe I'll start with you, Frank, then, if you can, I appreciate the color around.

Speaker Change: Hey guys, great quarter, and Frank, congratulations and good luck. It's been a pleasure. So maybe I'll start with you, Frank, then. If you can, I appreciate the color around.

Ittai Kidron: I mean, it's clearly you're seeing extremely good traction over there. Is there a way for you to break down the upside into the components that you mentioned with respect to lower churn and better expansion activity? How do you think the breakdown of the upside, how would you allocate it between the different buckets?

Speaker Change: B2, I mean, it's clearly...

Speaker Change: You're seeing extremely good traction over there. Is there a way for you to break down the upside into the components that you mentioned with respect to lower churn, better expansion activity? How do you think that the breakdown of the upside, how would you allocate it between the different buckets?

Frank Patchel: Well, we've had, we, as far as our upside to our guidance, each time. Yes, yes. Yes. It actually was strength across a number of areas. The largest was the fact that our turn rate remains very good. And it was above our expectations, our forecast, and budget. So I would say that's number one, and that's really referring to computer backup. And then the, on the B2 side, B2 reserve, which is our channel product, has had excellent renewal rates above what we had originally thought. So that's a partnering with our resellers. And they also have been renewing for more storage than they previously had.

Francis Patchel: Well, we've had, as far as our upside to our guidance, Ittai? Yes, yes. Yes, it actually has strength across a number of areas.

Speaker Change: Well, we've had, as far as they're upside in two our guidance, E.T.E.E.E.E.E.E.E.E.E

Speaker Change: Yes, it actually was strength across a number of areas. The largest was the fact that our churn rate

Francis Patchel: The biggest was the fact that our churn rate remains very good, and it was above our expectations, our forecast, and our budget. So I would say that's number one. And that's really referring to the computer back.

Gleb Budman: In the median entertainment space, you may remember that we shared the story of an NFL team that we won last quarter. In Q2, we won another $50,000 plus ARR deal with a different championship NFL team. This team had some footage in AWS, which had expensive retrieval fees, and had other footage locked up in an older storage platform that used proprietary formats. They migrated to Backblaze and now have all their data in one easily accessible place that works seamlessly with their tools.

Speaker Change: remains very good and it was above our expectations, our forecast and budget. So I would say that's number one and that's really referring to computer backup.

Francis Patchel: And then on the B2 side, B2 Reserve, which is our channel product, has had excellent renewal rates above what we had originally thought. So that's a partnership with our resellers. And they also have been renewing for more storage than they previously had, so that had a nice impact as well. And then the third part was just how quickly our major accounts are coming on to service. These were from the sales of quarter one, which were largely at the very end of the quarter, and they came on to service very quickly. So it was nice to see that as well. Yeah, maybe.

Speaker Change: and then the on the B2 side.

Speaker Change: B2 Reserve, which is our channel product, has had excellent renewal rates above what we had originally thought. And that's partnering with our resellers.

Speaker Change: And they also have been renewing for more storage than they previously had. So that had a nice impact as well.

Gleb Budman: Three last items before I hand off the call to Frank. First, I wanted to call out our recent inclusion in the Russell 2000 index, which is another milestone in the company's growth.

Gleb Budman: So that had a nice impact as well. And then the third part, the third part was just help quickly. Our major accounts are coming on to services from the sales of quarter one, which were largely in the very end of the quarter, and they came on to service very quickly. So that was nice; we were nice to see that as well.

Speaker Change: And then the third part.

Speaker Change: The third part was just how quickly our major accounts are coming on to services from the sales of quarter one, which were largely in the very end of the quarter, and they came on to service very quickly, so that was a nice, we would like to see that as well.

Gleb Budman: Second, as we announced in a press release just before the call, I'm happy to share that Mark Sweden will join Backblaze as our next CFO. Mark brings more than 20 years of financial and strategic leadership as a public company CFO and also as a senior partner at PricewaterhouseCoopers. His wealth of knowledge across tech from identifying growth opportunities to driving strategic initiatives is impressive, and we're all excited for Mark to help lead Backblaze forward.

Gleb Budman: Yeah, maybe on that last point, Gleb, maybe you can add some color on the move-up market. How do you think about, you know, when you look at the logos you're adding here now versus a year ago? How would you compare and contrast either by vertical, company size, or use case? Help me understand how this push-up market is translating into a different customer profile for you.

Gleb Budman: Yeah, maybe on that last point, glad maybe you can add some color on the move up market. How do you think about, you know, when you look at the logos you're adding here now versus a year ago, how would you compare contrast either by vertical, company size, use case, help me understand how this push up market is translating into a different customer profile for you? Yeah, I think today, so I think one way I would say to look at it is when we went public, we went, we were almost entirely at self service for a driven company within our food that was just slightly over a hundred hours, and we now have 115 customers paying us over $50,000 each.

Speaker Change: Yeah, maybe on that last point, Gleb maybe you can add some color on the move up market.

Gleb Budman: How do you think about, you know, when you look at the logos you're adding here now versus a year ago?

Speaker Change: How would you compare and contrast, either by vertical, company size, use case? Help me understand how this push-up market is translating into a different customer profile for you.

Gleb Budman: He'll be officially starting on August 16th.

Gleb Budman: Finally, I want to give a special thanks to Frank ahead of his retirement. He built our finance team, led us through our IPO, and guided us successfully the following 11 quarters. This is his last earnings call with us, and I'm grateful for all that we accomplished together.

Gleb Budman: So I think one way to look at it is when we went public, we were almost entirely a self-serve driven company with an ARPU that was just slightly over $100. And we now have 115 customers paying us over $50,000 each.

Ittai: Yeah, thanks, Ittai.

Speaker Change: So, I think one way I would say to look at it is, when we went public, we went, we were almost entirely a self-serve driven company within our pool that was just slightly over a hundred hours.

Frank Patchel: With that, I'll turn the call over to Frank. Thank you, Glaube, and thanks everyone for joining us today. As a reminder, unless otherwise noted, I will be referring to non-Gap 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. Our Q2 revenue totaled 31.3 million above the high end of our guidance. The B was driven by a faster than expected ramp up in storage for a new B2 deal signed in quarter one.

Speaker Change: and we now have 115 customers paying us or a $50,000 each. So that's a dramatic difference from the way the company looked just a couple years ago.

Gleb Budman: So that's a dramatic difference from the way the company looked just a couple years ago. The team that we've assembled; we hired the mid-market enterprise focused AE team in the first and second quarters. We expect that team to be fully ramped up by the end of this year, and we've got Jason joining us as an experienced CRO to lead that up-market momentum. So, I think we've materially shifted what the company looks like in terms of its customer adoption from the public stage and also for the go-forward.

Gleb Budman: So that's a dramatic difference from the way the company looked just a couple of years ago. The team that were that we've assembled, we hired up the mid market enterprise focused AE team in the first and second quarters. We expect that seems to be fully ramped by the end of this year, and we've got Jason joining us as an experienced CEO to lead that up market momentum. So I think we've materially shifted what the company looks like in terms of the customer adoption from the public time, and also for the go forward. Got it.

Speaker Change: The

Speaker Change: The team that we've assembled, we hired up the mid-market enterprise focused AE team in the first and second quarters. We expect that team to be fully ramped by the end of this year.

Jason Wakeham: And we've got Jason joining us as an experienced CRO to lead that upmarket momentum. So I think we've materially shifted what the company looks like in terms of its customer adoption from the public time and also for the go forward.

Frank Patchel: Better than expected renewals and expansions from B2 reserve and lower churn for computer backup. This represents an increase of 27% year-over-year versus 19% the same period last year. B2 cloud storage revenue was 15.4 million reflecting 43% growth. Computer backup revenue totaled 15.9 million reflecting 15% growth. Turning now to our revenue retention or NRR, total company NRR increased to 114% from 110% a year ago. With B2 cloud storage at 126% and computer backup at 105%.

Ittai Kidron: Got it. Maybe the last one for me on the... B2 line to read what you've talked about, Gleb, in your prepared remarks.

Gleb Budman: Maybe last one for me on the B2 line to read that you've talked about, Gleb, in your particular remarks. First of all, how do you collect, what's the business model around this, if you can, is this just more compute or more storage that's needed to power this, or there's a special different pricing model for it? And then second, relating to this, you've talked about a certain few examples of certain verticals or use cases that would be interested. But if you had to look at your customer base, how applicable, or how broadly applicable is this capability to your base? You know, what percent of your base you think would be highly interested in this.

Speaker Change: Got it. Maybe last one for me on D.

Speaker Change: B2 line to read that you've talked about, Gleb, in your previous remarks.

