Q3 2025 Backblaze Inc Earnings Call

Speaker #2: Hello and thank you for standing by . My name is Tiffany and I will be your conference operator today . At this time I would like to welcome everyone to the Backblaze, Inc. third Quarter 2020 Earnings call .

Speaker #2: All lines have been placed on mute to prevent any background noise . After the speaker's remarks , there will be a question and answer session .

Speaker #2: If you would like to ask a question during that time , simply press star . Then the number one on your telephone keypad .

Speaker #2: I would now like to turn the call over to Mimi Kong investor relations . Mimi Kong . Please go ahead .

Speaker #3: Thank you . Good morning and welcome to Backblaze's third quarter of 2025 Earnings Call . On the call with me today are Gleb Budman Co-Founder , CEO and chairperson of the board .

Speaker #3: 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 .

Speaker #3: The impact of our go to market transformation , sales and marketing initiatives , cost saving initiatives , results from new features , our ability to compete effectively and manage our growth , our strategy to acquire new customers , retain and expand our business with existing customers , and the impact of previous price changes .

Speaker #3: 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 .

Speaker #3: 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 .

Speaker #3: As of today , and we undertake no obligation to update them except as required by law . Our discussion today will include non-GAAP financial measures .

Speaker #3: 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 is furnished with our form 8-K filed today with the SEC .

Speaker #3: 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 #3: Please also see our press release or presentation for definitions of additional metrics , such as gross customer retention rates and adjusted free cash flows .

Speaker #3: And finally , we will be in New York to participate in the Craig-hallum Alpha Select Conference on November 18th and the Needham Tech Week one on one event on November 20th .

Speaker #3: Thank you for joining us . And I would now like to turn the call over to cleave .

Speaker #4: Thank you . Mimi , and welcome everyone to the call . We delivered strong results this quarter in Q3 revenue and adjusted EBITDA margin .

Speaker #4: Both came in above the high end of guidance , and we continue to be on track to be adjusted . Free cash flow positive in Q4 .

Speaker #4: Overall , company revenue grew 14% year over year and B2 cloud storage delivered strong results , growing 28% . Now , I'd like to take a step back and share how we see the AI industry evolving .

Speaker #4: Because AI is becoming central to both our customers and our opportunity ahead . AI is built on models , compute and data , while just a couple years ago models were the domain of only a few large providers .

Speaker #4: Today they are widely available with literally millions of open source options . So models are no longer a bottleneck for AI innovation . The next component of AI is compute .

Speaker #4: The GPUs that make up compute have become increasingly available , but access at scale remains challenging in the market has also become quite fragmented , with approximately 200 neo clouds such as core .

Speaker #4: We've and NetBIOS offering GPU capacity for rent . That brings us to data . The key differentiator for AI success and where Backblaze helps companies win data sizes are exploding as AI expands beyond text to images , audio and video , driving massive storage and performance needs .

Speaker #4: The team's leading in AI aren't just the ones with the most data , they're also the ones who can aggregate , clean , and organize it for today's workloads .

Speaker #4: Move it to whichever neo cloud they choose , all while preparing it for tomorrow's architectures . Backblaze has already built one of the largest , fastest and most cost effective storage clouds on the planet , offering throughput of up to one terabyte per second and priced at about one fifth that of traditional cloud offerings .

Speaker #4: Add to that our free egress and universal data migration that allow customers to easily move their data from other cloud providers where they may feel locked in and then freely send their data to one of the 200 neo clouds , or anywhere else they need it to go .

Speaker #4: Then layer on our team actively supporting customers success and it becomes clear why hundreds of AI companies are choosing Backblaze . Highlighting this , Backblaze recently received industry recognition in both cloud security and technology innovation , including an award for B2 Overdrive .

Speaker #4: These honours reflect the strength of our technology and the pace of our innovation . Now let me share a few customer examples that bring this to life .

Speaker #4: This past quarter , we signed a new six figure deal with an AI startup focused on large scale vision language models . The team was small , but scaling rapidly and racing to finish key projects .

Speaker #4: They couldn't predict how their data volumes might grow and needed a high performance and cost effective solution that could scale with them . They started self-serve and later engaged our sales team to access even higher performance B2 overdrive gave them the performance they needed , and our team made it easy , freeing them up to focus on their critical projects .

Speaker #4: Another AI customer in the surveillance space expanded their commitment by almost ten X to a seven figure TCV deal . We won this customer away from a hyperscaler whose platform limited how they could automate their workflow .

Speaker #4: Our platform offers a valuable multi-cloud upload that streamlined their workflows . They expanded their commitment with us because we offered a predictable and cost effective way to scale easily .

