Q1 2025 Backblaze Inc Earnings Call

Operator: Thank you for standing by. My name is Gail and I will be your operator for today's call.

Thank you for standing by my name is Gail and I will be all upgrade there for today's call at this time I would like to welcome everyone to the Barclays first quarter. It's about a 25 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator: At this time, I would like to welcome everyone to the Backblaze first quarter 2025 earnings call. All lines have been placed in mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. If you would like to reiterate your question, kindly press star one again.

I would like to ask a question during that time simpler press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star. One again it was about my passion for today's call I'll bet That'd be me, calling head of Investor Relations. Please go ahead.

Mimi Kong: It is now my pleasure to turn today's call over to Mimi Kong, Head of Investor Relations. Please go ahead. Thank you.

Mimi Kong: Good afternoon, and welcome to Backblaze's first quarter of 2025 earnings call.

Speaker Change: Thank you good afternoon, and welcome to back lasers first quarter of 2025 earnings call on the call with me today are glad that many co founder CEO and chair person of the board and Mark <unk> Chief Financial Officer.

Mimi Kong: On the call with me today are Gleb Budman, co-founder, CEO, and chairperson of the board, and Marc Suidan, chief financial officer. Today, Backblaze will discuss the financial results that were distributed earlier. Statements on this call include forward-looking statements about our future financial results, the impact of our go-to-market transformation, sales and marketing initiatives, cost-savings initiatives, results from new features, the impact of price changes, our ability to compete effectively and manage our growth, and our strategy to acquire new customers, retain and expand our business with existing customers, impact of changes to global trade policies, and third-party attempts to generate negative news regarding the company, regardless of accuracy.

Speaker Change: Today back ways will discuss the financial results that were distributed earlier statements. On this call include forward looking statements about our future financial results the impact of our go to market transformation sales and marketing initiatives cost savings initiatives results from new features the impact of price changes our ability to compete effectively and manage our grade.

Speaker Change: And our strategy to acquire new customers retain and expand our business with existing customers impact of changes to global trade policies and third party attempt to generate negative news regarding the company regardless of accuracy. These.

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. 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: 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. All forward looking statements that we make on this call are based on assumptions and beliefs as.

Speaker Change: Of today, and we undertake no obligation to update them, except as required by law our.

Mimi Kong: Our discussion today will include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for our GAAP results. Reconciliation of GAAP to non-GAAP results may be found in our earnings release, which was furnished with our Form 8-K 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: Our discussion today will include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for our GAAP results reconciliation of GAAP to non-GAAP results may be found in our earnings release, which was furnished with our form 8-K filed today with the SEC. You can also find a slide presentation related to our comments in the webcast, which will also be <unk>.

Speaker Change: So to our Investor Relations page after the call. Please also see our press release or presentation for definitions of additional metrics such as in our gross customer retention rate or <unk> and adjusted free cash flows will.

Mimi Kong: Please also see our press release or presentations for definitions of additional metrics such as NRR, gross customer retention rate, ARPU, and adjusted free cash flows.

Mimi Kong: We will be participating in Needham's Tech Conference on May 13th in New York and the Craig Hallam Conference in Minneapolis on May 28th. Looking forward to seeing some of you in person.

Glenn: We will be participating in Needham Tech conference on May 13th in New York and the Craig Hallum Conference in Minneapolis on May 28th looking forward to seeing some of you in person. Thank you for joining us and I would now like to turn the call over to Glenn.

Gleb Budman: Thank you for joining us and I would now like to turn the call over to Gleb. Thank you, Mimi, and welcome everyone to the call. We delivered strong results this quarter and are building towards a strong year overall. In Q1, revenue and adjusted EBITDA margin beat the high end of guidance. Overall company revenue grew 15% over the same period last year. B2 Cloud Storage, which is now the largest part of our business, continue to gain momentum, with organic growth accelerating for the second consecutive quarter and achieving 23%. We're not only driving growth, but also the bottom line.

Glenn: Thank you Amy and welcome everyone to the call. We delivered strong results this quarter and are building towards a strong year overall in Q1 revenue and adjusted EBITDA margin beat the high end of guidance.

Glenn: Overall company revenue grew 15% over the same period last year.

Glenn: <unk> cloud storage, which is now the largest part of our business continued to gain momentum with organic growth accelerating for the second consecutive quarter and achieving 23%.

Glenn: We're not only driving growth, but also the bottom line.

Gleb Budman: Our adjusted EBITDA margin tripled over the same period last year to 18%. And we've made substantial progress on improving our adjusted free cashflow from negative 13% in the fourth quarter to negative 6% in the first quarter. By combining B2 revenue growth and adjusted free cash flow margin in a single quarter from Q4 to Q1, we've moved from 9% to 17%.

Glenn: Our adjusted EBITDA margin tripled over the same period last year to 18% and.

Glenn: And we've made substantial progress on improving our adjusted free cash flow from negative 13% in the fourth quarter to negative 6% in the first quarter by.

Glenn: By combining beat your revenue growth and adjusted free cash flow margin in a single quarter from Q4 to Q1, we've moved from 9% to 17%.

Gleb Budman: a great step toward becoming a Rural 40 company. Looking ahead, we continue to be on track to accelerate B2 growth each quarter, reaching at least 30% by Q4 of this year, and to achieve adjusted free cash flow positive in Q4 as well.

Glenn: Great step towards becoming a rule of 40 company.

Glenn: Looking ahead, we continue to be on track to accelerate <unk> growth each quarter, reaching at least 30% by Q4 of this year and to achieve adjusted free cash flow positive in Q4 as well.

Gleb Budman: In a moment, I'm going to talk about AI and why we're excited about Backblaze's ability to continue to deliver superior services for its customers and superior performance for its customers.

Glenn: In a moment I'm going to talk about AI and why we're excited about backwards the ability to continue to deliver superior services for its customers and superior performance for its investors.

Gleb Budman: But first, I think we need to take a moment and talk about a recently published misleading report that relied on false claims by two disgruntled former employees, one of whom was fired for poor performance and the other for gross misconduct. We believe reports like this are part of a common market manipulation schemes in which short positions are taken ahead of issuing a deceptive and distorting report, which when published is intended to push the share price down. allowing a market manipulator to profit at the expense of everyone else. The claims in that report alleged the company's financials were untrustworthy.

Glenn: But first I think we need to take a moment and talk about a recently published misleading report that relied on false claims by two disgruntled former employees, one of whom was fired for poor performance and the other for gross misconduct.

Glenn: We believe reports like this are part of a common market manipulation schemes in which short positions are taken ahead of issuing a deceptive and distorting report, which was published is intended to push the share price down.

Glenn: Allowing a market manipulated a profit at the expense of everyone else.

Glenn: The claims in that report alleged the company's financials were untrustworthy.

Gleb Budman: Those claims were false when they were made last October in self-serving lawsuits by two disgruntled employees, and they were still false when this report repeated them. Following industry best practices, the Audit Committee previously retained an independent law firm and a forensic accounting firm to review the financial claim. Those reviews confirmed there was no wrongdoing or issues with the financial. We have also since filed two fully audited annual financial statements, which are publicly available on our investor relations site and the SEC website. market manipulation schemes hurt retail investors, pension funds, and others. That's why accurate information is so important to investor decisions.

Glenn: Claims were false when they were made last October and self serving lawsuits by two disgruntled employees and they were still false when this report repeated them.

Glenn: Following industry best practices. The audit Committee previously retained an independent law firm <unk>.

Glenn: And if forensic accounting from to review the financial claims those reviews confirmed there was no wrongdoing or issues with the financials.

Glenn: We are also since filed two fully audited annual financial statements, which are publicly available on our Investor Relations site and the SEC website.

Glenn: Market manipulation schemes hurt retail investors pension funds and others.

Glenn: That's why accurate information is so important to investor decisions.

Gleb Budman: We are building a great company and these false claims won't derail Backblaze's growth.

Glenn: We are building a great company and these false claims won't derail backwards this growth story.

Gleb Budman: Now, let's focus on why we're excited about our company starting with the overall business and with our success in AI. I've previously said that Backblaze is a great platform for AI use cases because we provide a high-performance, low-cost storage platform that supports the open cloud, thus enabling customers to leverage the best GPU providers and other AI services out there, rather than being locked into and limited by a walled garden. That value proposition continues to resonate. Our AI customer base grew by 66%. Their data with us grew by 25 times. And AI use cases represented the fastest growing piece of our business in the first quarter.

Glenn: Now, let's focus on why we're excited about our company starting with the overall business and with our success in AI.

Glenn: I've previously said that <unk> is a great platform for AI use cases, because we provide a high performance low cost storage platform that supports the open cloud that's enabling customers to leverage the best GPU providers and other AI services out there.

Glenn: Rather than being locked into and limited by a walled garden.

Glenn: That value proposition continues to resonate.

Glenn: Our AI customer base grew by 66% their data with US grew by 25 times.

And AI use cases represented the fastest growing piece of our business in the first quarter.

Gleb Budman: We are leaning into our long-term growth opportunity by delivering new products and forging key partnerships.

Glenn: We are leaning into our long term growth opportunity by delivering new products and forging key partnerships.