Gleb Budman: First of all, how do you collect data, and what's the business model around this? If you have any questions, please post them in the Q&A section. You've talked about a few examples of certain verticals or use cases that would be interesting. If you had to look at your customer base, how applicable or how broadly applicable is this capability to your base? What percent of your base do you think would be highly interested in this?

Speaker Change: First of all, how do you collect, what's the business model around this? If you could, is this just more compute or more storage that's needed to power this? Or there's a special different pricing model for this? And then second, relating to this.

Speaker Change: You've talked about a few examples of certain verticals or use cases that will be interesting. If you had to look at your customer base.

Speaker Change: How applicable or how broadly applicable is this capability to your base, you know, what percent of your base you think would be highly interested in this?

Frank Patchel: Growth's customer retention was 90% overall with 89% for B2 cloud storage and 90% for computer backup. Moving down the P&L, both adjusted growth margin and gap growth margin reached all time highs at 78% and 55% respectively, up from 75% and 49% last year. This improvement was driven by the price increase and data center optimization. The gap gross margin also benefited from low capital additions, causing nearly identical depreciation expenses to quarter one.

Gleb Budman: Yeah, we're excited about live read. It's it is new. It's we expected to come out of preview mode and into GA by the end of this year. So it's still quite new, but it's sort of an important set of customer use cases because it enables anyone who is working with large and growing files to take advantage of it. In terms of the verticals, we're starting with the broadcast and media focus because it's the one that's most closely attributable to seeing value directly from this functionality. It is part of our overall strategy that innovation is a key goal for us, both because it provides value to customers and a different chase us until library is a good example of that.

Gleb Budman: Yeah, we're excited about LiveRead. It is new. We expect it to come out of preview mode and into GA by the end of this year, so it's still quite new.

Speaker Change: We're excited about LiveRead. It is new. We expect it to come out of preview mode and into GA by the end of this year. So it's still quite new, but it serves an important set of customer use cases because it enables anyone who is working with large and growing files.

Gleb Budman: But it serves an important set of customer use cases because it enables anyone who is working with large and growing files to take advantage of it. In terms of the verticals, we're starting with the broadcast and media focus because it's the one that's most closely attributable to seeing value directly from this functionality. It is part of our overall strategy that innovation is a key goal for us, both because it provides value to customers and it differentiates us, and so LiveRead is a good example of that.

Speaker Change: To take advantage of it, in terms of the verticals, we're starting with the broadcast and media focus.

Speaker Change: because it's the one that's most closely attributable to seeing value directly from this functionality. It is part of our overall strategy that innovation is a key.

Frank Patchel: This quarter marked our third consecutive adjusted EBITDA profit, this time rising to 2.7 million or 9 percent of revenue. Results were a new high and a 16 point improvement over the same period last year. It also was a one point beat to the top end guidance driven by the higher revenue performance and continued low operating expense growth, principally from prudent head count management. Turning to the balance sheet, cash, investments and restricted cash total 28.3 million at quarter end.

Speaker Change: goal for us, both because it provides value to customers and it differentiates us, and so LiveRead is a good example of that.

Gleb Budman: In terms of the business model, we charge for usage of library, so we charge $15 per chair by uploaded, and then the storage is at standard B2 list prices. So nice thing with it is it provides unique and differentiated value to customers, and at the same time it's a higher margin offering for backwards.

Gleb Budman: In terms of the business model, we charge for usage of libraries. So we charge $15 per terabyte uploaded, and then the storage is at standard B2 list prices. So the nice thing about it is it provides unique and differentiated value to customers. And at the same time, it's a higher margin offering for Backblaze. Next time. Thank you.

Speaker Change: In terms of the business model, we charge for usage of LiveRead. So we charge $15 per terabyte uploaded, and then the storage is at standard B2 list prices.

Speaker Change: So the nice thing with it is it provides unique and differentiated value to customers and at the same time it's a higher margin offering for Backblaze.

Frank Patchel: Total cash usage for the first half was 5.1 million and approximate 80 percent improvement from last year's first half. We continued to have strong confidence in our forecast for total cash of at least 20 million at year end. Our improving total cash usage was impacted by a rise in accounts receivable now at 1.8 million, a 1 million increase since the beginning of the year. This increase affects our move up market as larger accounts are now billed with payment terms versus immediately collected by credit card.

Ittai Kidron: Thank you, guys. Good luck!

Victor Chiu: Thank you, guys. Good luck. Thank you.

Speaker Change: Thank you guys. Good luck.

Ittai Kidron: Thank you. The next question comes from Simon Leopold with Raymond James.

Speaker Change: Thank you, thank you.

Simon Leopold: And the next question comes to Simon Leopold, Raymond James.

Speaker Change: Thank you and the next question comes from Simon Leopold with Raymond James.

Simon Leopold: Hi guys, this is Victor Chiu and Simon Leopold. I just wanted to follow up on that last question. For the live read, how did you guys identify this specific function as an opportunity? Is this something that you know existing customers have inquired about previously, or is it something that you know as a common need? That would be an opportunity for you. I guess, you know, kind of how did you guys identify this opportunity to kind of develop?

Victor Chiu: Hi, guys.

Gleb Budman: This is Victor Chiu, and for Simon Leopold. I just wanted to follow up on that last question for the live read. How did you guys identify this specific function as an opportunity? Is there something that existing customers have inquired about previously, or something that you recognized as a common need that would be an opportunity for you? I guess you kind of how did you guys identify this opportunity to kind of develop this opportunity?

Speaker Change: Hi guys this is Victor Chiu and Simon Leopold. I just wanted to follow up on that last...

Speaker Change: Question, for the live read, how did you guys identify this specific function as an opportunity? Is this something that existing customers have inquired about previously or something that you recognized as a common need?

Speaker Change: You know, that would be an opportunity for you. I guess, you know, kind of how did you guys identify this opportunity to develop this opportunity?

Frank Patchel: From the beginning of the year, cash was positively impacted by the increase in deferred revenue, stemming largely some computer backup customary rules with 1 or 2 year terms paid for upfront. In the first half, deferred revenue increased 4 million with Q1 at 3.2 million and Q2 moderating to 0.8 million. This fluctuation reflects the timing of customary rules which occur unevenly across the quarters and we're in line with our expectations. Our finance lease liability, including long term and short term, decreased by 4.1 million since the beginning of the year.

Gleb Budman: Yeah, thanks, Victor. I'll say that the read insight and probably the ideal way that this comes about, which is our team talks to customers and prospects all the time. A lot of times when the customers and prospects say something, though, sometimes they'll ask for a specific feature of functionality, but oftentimes our team is trying to get in tune with what challenges are they struggling with in their businesses without them necessarily being able to offer a direct solution. And that was the case with live read. Our team was talking with some customers and understanding what they're struggling with, and they were talking about their challenges with having to wait until files were fully uploaded into the cloud with any solution they were using before they could work with them or having to have on-premises equipment to deal with it.

Gleb Budman: Yeah, thanks, Victor. I'll say that we identified the ideal way that this comes about, right, which is that our team talks to customers and prospects all the time. A lot of times, when customers and prospects say something, sometimes they'll ask for a specific feature or functionality, but oftentimes, our team is trying to get in tune with what challenges they are struggling with in their businesses without them necessarily being able to offer a direct solution.

Speaker Change: Yeah, thanks Victor. I'll say that the...

Speaker Change: We identified in probably the ideal way that this comes about, right, which is our team talks to customers and prospects.

Speaker Change: All the time. A lot of times when the customers or prospects say something, sometimes they'll ask for a specific feature or functionality, but oftentimes our team is trying to get in tune with what challenges are they struggling with in their businesses.

Speaker Change: Without them necessarily be able to offer a direct solution. And that was the case with live read. Our team was talking with...

Gleb Budman: And that was the case with Live Read. Our team was talking with some customers and understanding what they're struggling with, and they were talking about their challenges with having to wait until files were fully uploaded into the cloud with any solution they were using before they could work with them, or having to have on-premises equipment to deal with it. And so, as our team started talking about the customer challenge and ways it could potentially be solved, they came up with this innovation of being able to actually enable customers to start leveraging files while they are growing in the cloud without waiting for them to be completed. So, it was kind of the best approach to coming up with a unique solution.

Speaker Change: some customers and understanding what they're struggling with and they were talking about their challenges with

Frank Patchel: This reduction is due to leases concluding from our pandemic lease build up three years ago, as well as fewer new leases required for new data centric equipment purchases in Q2. Looking ahead, we expect third quarter revenue to be in the range of 32.4 to 32.8 million. Continuing our trends of increasing adjusted EBITDA, third quarter margin is expected to be between 9 and 11%. For the year, we are raising our annual guidance and now expect total revenue between 126.5 and 128.5 million, an increase from our prior guidance of 126 to 128 million. We continue to see full year growth of B2 at about 40%.