Speaker #4: Finally , we had another six figure win a powered by Backblaze White label deal with an app developer in the media space . This was another competitive win for a hyperscaler .

Speaker #4: The customer was growing fast and needed storage that could support millions of users . After being hit with a surprise , roughly $100,000 charge for moving data with the Hyperscaler , they came to Backblaze for predictable pricing and scale .

Speaker #4: Backblaze is now their storage platform , and they will join our 100,000 customers who collectively serve hundreds of millions of end users through our platform .

Speaker #4: Across all these examples , the reasons customers choose Backblaze are consistent performance that rivals the biggest clouds , predictable and fair pricing , and people who make it easy to get things done .

Speaker #4: Whether to start up training models , a media team moving petabytes , or an enterprise scaling to millions of users . The story is the same faster , simpler , more affordable and supported by a team that actually helps .

Speaker #4: Now I'll share how we see our growth opportunity in Q3 , we grew B2 28% , and for Q4 , we now expect B2 to grow in the range of 25 to 28% year over year .

Speaker #4: We're proud of our growth , but this is below the 30% target we set for ourselves at the beginning of the year to help reach our growth goals , we're launching phase two of our go to market transformation , focused on accelerating the velocity of both our self-serve and direct sales motions for self-serve .

Speaker #4: We're proud of the consistent growth engine we've built . Now we're going to scale it by making it more frictionless for data heavy AI use cases , and by kicking off robust developer relations .

Speaker #4: These steps are aimed to deepen our connection with the developer community and make it even easier to adopt our platform for direct sales .

Speaker #4: We're building on the progress we've made over the past year . We're adding talent and upgrading our core systems in order to better target customers and improve sales efficiency .

Speaker #4: To accelerate this , we're also partnering with advisors and a consulting team who has helped both Snowflake and Databricks in their go to market execution .

Speaker #4: We're reinforcing our sales and marketing engine and remain confident in our ability to deliver consistent , durable growth over time . With that , I'll turn it over to Marc to take us through the financials .

Speaker #4: Marc .

Speaker #5: Thank you , Gleb , and good morning , everyone . We delivered a strong third quarter with results coming in above the high end of our guidance for both revenue and adjusted EBITDA .

Speaker #5: We have solidified our balance sheet , improved our path to be free cash flow positive and accelerated revenue growth . We're focused on getting V2 to a rule of 40 , and we are on track to roughly triple our score .

Speaker #5: This year . Now , let me walk you through the details of the quarter , starting with revenue . Total revenue exceeded expectations .

Speaker #5: It came in at $37.2 million compared to the high end of guidance , which was $37.1 million . This represents a 14% year over year overall growth .

Speaker #5: V2 grew 28% year over year compared to the organic growth of 19% in the same period last year . This represents an acceleration of about 900 basis points this quarter .

Speaker #5: This improvement was driven by the first phase of our go to market transformation . As mentioned last quarter , usage from one of our larger AI customers has been variable as the customers data storage needs have fluctuated for their business overall , industry wide demand for data storage is expected to grow rapidly , and our platform is well positioned to support those expanding needs .

Speaker #5: We're also seeing diversification within B2 across our core use cases, which are live application hot storage, backup media, and AI-related workloads.

Speaker #5: In computer backup , revenue was flat year over year , reflecting the final roll off of the price increase implemented in 2023 . Turning to net revenue retention overall , the trailing four quarter company Gnrh-r for Q3 was 106% , compared to 109% in the second quarter .

Speaker #5: Going forward , we believe it's clear to show in quarter end versus the previously reported trailing four quarter average . As an example , for Q3 in quarter , Gnrh-r for B2 improved to 116% from 109% in Q2 , and this was driven by a large AI customer .

Speaker #5: We discussed last quarter . You can see that dynamic on slide 11 of the earnings presentation . Moving on to gross margin , it was 62% , up from 55% a year ago , reflecting operating leverage .

Speaker #5: And the benefit from our recent useful Life study adjusted gross margin was 79% , compared to 78% last year . Overall margin performance remained stable .

Speaker #5: Data center costs are generally rising , however , they are being offset by scale and labor . Greater code efficiency and lower amortized R&D as a percentage of revenue , operating expenses were 71% of revenue in improvement from 92% a year ago .

Speaker #5: This reflects the structural changes that we made last year through our restructuring , and zero based budgeting process . R&D spending held steady in dollars , but declined as a percentage of revenue from 33% a year ago to 30% this quarter .

Speaker #5: When you combine the R&D expense in capitalized R&D , the improvement is even more pronounced at 35% of revenue , down from 43% a year ago .

Speaker #5: Sales and marketing came in at 24% of revenue , down from 36% a year ago . We're focused on improving efficiency in our go to market model , including reallocating funds to strengthen our top of funnel programs and investing in operational go to market talent .