Gleb Budman: On the new products front, I'm excited about the recent announcement of our new offering, Backblaze B2 Cloud Storage Overdrive. Driven by customer interest, OverDrive offers very fast performance, optimized for large datasets and high-performance throughput. This offering is great for use cases, including AI, machine learning, high-performance compute, origin store for content delivery networks, analytics, and more.

Glenn: On the new products front I'm excited about the recent announcement of our new offering back please be to cloud storage overdrive drill.

Glenn: Driven by customer interest overdrive offered very fast performance optimized for large datasets and high performance throughput.

Glenn: This offering is great for use cases, including AI machine learning high performance compute origin store for content delivery networks analytics and more.

Gleb Budman: Now I want to highlight something significant about Overdrive. Building on Backblaze's history of cost-leading innovation, OverDrive achieves remarkable speeds made possible by our underlying platform, which allowed us to do this without the need for massive R&D investment. This efficiency highlights the significant and often underestimated value of our differentiated IP. OverDrive is a prime example of how we are strategically leveraging our existing assets to unlock greater value for our broad range of customers and for Backblaze.

Glenn: Now I want to highlight something significant about overdrive bill.

Glenn: Building on <unk> history of cost, leading innovation overdrive achieved remarkable speeds made possible by our underlying platform, which allowed us to do this without the need for massive R&D investment.

Glenn: This efficiency highlights the significant and often under estimated value of our differentiated IP overdrive.

Glenn: I'm. An example of how we are strategically leveraging our existing assets to unlock greater value for our broad range of customers and for back place now, let's discuss our go to market transformation, which focuses on three key areas upscaling partnerships and sales plays.

Gleb Budman: Now, let's discuss our go-to-market transformation, which focuses on three key areas, upscaling, partnerships, and sales plays. On upscaling, we are building on great momentum here. I'm pleased to share that in Q1, the team more than doubled bookings year over year, which was driven by strong sales execution and growing existing This achievement highlights the added rigor we put in place.

Glenn: On Upscaling, we are building on great momentum here I'm pleased to share then Q1 the team more than doubled bookings year over year, which was driven by strong sales execution and growing existing accounts. This achievement highlights the added rigor we've put in place.

Gleb Budman: This quarter, we completed building out our sales team and expanding our sales capacity, and these new hires are halfway through their ramp up period. We also invested behind the customer experience by hiring a VP of customer success to improve onboarding and post-sales support.

Glenn: This quarter, we completed building out our sales team and expanding our sales capacity in these new hires are halfway through their ramp up period.

Glenn: <unk> also invested behind the customer experience by hiring a VP of customer success to improve Onboarding and post sales support with.

Gleb Budman: With partnerships, I'm pleased to share a number of new technology alliances to support AI workloads and media and entertainment workflows. For AI workloads, we are building upon our OverDrive announcement by working with high-performance compute providers such as Purimodal, a Powered by Backblaze partner. As AI companies seek flexibility to send their data to best-of-breed solution providers, Backblaze is a foundational platform which empowers them to achieve their goals with high performance and value.

Glenn: With partnerships I'm pleased to share a number of new technology alliances to support AI workloads and media and entertainment workflows.

Glenn: For AI workloads, we are building upon our overdrive announcement by working with high performance compute providers, such as pure nodal empowered by back lease partner.

Glenn: As AI companies deep flexibility to send their data to best of breed solution providers back blades is a foundational platform, which empowers them to achieve their goals with high performance and value in.

Gleb Budman: In the media and entertainment space, we're seeing strong momentum around modern, cloud-first workflows. And our partnerships with companies like Sweet Studios and Iconic are central to that strategy. These collaborations enable creative teams to break free from traditional heavy iron infrastructure. and Embrace Remote Work From Anywhere pipelines that are both powerful and cost effective. by combining ICONiC's Intelligent Media Asset Management and SuiteStudio's Virtual File System with Backblaze v2 Cloud Storage. Teams can ingest, index, and stream content directly from the cloud, no matter where they are. This kind of seamless access and real-time collaboration used to require significant on-prem investment.

Glenn: In the media and entertainment space, we're seeing strong momentum around modern cloud first workflows and our partnerships with companies like Sweet studios and iconic are central to that strategy.

Glenn: These collaborations enable creative teams to break free from traditional heavy iron infrastructure.

Glenn: And embraced remote work from anywhere pipelines that are both powerful and cost effective.

Glenn: By combining iconix intelligent media asset management, and Sweet studios virtual file system with <unk> cloud storage tier.

Glenn: Teams can ingest index and stream content directly from the cloud no matter where they are.

Glenn: This kind of seamless access and a real time collaboration used to require significant on Prem investment now it's achievable at a fraction of the cost making high performance media workflows accessible even in an era of tightening budgets.

Gleb Budman: Now, it's achievable at a fraction of the cost, making high-performance media workflows accessible even in an era of tightening budgets. These partnerships enable customer success and position Backblaze as an increasingly strategic partner.

Glenn: These partnerships enable customer success.

Glenn: And positioned <unk> as an increasingly strategic partner building.

Gleb Budman: Building these relationships today will significantly benefit our team's results in 2022.

Glenn: Building these relationships today will significantly benefit our teams results in 2026.

Gleb Budman: And finally, sales plays. Last quarter, we outlined our four key sales plays. We've re-ramped our marketing efforts to align with these key plays with dedicated landing pages and a more focused content strategy and targeted demand gen efforts. We've also further optimized our content to improve search performance responding to zero-click AI results. We have restructured the team, onboarded our new VP of demand gen, added customer insight tools to our marketing tech stack, and more. We're certainly not done, but are making good progress in establishing a robust, scalable, upmarket-focused go-to-market machine. One proof point of our go-to-market transformation success is our ability to sign larger deals.

Glenn: And finally sales place last quarter, we outlined our four key sales place we've revamped our marketing efforts to align with these key place with dedicated landing pages and a more focused content strategy and targeted demand Gen efforts.

Glenn: We've also further optimized our content to improve search performance responding to zero click AI results.

Glenn: We have restructured the team on boarded our new VP of demand Gen added customer insight tools to our marketing tech stack and more.

Glenn: Certainly not done but are making good progress in establishing a robust scalable upmarket focused go to market machine.

Glenn: One proof point of our go to market transformation success is our ability to sign larger deals.

Gleb Budman: I am pleased to announce that we signed our largest TCV deal ever, a multi-million dollar contract over a multi-year period. This customer offers a popular application and first became a customer a year ago with a smaller initial contract. Less than a year later, they decided to migrate their entire data set from AWS to Backblaze. This is another powerful validation of the unique blend of value and performance that Backblaze offers.

Glenn: I'm pleased to announce that we signed our largest PCB deal ever a multi million dollar contract over a multiyear period.

Glenn: This customer offer of a popular application and first became a customer a year ago with a smaller initial contract.

Less than a year later, they decided to migrate their entire dataset from AWS to back blades. This is another powerful validation of the unique blend of value and performance that <unk> offers.

Gleb Budman: As you may remember, last quarter we shared a chart of our growth outlook for B2, which would accelerate each quarter and exit the year at over 30%. While some customers are taking more time to make decisions in the current business environment, we continue to see progress on our go-to-market transformation and thus remain confident that we're on track to achieve our accelerating growth targets, including reaching 30% plus B2 growth and positive adjusted free cash flow in Q4. Our key additional factors driving this include our strong self-serve business, our sales bookings, which more than doubled, and the customer value we deliver, which underpins our consistent, recurring business.

Glenn: As you May remember last quarter, we shared a chart of our growth outlook for <unk>.

Glenn: Which would accelerate each quarter and exit the year at over 30%.

Glenn: While some customers are taking more time to make decisions in the current business environment. We continue to see progress on our go to market transformation and thus remain confident that we're on track to achieve our accelerating growth targets, including reaching 30% plus btu growth and positive adjusted free cash flow in Q4.

Glenn: Key additional factors driving this include a strong self serve business, our sales bookings, which more than doubled and the customer value, we deliver which underpins our consistent recurring business.

Gleb Budman: In summary, we delivered strong Q1 results. The launch of B2 Overdrive underscores the strength and differentiation of our platform. Our go-to-market transformation is gaining traction as evidenced by our reported results.

Glenn: In summary, we delivered strong Q1 results.

Glenn: Launch of Btu overdrive underscores the strength and differentiation of our platform. Our go to market transformation is gaining traction as evidenced by our reported results. We are excited about where we've come and we're even more excited about our path forward.

Gleb Budman: We are excited about where we've come and we're even more excited about our path forward.

Marc Suidan: Thank you, and I would like to hand the call over to Marc. Thank you, Gleb, and good afternoon, everybody. As Gleb noted, we're very pleased to report a strong first quarter with both revenues and adjustability but exceeding the upper end of our guidance. Additionally, adjusted EBITDA margin tripled over the same period last year.

Mark: Thank you and I would like to hand, the call over to Mark Mark.

Mark: Thank you Glenn and good afternoon everybody.

Mark: As Glenn noted, we're very pleased to report a strong first quarter with both revenues and adjusted EBITDA exceeding the upper end of our guidance.

Mark: Additionally, adjusted EBITDA margin tripled over the same period last year.