Speaker Change: having to wait until files were fully uploaded into the cloud with any solution they were using before they could work with them or having to have on-premises equipment to deal with it. And so, as our team started talking about the customer challenge and ways it could potentially be solved,

Gleb Budman: And so, as our team started talking about the customer challenge and ways it could potentially be solved, they came up with this innovation of being able to actually enable customers to start leveraging the files while they were growing in the cloud without waiting for it to be completed. So it was kind of the best approach of coming up with a unique solution.

Speaker Change: They came up with this innovation of being able to actually enable customers to start leveraging the files while they were growing in the cloud without waiting for it to be completed. So, it was kind of the best approach of coming up with a unique solution.

Gleb Budman: Okay, that's helpful. And I know you guys have noted that the back place is failure, resilient to the broader base macrohead ones that typically have a much more material impact on your competitors. There's still a whole truth of periods that where we could see more severe contractions, and especially given night in the search over the last couple of weeks. Yeah, it's a good question because we've seen other customers or other companies talking about the macro challenges and the impact that's had on them. I think for us, we have not seen that. As you saw in the, you know, we beat our Q2, we guided strongly Q3U, we guided up for the year.

Victor Chiu: That's helpful, and I know you guys have noted that the Backblaze is fairly resilient to the broader base macro headwinds that typically have a much more material impact on your competitors. Does this still hold true for periods where we could see more severe contractions, especially given the heightened concerns over the last couple of weeks?

Speaker Change: That's helpful.

Speaker Change: I know you guys have noted that the faculty is just fairly resilient to the broader base macro-haves that typically have a much more material impact on your competitors. There's this still hold true for periods where we could see more severe contractions, especially given night and concerns over the last couple of weeks.

Frank Patchel: We also now expect adjusted EBITDA to be in the range of 9 to 11%, an improvement over the prior guidance of 8 to 10%, to conclude I'm very pleased with our Q2 performance and our increase in the outlook for the remainder of the year. Before I hand the call back to Gleb, I would like to take a moment to express my thanks. First, I want to thank Gleb and Backblaze for giving me this amazing opportunity. Thanks to our leadership team and board members for being great partners over these past four years and to the entire Backblaze team for the incredible execution and teamwork.

Gleb Budman: Yeah, it's a good question, because we've seen other customers or other companies talking about the macro challenges and the impact it's had on them. I think for us, we have not seen that, as you saw, we beat our Q2, we guided strongly to Q3, we guided up for the year. So we're not seeing the same things they're seeing. And I think that what we believe is that the reason for that is our customers are seeing strong product value from the product and platforms we're offering. They also get strong TCO.

Speaker Change: Yeah, it's a good question because we've seen other customers or other companies talking about the macro challenges and the impact it's had on them.

Speaker Change: I think for us, we have not seen that as, you know, as you saw in the, you know, we beat our Q2, we guided strongly to Q3, we guided up for the year. So we're not seeing the same thing they're seeing. And I think that what we believe is that the reason for that is

Gleb Budman: So we're not seeing the same things they're seeing. And I think that what we believe is that the reason for that is our customers are seeing strong product value from the product and platform to operate. They also get strong KTO. And so, in an environment where they may be concerned about the macro, they're actually potentially looking for ways to do more with less, which we enabled them to do. And I would say that finally, you know, there are other products and offerings that customers can choose to not invest behind. But as long as they have data, they need to store it; they need to use it.

Speaker Change: [inaudible]

Gleb Budman: And so in an environment where they may be concerned about the macro, they're actually potentially looking for ways to do more with less, which we enable them to do. And I would say that, finally, there are other products and offerings that customers can choose to not invest in. But as long as they have data, they need to store it, and they need to use it. It's not optional. So I think we are more insulated from any potential macro concerns.

Gleb Budman: And now I'll turn the call back over to Gleb. Thanks Frank.

Gleb Budman: I want to take a moment to thank our whole team for working together to build Backblaze and to serve our customers. I also want to thank our investors and customers for putting your trust in us.

Speaker Change: which we enable them to do.

Speaker Change: And I would say that, finally, you know, there are other products and offerings that customers can choose to not invest behind, but as long as they have data, they need to store it, they need to use it. It's not optional. So I think we are more insulated from any potential macro concerns.

Gleb Budman: It's not optional. So I think we are more insulated from any potential macro control.

Operator: We're excited to see many of you at the Oppenheimer Conference next week and Lake Street Conference in September. And with that, I'd like to open it up for questions.

Gleb Budman: James Johnson. Okay, that's that's helping. You haven't observed any changes or, you know, changing changes in demand trends so far. I think, as you've seen from the results in the guidance, I would say no; and moreover, you know, we layer on top of that our execution. So in Q2, our sales team actually beat our internal forecasts for closed one deals. And so, and that was, you know, with the still newer A team and with Jason, not even having been on board yet. So we're enthusiastic about being able to leverage that A team violence fully ramped with with Jason fully on board.

Gleb Budman: Okay, that's helpful. And you haven't observed any changes or, you know, changes in demand trends so far?

Speaker Change: Okay, that's helpful. And you haven't observed any changes or, you know, changes in demand trends so far?

Operator: Operator? Yes, thank you. We will now begin the question and answer session. To ask a question, you may press star on one on your telephone keypad. If you're using a speaker phone, please pick up your hands up before pressing the keys. If any time your question has been addressed and you'd like to withdraw it, please press star on two.

Gleb Budman: I think as you've seen from the results in the guidance, I would say no, and moreover, we layer on top of that our execution. So in Q2, our sales team actually beat our internal forecast, for closed one deals. And so, and that was, you know, with the still newer A.E. team and with Jason not even having been on board yet, so we're enthusiastic about being able to leverage that A.E. team that's fully ramped with Jason fully on board.

Speaker Change: I think if you've seen from the results in the guidance, I would say no and moreover, you know, we layer on top of that our execution. So they in Q2, our sales team actually beat our internal forecasts.

Operator: At this time, we will pause momentarily to assemble the roster.

Victor Chiu: And today's first question comes to me to take you drawn with the Oppenheimer company. Hey guys, great quarter and Frank, congratulations and good luck. It's been a pleasure. So maybe I'll start with you, Frank, then. If you can, I appreciate the color around B2. I mean, it's clearly, you're seeing extremely good traction over there. Is there a way for you to break down the upside into the components that you mentioned with respect to your turn, better expansion activity?

Speaker Change: for closed one deals.

Jason Wakeham: And so, and that was, you know, with the still newer AE team and with Jason not even having been on board yet. So we're enthusiastic about being able to leverage that AE team that's fully ramped with Jason fully on board.

Gleb Budman: That's great. That's very helpful.

Victor Chiu: That's great! That's very helpful. Thank you.

Operator: Thank you.

Speaker Change: That's great. That's very helpful.

Victor Chiu: Thank you. And the next question comes from Jason Ader with WB.

Operator: And the next question. Just nature with the WV.

Speaker Change: Hello?

Speaker Change: Thank you. And the next question comes to Jason Ader with WB.

Zachary Cummins: Thank you, and congrats to you, Frank, for your retirement. I wanted to talk a little bit about the second half and just kind of the breakdown of the business in the second half. First and foremost, given the 40% B2 items that you gave for the year, that imputes a growth rate in the computer backup business of around 13%. And I just want to make sure my math is correct there. And you had originally said single-digit growth in computer backup this year. So what changed? Did you, did you say, could you repeat the percentage that you said, Jason?

Jason Ader: Hey guys, thank you and congrats to you, Frank, on your retirement. I wanted to talk a little bit about the second half and just kind of the breakdown of the business in the second half. First and foremost, given the 40% B2 guidance that you gave for the year, that implies a growth rate in the computer backup business of around 13%. And I just want to make sure my math is correct. And... You had originally said single-digit growth in computer backup this year, so what changed?

Victor Chiu: How do you think the breakdown of the upside, how would you allocate it between the different buckets? Well, we've had, we, as far as our upside to our guidance, each time. Yes, yes. Yes. It actually was strength across a number of areas. The largest was the fact that our turn rate remains very good. And it was above our expectations, our forecast and budget. So I would say that's number one, and that's really referring to computer backup.

Jason Ader: I wanted to talk a little bit about the second half and just kind of the breakdown of the business in the second half first and foremost given the 40% B2 guidance that you gave for the year.

Speaker Change: that imputes a growth rate in the computer backup business of around 13%.

Speaker Change: and I just want to make sure my math is correct there. And you had originally said single digit growth in computer backup this year, so what changed?

Victor Chiu: And then the, on the B2 side, B2 reserve, which is our channel product, has had excellent renewal rates above what we had originally thought. So that's a partnering with our resellers. And they also have been renewing for more storage than they previously had. So that had a nice impact as well. And then the third part, the third part was just help quickly. Our major accounts are coming on to services from the sales of quarter one, which were largely in the very end of the quarter, and they came on to service very quickly. So that was a nice, we were nice to see that as well.