Speaker #5: All while maintaining the same cost discipline you've seen from us over the past year . G&A was 17% of revenue , down from 23% last year .

Speaker #5: We continue to drive efficiencies across our corporate functions in general , administrative spend , operating results , GAAP net loss was 3.8 million .

Speaker #5: A 70% improvement from a loss of 12.8 million in the prior year . On a non-GAAP basis , net income was 1.9 million , compared to a loss of 4.1 million last year .

Speaker #5: Adjusted EBITDA margin reached 23% , almost double the 12% from a year ago , and a quarter ahead of our outlook . That performance reflects continued financial discipline and the operating leverage we've built into the model .

Speaker #5: We're focused on building a company that delivers durable and profitable growth in Q3 , adjusted free cash flow was -3.5 million , improving by roughly half $1 million year over year .

Speaker #5: As we discussed last quarter, we used $2.5 million of our line of credit to fund capital expenditures outside of the U.S. so we can cut our international borrowing rate in half on the balance sheet.

Speaker #5: We ended the quarter with $50 million in cash and marketable securities , largely unchanged last quarter . We believe the balance sheet remains strong and provides flexibility to support continued growth and investment .

Speaker #5: As we announced last quarter , we initiated a modest share repurchase program in Q3 . We repurchased $1.2 million of shares as part of our ongoing work to manage equity dilution guidance for the fourth quarter , we expect revenue in the range of 37.3 million to $37.9 million .

Speaker #5: We're slightly widening this range to account for the variability we see in certain large customers . B2 growth in Q4 is expected to be between 25 and 28% .

Speaker #5: We continue to focus on driving , operating leverage and remain on track to be adjusted . Free cash flow positive in Q4 to close our financial transformation is progressing well .

Speaker #5: We're reducing equity dilution through our repurchase program , on track to achieve positive adjusted free cash flow in Q4 and continuing to build operating leverage towards GAAP profitability .

Speaker #5: While we haven't yet reached our 30% V2 growth goal , we expect the next phase of our go to market transformation to drive stronger growth together , these efforts are building a stronger , more efficient company , one that's on path towards operating at a rule of 40 profile .

Speaker #5: Just looking at B2 , we started the year with a rule of 40 , score of nine and on track to roughly tripling that in Q4 of this year .

Speaker #5: Operator please open it up for questions .

Speaker #2: At this time . If you would like to ask a question , press star . Then the number one on your telephone keypad to withdraw your question , simply press star one .

Speaker #2: Again . We kindly ask that you limit your questions to one and one . Follow up for today's call , we will pause for just a moment to compile the Q&A roster .

Speaker #2: Your first question comes from the line of Jeff van Ree with Craig-hallum Capital Group . Please go ahead .

Speaker #6: Great . Thanks . Thanks , guys . Thanks for taking the questions . Just a couple here . In terms of the sales evolution and phase two .

Speaker #6: Talk to me about how you were envisioning the the sales sort of evolution . I think you commented last quarter that most reps were more than halfway through the ramp .

Speaker #6: Are the existing reps ramping the way you would expect it , or was there something you experienced in the sales process that led to you sort of implementing this second phase ?

Speaker #4: Hey Jeff , this is Glenn . Thank you for the question . So what I would say is that in the first phase , one of the things we talked about was that our goal was to move up market .

Speaker #4: And so , you know , you could see that we've we've definitely moved up market with the , you know , multiple six and seven figure deals that we've consistently announced over the over the over the year .

Speaker #4: The phase two for us is about driving the velocity of the execution velocity . So it's it's a it's a it's a slightly different focus .

Speaker #4: We want to continue to move up market and support those larger deals . But we're spending more time focusing on moving things through the funnel more , more explicitly , more actively in terms of the reps themselves , most of the reps were hired at the beginning of the year or earlier , so they are largely through their ramps as part of as part of their their onboarding .

Speaker #6: Okay . And on the just revisit if you would on the on the B2 you had the 30% goal for Q4 . I heard a little bit of commentary there , but just expand on that a bit more .

Speaker #6: What what's explicitly what specifically was it that you thought was going to play out that didn't play out ? And , you know , and when do we get to that 30% plus ?

Speaker #7: So , you know , on our on our from our last earnings call , what .

Speaker #4: Basically two things happened . One is we had a large customer that we talked about in the prior call that in in Q2 .

Speaker #4: We the outperformance was in part driven by the variability of a large AI customer in as we look toward Q4 , the variability in part is driven by this same large customer trimming more than we expected .

Speaker #4: The the other thing that drove that is just the larger deals as we move up market , a number of them have taken longer to to execute .