Marc Suidan: Moving on to the specific results for the quarter. Total revenue came in at $34.6 million, representing a 15% increase over the prior year. B2 revenue growth accelerated to 23% on a year-over-year basis compared to 22% in the previous quarter. This marks the second consecutive quarter of increased organic growth. We define organic growth as the underlying growth of our business excluding the 2023 price increase impact to help provide a more meaningful comparison. Our organic growth in Q3 2024 factoring out the 2023 price increase was 19%. The increase in revenue growth is driven by improving our direct sales execution, better customer retention, and the ramp up of a large customer.

Mark: Moving on to the specific results for the quarter.

Mark: Total revenue came in at $34 6 million.

Mark: Representing a 15% increase over the prior year.

Mark: B to revenue growth accelerated to 23% on a year over year basis compares to 22% in the previous quarter.

Mark: This marks the second consecutive quarter of increased organic growth.

Mark: We define organic growth as the underlying growth of our business. Excluding the 2023 price increase impact to help provide a more meaningful comparison.

Mark: Our organic growth in Q3, 2024 factoring out the 2020 for your price increase was 19%.

Mark: The increase in revenue growth is driven by improving our direct sales execution better customer retention and the ramp up of a large customer the.

Marc Suidan: The computer backup business grew 8% from the prior year, primarily driven by the 2023 pricing trend.

Mark: The computer backup business grew 8% from the prior year, primarily driven by the 2023 price increase.

Marc Suidan: Now, let's turn to Net Revenue Retention, or NRR. For the quarter, our overall NRR is 113%, compared to 112% in the prior year. For our B2 segment, NRR continues to be strong at 117%.

Mark: Now, let's turn to net revenue retention or NR.

Mark: Further quarter, our overall enter ars, 113% compared to 112% in the prior year for.

Mark: <unk> segment <unk> continues to be strong at 117%.

Marc Suidan: The decrease from last year's 126% is mainly due to the lapping of the pricing trend. In our computer backup business, NRR is 108% compared to 101% in the prior year. This metric continues to benefit from the price increase implemented in 2023, which will taper off in Q2.

Mark: The decrease from last year's 126% is mainly due to the lapping of the price increase.

Mark: And our computer backup business, and our Ars, 108% compared to 101% in the prior year.

Mark: This metric continues to benefit from the price increase implemented in 2023, which will taper off in Q2.

Marc Suidan: On gross customer retention, this remains consistently strong at approximately 90% across both our B2 and computer backup segments, as our customers continue to demonstrate high customer loyalty and retention. Turning to profitability, our GAAP gross margins for the quarter was 56% compared to 53% in the prior. adjusted gross margin improved to 79% from 77% in the same period last year. This improvement is a result of increased efficiency in our data center infrastructure operation.

Mark: Gross customer retention. This remains consistently strong at approximately 90% across both our <unk> and computer backup segments as our customers continue to demonstrate a high customer loyalty and retention.

Mark: Turning to profitability, our GAAP gross margins for the quarter was 56% compared to 53% in the prior year.

Mark: Adjusted gross margin improved to 79% from 77% in the same period last year.

Mark: This improvement is a result of increased efficiency in our data center infrastructure operations.

Marc Suidan: Also, looking ahead, we see additional benefits or a gap gross margin given the useful lives of our hardware. We evaluated the usage of our fixed assets during Q2 and are finding our hardware is lasting six years. We plan to implement the new depreciation schedule in Q2 and that would benefit gross margins by 200 to 300 basis points.

Mark: Also looking ahead, we see additional benefits or a GAAP gross margin given the useful lives of our hardware we evaluated the usage of our fixed assets. During Q2 and are finding our hardware is lasting six years.

Mark: We plan to implement the new depreciation schedule in Q2 and that would benefit gross margins by 200 to 300 basis points.

Marc Suidan: Now, I'd like to address the potential impact of tariffs. While tariff policies are still evolving, we want to share perspectives that can help for modeling purposes. If there were to be a 10% tariff placed on all US imports, such as storage hardware, that would increase our cost of sales by approximately 1.5%. However, this will not be instantaneous. This would take six years of the life of the asset to fully roll through. Tariffs would have to be meaningfully higher to have a significant impact on our gross margin. We are monitoring it carefully, but for the time being, it is not a significant impact to our business.

Mark: Now I'd like to address the potential impact of tariffs while tariff policies are still evolving we want to share perspectives that can help for modeling purposes.

Mark: If there were to be a 10% tariff placed on all U S imports such as storage hardware that would increase our cost of sales by approximately one 5%.

Mark: However, this will not be instantaneous this would take six years of the life of the asset to fully rolled through.

Mark: <unk> would have to be meaningfully higher to have a significant impact on our gross margin.

Mark: We are monitoring it carefully but for the time being it is not a significant impact to our business.

Marc Suidan: Additionally, we source from multiple countries which provide the hedge against supply chain risk.

Mark: Additionally, we source from multiple countries, which provides a hedge against supply chain risks.

Marc Suidan: Moving on to operating expenses. We saw benefits from the restructuring that we implemented in Q4. Both R&D and G&A expenses were in line with our expectations, while sales and marketing expenses came in lower than expected.

Mark: Moving onto operating expenses, we saw benefits from the restructuring that we implemented in Q4, both R&D and G&A expenses were in line with our expectations, while sales and marketing expenses came in lower than expected.

Marc Suidan: This was primarily due to slower hiring of our new sales personnel and the shifting of marketing campaigns into the second quarter. We also plan to participate in additional marketing conferences that take place in Q2, which are important to demand generation. So we anticipate sales and marketing to increase in Q2 by approximately $2 million over Q1.

Mark: This was primarily due to slower hiring of our new sales personnel and the shifting of marketing campaigns into the second quarter.

Mark: We also plan to participate in additional marketing conferences that take place in Q2, which are important to demand generation.

Mark: So we anticipate sales and marketing to increase in Q2 by approximately $2 million over Q1 <unk>.

Marc Suidan: Moving further down the income statement, our net loss margin improved significantly by 1,000 basis points from the prior year, improving from a loss of 37% to 27%. Adjusted EBITDA margin tripled to 18%, up from 6% in the prior year, driven by strong growth and our ability to hold expenses steady.

Mark: Moving further down the income statement, our net loss margin improved significantly by 1000 basis points from the prior year, improving from a loss of 37% to 27%.

Mark: Adjusted EBITDA margin tripled to 18% up from 6% in the prior year driven by strong growth in our ability to hold expenses steady.

Marc Suidan: Looking at the balance sheet, we ended the quarter with $53 million in cash and marketable securities, a decrease of $2 million from the prior quarter.

Mark: Looking at the balance sheet, we ended the quarter with $53 million in cash and marketable securities a decrease of $2 million from the prior quarter.

Marc Suidan: Next, I'd like to discuss the equity dilution and how we plan to reduce it. As our free cash flows improve, our aim is to reduce equity dilution from our Employee Equity Award. We have numerous tools that we may deploy over the coming year and beyond.

Mark: Next I'd like to discuss the equity dilution and how we plan to reduce it.

Mark: As our free cash flows improve our aim is to reduce the equity dilution from our employee equity awards. We had numerous tools that we may deploy over the coming year and beyond.

Marc Suidan: For instance, we just started to settle executive tax withholdings in cash on a net share settlement basis instead of selling their shares in the open market to cover the tax withholdings. We also plan to gradually shift from issuing our annual bonus in equity to cash. This means I will be issuing less shares. Once again, reducing our equity dilution will be a key focus in the coming years.

For instance, we just started to settle executive tax withholdings in cash on a net share settlement basis instead of selling their shares in the open market to cover the tax withholdings.

Mark: We also plan to gradually shift from issuing our annual bonus and equity to cash.

Mark: This means they will be issuing less shares once again, reducing our equity dilution will be a key focus in the coming years.

Marc Suidan: Finally, our adjusted free cash flow margin improved significantly from negative 17% to negative 6%. a 1,100 basis points improvement over the course of one year. This was driven by revenue growth and the operating leverage that we have achieved through the Q4 2024 restructuring and our commitment to be adjusted free cash flow positive in Q4 of 2025. On the discussion of adjusted free cash flow margin, we believe that this is a more relevant measure of profitability as opposed to adjusted EBITDA margin. As an infrastructure as a service company, the associated capital investments in both hardware and software are captured in the adjusted free cash flow margin.

Mark: Finally, our adjusted free cash flow margin improved significantly from negative 17% to negative 6%.

Mark: 1100 basis points improvement over the course of one year. This was driven by revenue growth.

Mark: And the operating leverage that we have achieved through the Q4 2020 for restructuring and our commitment to be adjusted free cash flow positive in Q4 of 2025.

Mark: On the discussion of adjusted free cash flow margin. We believe that this is a more relevant measure of profitability as opposed to adjusted EBITDA margin.

Mark: As an infrastructure as a service company the associated capital investments in both hardware and software are captured in the adjusted free cash flow margin. Ultimately our goal is to be both free cash flow and GAAP net income positive.

Marc Suidan: Ultimately, our goal is to be both free cash flow and gap net income positive.