Jason Ader: Did you, did you say, could you repeat the percentage that you said, Jason?

Speaker Change: Did you say, can you repeat the percentage that you said, Jason?

Jason Ader: Yeah, I think you said in the script that you expect 40% growth in B2, so I just kind of... And then you gave guidance for.., obviously for the full revenue line. So I just imputed computer backup growth in the kind of low double digits versus the single digit.

Frank Patchel: Yeah, I think you said in the script that 40, you expect 40% growth in B2. So I just kind of, and then you gave guidance for obviously for the full revenue line. So I just imputed computer backup growth in the kind of low double digits versus the single digit original guidance that you had given for the year. Okay, so the 40% is correct. And then what's happening in the end of the year, remember, is that we lost the price increases. So that's the kind of difference. Yeah, but why would that be? I mean, you're going to grow faster than you originally guided to.

Jason: Yeah, I think you said in the script that you expect 40% growth and B2, so I just kind of, and then you gave guidance for...

Speaker Change: obviously for the full revenue line. So I just imputed computer backup growth in the kind of low double digits versus the single-digit original guidance that you had given for the year.

Francis Patchel: Okay, so the 40% is correct. And then what's happening at the end of the year, remember, is that we've lapsed our price increases. So that's the kind of difference.

Speaker Change: Okay, so the 40% is correct.

Speaker Change: and then what's happening in...

Speaker Change: The end of the year remember is that we've asked our pricing creases.

Speaker Change: So that's the kind of difference.

Gleb Budman: Yeah, maybe on that last point, glad maybe you can add some color on the move up market. How do you think about, you know, when you look at the logos you're adding here now versus a year ago, how would you compare contrast either by vertical company size, use case, help me understand how this push up market is translating into a different customer profile for you? Yeah, I think today, so I think one way I would say to look at it is when we went public, we went, we were almost entirely at self service for a driven company within our food that was just slightly over a hundred hours, and we now have 115 customers paying us over $50,000 each.

Francis Patchel: Yeah, but that would, why would that be next? I mean, you're going to grow faster than you originally guided to.

Speaker Change: Gleb Budman, Francis Patchel, James Kisner, James Kisner,

Speaker Change: Yeah, but that would, why would that be net? I mean, you're going to grow faster than you originally guided to, that's what I'm trying to figure out, I'm going to kick it back up.

Francis Patchel: That's what I'm trying to figure out on computer back.

Frank Patchel: That's what I'm trying to figure out on computer backup. Oh, okay. Yes, that has been happening. The reason for that is that in our budgets and forecasts, we had expected a higher turn rate given our price increase last year. And do you remember that we have customers constantly renewing? That's going to happen over, you know, a two-year period. But what we've actually experienced is a very solid retention rate above our expectations that has caused our growth to be a little bit higher. Okay, so it basically better renewals, less turn. Yeah. Okay. And then for the Q4, also imputed guidance is based on what you gave for two, three, and for the year.

Francis Patchel: The reason for that is that in our budgets and forecasts, we had expected a higher churn rate given our price increase last year. And remember that we have customers constantly renewing. That's going to happen over a two-year period. But what we've actually experienced is a very solid retention rate above our expectations, and that has caused our growth to be a little bit higher.

Speaker Change: Oh, okay, yes, that has been happening. The reason for that is that in our budgets and forecasts, we had expected a higher turn rate given our price increased last year and remember that.

Speaker Change: We have customers constantly renewing, so that's going to happen over a two-year period. But what we've actually experienced is a very solid retention rate above our expectations, and that has caused our growth to be a little bit higher.

Jason Ader: Okay, so it basically... Better Renewals, Less Churn. Yes. Okay.

Speaker Change: Okay, so it basically better renewals last term.

Jason Ader: And then for the Q4, also imputed guidance is based on what you gave for Q3 and for the year. The growth rate for Q4 is going to be about 17% year-over-year, which is quite a bit below where you've guided to and where you've been in the first half of the year. I just want to understand, is there something anomalous in the year-over-year comparison, like was there anything one time in Q4 of 2023 which is making for a tougher comparison?

Gleb Budman: So that's a dramatic difference from the way the company looked just a couple years ago. The team that were that we've assembled, we hired up the mid market enterprise focused AE team in the first and second quarters, we expect that seems to be fully ramped by the end of this year, and we've got Jason joining us as an experienced CEO to lead that up market momentum. So I think we've materially shifted what the company looks like in terms of the customer adoption from the public time, and also for the go forward.

Speaker Change: And then for the Q4, also imputed guidance is based on what you gave for Q3 and for the year.

Frank Patchel: The growth rate for Q4 is going to be about 17% year over year, which is quite a bit below where, you know, you've guided to and where you've been in the first half of the year. I just want to understand if there is something anomalous in the year-over-year comparison? Like, was there anything one time in Q4 of 2023, which is making for a tougher comparison?

Speaker Change: Um...

Speaker Change: The growth rate for Q4 is going to be about 17% year-over-year.

Speaker Change: which is quite a bit below where you've guided to and where you've been in the first half of the year. I just wanna understand, is there something anomalous in the year-over-year comparison? Like, was there anything one time in Q4 of 2023 which is making for a tougher comparison?

Gleb Budman: Hey Jason, this is Gleb. So I think first of all, just the, you know, we're not guiding Q4 today. The, in general, we expect B2 in Q3 to grow about 45%. And, and so that's that's for Q3, and we still feel good about the 40% growth rate for the year for B2. The Q4 is the full lap, the full laps of the price increase from both B1, both computer backup and for B2. And so there's that piece of it. The, you know, in general, we've had, you know, strong Q1, strong Q2, you know, we've got it for a strong Q3 and full year.

Gleb Budman: Hey Jason, this is Gleb. So I think, first of all, we're not guiding Q4 today. In general, we expect B2 in Q3 to grow about 45%. And so that's for Q3. And we still feel good about the 40% growth rate for the year for B2. The Q4 is the full lapse of the price increase for both B1, both computer backup and for B2. And so there's that piece of it.

Speaker Change: Hey, this is Gleb Budman.

Gleb Budman: Got it. Maybe last one for me on the B2 line to read that you've talked about, Gleb, in your particular remarks. First of all, how do you collect, what's the business model around is, if you can, is this just more compute or more storage that's needed to power this, or there's a special different pricing model for it is, and then second, relating to this, you've talked about a certain few examples of certain verticals or use cases that would be interested.

Speaker Change: So, I think first of all, we're not guiding Q4 today, in general, we expect B2 in Q3 to grow about 45%.

Speaker Change: And so that's for Q3, and we still feel good about the 40% growth rate for the year for B2. Q4 is the full lapse of the price increase for both B1, both computer backup and for B2.

Gleb Budman: But if you had to look at your customer base, how applicable, or how broadly applicable is this capability to your base, you know, what percent of your base you think would be highly interested in this. Yeah, we're excited about live read. It's it is new. It's we expected to come out of preview mode and into GA by the end of this year. So it's still quite new, but it's it's sort of an important set of customer use cases because it enables anyone who is working with large and growing files to take advantage of it.

Gleb Budman: The, you know, in general, we've had, you know, strong Q1, strong Q2, you know, we've got a strong Q3 and full year. I think there's two things we're also just paying attention to. We have two transitions. One is the sales transition with Jason coming on board. And, you know, we're all enthusiastic about him and the ramping of the AEs, but we want to be cognizant of timing implications of that transition. And then the other is for some of the larger pay as you go customers, one of the things we've been doing this year is starting to move some of them to committed contracts.

Speaker Change: And so there's that piece of it.

Speaker Change: The, you know, in general we've had, you know, strong Q1, strong Q2, you know, we've got a very strong Q3 in the full year.

Gleb Budman: I think there's two things we're also just paying attention to.

Gleb Budman: We have two transitions: one is the sales transition with Jason coming on board. And, you know, we're all enthusiastic about him and the ramping of the AEs, but we want to be cognizant of the timing implications of that transition. And then the other is, for some of the larger pay-as-you-go customers, one of the things we've been doing this year is starting to move some of them to committed contracts. We're doing that because it establishes longer term relationships with them, more opportunity for longer term upsells with them, or visibility and line of sight into revenue forecasting. But some of those are also at some discount as we, as we put them on these longer term committed contracts.

Speaker Change: I think there's two things where we're also just paying attention to, we have two transitions that one is the sales transition with Jason coming on board and you know we're all enthusiastic about him and the ramping of the AES but we want to be cognizant of timing implications of that transition.

Speaker Change: And then the other is for some of the larger pay-as-you-go customers, one of the things we've been doing this year is starting to move some of them to committed contracts.