Speaker #4: And so the two the combination of those two things have have changed . Our expectations for for Q3 somewhat . That's why we're doing phase two of the GTM transformation .

Speaker #4: We love that we've been able to move up market . It's proven that the platform supports these larger customers . It supports these larger use cases .

Speaker #4: And we also want to have more core predictability in in the in the business . So it's interesting because before we used to have lots and lots of small deals and having lots and lots of small deals provided really great predictability .

Speaker #4: And we were able to go public on lots of $300 and $2,000 type type deals . The challenge with those was it was harder to significantly outperform significantly , rapidly accelerate growth .

Speaker #4: The the bigger deals in moving up market allow us to do that . But we want to focus on increasing that core base of smaller deals to to drive that consistency .

Speaker #4: Also .

Speaker #6: One last quick one , if I could , on the data variability . Gleb , you've mentioned several times in the call , just talk about how that variability is maybe different than what you had expected from these customers .

Speaker #6: Obviously, as you're getting AI workloads, some new experiences here as to how people are going to use you, both in that moment as well as over time. Just a bit more about the variability in the data usage would be helpful.

Speaker #6: Thanks .

Speaker #4: Yeah . The the AI use cases are obviously all evolving very rapidly , and we're trying to support the customers where they are .

Speaker #4: So , you know , the the different use cases that we see across AI are , you know , are things that we are supporting and learning along with the customers .

Speaker #4: This this particular customer that we talked about , you know , as their business goes up and down in terms of their needs for their their data , you know , that we support them with that .

Speaker #4: So the way that we work with , with customers is many of our customers are pay as you go . You know , they're they enter a credit card and they just sign up and go .

Speaker #4: Some of our customers , we sign contractual commitments with and for for a number of the contractual commitments . They'll often sign a contractual commitment and then have the ability to scale up above that .

Speaker #4: And , you know , with with some of these larger AI customers , they'll sign a contractual commit and then they'll ramp up even faster than that because their business is growing faster than they expected .

Speaker #4: And then sometimes they need to do some pull back . So that's that's what we're seeing with some of these , you know , the nice thing obviously is we have 100,000 customers on V2 where distributed across a variety of use cases .

Speaker #4: So it's not it's not all variable AI customers . We still have a lot of corporate activity in our business , but we do want to lean in with the AI use cases because we do see that that is transformative for the industry , and we're you know , we see a lot of opportunity ahead .

Speaker #6: Got it . Thanks so much .

Speaker #4: Thanks , Jeff .

Speaker #2: Your next question comes from the line of Eric Martinuzzi with Lake Street Capital Markets LLC. Please go ahead.

Speaker #8: Yeah , I'd like to touch on I know you haven't given a guide for 2026 , but I just wanted to learn your expectations for the two sides of the business going forward .

Speaker #8: Obviously , we've got good growth , but not the 30% you wanted in B2 . And then we were flat here in Q3 on the CPU as we got through the last of the price increases , but to put it in broad strokes , you know , we're looking at a year in 2025 , we're combined .

Speaker #8: We're at about 14% growth . I know I'm looking for that 14% growth to persist into 2026 . But what what are you thinking about for longer term growth rate for B2 and CBU ?

Speaker #9: Yeah . Hi , Eric . Good morning . This is this is Mark . So the 2025 right for B2 is on track to be in that .

Speaker #5: Mid 20s year over year growth rate 2026 . We don't want to give guidance yet but but but we feel pretty comfortable . It's going to be in that range given what we're seeing now as well as that second phase of that go to market transformation .

Speaker #5: And those larger deals . Gleib spoke about . If those come in , I mean , it could it could bring that number higher when they come in , in those specific quarters on on the computer backup , just like we said last time , it would be low to single mid single digit .

Speaker #5: The contraction of that business . We are we're obviously taking action to , to try to stabilize that . We probably need more time to come back and report a different outlook there .

Speaker #5: But for now , those are the right assumptions for B2 and and computer backup .

Speaker #8: Okay . And then the restructuring that you announced this morning as well . Just curious to know where are we . You talked about some facilities , but it also talked about severance .

Speaker #8: Where are we cutting back on the headcount that we had versus the end of September ?

Speaker #5: Yeah . Listen , that that is how we're funding that next phase of our go to market transformation . We , you know , talked about needing that mid-market high velocity deal volume to improve .

Speaker #5: It's done really well over the past year . But we want to we think it should be way better than where it is .

Speaker #5: And that's the key formula to get to that 30% . So a lot of a lot of that restructuring cost is to transform our go to market practices .

Speaker #5: It's to bring on new talent on board . We have started that . So so it's a lot more around , you know , getting talent .

Speaker #5: That's a lot more operational than their go to market skills . Know how to use the technology . The data science behind it .