Marc Suidan: I would like to take a moment to talk about SOX. I'm very excited to announce that our 2024 annual 10K report confirmed the complete remediation of SOX material weakness. Since becoming a public company, addressing these issues has been a priority and we're proud to have successfully resolved them.

Mark: I would like to take a moment to talk about socks I am very excited to announce that our 2024 annual 10-K report confirmed the complete to remediation of Sox material weaknesses.

Mark: Since becoming a public company addressing these issues has been a priority and we are proud to have successfully resolve that.

Marc Suidan: We've also previously filed an 8K disclosing the appointment of Deloitte and Touche as our new auditors as we prepare to be 4-4-B compliant. Deloitte and Touche offered us strong capabilities and cost savings.

Mark: We've also previously filed an 8-K disclosing the appointment of Deloitte <unk> Touche as our new auditors as we prepare to be <unk> compliant.

Mark: Deloitte and touche offered our strong capabilities and cost savings.

Marc Suidan: And we extend our sincere gratitude to BDO for their valuable partnership over the last several years as a public company.

Mark: And we extend our sincere gratitude to BDO for their valuable partnership over the last several years as a public company.

Marc Suidan: Looking ahead to our guidance, we expect our Q2 2025 revenues to be in the range of $35.2 million to $35.6 million, which represents B2 revenue growth in the range of 23% to 25%.

Mark: Looking ahead to our guidance, we expect our Q2 2025 revenues to be in the range of $35 2 million to $35 6 million, which represents b to revenue growth in the range of 23% to 25%.

Marc Suidan: And reflecting the seasonal factors noted earlier, adjusted EBITDA margins in the range of 14% to 16%. We remain confident in the underlying strength of our business, the tangible benefits of our transformation, and our ability to execute on our strategic priorities.

Mark: And reflecting the seasonal factors noted earlier adjusted EBITDA margins in the range of 14% to 16%.

Mark: We remain confident in the underlying strength of our business the tangible benefits of our transformation and our ability to execute on our strategic priorities based on these circumstances, we are maintaining our full year revenue guidance of $144 million to $146 million and are raising our adjusted EBITDA margin guidance.

Marc Suidan: Based on these circumstances, we are maintaining our full-year revenue guidance of $144 to $146 million and are raising our adjusted EBITDA margin guidance from the range of 16% to 18% to a range of 17% to 19%.

Mark: From the range of 16% to 18% to a range of 17% to 19%.

Operator: Now I would like to turn it over to the operator so we can open it up for questions. This time I would like to remind everyone that in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster.

Mark: Now I would like to turn it over to the operator, so we can open it up for questions.

Speaker Change: This time I would like to remind everyone that in order to ask a question Press Star then the number one on your telephone keypad.

Mark: We'll pause for just a moment to compile the Q&A roster.

Jeff Van Ree: Okay, so your first question comes from the line of Jeff Van Ree with Craig Holland Capital. Great, thanks guys. Thanks for taking the questions. So, there's several. I mean, congrats on the quarter.

Speaker Change: Okay. So your first question comes from the line of Jeff Van <unk> with Craig Hallum Capital Group.

Speaker Change: Please great. Thanks for great. Thanks, Thanks, guys. Thanks for taking the questions.

Speaker Change: So.

Speaker Change: Several I mean, congrats on the quarter I'm curious on.

Jeff Van Ree: Curious on the AI side, can you put a little finer point on that?

Speaker Change: On the AI side can you put a little finer point on that I mean anything you can share in terms of I don't know targets as a percent of revenues where it is now.

Gleb Budman: I mean, anything you can share in terms of, I don't know, targets as a percent of revenues, where it is now, or context as to the magnitude of impact on the pipeline? Hey Gleb, this is Gleb. Thanks for the question. Hey Gleb. So in general, we're just excited about the AI opportunity. It was the fastest growing part of the business in Q1. It's a significant part of the business now overall. Our largest customer now is actually an AI company. So there's a lot of momentum on that front. There's also a lot of different variety of use cases that we're seeing there.

Speaker Change: Or context as to the magnitude of impact on the pipeline.

Glenn: Hey, Jeff This is Glenn thanks for the question.

Glenn: So in general we're just excited about the opportunity. It was the fastest growing part of the business in Q1, it's a significant part of the business. Now overall are our largest customer now is actually an AI company. So there's just there's a lot of momentum on that front.

Glenn: But there's also a lot of different variety of use cases that we're seeing there. So there's a lot going on there.

Gleb Budman: So there's a lot going on there. You know, one thing I'll just touch on that also is, there's a lot of discussion around, are AI companies being used for, are the use cases around modeling or inference? Which I think the answer is yes, but also there's a whole pipeline. You know, you have data creation, you have labeling, you have modeling, you have inference, you have the relearning afterward. And we have customers doing things at each stage of that. We have customers who are collecting the data with us. We also have AI companies that are customers that are doing autonomous vehicles and industrial automation, robotics, drug discovery.

Glenn: One thing I'll just touch on that also.

Glenn: There's a lot of discussion around our AI companies being used for are the use cases around modeling our inference, which I think the answer is yes, but also the whole pipeline you have data creation, you're labeling you have modeling you have in France you have.

Glenn: The re learning afterwards, and we have customers doing things at each stage of that we have customers who are collecting the data with us. We also have customer AI companies that are customers that are doing autonomous vehicles, and industrial automation robotics drug discovery.

Gleb Budman: I mean, it's a long set. So we're excited about the AI opportunity.

Glenn: It's a long set so we're excited about the AI opportunity and one thing I'll highlight also we talked about the 25 times data growth.

Gleb Budman: And one thing I'll highlight also is, we talked about the 25 times data growth and overdrive, which is an offering that we just launched recently, about a week ago, with a target to help more of those AI use cases because we're seeing even more demand from companies for larger throughput there. Yeah, helpful.

Glenn: And overdrive, which is an offering that we just launched recently about a week ago.

Glenn: With the with a target to help more of those AI use cases, because we're seeing even more demand from companies for larger larger throughput there.

Gleb Budman: And on the B2 sales build, as you're trying to get a repeatable enterprise sales motion, which of those, talk about the progress you've made, kind of what's been proven out and what are the queries you've still got work in progress? The go-to-market transformation is definitely underway, and I think you can see that because we've accelerated organic growth for the second quarter and we've doubled sales bookings. We do have still, you know, path to go. So I think the direct sales efforts are going well. We've still got more wood to chop on getting the partner and channel and some of the demand gen side of things working.

Glenn: Yeah helpful and on the B two sales build as you're trying to get a repeatable enterprise sales motion, which of those do you think.

Glenn: Dr. <unk> to talk about the progress you've made kind of what's been proven out and what are the key areas you've still got work in progress.

Glenn: And the go to market transformation is definitely underway.

Glenn: I think you can see that because we've accelerated organic growth for the second quarter and we've doubled sales bookings we do have.

Glenn: Phil path to go so I think the direct sales efforts are going well, we've still got more more wood to chop on on getting the partner channel and some of the demand Gen side of things working.

Gleb Budman: You know, we're seeing progress on those, but I think there's still a lot of opportunity there. And, you know, it's an area that we're leaning into, and I think, you know, it's $100 billion market. So we feel like we've got a lot of opportunity to try and drive more awareness and more demand gen.

Glenn: We're seeing progress on those but I think there's still a lot of opportunity there and it's an area that we're leaning into and I think it's 100 billion dollar market. So we feel like we've got a lot of opportunity to try and drive more awareness and more on demand Gen.

Gleb Budman: Yeah, great.

Marc Suidan: Maybe just one last one, if I could sneak it in for Marc. On the numbers, you mentioned dilution, you know, love the initiatives to keep the dilution down. What do you think we should assume for the next year or two in terms of actual dilution? And then while we're on numbers, just your thoughts on software, capitalized software for the rest of the year? Yeah, thanks, Jeff. Good questions.

Mark: Great maybe just one last one if I could sneak it in for Mark on the numbers you mentioned dilution.

Mark: Loved the initiatives to keep the dilution down what do you think we should assume for the next year or two in terms of actual dilution and then while we're on numbers just your thoughts on software cap capitalized software for the rest of the year.

Mark: Yeah. Thanks, Jeff good questions. So first of all I mean on dilution. We started the journey. So I think we will aim to share more on.

Marc Suidan: So, first of all, I mean, on Dilution, we started the journey, so I think we will aim to share more on what it could look like. Not ready to do it yet, but definitely it's a big priority for us to tackle. And we started in Q1, because if you look at our statement of cash flows, you could see a line for us settling the tax in cash instead of shares. On your second question, listen, the way we look at R&D is if you take our R&D expense on the P&L plus the capitalized R&D, that's really our all-in expense together.

Mark: What it could look like not ready to do it yet but definitely.

Mark: It's a big priority for us to tackle.

Mark: And we started in Q1, because if you look at our statement of cash flows you could see aligned for us.

Mark: Ah settling.

Mark: The tax and cash instead of shares on your second question listen the way we look at R&D is if you take our R&D expense on the P&L plus the capitalized R&D. That's really are all in expense together, we hit a high of 60%.