Gleb Budman: In terms of the verticals, we're starting with the broadcast and media focus because it's the one that's most closely attributable to seeing value directly from this functionality. It is part of our overall strategy that innovation is a key goal for us, both because it provides value to customers and a different chase us until library is a good example of that. In terms of the business model, we charge for usage of library, so we charge $15 per chair by uploaded, and then the storage is at standard B2 list prices. So nice thing with it is it provides unique and differentiated value to customers, and at the same time it's a higher margin offering for backwards.

Gleb Budman: We're doing that because it establishes longer-term relationships with them, more opportunity for longer-term upsells with them, more visibility in line of sight, and inter-revenue forecasting, but some of those are also at some discounted rates as we put them on these longer-term committed contracts. So we're just being sensitive to those two transitions happening through the end of this year.

Speaker Change: We're doing that because it establishes longer-term relationships with them, more opportunity for longer-term upsells with them, more visibility in line-of-sight, inter-revenue forecasting, but some of those are also at some discount as we as we put them on these longer-term permitted contracts.

Gleb Budman: So we're just being sensitive to those two transitions happening through the end of this year. Gotcha. Okay, so then just Q4, you're not guiding specifically to Q4, but you're trying to be, let's call it conservative, just based on some of these factors. I think we've cognizant of them.

Speaker Change: So we're just being sensitive to those two transitions happening through the end of this year.

Jason Ader: Got you. Okay, so then just Q4. You're not guiding specifically the Q4, but you're trying to be, let's call it conservative, just based on some of these factors.

Speaker Change: Gotcha, okay, so then, just Q4.

Speaker Change: You're not guiding specifically the Q4, but you're trying to be, let's call it conservative, just based on some of these factors.

Jason Ader: Again, we're cognizant of them. All right. Thank you. Good luck, guys.

Speaker Change: and David Cognizant of them.

Zachary Cummins: All right. Thank you. Good luck, guys. Thanks, Jason. Thank you.

Speaker Change: All right, thank you. Good luck guys.

Victor Chiu: Thank you, guys. Good luck.

Operator: Thank you.

Speaker Change: Gleb Budman, Francis Patchel, James Kisner, James

Jason Ader: Thank you, and the next question comes from Zach Cummins with B Riley Securities.

Victor Chiu: And the next question comes to Simon Leopold, Raymond James. Hi, guys. This is Victor Chiu, and for Simon Leopold. I just wanted to follow up on that last question for the live read. How did you guys identify this specific function as an opportunity? Is there something that existing customers have inquired about previously or something that you recognized as a common need that that would be an opportunity for you? I guess you kind of how did you guys identify this opportunity to kind of develop this opportunity?

Ethan Whiteel: And the next question comes to Zach Cummins with B. Riley Securities. Hi, this is Ethan Whiteel calling in for Zach Cummins.

Speaker Change: Thank you and the next question comes Zach Cummins with B Riley Securities

Zach Cummins: Hi, this is Ethan Wydell calling in for Zach Cummins. Thanks for checking my questions and congrats, Frank, on your retirement. You mentioned that you're doing the same. I had some that are out there for other companies, but are you seeing any incremental changes in terms?

Speaker Change: Hi, this is Ethan White, I'll call you in for that comment. Thanks for checking my questions and congrats for answering your retirement. So you mentioned that you're putting the same head ones that are out there for other companies, but are you saying any incremental changes in turn?

Frank Patchel: Thanks for taking my questions, and congrats, Frank, on your retirement. So you mentioned that you're putting the same head ones that are out there for other companies, but are you seeing any incremental changes in turn? Turn it very slightly lower. You can, you can see in our growth custom retention. So, but it's above our original budget and above our updated forecast. So it's there, but we're just very pleased that it's been, you know, a lesser driver for us. Got it.

Zach Cummins: The churn is very slightly lower, as you can see in our gross customer retention, but it's above our original budget and above our updated forecast. So it's there, but we're just very pleased that it's been a lesser driver.

Speaker Change: Churn is very slightly lower. You can you can see in our gross customer retention.

Speaker Change: So, but it's above our original budget and above our updated forecast, so it's there, but we're just very pleased that it's been, you know, a lesser driver for us.

Gleb Budman: Yeah, thanks, Victor. I'll say that the read insight and probably the ideal way that this comes about, which is our team talks to customers and prospects all the time. A lot of times when the customers and prospects say something though, sometimes they'll ask for a specific feature of functionality, but oftentimes our team is trying to get in tune with what challenges are they struggling with in their businesses without them necessarily being able to offer a direct solution.

Gleb Budman: I got it. That makes sense. And then, secondly, could you maybe elaborate a little bit on your new CRO hire and maybe how Jason fits in with your longer-term growth aspirations?

Gleb Budman: And next one.

Gleb Budman: And then secondly, can you maybe elaborate a little bit on your new CRO hire and maybe how Jason clicks in with your longer term growth aspirations? Yep. This is love. So I'm more excited about him joining. He brings with him an upmarket set of experiences, which is where we're headed and where we've been headed. So he brings that expertise with him. He also is really unique in having direct sales channels partnerships in OEM. and I'm going to show you a little bit of what we're going to do with this experience. So, the different ways that we go to market.

Speaker Change: Got it. That makes sense. And then, secondly, could you maybe elaborate a little bit on your new CRO hire and maybe how Jason clicks in with your longer-term growth aspirations?

Gleb Budman: Yep, this is Gleb. So I'm very excited about him joining. He brings with him an upmarket set of experiences, which is where we're headed and where we've been headed. So he brings that expertise with him. He is also really unique in having direct sales channels, partnerships, and OEM experience. So, what are the different ways that we go to market?

Gleb Budman: Yep, this is Gleb. So, I'm very excited about him joining. He brings with him an upmarket set of experiences, which is where we're headed and where we've been headed, so he brings that expertise with him. He also is really unique in having direct sales, channels, partnerships, and OEM experience.

Gleb Budman: And that was the case with live read. Our team was talking with some customers and understanding what they're struggling with, and they were talking about their challenges with having to wait until files were fully uploaded into the cloud with any solution they were using before they could work with them or having to have on-premises equipment to deal with it. And so as our team started talking about the customer challenge and ways it could potentially be solved, they came up with this innovation of being able to actually enable customers to start leveraging the files while they were growing in the cloud without waiting for it to be completed. So it was kind of the best approach of coming up with a unique solution.

Gleb Budman: which are the different ways that we go to market. So he brings all of that expertise with him. And the combination of being at larger organizations like HP and Microsoft and seeing how to move large-scale revenue momentum, but also in Cloudera and SnapLogic being in smaller, more nimble companies and making them, getting them ramped.

Gleb Budman: So he brings all of that expertise with him, and the combination of being at larger organizations like HP and Microsoft and seeing how to move large-scale revenue momentum, but also at Cloudera and SnapLogic being at smaller, more nimble companies and making them, and getting them wrapped quickly, I think are great sets of experiences that he brings to us. And he's only been on board for a brief moment here, but he's already been having an impact, as we've seen in the organization in terms of structuring, planning, and driving that effectiveness. So I'm very excited about having him on board. Thank you. I appreciate the color.

Gleb Budman: So he brings all of that expertise with him, and the combination of being at larger organizations like HB and Microsoft and seeing how to move large scale revenue momentum, but also in cloud and SnapLogic being more and more nibble companies and making them getting them wrapped quickly. I think are great sets of experiences that he brings to us, and he's only been on board for, you know, a brief moment here, but he's already been having an impact, as we've seen in the organization in terms of structuring, planning, and driving that effectiveness. So I'm really excited about having him on board.

Gleb Budman: Quickly.

Speaker Change: I think our great sense of experiences that he brings to us. And he's only been on board for a brief moment here, but he's already been having an impact as we've seen in the organization in terms of

Gleb Budman: Okay, that's helpful. And I know you guys have noted that the back place is failure, resilient to the broader base macrohead ones that typically have a much more material impact on your competitors. There's still a whole truth of periods that where we could see more severe contractions, and especially given night in the search over the last couple of weeks. Yeah, it's a good question because we've seen other customers or other companies talking about the macro challenges and the impact that's had on them.

Speaker Change: structuring, planning, and driving that effectiveness. So I'm very excited about having him on board.

Operator: Thank you.

Ethan Whiteel: Thank you. Appreciate the color.

Speaker Change: Thank you. Appreciate the color.

Speaker Change: Thank you. Thank you. Thank you.

Gleb Budman: Gleb Budman, Francis Patchel,

Speaker Change: Gleb Budman, Francis Patchel, James Kisner, James

Speaker Change: [inaudible]

Gleb Budman: I think for us, we have not seen that, as you saw in the, you know, we beat our Q2, we guided strongly Q3U, we guided up for the year. So we're not seeing the same things they're seeing. And I think that what we believe is that the reason for that is our customers are seeing strong product value from the product and platform to operate. They also get strong KTO. And so in an environment where they may be concerned about the macro, they're actually potentially looking for ways to do more with less, which we enabled them to do.