Speaker #5: So I would say that it's more of a reinvestment versus a cost-cutting exercise.

Speaker #8: Got it . Thanks for taking my questions .

Speaker #2: Your next question comes from the line of Ittai Kidron with Oppenheimer . Please go ahead .

Speaker #10: Hi . This is Nolan . Ginuwine on for Ittai . Thanks for taking my questions . First , I just want to sort of double click on these seven figure customers .

Speaker #10: You're clearly showing traction and selling to enterprises now . And you've added yet another seven figure customers . Quarter how many seven . Figure IRR customers do you have now and then ?

Speaker #10: How has their expansion dynamics evolved in recent quarters versus sort of the smaller cohort ? And then I have a follow up . Thanks .

Speaker #4: Hey , thanks for joining us and thanks for the questions . One one clarification I would say is we have these seven figure deals .

Speaker #4: The the interesting thing is they're not all enterprises . They're heavy users of data . Right . And so one of the things that we've seen is that in is that customers are generating large volumes of data and needing high performance for those data sets , you know , like the AI powered , you know , video surveillance customer that I mentioned , they're not an enterprise company , but they're a seven figure deal .

Speaker #4: So and that actually , I think bodes well for us for the future because these smaller mid-market companies that have high data needs are are generally faster moving than the than the traditional enterprises .

Speaker #4: And there's more of them out there . So , so that's one thing I would just say in terms of outlook and opportunity for us , in terms of the number of them , you know , we've generally announced , you know , 1 or 2 , the per quarter , the last over the last year .

Speaker #4: So , you know , it's not a large number of these seven figure deals , but it's , you know , considering that in our first roughly 15 years of the company , we signed one .

Speaker #4: And in the last year we've highlighted at least one a quarter , I think is a is a great . Proof point to say that when we said we were moving up market , we moved up market .

Speaker #5: Yeah . And you know what ? I'll add , Nolan , is last quarter we shared the number of customers with $50,000 plus IRR .

Speaker #5: It was up in Q2 , 30% year over year in Q3 . It was up 41% . So we're maintaining good momentum on that front as well .

Speaker #10: Got it . That's very helpful . And then I know you're not giving 26 guidance , you know . But how should we think about the potential catalysts heading into the next fiscal year .

Speaker #10: Things like overdrive ramping this sort of phase two of the go to market transformation . Could you just maybe put a finer point on what you think could maybe drive upside or downside just to the sort of current growth rate ?

Speaker #10: Thank you .

Speaker #4: Yeah , it's a good question . So the the go to market transformation phase two is certainly something that we're we're leaning into heavily .

Speaker #4: Right . It's we're putting a lot of focus on there in terms of talent system upgrades , leveraging advisors and and the consulting team .

Speaker #4: You know , we're we're we believe that there's a lot of opportunity in driving the the you know , the ability and execution for us to get to market in faster with the products that we have .

Speaker #4: In terms of B2 overdrive , you know , we announced that deal . We announced that product line . It fairly recently . We've already closed multiple six figure deals on there , which is , I think , a great sign that it has product market fit .

Speaker #4: You know , it's a it we believe it's the highest throughput per dollar offering on the market . And that's a great fit for for customers that really need that performance .

Speaker #4: One of the other things that we've seen on overdrive , which has been interesting , is we've seen customers come to us because of overdrive .

Speaker #4: They'd heard about overdrive , they'd heard about the performance availability , and they came to us for that . And then when they when they showed up , they realized that our B2 standard offering is actually quite a high performance offering , and it was sufficient for them .

Speaker #4: So I think it's changed some of the perception around the what we offer . And so even customers that aren't signing up for overdrive are often coming to us with these higher performance needs , which is a great , you know , a great direction for us as we become , you know , more strategic partner for them .

Speaker #4: You know , overdrive provides up to one terabit per second of throughput . So it's it's a blistering fast offering for them . So I do think that , you know , the GTM transformation is is the thing that we look at as key the , you know , the overdrive offering .

Speaker #4: The other thing that I would just mention is I don't want to undersell the the phase one transformation that we did . The phase one transformation was all about moving up market , and that is continuing to be an important catalyst for for us , including for 2026 .

Speaker #4: Mark mentioned that , you know , the big deals are something that can accelerate us even further . And and that's something that we're excited about .

Speaker #4: The last thing I'll just mention is that , you know , the GTM phase one transformation , I mean , it doubled pipelines , it doubled bookings , it doubled , you know , channels .

Speaker #4: So it did it did help quite a bit . And so we're excited for phase two of that .

Speaker #10: Got it . Thank you so much .

Speaker #2: Your next question comes from the line of Simon Leopold with Raymond James . Please go ahead .