Marc Suidan: We hit a high of 60% of revenue in Q1 of 23. A year ago, that was 44%. in this quarter was 40 percent. So we're holding that investment relatively steady in absolute dollars and as a percentage of revenue we'll keep benefiting from scale there. Sounds good. Nice to see the progress on cash flow on the guide there, so appreciate the info, guys.

Mark: Of revenue and in.

Mark: In Q1 of 'twenty, three a year ago that was 44%.

Mark: And this quarter was 40% so we're holding that investment relatively steady in absolute dollars and as a percentage of revenue will keep benefiting from scale there.

Speaker Change: It sounds good and nice to see the progress on cash flow in the guide there. So I appreciate that.

Mark: Info guys.

Mike Sikos: Our next question comes from the line of Mike Sikos with Kneadham. Please go ahead. Hey guys, thanks for taking the questions here and congrats on the quarter. Really good to see that record TCV deal you're signing over multiple years here with this customer. I just wanted to tease that out for a second. And I know that you said that he signed with you about a year ago, and now you have the full... I guess the full piece coming to you with this contract.

Speaker Change: Your next question comes from the line of Mike seekers.

Speaker Change: Please go ahead.

Mike seekers: Hey, guys. Thanks for taking the questions here and congrats on the quarter.

Mike seekers: Really good to see that.

Mike seekers: T C V deal you're signing over multiple years here with this customer.

Mike seekers: I just wanted to tease that out for a second and I know that you said that it started with you about a year ago.

Mike seekers: And now you have the full.

Mike seekers: I guess the full piece coming to you with this contract just curious what was the what was the negotiation process like did they put that out to bid or once they got a flavor of exactly so to speak they decided to come over to you I'm just interested what that process was like from your side.

Mike Sikos: Just curious, what was the negotiation process like? Did they put that out to bid or once they got a flavor of Backblaze, so to speak, they decided to come over to you? I'm just interested what that process was like.

Gleb Budman: Yeah, thanks for the question. So, you know, first of all, it was a displacement of AWS, right? So it was a so we're excited that it continues to show that we're winning, winning deals, winning upmarket deals. It was the largest TCV deal that we've signed in the history of the last year, we signed a six figure deal with them, where they moved over, you know, part of their, their infrastructure over to us. And then as they got more and more familiar with the platform, saw how, how performant it was, saw how valuable it was, how efficient it was.

Mike seekers: Yeah. Thanks for the question so.

Mike seekers: First of all it was a displacement of AWS right. So it was and so we're excited that it continues to show that we're winning winning deals winning upmarket deals. It was the largest <unk> deal that we signed in the history of the company.

Mike seekers: We started talking with them actually a few years back they were at that point they were on AWS they were.

Mike seekers: Just kind of contemplating where their infrastructure was going to go and then.

Mike seekers: Last year, we signed a six figure deal with them, where they moved all were part of there.

Mike seekers: Their infrastructure over to us and then as they got more and more familiar with the platform saw how how performed when it was all how valuable was how efficient it was and also frankly the customer service that they got from us versus what they were seeing before from AWS.

Gleb Budman: And also, frankly, the the customer service that they got from us, versus what they were seeing before from AWS, they they decided to lean in and move all of their data over. And so it became a multimillion dollar deal.

Mike seekers: They they decided to lean in and move all of their data over and so it became a multimillion dollar deal this quarter.

Mike Sikos: This quarter. Great.

Mike Sikos: I guess the follow-up, I know that you guys only announced the B2 cloud storage overdrive last week. Was that in any way a deciding factor for this customer, or maybe the visibility into the roadmap? I'm just curious if that came into play as well.

Mike seekers: Great and then I guess the follow up I know that you guys only announced <unk> cloud storage overdrive.

Mike seekers: Last week.

Mike seekers: Was that in any way a deciding factor for this customer or maybe the visibility into the road map I'm just curious if that came into play as well.

Gleb Budman: It wasn't one for this customer. Their use case did not necessitate OverDrive. But I will say that OverDrive is something that we decided to build because we had customers that were coming to us and saying, you know, I love the performance that I'm seeing. And I could use more if there was more possible, just the demands, especially around some of the AI customers, but not exclusively. And so as we were digging into the opportunities around our platform, we felt like we can actually optimize our platform to allow for this new offering without a massive R&D investment in it.

Mike seekers: It wasn't one for this customer that their their use case did not necessitate overdrive, but I will say that overdrive as something that we decided to build because we had customers that were coming to us and saying you know I love the performance that I'm seeing and I could use more if there was more possible just the demands.

Mike seekers: Especially around some of the AI customers, but not exclusively and so as we were digging into it the opportunities around our platform. We felt like we can actually optimize our platform to allow for this new offering without a massive R&D investment. So we did have we did optimize some of the software.

Gleb Budman: So we did optimize some of the software, we did optimize some of the hardware, we did tune the platform for this purpose. But we were able to rest on, you know, years and years of R&D behind it. And, you know, it's only been a week, but we've already had a number of Fortune 500 companies that have reached out inbound to explore OverDrive for them. So, you know, we're getting some good early signals that it's something people are excited about.

Mike seekers: We did optimize some of the hardware we did tuning the platform for this purpose, but we were able to rest on years and years of R&D behind them and.

Mike seekers: It's only been a week, but we've already had a number of fortune 500 companies that have reached out inbound to choose for overdrive for them. So we're getting some good early signals that it's that it's something people are excited about.

Mike Sikos: I really appreciate the color, and maybe one more if I could, Marc, really appreciate you calling out some of the dynamics around tariffs, especially with the uncertainty that's out there in the market. Just to bring it back to the lead gen for a second, I know you guys are talking about some pretty impressive details.

Mike seekers: Great I appreciate the color and maybe one more if I could more really appreciate you calling out some of the dynamics around tariffs, especially with the uncertainty that's out there in the market.

Speaker Change: Just to bring it back to the lead Gen for a second I know you guys are talking about some pretty impressive statistics, but if I think about top of funnel activity.

Mike Sikos: But if I think about top of funnel neck. um from a demand gen standpoint or new leads coming into the pipe. Has there been any change at the margin there? And again, really just trying to get a temperature check as far as what might be playing out in real time, given how.

Speaker Change: From a demand gen standpoint, or new leads coming into the pipe.

Speaker Change: Has there been any change at the margin there and again really just trying to get a temperature check as far as what what might be playing out in real time, given how things that feel almost week to week at this point.

Marc Suidan: Bill Almost. Yeah, I mean, I would say on the demand gen side, Mike, the change is more on our side versus the market dynamics. And let me say, to explain what that means, back in Q4, we did a restructuring. We restructured the whole marketing department and budget, where we set it out. So we're have a lot more outbound spend versus internal payroll. So I would say like January through February, the team was really kind of adjusting to their new plans and where they need to go. And March is really when we started cranking the outbound effort.

Speaker Change: Yeah, I mean, I would say on the demand Gen side, Mike the changes more on our side versus the market dynamics and in let me say to explain what that means back in Q4, we did a restructuring.

Speaker Change: We restructured the whole marketing department and budget, where we set it out so were have a lot more outbound spend versus our internal payroll. So I would say like January through February the team was really kind of.

Speaker Change: Adjusting to their new plans and where they need to go and March is really when we started cranking the outbound effort and that's why we said that you know into Q2, there's going to be more spend there so going back to <unk> comments around the go to market transformation that is a big area of focus now.

Marc Suidan: And that's why we said that, you know, into Q2, there's going to be more spend there. So going back to Gleb's comments around the go-to-market transformation, that is a big area of focus now of really ramping up that demand generation, that awareness, because our win rate is really high. We just need to be flowing more opportunities through there. I mean, the tariffs and the topic of that kind haven't really impacted the demand side in any notable way.

Speaker Change: Really ramping up that demand generation that awareness because because our win rate is really high and we just need to be flowing more opportunities through there.

Speaker Change: I mean, the tariffs and the topic of that kind hasnt really impacted.

Speaker Change: The demand side.

Speaker Change: Any notable way.

Mike Sikos: Very clear.

Mike Sikos: Thank you very much, guys.

Speaker Change: Very clear. Thank you very much guys I'll turn it over to my colleagues. Thank you.

Operator: I'll turn it over to my colleagues.

Operator: Thank you.

Operator: Operator, are there more questions in the queue? So I'll handle this one.

Speaker Change: Operator are there more questions in the queue.

Speaker Change: So I I'll handle this one.

Zach Cummings: Zach, I'm going to put you up next. I'm going to unmute you.

Speaker Change: Zach.

Speaker Change: I'm going to put you at next I mean and meet you. Please ask your question.

Ethan Widell: Please ask your question. Oh, actually, I can't unmute. Hold on, let me find out what's going on.

Speaker Change: Well actually I cant a new T.

Speaker Change: Although let me find out.

Operator: Operator, are you there? Operator. We seem to have lost our operator. Unfortunately, I can't quite handle the queue right now.

Speaker Change: Operator are you there.

Speaker Change: Operator.

Speaker Change: We seem to have lost our operator, Unfortunately, I can't quite handle the Q right now I'm here.

Operator: I am here.