Speaker Change: Go to Beadaholique.com for all of your beading supplies needs!

Operator: Operator, do we have any more questions from others? Yes, yes, we do. One from Jeff Henry with Craig Hallam.

Operator: Operator, do we have any more questions from others? Yes, we do want to Jeff Henry with Craig Hall on Capitol Grove. Yeah, great. Thanks for taking the questions. Congrats, guys, and great to see the margins ticking up. Just looks great across the board. A couple for me, Gleb, maybe just start with the AI impacts. Can you give a little bit or a little more finely tuned sense of the magnitude of the AI impacts or trajectory of those impacts you referenced as a driver? Just trying to get a sense of magnitude and trend. Yeah, so I think I would say two things.

Speaker Change: Operator, do we have any more questions from others? Yes, we do. One from Jeff Van Ree with Craig Hallam Kappeler Group.

Jeff Henry: Yeah, great. Thanks for taking the questions.

Speaker Change: Thanks for taking the questions, congrats guys, and great to see the margin sticking up just looks great across the board. A couple for me, maybe just start with the AI impacts. Can you give a little better, a little more finely tuned sense of the magnitude of the AI impacts, or trajectory of those impacts you reference to as a driver just trying to get a sense of magnitude and trend?

Jeff Henry: It just looks great across the board. A couple for me, Gleb, maybe just start with the AI impacts. Can you give a little more finely-tuned sense of the magnitude of the AI impacts or trajectory of those impacts? You referenced it as a driver, just trying to get a sense of magnitude.

Gleb Budman: Yeah, so I think I would say two things. One is that it's obviously a large opportunity in terms of just market size, right? All of the AI efforts that are happening out there are driving data creation, data usage, and those are things we fundamentally help with. So I think that that's the first part of it.

Gleb Budman: And I would say that finally, you know, there are other products and offerings that customers can choose to not invest behind. But as long as they have data, they need to store it, they need to use it. It's not optional. So I think we are more insulated from any potential macro control.

Gleb Budman: One is that it's obviously a large opportunity in terms of just market size. Right there is all the AI efforts that are happening out there are driving data creation, data usage, and those are things we fundamentally help with. So I think that that's kind of the first part of it. And the related part of it is that companies are needing to use different GPU clouds for their AI use cases, and we are well positioned to help them with that because you can store the data with us and then use the data in these different GPU clouds. And the example that I shared in the call earlier of the AI customer, you know, they are saving 300,000 dollars, 300,000 dollars just by switching to us.

Speaker Change: Yeah, so I think I would say...

Speaker Change: two things. One is that it's obviously a large opportunity in terms of just market size, right? All of the AI efforts that are happening out there are driving data creation, data usage, and those are things we fundamentally help with. So I think that that's

Gleb Budman: And the related part of it is that companies are needing to use different GPU power, for their AI use cases. And we are well-positioned to help them with that because you can store the data with us, and then use the data in these different GPU clouds. And the example that I shared in the call earlier of the AI customer, they're saving $300,000, $300,000 just by switching to it. So that's a huge savings for their AI use cases.

Gleb Budman: James Johnson. Okay, that's that's helping. You haven't observed any changes or, you know, changing changes in demand trends so far. I think as you've seen from the results in the guidance, I would say no and moreover, you know, we layer on top of that our execution. So the in Q2, our sales team actually beat our internal forecasts for closed one deals. And so, and that was, you know, with the still newer A team and with Jason, not even having been on board yet. So we're enthusiastic about being able to leverage that A team violence fully ramped with with Jason fully on board. That's great. That's very helpful. Thank you.

Operator: And the next question. Just nature with the WV.

Speaker Change: And the first part of it, and the related part of it is that companies are needing to use different GPU clouds for their AI use cases, and we are well positioned to help them with that because you can store the data with us.

Speaker Change: and then use the data in these different GPU clubs. And the example that I shared in the call earlier of the AI customer.

Speaker Change: You know, they're saving $300,000, $300,000 just by switching to us, so that's a huge savings for their AI use cases.

Gleb Budman: But also, they're actually becoming more effective as an organization because they were being limited and constrained by AWS not having enough GPU capacity for their needs at that moment and needing to use another provider. And this allows them to have diversity of GPU providers while keeping their data somewhere that is accessible. So I think we're really well positioned to help customers with their AI use cases. The other thing that I'll mention is that a lot of the discussion right now that I've seen out in the industry is, companies are ramping up CapEx dramatically to service the AI use case, and saying it's going to take years and years potentially to get a return on that.

Gleb Budman: So that's a huge savings for their AI use cases. But also they're actually becoming more effective as an organization because they were being limited and constrained by their by a degree of not having enough GPU capacity for their needs at that moment and needing to use another provider, and this allows them to have diversity of GPU providers while keeping their data somewhere that is accessible. So I think we're really well positioned to help customers with their AI use cases. The other thing that I'll mention is that a lot of the discussion right now that I've seen out in the industry is companies are ramping up CapEx dramatically to service the AI use case.

Speaker Change: But also, they're actually becoming more effective as an organization because they were being limited and constrained by their...

Speaker Change: by AWS not having enough GPU capacity for their needs at that moment and needing to use another provider. And this allows them to have diversity of GPU providers while keeping their data somewhere that is accessible. So I think we're really well positioned to help customers with their AI use cases.

Jason: Thank you, and congrats to you, Frank, for your retirement. I wanted to talk a little bit about the second half and just kind of the breakdown of the business in the second half. First and foremost, given the 40% B2 items that you gave for the year, that imputes a growth rate in the computer backup business of around 13%. And I just want to make sure my math is correct there. And you had originally said single digit growth in computer backup this year.

Speaker Change: The other thing that I'll mention is that a lot of the discussion right now that I've seen out in the industry is companies are ramping up CapEx dramatically to service the AI use case.

Gleb Budman: and saying it's going to take years and years, potentially, to get a return on that. That's not the case for us because they're spending CAPEX on GPU buildouts. We're not a GPU company; we're enabling AI use cases, including how and where they can use those GPU products. So we're not having the same CAPEX requirements while we do get the benefit of supporting those use cases.

Speaker Change: and saying it's going to take years and years potentially to get a return on that. That's not the case for us.

Gleb Budman: That's not the case for us, because they're spending CapEx on GPU buildup. We're not a GPU company; we're enabling AI use cases, including how and where they can use those GPU parts. So we don't have the same CAPX requirements, while we do get the benefit of supporting those use cases.

Speaker Change: because they're spending tablets on GPU buildouts.

Jason: So what changed? Did you, did you say, could you repeat the percentage that you said Jason? Yeah, I think you said in the script that 40, you expect 40% growth in B2. So I just kind of, and then you gave guidance for obviously for the full revenue line. So I just imputed computer backup growth in the kind of low double digits versus the single digit original guidance that you had given for the year.

Speaker Change: We're not a GPU company, we're enabling AI use cases including how and where they can use those GPUs. So we're not having the same cap X requirements while we do get the benefit of supporting those use cases.

Jeff Henry: Great, that's helpful. And back to Jason Waking joining the company, you touched on his skills, but I wonder if we could get you to kind of come at it maybe from a different direction. And just talk about what the B2 Selling Motion is now and broadly speaking, what you envision it to be in 12 months.

Gleb Budman: Great, that's helpful.

Gleb Budman: And back to Jason Waking, joining the company, you touched on his skills, but I wonder if it could get you to kind of come at it maybe from a different direction. And just talk about what the B2 selling motion is now and, broadly speaking, what you envision it to be in 12 months. Sure, so when we started, when we were going on the path originally, we were almost entirely self-served. So the selling motion at the time was people finding out about Backblaze through various different channels, showing up to the website and entering an email address, password, clicking create account, trying it, entering a credit card, and then starting to use the service.

Jason Waking: Great, that's helpful, and back to Jason Waking, joining the company, you touched on his skills, but I wonder if we could get you to come out maybe from a different direction. And just talk about what the B2 selling motion is now and broadly speaking, what you envision it to be in 12 months.

Jason: Okay, so the 40% is correct. And then what's happening in the end of the year, remember is that we lost the price increases. So that's the kind of difference. Yeah, but why would that be? I mean, you're going to grow faster than you originally guided to. That's what I'm trying to figure out on computer backup. Oh, okay. Yes, that has been happening. The reason for that is that in our budgets and forecasts, we had expected a higher turn rate given our price increase last year.