Speaker #11: Thank you very much . I wanted to ask about this phase two initiative in that I don't imagine there are free lunches and have to assume that there's some investment involved .

Speaker #11: I know earlier you talked about sort of reallocating , but if we think about it , your sales and marketing has been running between roughly 21 and 23% of revenue .

Speaker #11: What do you budgeting for next year ? How should we think about either a dollar basis or percent of revenue basis ? But some some metrics to try to get an understanding of what what investment you're making for this phase two initiative ?

Speaker #5: Yeah . Hi , Simon . Good morning . It's Mark , the percentage of revenue for sales and marketing . Should should stay stable as a percent of revenue .

Speaker #5: The the the funding is going to fold . You know , the the restructuring allows us to fund the one time cost . That's not that's not in that percentage of revenue that allows us to drive the transformation work , which is really rejigger all our go to market systems to make them work better together , cleanse the underlying data and drive that data science capability .

Speaker #5: I was talking about the talent refresh . We're doing is is within existing OpEx budget , right as as one of you highlighted earlier , yes , there are severance costs that are one time charges that fit into the restructuring .

Speaker #5: But on a recurring basis , when we finish this as a percentage of revenue , it should be pretty stable .

Speaker #11: Great . And then in terms of the outlook for B2 , slight downtick , nothing to be embarrassed about . 20% growth , but what what changed in your mind versus your your expectations when you set the the goal ?

Speaker #11: What's different ? Well .

Speaker #5: We said the goal all the way back when we launched our first phase of that transformation , which was exactly a year ago .

Speaker #5: That was a while back . That is our aim . It frankly , it remains our aim and our phase one . As Glenn said , delivered .

Speaker #5: You know , doubled our pipelines , doubled our bookings , doubled our channel business . What we noticed , candidly , is our inbound motion is really strong , right .

Speaker #5: Like we we addressed a lot of our technical marketing content , our blogging . We started doing more events and webinars and all that .

Speaker #5: Really improved our inbounds . I mean , our inbounds are up substantially . The inbound pipeline is up 100% year over year . Our outbound motion is newer to the company .

Speaker #5: So that that muscle is newer . That's the muscle we're working on fixing now in this next phase of this transformation . And it's unfortunately one of these things like until you get into it , you don't know how much you don't know .

Speaker #5: And we're realizing it's a muscle that needs to be a lot stronger to make it successful . And we're a hard charging at it now .

Speaker #5: Our aim is when we do our Q4 earnings release in February to give details a lot more around what makes up that phase two go to market transformation .

Speaker #5: When should you expect change in outcome from it and improvement in how that would address the year over year B2 revenue growth ?

Speaker #11: Great . Thank you for taking the questions .

Speaker #2: Your next question comes from the line of Zak Cummings with B Riley . Security , please go ahead .

Speaker #12: Hi . Good morning . Thanks for taking my questions . Glib or Mark . Either one . I was wondering if you could give a little more context around some of the larger deals in the pipeline .

Speaker #12: It sounds like maybe those were pushing a little to the right , but when it came to the V2 side of the business , so any additional context around just the pipeline that you're seeing with some of these larger deals , and maybe the reason that some of them pushed the right .

Speaker #4: Yeah . Thanks , Zach , for the for the question . So , you know , one thing I'll say is when I looked at some of the deals and dug into it with , you know , with Jason on the sales side , frankly , there wasn't any pattern in them .

Speaker #4: They were they were kind of random reasons , you know , some some , you know , a signer got a , you know , a different project internally came up that had to take priority , etc.

Speaker #4: . So there wasn't any kind of clear pattern for why , but it just spoke to us about sick that . You know , in the small deals , a lot of times what happens is it's one person who is the the person that's interested .

Speaker #4: The decider , the buyer , the purchaser , the user . And they , they go in , they make a decision and they go in these larger deals .

Speaker #4: It's just more , more complex . What you have , you have a buying committee , you have , you know , you have the various different oftentimes security compliance reviews .

Speaker #4: There's there's sometimes , you know , different departments that need to be involved for , for how it's going to get used , how the migration is going to happen , etc.

Speaker #4: . So it's just one where , you know , as we're as we're moving up market , we're closing these bigger deals . And that's fantastic .

Speaker #4: And at the same time , we want to be realistic about that . Some of them , some some of them take longer than than I think we were seeing because we also have seen some large deals close very quickly .

Speaker #4: You know , the V2 overdrive deal at the beginning , the first one that we announced last quarter , you know , closed , you know , incredibly quickly , some of the customers that talked about in in my prepared remarks , you know , when I was looking at them , you know , there's six figure deals that that from start to finish were , you know , three months .