Ethan Widell: Your next person comes from Zach Cummings with B. Reilly Securities. Please go ahead. Hi there. Yeah, this is Ethan Widell calling in for Zach Cummins. Thanks for taking my questions. Looks like you've got nice growth in B2 but a little downtick in NRR. Is that just from lapping the price tailwinds or is there anything else there? Can you maybe talk a little bit about the dynamics you're seeing there?

Speaker Change: Your next question comes from Zach Cummins with B Riley Securities. Please go ahead.

Zach Cummins: Hi, there yeah.

This is Ethan yl, calling in for Zach Cummins, Thanks for taking my questions.

Zach Cummins: Yeah.

Zach Cummins: It looks like you've got a nice nice curtain be too, but little down taking that are or is that just from lapping the.

Zach Cummins: The price tailwind or is there anything out there can you maybe talk a little bit about the dynamics you're seeing there.

Zach Cummins: Yeah.

Marc Suidan: Isaac, this is Marc. Yeah, listen, our, I mean, our NRR remains really solid high. Now, given we labbed the price increase, that's what you're seeing. So I would say it will be, you know, it's a rolling trailing four quarter average. So it will be around that range for a few quarters. As we continue our path of generating higher revenue growth for B2, that will then start trickling in and you'll see it improve from there. Got it. Appreciate that, Keller. And then just touching on some of the tailwinds you're seeing from AI Demand and the OverDrive solution.

Zach Cummins: Hi, Zach this is mark yeah, listen our I mean, our N or our remains a remains really solid high now given we lapped the price increase that's what you're seeing.

Zach Cummins: So I would say it will be you know, it's a rolling our trailing four quarter average so it will be around that range for a few quarters as we continue our path of generating.

Zach Cummins: The higher revenue growth for <unk>.

Zach Cummins: That will then start trickling in and you'll see it improve from there.

Zach Cummins: Okay.

Zach Cummins: Got it I appreciate that color and then on.

Just.

Zach Cummins: Touching on some of the tablet as Youre seeing from a high demand.

Zach Cummins: Overdrive solution.

Gleb Budman: It seems like good early traction there. I guess in terms of the use cases that you spoke to, it seems like there's a lot of different use cases, but are there any in particular that are driving outside interest so far? Well, I'd say that, you know, the two kind of core ones that people talk about, right, the model building and the inferencing are two of the larger ones. So, on the model building side, we have customers who are either generating data. So, for example, they're indexing the Internet or they're taking imagery from satellites and other types of locations where they're capturing data that is being used to train models.

Zach Cummins: Yeah.

Speaker Change: It seems like good good early traction there I guess in terms of the use cases that you spoke to it seems like Theres a lot of different use cases, but are there any in particular that are <unk>.

Zach Cummins: Driving outsized interest so far.

Zach Cummins: Well I'd say that it that the you know the two kind of core ones that people talk about rate the model building and the inferencing are two of the larger ones. So on the motto building side, we have customers who are either generating data. So for example, there they're indexing the internet or that.

Zach Cummins: <unk> imagery from satellites and other types of locations, where they are where they are capturing data that is being used to train models or are they already have large datasets at their then repurposing and different ways to help.

Gleb Budman: Or they already have large data sets that they're then repurposing in different ways to help the AI models being built. So, that whole category is a fairly large aspect for us. And then we have lots and lots of customers that are doing a variety of different inferencing type use cases. You know, some of the ones I shared around autonomous vehicles and automation, industrial automation, robotics, and drug discovery and others are ones where they're heavy inferencing type workloads. But the overall flow, right, where you collect the data, you label it, you create the models, you do inferencing on them, and then you retrain.

Zach Cummins: The AI models being built so that that whole categories is a fairly large aspect first and then we have lots and lots of customers that are doing a variety of different end fencing type use cases, some of the ones I shared around around autonomous vehicles and automation industrial automation robotics in drug discovery and others are ones, where theyre heavy in forensic.

Zach Cummins: Type workloads, but the the overall flow rate, where you collect the data you lay white you'd create the models do inferencing on them you retrain their Wii.

Gleb Budman: You know, we have people doing each part of that. And a number of these are going to be doing multiple pieces of that pipeline as part of their core AI workflow.

Zach Cummins: Have people doing each part of that and a number of these are going to be doing multiple pieces of that pipeline as part of their core AI workflow.

Ethan Widell: Great. Appreciate that, Kyler. Thank you. Thank you for the question.

Zach Cummins: Alright, I appreciate the color. Thank you.

Zach Cummins: Thank you for the question.

Maxwell Michaelis: Your next question comes from the line of Maxwell Michaelis with Lake Street Capital Markets. Please go ahead. Hey guys, thanks for taking my questions and solid quarter.

Maxwell Mcculloch: Your next question comes from the line of Maxwell Mcculloch with Lake Street Capital markets. Please go ahead.

Maxwell Mcculloch: Hey, guys. Thanks for taking my questions and solid quarter first one I just wanted to revisit the record contract here.

Maxwell Michaelis: First one, I just want to revisit the record contract here. When we look at maybe why they came over to Backblaze, I know you mentioned customer service, better performance value, but maybe outside of customer service, maybe what specifically about the performance of the product is what drove them to bring on their entire infrastructure over to Backblaze? Yeah, I mean, I think if you look at it, you know, they are a company that's an application storage company. They have an application where they have many, many end customers that use it. They store a lot of data for their customers.

Speaker Change: When we look at.

Speaker Change: Maybe why they came over to back or backwards I know you mentioned customer service better performance value, but maybe outside of customer service, maybe what specifically about the performance of the product is what drove them to bring on their entire infrastructure over to backwards.

Speaker Change: Yeah, I mean, I think if you look at it.

Speaker Change: They are a company that's an application storage company. They have they have an application where they have many many end customers that you that base. So a lot of data for their customers. They need to have that data not only be stored but then delivered out to their customers and so they need it they need it to work quickly and getting getting the that.

Gleb Budman: They need to have that data not only be stored, but then delivered out to their customers. And so they needed to work quickly in getting that content out to their customers as well. So it's the performance of getting the data out to their customers wherever they happen to be, as well as the cost and value of both storing the data, using it, and then distributing.

Speaker Change: Content out to their customers.

Speaker Change: As well so it's the performance of getting the data out to their customers.

Speaker Change: Wherever they happen to be as well as the cost and value of both starting today are using it and then distributing it.

Maxwell Michaelis: Okay, and then I want to shift over to AI here. Seems like you guys have solved the mandarin on the AI portion of the business. Maybe in terms of numbers, maybe from like a new business standpoint, maybe what percentage of new business coming into Backblaze has some sort of AI aspect attached to it?

Speaker Change: Okay, and then wanted to shift over to AI here.

Speaker Change: It seems like you guys have solved the manner on the AI.

Speaker Change: Fortunately the business maybe in terms of numbers, maybe from like a new business standpoint, maybe what percentage of new business coming into back place has some sort of AI aspect attached to it.

Gleb Budman: So we're not sharing specific subdivision numbers on that. But what I will tell you is that it was the fastest growing part of our Q1 business. So it's a material part of the growth at this point.

Speaker Change: So we're not sharing specific subdivision numbers on that but what I will tell you is that it was the fastest growing part of our Q1 business. So it's it's a it's a material material part of the growth at this point.

Gleb Budman: Okay, and then in terms of B2 overdrive pricing, like how similar is that to just your typical B2 product? So B2 starts at $6 per terabyte per month. B2 Overdrive starts at $15 per terabyte per month. So it starts at two and a half times the price point. One of the things that I'll mention on the competitive side of things, if you took, for example, a 10 petabyte customer that wanted to send that 10 petabytes out three times each month somewhere to the customers, to a GPU cloud, to another partner, that would cost about $1.7 million per month on AWS.

Speaker Change: Okay, and then in terms of B to overdrive pricing like how similar is that just your typical b two product.

Speaker Change: So beat to AST is started $6 per terabyte per month B to overdrive starts at $15 per terabyte per month. So it starts at two five times the price 0.1 of the things that I'll mention on the competitive side of things.

Speaker Change: If you took for example, a 10 petabyte customer that wanted to send that 10 petabytes out three times each month somewhere to the customers to a GPU crowd to another partner.

Speaker Change: That would cost about $1.7 million per month on AWS. It would cost about $150000 on on backward b to overdrive. So it's.

Gleb Budman: It would cost about $150,000 on Backblaze B2 Overdrive. So it's two and a half times our price point for B2, but it's still about 90% less expensive than the alternative. that customers have to do the same type of work.

Speaker Change: It's two and a half times, our price point for B too, but it's still about 90% less expensive than the alternatives that that customers have to do the same type of workloads.

Maxwell Michaelis: Alrighty, thanks for taking my question guys. Yeah, thank you.

Speaker Change: Alrighty, Thanks for taking my question guys.

Speaker Change: Thank you.

Jason Ader: Your next question comes from the line of Jason Ader with William Blair. Please go ahead. Yeah, thanks. Good afternoon, guys.

Speaker Change: Your next question comes from the line of Jason Ader with William Blair. Please go ahead.

Speaker Change: Yes, thanks, good afternoon guys.