Gleb Budman: Sure, so when we started, when we were going down the path originally, we were almost entirely self-serve. So the selling motion at the time was people finding out about Backblaze through various different channels, showing up on the website and entering an email address, a password, clicking create account, trying it, entering a credit card, and then starting to use the service. That was how 80% of the business existed at the time of IPO.

Speaker Change: Sure, so when we started, when we were going down the path originally, we were almost entirely self-serve. So the selling motion at the time was

Speaker Change: People finding out about backplace who various different channels showing up to the website.

Speaker Change: and entering an email address in the past where it was clicking create account, trying it, entering a credit card, and then starting to use the service. That was how 80% of the business existed at the time of IPO.

Gleb Budman: That was how 80% of the business existed at the time of IPO. It's still a significant driver of new business for us today, and we've made investment and continue to optimize the self-served part of the go-to-market motion. On top of that, then we layered a direct selling motion. Direct selling motion is people coming to the company either because they've heard about it through our blog, PR events, and other places, or by our outbound SDRs reaching out to targeted verticals and targeted use case and bringing leads into the pipeline that the account executive team then works to close.

Gleb Budman: It's still a significant driver of new business for us today, and we've made investments and continue to optimize the self-serve part of the go-to-market model. On top of that, then, we layered a direct selling motion. Direct selling motion is, People coming to the company either because they've heard about us through our blog, PR, events, and other places, or by our outbound SDRs reaching out to targeted verticals and targeted use case and bringing leads into the pipeline that the account executive team then works to close.

Speaker Change: It's still a significant driver of new business for us today, and we've made investments and continue to optimize the self-serve part of the go-to-market motion.

Jason: And do you remember that we have customers constantly renewing? That's going to happen over, you know, a two year period. But what we've actually experienced is a very solid retention rate above our expectations that has caused our growth to be a little bit higher. Okay, so it basically better renewals less turn. Yeah. Okay. And then for the Q4 also imputed guidance is based on what you gave for two, three and for the year.

Speaker Change: On top of that then we layered a direct selling motion. Direct selling motion is...

Speaker Change: people coming to the the company either because they've heard about us through our blog, PR, events, and other places, or by our outbound SDRs reaching out to targeted verticals.

Speaker Change: and Targeted Use Case and bringing leads into the pipeline that the account executive team then works to close.

Gleb Budman: We then layered on top of that a channel motion working with resellers, companies like CDW and others in order to drive channel business, and then most recently, just earlier this year, last few months ago, we layered on Powered By, which was the new technology that enabled us to make ourselves part of other people's offerings. So we talked about edge compute companies, media and transcoding companies, and cloud service providers that are starting to integrate B2 into their products as part of their go-to-market. So those are the ways that we've been going to market in the layering, and I believe that Jason will continue to drive all of those sales-led ones, not the self-served, but the sales-led ones, but the increasing efficiency and effectiveness and success of those motions, as well as moving up into the larger sizes of the organizations that are taking us up on those motions.

Gleb Budman: We then layered on top of that a channel motion, working with resellers, companies like CDW and others, in order to drive channel business. And then, most recently, just earlier this year, a few months ago, we layered on Powered By, which was a new technology that enabled us to make ourselves part of other people's offerings. We talked about edge compute companies, media and transcoding companies, and cloud service providers that are starting to integrate v2 into their products as part of their go-to market.

Speaker Change: We then layered on top of that channel motion working with resellers, companies like CVW and others in order to drive channel business. And then most recently, just earlier this year, last few months ago, we layered on powered by.

Jason: The growth rate for Q4 is going to be about 17% year over year, which is quite a bit below where, you know, you've guided to and where you've been in the first half of the year. I just want to understand is there is there something anomalous in the year over year comparison? Like was there anything one time in Q4 of 2023, which is making for a tougher comparison?

Speaker Change: which was the new technology that enabled us to make ourselves a part of.

Speaker Change: other people's

Speaker Change: offerings. So we talked about

Speaker Change: Edge compute companies, media and transcoding companies, and cloud service providers that are starting to integrate v2 into their products.

Gleb Budman: Hey Jason, this is Gleb.

Gleb Budman: So I think first of all, just the, you know, we're not guiding Q4 today. The, in general, we expect B2 in Q3 to grow about 45%. And, and so that's that's for Q3 and we still feel good about the 40% growth rate for the year for B2. The Q4 is the full lap, the full laps of the price increase from both B1, both computer backup and for B2. And so there's that piece of it. The, you know, in general, we've had, you know, strong Q1, strong Q2, you know, we've got it for a strong Q3 and full year.

Gleb Budman: So, those are the ways that we've been going to market in the layering. And I believe that Jason will continue to drive all of those sales-led ones, not the self-serve, but the sales-led ones, but the increasing efficiency and effectiveness and success of those motions, as well as moving up into the larger sizes of the organizations that are taking us up on those motions.

Speaker Change: as part of their go-to-market. So those are the ways that we've been going to market in the layering. And I believe that Jason will continue to drive all of those sales led ones, not the self-serve, but the sales led ones.

Jason: But the increasing efficiency and effectiveness and success of those motions, as well as moving up into the larger sizes of the organizations that are taking us up on those motions.

Jeff Henry: Got it. Very helpful. Thanks so much.

Gleb Budman: Got it. Very helpful. Thanks so much. Thank you, Jeff. Thank you.

Speaker Change: Got it. Very helpful. Thanks so much.

Jeff Henry: Thank you. And the next question comes from Mark Hagen with Lake Street Capital.

Mark Hagen: And the next question comes from Mark Hagen with Lake's Tube Capital Markets. Hi, guys. That congratulations, Frank, in front of Eric. We're looking at the 2025; we're trying to look at the expected sort of cash flow positive mid-2025 and then with the addition of Jason and any changes that may happen there or new sales hires. I just wonder if there's any change in that or if that's still kind of the thoughts there. Yeah, as far as our cash, so we're really pleased, of course, that we have an 80% reduction total cash usage for the first half of this year versus the first half last year.

Speaker Change: Thank you, Jeff. Thank you, and the end of the sentence comes from Mark Hanging with Lake Toupes Capital Markets.

Mark Hagen: Hi, guys. Congratulations, Frank. In for Erik today.

Gleb Budman: I think there's two things we're also just paying attention to. We have two transitions that one is the sales transition with Jason coming on board. And, you know, we're all enthusiastic about him and the ramping of the AEs, but we want to be cognizant of timing implications of that transition. And then the other is, for some of the larger pay as you go customers, one of the things we've been doing this year is starting to move some of them to committed contracts.

Speaker Change: Hi guys, good night!

Gleb Budman: We're doing that because it establishes longer term relationships with them, more opportunity for longer term upsells with them or visibility and line of sight into revenue forecasting, but some of those are also at some discount as we, as we put them on these longer term committed contracts. So we're just being sensitive to those two transitions happening through the end of this year.

Speaker Change: Congratulations Frank, in for Eric today. So we're looking at this 2025, we're kind of looking at what's expected and sort of cash will posit mid.

Speaker Change: 2025 and then with the addition of Jason and any changes that may happen there or new sales hires. I'm just wondering if there's any change to that or if that's still kind of the thoughts there.

Speaker Change: Yes, as far as our cash.

Speaker Change: So we're really pleased, of course, that we have an 80% reduction in toll cash usage.

Speaker Change: for the first half of this year versus the first half last year.

Frank Patchel: We continue to project Uran cash balance at 20 million and that we will be total cash usage, break even by the middle of 2025 or the second half of 2025. So I remember that we define total cash and total cash usage; it's cash from operations, financing, and investing, but shortly thereafter in 2025 we also expect to be free cash while positive as well. Got it. Well, thank you. I appreciate it.

Speaker Change: We continue to project year-end cash balance at $20 million.

Mark Hagen: So just wondering, looking at the 2025, we're kind of looking, we're expecting sort of cash flow positive mid-2025. And then with the addition of Jason and any changes that may happen there or new sales hires. I'm just wondering if there's any change to that or if that's still kind of your thoughts there?

Speaker Change: and that we will be total cash usage break-even by the middle of 2025 or the second half of 2025.

Francis Patchel: Yeah, as far as our cash, we're really pleased, of course, that we have an 80% reduction in total cash usage for the first half of this year versus the first half of last year. We continue to project year-end cash balance at $20 million and that we will be cash usage break-even by the middle of 2025 or the second half of 2020. So remember that we define total cash and total cash usage as cash from operations, financing, and investment. But shortly thereafter, in 2025, we also expect to have free cash flow, which is positive.

Jason: Gotcha. Okay, so then just Q4, you're not guiding specifically to Q4, but you're trying to be, let's call it conservative, just based on some of these factors. I think we've cognizant of them. All right.

Speaker Change: So remember that we define total cash and total cash usage as cash from operations, financing, and investing.

Speaker Change: But shortly thereafter, in 2025, we also expect to be free cash flow.