Speaker #4: And that's that's quite quick for a for a six figure deal from the first conversation to , to fully onboarded . But we're also realizing that not all not all deals move that quickly .

Speaker #12: Understood . And in terms of the phase two of the transformation , I'm sure we'll get much more detail in your Q4 earnings call .

Speaker #12: But can you give us a sense of some of the things you're looking to improve within the self-serve motion ? Is this largely targeted towards some of these faster moving , higher data usage ?

Speaker #12: Customers in reducing the friction there or anything you can provide there would be helpful .

Speaker #4: Yeah . You know , it's interesting because we we built the company basically on on the self-serve motion right when we went public , almost the entire business was driven by self-serve .

Speaker #4: We had a very , very nascent sales sales motion at the time . And so the you know , the great thing was that we built a , you know , a blog that a few million people are a year would read that drove a lot of inbound interest into the company .

Speaker #4: We had people would be able to sign up , enter , you know , enter their email address , enter a password and go , and then try it and then get a get a credit card and and sign up .

Speaker #4: And , you know , as , as we moved up market , we had said concretely at the beginning of the year that our focus was going to be on that upmarket move , and we were not going to be doing a lot to change the self-serve motion .

Speaker #4: But at the same time , our team was focused on that , you know , the whole SEO world was changing , right ?

Speaker #4: With with the way that that companies and individuals were searching was changing and moving to AI use cases where people would look on ChatGPT or anthropic or whatever to find information .

Speaker #4: And so they actually leaned in on making sure all the content was , was updated and positioned well to be read by these these applications .

Speaker #4: And one of the things we saw was that our self-serve accounts , account creation was actually is actually up 56% . And if you , you know , as you look to a lot of the companies out there for whom they're self-serve or driven by inbound type content , a lot of them were down quite a bit because they hadn't adjusted to the new AI chat type of search algorithms .

Speaker #4: So the team leaned in and supported that quite well going forward . In this phase two , one of the things that we're doing is really focusing on how these new AI native startups and developers build themselves and ensuring that we're we're well integrated through the whole life cycle of of those workflows and making sure that it's really easy for them to learn about .

Speaker #4: And then adopt the platform . So it's a lot of work in terms of making sure that the content , the guides , but also the flows and the integrations are all there to support those data heavy use cases .

Speaker #4: One thing I'll mention is one of the the customers I gave on the call . You know , they came in as self-serve .

Speaker #4: They started just by themselves . And then as they wanted , you know , even higher performance , even larger deals . They requested to reach out to the sales team and they had a conversation with us .

Speaker #4: And then they bought B2 overdrive . And you know , that's a that's a motion that we love to see .

Speaker #12: Understood . Well , thanks for taking my questions and best of luck with the rest of the quarter .

Speaker #4: Thanks , Zach .

Speaker #2: Your next question comes from the line of Mike Kiko's with Needham . Please go ahead .

Speaker #13: Hi , this is Jeff Hobson on for Mike . Thanks for the question , guys . I just wanted to see if there was any more info on how the power or the powered by white label solution is going .

Speaker #13: Obviously , neo clouds are becoming more popular trend and seems like that could be a good place for that . Or any sort of partnership to offer their customers more flexibility .

Speaker #13: So, maybe just any info on that opportunity?

Speaker #4: Yeah . Thanks , Jeff . Good . Good to have you on . So we're actually pretty excited by the power BI as you saw in my prepared remarks , one of our you know , largest deals this this quarter was a powered by deal .

Speaker #4: We also have seen some of our channel partners actually adopting powered by where instead of instead of trying to resell and integrate at the customer level , they actually build it into their own offering and offer it directly the and then same like you said , with the neo clouds , we have , you know , various discussions that are in progress around the it's it's certainly an exciting opportunity .

Speaker #4: There's , you know , there's about 200 of them out there . So you know , they all have GPUs and they all have storage needs .

Speaker #4: So we engage with them today in a variety of ways where we service our customers using the neo clouds by providing this open platform , free egress , high throughput .

Speaker #4: But also are in conversations with some of them to to help them with , with their storage needs directly .

Speaker #13: Perfect . Thank you for that . And maybe hardware storage has been on the top of investors minds recently as AI video generation comes into the forefront .

Speaker #13: And I know you guys called out some AI video wins with customers . Just curious if you're seeing an actual uptick in AI video companies .

Speaker #13: Just in the past 6 to 9 months , as those models have kind of have become more popular .

Speaker #4: And I'm sorry , can you repeat the very first part of your question ? Did you say hardware storage ?

Speaker #13: Yeah , we we've seen in the market hardware storage . has become . Yeah , yeah .

Speaker #4: So , so so you know , the initially AI was all about text , right ? It was it was generative AI for text .