Jason Ader: Gleb, can you elaborate a little bit on the comment where you said, quote, while some customers are taking more time to make decisions in the current business environment. What did you mean by that? Are you actually seeing... that play out in Backblaze's business, or are you just making kind of a broader comment and sort of hedging against the sort of macro? headlines that could emerge. Yeah, Jason, thanks for the question. So we have seen some customers take more time. And so it's not just a hedge for the macro overall, it is something that we've seen some customers kind of, you know, take a little more time with their thinking in general, as they've been, you know, I would say distracted by inside of their own business by the by the macro.

Speaker Change: Glen can you elaborate a little bit on the comment where you said.

Speaker Change:

Speaker Change: While some customers are taking more time to make decisions in the current business environment.

Speaker Change: What did you mean by that are you actually seeing.

Speaker Change: That play out in <unk> business or are you, just making kind of a broader comment and sort of hedging against the sort of macro.

Speaker Change: Headwinds that could emerge here.

Speaker Change: Yeah, Jason Thanks for the question. So we have seen some customers take more time and until it it's not just a hedge for the the macro overall it is something that we've seen some customers.

Speaker Change: <unk>.

Speaker Change: Take a little more time with their thinking in general as they've been you know I would say distracted by it inside of their own business by the by the macro.

Gleb Budman: Having said that, it's, you know, our self serve business seems to be going on unfettered, in its growth, we've doubled sales bookings, you know, into the quarter. So, you know, like Marc said, I think we have more control over the things that we do, versus the implications of the macro. But I did want to call out that we have seen some customers actually take more time. Yes, okay, but you're still confident on that 30% exit growth rate? Yeah, we're still confident on ours. Exactly. So what we shared last quarter, which was that we would accelerate growth for B2 quarter over quarter over quarter this year and exit the year at 30% plus, we're still confident to hit that journey and that exit rate.

Speaker Change: Having said that it's.

Speaker Change: Our self serve business it seems to be going on unfettered Ah in its growth we've doubled sales bookings into the quarter. So.

Speaker Change: Like Mark said I think we have more control over the things that we do versus the implications on the macro but I did want to call out that.

Speaker Change: We have seen some customers actually take more time.

Speaker Change: Gotcha Okay.

Speaker Change: As you are still confident on that 30%.

Speaker Change: That growth rate.

Speaker Change: Yeah, we're still confident about knowledge.

Speaker Change: Exactly.

Speaker Change: Yeah, exactly so what we shared last quarter, which was that we would accelerate growth for btu quarter over quarter over quarter.

Speaker Change: This year and exit the year at 30% plus we're still confident to hit that journey and that exit rate.

Gleb Budman: Okay, so you're balancing the, call it, handful of customers that are Maybe a little bit slower in their decision making with the momentum that you had in Q1, is that the right way to think about it? Yeah, the momentum that we have in Q1 plus the the other early indicators that we have in our business. And the month of April was sort of. Fair to say that was kind of in line with your expectations and consistent with Q1 demand. Yeah.

Speaker Change: Okay. So you are balancing the.

Speaker Change: Call it a handful of customers that are.

Speaker Change: Maybe a little bit slower in their decision, making with the momentum that you had in Q1 is that the right way to think about it.

Speaker Change: Yeah, the momentum that we have in Q1 plus the other early indicators that we have in our business.

Speaker Change: The month of April was sort of.

Speaker Change: Fair to say that was kind of in line with your expectations and consistent with Q1 demand.

Marc Suidan: Hi, Jason. This is Marc. Yeah, that's exactly right. It's been it's been pretty consistent. And the good thing is, I would say the diversity of our customer set, right? We still have, I mean, an incredible amount of upselling that occurs to existing customers. On the self-serve front, we still have a lot of customers every quarter by the thousands that are showing up and starting. So we haven't seen any change of momentum on those front. So when you combine the changes we've done on the go-to-market stuff, and we're not fully done there yet. I'd say, yeah, we feel pretty confident about getting to that 30% B2 growth in Q4.

Speaker Change: Yeah, Hi, Jason This is mark Yeah, that's exactly right. It's been it's been pretty consistent.

Speaker Change: And India and the good thing is I would say the diversity of our customer set.

Speaker Change: We still have.

Speaker Change: <unk>, an incredible amount of upselling that occurs through existing customers.

Speaker Change: On the self serve front, we still have a lot of customers every quarter.

Speaker Change: But one thousands that are showing up and starting so we haven't seen any change in momentum on those fronts. So when you combine the changes we've done on the go to market stuff.

Speaker Change: And we're not fully done there yet I'd say, we have we feel pretty confident about getting to that 30% beat to growth in Q4.

Jason Ader: Okay.

Jason Ader: Excellent.

Speaker Change: Okay excellent.

Jason Ader: And then the last thing for me is...

Speaker Change: Last thing for me is.

Jason Ader: For you Gleb, can you talk about just sort of how the competitive landscape may have changed or not since since the IPO? Are you running into any, call it new players versus what it was at the time of the IPO? Are you in more bake-offs today? because you're, you know, more of an established player.

Speaker Change: For you Glenn can you talk about just sort of how the competitive landscape may have changed or not.

Speaker Change: Since the IPO are you running into any call it new players versus what it was at the time of the IPO.

Speaker Change: Are you any more bake offs today.

Speaker Change: Because you're you know more of an established player.

Gleb Budman: Let me just talk to some of those competitive landscape questions. Yeah, Jason, thanks. So since IBO, it's been it's been a few years now. The world has changed a smidge. Having said that, you know, in the big picture of things, things haven't changed that much. And what I mean by that is, back then, we were looking at and saying, it's a huge market. Amazon, Google and Microsoft are certainly big players in the market. But it's a really big market and there's a lot of opportunity. I would say that that is still largely true today. It's about $100 billion market.

Speaker Change: Let me just talk to some of those competitive landscape questions.

Speaker Change: Yeah, Jason Thanks, So since IPO, it's been it's been a few years now.

Speaker Change: The World has changed a smidge and having said that.

Speaker Change: In the Big picture of things things haven't changed that much and what I mean by that is back then we were looking at and saying, it's a huge market.

Amazon, Google and Microsoft are certainly big players in the market, but it's a very big market and there's a lot of opportunity I would say that that is still largely true today. It's about 100 billion dollar market and they are still the big players in this space, but there's still a lot of opportunity a lot of space and we are taking you know winning customers both.

Gleb Budman: And they are still the big players in the space, but there's still a lot of opportunity, a lot of space. And we are taking, you know, winning customers, both away from them, like this, you know, large TCV customer I talked about, and also from customers that haven't yet moved to the cloud. So a lot of our customers, we are their first cloud provider, which, you know, in 2025 might seem surprising still, but it is still the case. So, you know, there are a variety of smaller players in the market, some of which existed back then, some of which are newer.

Speaker Change: Away from them like this large T C V customer I talked about and also from customers that haven't yet moved to the cloud. So a lot of our customers. We are their first cloud provider, which you know in 2025 might seem surprising still but.

Speaker Change: It is still the case, so I would say that you know there are a variety of smaller players in the market some of which existed back then and some of which are newer but our win rates.

Gleb Budman: But, you know, our win rates, you know, according to kind of industry averages are still pretty world class. So people like the product line, they like the platform.

Speaker Change: Coatings kind of industry averages are still pretty world class.

Speaker Change: So people like the product line they like the platform I think that the key thing for US was getting the go to market motion really cranking. So that people would be aware that this was an option for them. They would be that we would be put in front of them at the right moment when when there was something to consider and then working through them.

Gleb Budman: I think that the key thing for us was getting the go-to-market motion really cranking so that people would be aware that this was an option for them. They would be, that we would be put in front of them at the right moment when there was something to consider and then working through that. And I think, you know, things like the doubling of sales bookings and other things are a sign that we're starting to see that success. And that's total sales bookings or just B2. That's a total sales book. The bookings from the sales team doubled, more than doubled, from Q1 of last year to Q1 of this year.

Speaker Change: And I think you know.

Speaker Change: Things like the doubling of sales bookings and other things that are are a sign that we're starting to see that success.

Speaker Change: And that's total total sales bookings or just be too.

Speaker Change: That's total sales bookings.

Speaker Change: The the book the bookings from the sales team doubled more than doubled from Q1 of last year to Q1 of this year.

Speaker Change: Gotcha.

Speaker Change: Yeah.

Victor Chu: Your next question comes from the line of Victor Chu with Raymond James. Please go ahead. Hi, guys. This is Victor, and for Simon Leopold, I just wanted to follow up on your comment regarding the elongated decision process that you're observing from some customers. You know, on the flip side of that coin, is it possible that you could see some, you know, tailwinds from customers looking to migrate, you know, towards lower TCO solutions? Or maybe, you know, are you observing some of that in kind of the net, you know, of what you're seeing as kind of your comments, you know, about the, you know, slower decision-making process and kind of lower net overall?

Victor Chu: Your next question comes from the line of Victor Chu with Raymond James. Please go ahead.

Victor Chu: Hi, guys. This is victor in for Simon Leopold.

Victor Chu: Just wanted to follow up on your comment regarding the.

The elongated decision process that you're observing from some customers on the <unk>.

Victor Chu: Flip side of that coin is it possible that you could see some.