Speaker Change: Park live as well.

Jason: Thank you. Good luck, guys. Thanks, Jason.

Mark Hagen: Well, thank you. I appreciate it.

Ethan Whiteel: Thank you.

Speaker Change: Well, thank you. I appreciate it.

Gleb Budman: Thank you, and that goes to the question in the next session. I would like to return to Florida, Gleb Budman, for any closing comments. So I want to thank Frank for helping us for these past years, and I want to thank all of you for joining us on this call. I also want to send a big thank you to everybody at Backblaze for the work they put into building the company and supporting us in supporting our customers. And finally, to thank our investors and customers for putting your trust into us. We're excited to also see many of you at the Oppenheimer Conference next week and Lake Street Conference in September.

Operator: Thank you. And that does conclude the question and answer session. I would like to return the floor to Gleb Budman for any closing comments.

Gleb Budman: Thank you, and if that's good, the question in that session, I would like to return to four of Gleb Budman for any closing comments.

Ethan Whiteel: And the next question comes to Zach Cummins with B. Riley Securities. Hi, this is Ethan Whiteel calling in for Zach Cummins.

Gleb Budman: So I want to thank Frank for helping us for these past years, and I want to thank all of you for joining us on this call. I also want to send a big thank you to everybody at Backblaze for the work that they put into building the company and supporting us in supporting our customers. And finally, to thank our investors and customers for putting your trust in us. We're excited to also see many of you at the Oppenheimer Conference next week and the Lake Street Conference in September. So with that, I'd like to say thank you, operator, and we can close the call.

Gleb Budman: Thanks for taking my questions and congrats, Frank, on your retirement. So you mentioned that you're putting the same head ones that are out there for other companies, but are you seeing any incremental changes in turn? Turn it very slightly lower. You can, you can see in our growth custom retention. So, but it's above our original budget and above our updated forecast. So it's there, but we're just very pleased that it's been, you know, a lesser driver for us.

Speaker Change: So I want to thank Frank for helping us for these past years, and I want to thank all of you for joining us on this call.

Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

Speaker Change: I also want to say a big thank you to everybody at Backplades for the work they put into building the company and supporting us in supporting our customers and finally to think our investors and customers for putting your trust into us.

Speaker Change: We are excited to also see many of you at the Oppenheimer Conference next week and Lake Street Conference in September .

Gleb Budman: So, with that, I'd like to say thank you, operator, and we can close the call. Thank you.

Speaker Change: So, with that, I'd like to say thank you, operator, and we can close the call.

Gleb Budman: Got it. And next one. And then secondly, can you maybe elaborate a little bit on your new CRO higher and maybe how Jason clicks in with your longer term growth aspirations? Yep. This is love. So I'm more excited about him joining. He brings with him an upmarket set of experiences, which is where we're headed and where we've been headed. So he brings that expertise with him. He also is really unique in having direct sales channels partnerships in OEM, and I'm going to show you a little bit of what we're going to do with this experience.

Operator: The conference has now concluded. Thank you for attending today's presentation. I mean, I'll just share your lines.

Speaker Change: Thank you. The conference has now concluded. Thank you for attending today's presentation. May not have checked your lives.

Speaker Change: Hello, I'm Gleb Budman, and I'll be back with you in the next video.

Gleb Budman: So, the different ways that we go to market. So he brings all of that expertise with him and the combination of being at larger organizations like HB and Microsoft and seeing how to move large scale revenue momentum, but also in in cloud and snap logic being more and more nibble companies and making them getting them wrapped quickly. I think are great sets of experiences that he brings to us and he's he's only been on board for, you know, a brief moment here, but he's already been having an impact as we've seen in the organization in terms of structuring planning and driving that effectiveness. So I'm really excited about having him on board.

Ethan Whiteel: Thank you. Appreciate the color.

Speaker Change: [inaudible]

Operator: Operator, do we have any more questions from others?

Jeff Henry: Yes, we do want to Jeff Henry with Craig Hall on Capitol Grove. Yeah, great. Thanks for taking the questions.

Gleb Budman: Congrats, guys, and great to see the margins ticking up just looks great across the board. A couple for me, Gleb, maybe just start with the AI impacts. Can you give a little bit or a little more finely tuned sense of the magnitude of the AI impacts or trajectory of those impacts you referenced as a driver just trying to get a sense of magnitude and trend? Yeah, so I think I would say two things.

Gleb Budman: One is that it's obviously a large opportunity in terms of just market size right there is all the AI efforts that are happening out there are driving data creation data usage and those are things we fundamentally help with. So I think that that's kind of the first part of it. And the related part of it is that companies are needing to use different GPU clouds or or their AI use cases and we are well positioned to help them with that because of you can store the data with us and then use the data in these different GPU clouds and the example that I shared in in the call earlier of the AI customer, you know, they are saving 300,000 dollars 300,000 dollars just by switching to us.

Gleb Budman: So that's a huge savings for their AI use cases. But also they're actually becoming more effective as an organization because they were being limited and constrained by the their by a degree of not having enough GPU capacity for their needs at that moment and needing to use another provider and this allows them to have diversity of GPU providers while keeping their data somewhere that is accessible. So I think we're really well positioned to help customers with their AI use cases.

Gleb Budman: The other thing that I'll mention is that a lot of the discussion right now that I've seen out in the industry is companies are ramping up CapEx dramatically to service the AI use case, and saying it's going to take years and years potentially to get a return on that. That's not the case for us because they're spending CAPEX on GPU buildouts. We're not a GPU company, we're enabling AI use cases including how and where they can use those GPU products. So we're not having the same CAPEX requirements while we do get the benefit of supporting those use cases.

Gleb Budman: Great, that's helpful. And back to Jason Waking, joining the company, you touched on his skills but I wonder if it could get you to kind of come at it maybe from a different direction. And just talk about what the B2 selling motion is now and broadly speaking, what you envision it to be in 12 months.

Gleb Budman: Sure, so when we started when we were going on the path originally we were almost entirely self-served. So the selling motion at the time was people finding out about Backblaze through various different channels showing up to the website and entering an email address, password, clicking create account, trying it, entering a credit card and then starting to use the service. That was how 80% of the business existed at the time of IPO.

Gleb Budman: It's still a significant driver of new business for us today and we've made investment and continue to optimize the self-served part of the go-to-market motion. On top of that then we layered a direct selling motion. Direct selling motion is people coming to the company either because they've heard about it through our blog, PR events and other places or by our outbound SDRs reaching out to targeted verticals and targeted use case and bringing leads into the pipeline that the account executive team then works to close.

Gleb Budman: We then layered on top of that a channel motion working with resellers, companies like CDW and others in order to drive channel business and then most recently just earlier this year, last few months ago, we layered on Powered By which was the new technology that enabled us to make ourselves part of other people's offerings. So we talked about edge compute companies, media and transcoding companies and cloud service providers that are starting to integrate B2 into their products as part of their go-to-market.

Gleb Budman: So those are the ways that we've been going to market in the layering and I believe that Jason will continue to drive all of those sales-led ones, not the self-served but the sales-led ones but the increasing efficiency and effectiveness and success of those motions as well as moving up into the larger sizes of the organizations that are taking us up on those motions. Got it.

Jeff Henry: Very helpful. Thanks so much.

Operator: Thank you, Jeff.

Mark Hagen: Thank you. And the next question comes from Mark Hagen with Lake's Tube Capital Markets. Hi, guys.

Frank Patchel: That congratulations, Frank, in front of Eric. We're looking at the 2025, we're trying to look at the expected sort of cash flow positive mid 2025 and then with the addition of Jason and any changes that may happen there or new sales hires. I just wonder if there's any change in that or if that's still kind of the thoughts there. Yeah, as far as our cash, so we're really pleased, of course, that we have an 80% reduction total cash usage for the first half of this year versus the first half last year.

Frank Patchel: We continue to project Uran Cash balance at 20 million and that we will be total cash usage, break even by the middle of 2025 or the second half of 2025. So I remember that we define total cash and total cash usage, it's cash from operations, financing, and investing, but shortly thereafter in 2025 we also expect to be free cash while positive as well. Got it. Well, thank you. I appreciate it.

Gleb Budman: Thank you, and that goes to the question in the next session, I would like to return to Florida, Gleb Budman for any closing comments. So I want to thank Frank for helping us for these past years and I want to thank all of you for joining us on this call. I also want to send a big thank you to everybody at Backblaze for the work they put into building the company and supporting us in supporting our customers.

Operator: And finally to thank our investors and customers for putting your trust into us. We're excited to also see many of you at the Oppenheimer Conference next week and Lake Street Conference in September. So with that, I'd like to say thank you, operator, and we can close the call. Thank you. The conference has now concluded. Thank you for attending today's presentation. I mean, I'll just share your lines.