Speaker #4: Then it became generative AI for images , then audio and now video . Obviously each of those is an order of magnitude bigger in terms of the data sizes .

Speaker #4: So video is a is a very data heavy . File format . So we obviously are seeing customers signing up for that . You know I was looking we had a you know , one of the interesting AI Jen AI video companies was a recent customer .

Speaker #4: This quarter . You know , there was another large one the prior quarter . And you know , we have hundreds and hundreds of AI companies .

Speaker #4: So obviously , I don't know all of them , but just as they as they come up , you know , I see ones that that , you know , catch my attention .

Speaker #4: So it's it's something where , you know , they , they create models for the video that , that requires a lot of data on the front end than it requires the data to generally get sent to one of the cloud providers for the model creation .

Speaker #4: And then the inferencing itself where they're generating the video . That video needs to go somewhere . And so we're supporting customers on the various fronts .

Speaker #4: You know , one thing I'll tell you is that AI in general is is a space that we're seeing significant adoption in today , about a quarter of all of our new business is coming from AI companies .

Speaker #4: You know , over time , it's going to become harder to say , what is an AI company and what is just a company using AI .

Speaker #4: But today , about a quarter of that new business is actually coming from companies that are specifically in the AI space . So it's an area that we're excited to lean into .

Speaker #13: Perfect . Thank you .

Speaker #2: Your next question comes from the line of Rustom Kanga with citizens . Please go ahead .

Speaker #14: Gleb . Mark . Mimi , thanks for taking my questions and great to see the outperformance and new high watermark on the net income and adjusted EBITDA .

Speaker #14: There . Mark , given your prepared remarks , it sounds like there's going to be a lot more honing in on the operational go to market skills and phase two .

Speaker #14: And you know , given the success from phase one , moving up market , getting these larger deals , perhaps you have some better picture on the talent .

Speaker #14: Most equipped for what you're looking for in phase two is that , you know , reps with a prior focus on cloud computing and storage or more well-versed in , for lack of a better term , the language of AI .

Speaker #14: Ultimately , any insights you can share on what kind of reps have been the most successful on the direct sales front , and that you might be looking to replicate in phase two ?

Speaker #14: Thanks .

Speaker #4: Hi , this is actually Gleb . I'll start and then , you know , Mark and join if he wants to add as well .

Speaker #4: So so first of all , what I'll say is in terms of talent , a lot of the talent is actually on the the systems and operational side of , of of it .

Speaker #4: So we are we're looking for a , a top tier revops person . The consulting firm that we're working with , we're doing a large project around both the systems transformation as well as the sales enablement and execution side .

Speaker #4: So , you know , Mark mentioned that we have we have a success with inbound . At the same time , what we see is there's a lot of stuff that comes at the very top of the funnel .

Speaker #4: And then there's a lot of opportunity to be more efficient and effective in having it go through the funnel . And then on the outbound side of it , one of the things that we realized is that we can do better with targeting the right types of customers who are ideal customer profiles , both in terms of identifying them and also in terms of how we reach out to them .

Speaker #4: So a lot of the work in the transformation isn't even specifically about the , you know , different reps . It's it's about the the infrastructure of of people and systems around the reps to help them .

Speaker #5: Yeah , I mean , Russ , this is Mark , our our reps have done well . Our win rate is is 30% from opportunity to to close , which is a very healthy win rate .

Speaker #5: So we just want to be flowing more opportunities through that team . And then as that opportunity flows through that team , you start expanding capacity and optimizing capacity within .

Speaker #5: So as Gleb said , there's a lot more around , you know , making things available to every stage of the process in a way where people are following up with the right time .

Speaker #5: They got the right content , the right messaging , the multimodal approach to the customer . When you place advertising versus email versus text message .

Speaker #5: So there's a just an incredibly scientific way of doing that these days . And I mean , the people helping us are are people who've helped companies like Snowflake's and Databricks .

Speaker #5: So they bring the best in class on that process . And we just we don't we want to adopt it and drive a lot more volume through there .

Speaker #14: Super helpful . That makes a lot of sense . Thanks , guys .

Speaker #4: Thank you .

Speaker #2: That concludes our question and answer session . I will now turn the call back over to Gleb Budman for closing remarks .

Speaker #4: Thank you everyone for joining us . With a double beat this quarter and how well we're positioned to help companies with AI workloads .

Speaker #4: We're enthusiastic about our opportunity ahead . I want to thank our employees , our customers , our partners , our investors for being on this journey with us as we build this core storage backbone of the internet .

Speaker #4: For our investors . We'll look forward to seeing you at the conference and at the Craig-hallum conferences this month . And chatting with all of you next quarter .

Speaker #4: Thank you .