Victor Chu: Tailwind from customers looking to migrate towards a lower T. C O solutions or maybe are you observing some of that and kind of the net.

Victor Chu: What you're seeing is kind of your comments about the slower.

Victor Chu: Decision, making process and kind of lower net overall or what was the timing of that kind of look like.

Gleb Budman: Or, you know, what would the timing of that kind of look like if, you know, that dynamic, you know, is something that we could explore? Yeah, I mean, I think you're exactly right. We provide a great value proposition for customers, right? It's 80 to 90% lower cost than the traditional cloud providers. We provide free egress out to customers, so it supports the open cloud. We give them access so that they can use whichever GPU clouds they want for their AI workloads. We have this high-performance offering with OverDrive. So there's a lot of value at a low price.

Victor Chu: Yes that dynamic.

Victor Chu: This is something that we could expect.

Victor Chu: Yes, I mean, I think you're exactly right, we provide a great value proposition for customers right. It's a it's 80% to 90% lower cost than the traditional cloud providers, we provide free egress out to the customer. So it supports the open cloud we give them access to that he can provide use whichever GPU cloud they want for their.

Victor Chu: AI workloads.

Victor Chu: We have this high performance offering that then that with overdrive I mean, so there's there's a lot of value at a at a low price and.

Marc Suidan: And in an environment where companies are focused on squeezing more out of their dollars, whether they're focused on tightening their budgets, Backblaze is a great solution for that. So I think when customers are concerned, they sometimes are indecisive, and that slows things down, which I think is what we've seen with some customers.

Victor Chu: In a in an environment, where companies are focused on squeezing more out of their dollars whether their focus on tightening their budgets back with a great solution for that so I think you know.

Victor Chu: There are when when customers are concerned they sometimes are indecisive and that slows things down, which I think is what we've seen with some customers and at the same time when customers are decisive about wanting to improve their businesses.

Gleb Budman: And at the same time, when customers are decisive about wanting to improve their businesses, they can choose Backblaze to help them do that.

They they can choose backbone to help them do that.

Marc Suidan: Yeah, Victor, this is Marc. What I would add also is what we're seeing on a smaller pattern is some customers are more comfortable proceeding faster in a non-committed contract fashion, because we have a lot of pay-as-you-go customers, and we have a lot of committed contracts. So, what we're seeing is for those that experience that kind of slowness in decisions, It doesn't, they're ready to jump in and just try it on a pay-as-you-go basis, so we've actually seen some really solid momentum on that front that makes up for any slowness and decisions on the other side.

Speaker Change: Yeah, Mike There. This is a mark what I would add also is what.

Speaker Change: What we're seeing on a smaller pattern as some customers are more comfortable proceeding faster in the non <unk>.

Committed contract fashion, because we we have a lot of pay as you go customers and we have a lot of committed.

Speaker Change: Committed contracts. So what we're seeing is for those that experienced that kind of slowness in decision.

Speaker Change: It doesn't and Theyre ready to jump in and just try it on a pay as you go basis. So what we've actually seen some really.

Speaker Change: Solid momentum on that front.

Speaker Change: That makes up for any slowness in decisions on the other side.

Victor Chu: Great, great, that's helpful.

Great Great that's helpful and then.

Gleb Budman: And then just on the B2 Overdrive announcement. Sorry if I missed this, but, you know, does the offering involve any kind of material changes to your physical hardware infrastructure, or is it primarily, you know, leveraging software, you know, the software optimization that you noted earlier? Yeah, it's mostly on the software side, although we've done some hardware optimization to support it as well. So we've been building performance functionality into the platform for a while. One of the things that we had talked publicly about was ShardStash, which was both a software and hardware optimization for the platform that enabled us to be up to 30% faster for uploads of small files than the traditional companies.

Speaker Change: Just on the on the beat.

Speaker Change: B to overdrive.

Speaker Change: I'll now turn I'm, sorry, if I missed this but.

Speaker Change: Yes. It does the operating involve any kind of material changes to your physical hardware.

Speaker Change: Or is it primarily.

Speaker Change: Leveraging software.

Speaker Change: The software optimizations that we noted earlier.

Speaker Change: Okay.

Speaker Change: Yes, it's most in the software side, although we've done some hardware optimization to support it as well.

Speaker Change: You know we've been building performance functionality into the platform for a while you know one of the things that we had talked publicly about where short stash, which was both the software and hardware optimization for the platform that enabled us to be up to 30% faster for uploads of small files than the than the traditional companies and.

Gleb Budman: And so we've done a lot of work on the software optimization side. There are some hardware changes that we made as well to optimize it as well.

Speaker Change: So we've done a lot of work on the software optimization side. There are some hardware changes that we made as well too to optimize it as well.

Gleb Budman: And, you know, kind of what are the kind of use cases that that you envision, you know, kind of driving this or customers, you're building data lakes, you know, with this or, you know, is it kind of supplementing their AI clusters, you know, that their existing AI clusters kind of just help us understand what you know, are the primary use cases that you envision, you know, for the future. So AI has been one of the big ones that drove the original interest in this. We're starting to have companies reach out to us with other use cases as well.

Speaker Change: And.

Speaker Change: Kind of what are.

Speaker Change: Yes.

Speaker Change: End of use cases that that you envision.

Speaker Change: Kind of guidance or customers building data lakes.

Speaker Change: This or.

Speaker Change: Or is it kind of supplementing their AI clusters.

Speaker Change: Our existing cluster is kind of just help us understand what.

Speaker Change: Primary use cases that you envision.

Speaker Change: Yes.

Speaker Change: So AI has been one of the big ones that drove the original interest in in this we're starting to have companies reach out to us with other use cases as well so the the ones that we've talked about our AI being the big one other high performance compute being another one where they may want to do whether it's weather modeling drug.

Gleb Budman: So the ones that we've talked about are AI being the big one, other high-performance compute being another one where they may want to do, whether it's weather modeling, drug discovery, or other things in analytics where what they need to do is have a lot of data, move it somewhere to do a lot of processing, and then bring it back or take the results out of it. Those are the types of things where we see this being a really good offer.

Speaker Change: Scurry or other things.

Speaker Change: In analytics, where what they need to do is have a lot of data.

Speaker Change: Move it somewhere to do a lot of processing and then bring it back or take the results out of it.

Speaker Change: Those are the types of things, where we see them.

Speaker Change: This being a really good good offering.

Gleb Budman: And I'll just say, I mean, I, you know, I'm really proud of our team, you know, both on the engineering and operations side and everything that have been able to pull this off. One of the prospects that we spoke to, they said, they were basically blown away. They had no idea that you could get this kind of performance. out of a platform built on spinning drives. That normally this is the kind of thing that requires flash and SSD to be used, which is much more expensive. And we've been able to pull that off on spinning drives.

Speaker Change: And I'll, just say I mean, I'm really proud of our team both on the engineering and route operation side and everything that have been able to pull this off one of the prospects that we spoke to they they said.

Speaker Change: They were basically blown away that no idea that you could get this kind of performance.

Speaker Change: All of it.

Speaker Change: And then a platform built on spinning drives that normally this is the kind of thing that requires flash and SSD to be used which is much more expensive and we've been able to pull that off.

Gleb Budman: So we get the value and the performance out of it. And that's really a testament to the team that built it.

Speaker Change: On spinning drives so we get the value and the performance out of it and that's really a testament to the team that built them.

Gleb Budman: That's very helpful. Thank you. Yeah, thank you.

Speaker Change: That's very helpful. Thank you.

Speaker Change: Yes. Thank you.

Gleb Budman: And that concludes the question and answer session, and I will now turn the conference over to Gleb Budman for closing comments. Thank you. So, you know, we've delivered a strong Q1, beating both top and bottom line guidance. We accelerated B2 organic growth again, and we're on track for a 30% plus growth in Q4. We're winning with AI use cases, we've launched this high performance offering with B2 Overdrive. So, you know, I'm really excited about where we are, where we're going. And I want to thank our employees for delivering these results, our customers and partners for working with us, our investors for continuing to support us.

Robin: And that concludes the question and answer session and I will now turn the conference over to Robin for closing comments.

Robin: Thank you. So you know we've delivered a strong Q1, beating both top and bottom line guidance, we accelerated b to organic growth again, and we're on track for a 30% plus growth in Q4.

Robin: We're winning with AI use cases, we've launched this high performance offering would be to overdrive. So I'm really excited about where we are where we're going and I want to thank our employees for delivering these results our customers and partners for working with US our investors for continuing to support us and I want to thank all of you for joining us.

Gleb Budman: And I want to thank all of you for joining us today. We'll see some of you at the Needham conference in New York next week. We'll see some of you at the Craig Hallam conference in a couple of weeks, and we look forward to seeing everyone in our next earnings call.

Robin: They will see some of you at the Needham Conference in New York next week, we will see some of you at the Craig Hallum Conference in a couple of weeks and we look forward to seeing everyone at our next earnings call. Thank you.

Operator: Thank you.

Robin: Operator.

Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect.

Speaker Change: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect.

Operator: Please wait, the conference will begin shortly. Thank you for watching.

Speaker Change: Please wait the conference will begin shortly.

Speaker Change: [music].

Speaker Change: Yes.

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