Backblaze at 20th Annual Needham Conference: Strategic Growth Insights

On Tuesday, 13 May 2025, Backblaze (NASDAQ:BLZE) participated in the 20th Annual Needham Technology, Media & Consumer 1x1 Conference. CEO Clev Budman outlined the company’s strategic direction, highlighting both opportunities and challenges. While Backblaze competes with giants like Amazon, Google, and Microsoft, it differentiates itself through significantly lower pricing and free data egress, which are pivotal for customer retention and growth.

Key Takeaways

• Backblaze offers cloud storage at 80% lower cost than traditional providers, with free egress.
• The company experienced a 66% increase in AI customers and a 25x rise in data storage from these clients.
• Backblaze aims for at least 30% growth by Q4 2025, driven by AI demand and strategic partnerships.
• A new "b2 cloud storage overdrive" product targets high throughput workloads, particularly in AI.
• Non-GAAP gross margins improved, with expectations for further gains in Q2.

Financial Results

• Pricing and Retention: Backblaze’s cost advantage is a key differentiator, offering services at 80% lower prices than its competitors. The company boasts a 90% gross customer retention rate, indicating long-term customer loyalty, and a B2 net revenue retention of 117% in the latest quarter.
• Major Contracts: Backblaze secured its largest total contract value (TCV) customer, converting a six-figure initial agreement into a multimillion-dollar, multiyear contract.
• AI Growth: The surge in AI-related storage needs has led to a 66% increase in AI customers and a 25x increase in data stored from these clients.
• Gross Margin Improvements: Non-GAAP gross margins increased by two percentage points year-on-year. The company anticipates a 200 to 300 basis point improvement in GAAP gross margins in Q2 due to extended hardware life.

Operational Updates

• OverDrive Launch: The introduction of "b2 cloud storage overdrive" enhances the platform for high throughput workloads, facilitated by software and hardware optimizations.
• Sales and Partnerships: Backblaze is expanding its direct sales team and enhancing channel and OEM partnerships, with a full sales team ramp expected within six months.
• Data Center Expansion: A new data center in Canada was launched with an anchor tenant, supporting Backblaze’s strategy of leveraging partnerships for new locations.

Future Outlook

• Growth Projections: Backblaze aims to accelerate growth throughout the year, with a target of at least 30% growth by the end of Q4 2025. The company sees no inherent growth limits beyond this rate.
• Customer Success Initiatives: Efforts are underway to enhance customer success strategies and increase net revenue retention.
• AI as a Growth Driver: AI continues to be a significant growth catalyst for Backblaze, with the largest customer now being an AI company.

Q&A Highlights

• Growth Beyond 2025: While specific guidance for 2026 is not yet provided, Backblaze expects to maintain or exceed a 30% growth rate.
• Tariff Impact: A hypothetical 10% tariff on imports is estimated to impact gross margins by 1.5% over six years, but current tariffs have no significant effect.
• Data Sovereignty: The Canadian data center launch aligns with data sovereignty regulations, providing a smaller but relevant growth tailwind compared to AI.

Readers are encouraged to refer to the full transcript for a more detailed exploration of Backblaze’s strategic insights and financial performance.

Full transcript - 20th Annual Needham Technology, Media & Consumer 1x1 Conference:

Unidentified speaker, Interviewer: Good? Perfect. Alright. Thank you for joining us for the at the end of the day here for the Needham May Tech Conference. This last one’s gonna be a fireside with Clev Budman, CEO, founder over at Backblaze.

Thanks for joining us. Looking forward to this. I have questions on my side, but would be great if you guys wanted to lob them in two. Maybe we can get a little bit lively at the end of

Clev Budman, CEO, founder, Backblaze: the day, but we’ll see.

Unidentified speaker, Interviewer: So with that, just a level set for Backblaze. Can you give the background for overview of, who Backblaze is? What is it they do? What was the initial vision for this company when it was founded?

Clev Budman, CEO, founder, Backblaze: Yeah. Absolutely. And and also appreciate being here and also hopefully we can, end here on a high note. So Backwood is a cloud storage company. So we provide inexpensive, high performance cloud storage to a broad swath, but especially businesses.

And we compete with the traditional cloud providers, Amazon, Google, Microsoft, specifically focused around object storage. And and we started the company seventeen years ago. My cofounders and I started originally focusing on backup as the use case, but then we built a high performance cloud storage platform to support the backup use cases and then got pulled into, serving many other use cases for customers, including supporting media, application storage, and most recently AI.

Unidentified speaker, Interviewer: And just for context to object storage, what is it, and then why start or why the focus on object storage versus other types?

Clev Budman, CEO, founder, Backblaze: Yeah. So so object storage is basically the default underlying storage of the Internet. So, if you’re if you have an app on your phone, if you visit a website, if you’re an enterprise, chances are the underlying storage for that is object storage. And it’s increasingly the direction of the future for that because it allows you to have large scale unstructured data that is generally cost efficient to store. So it’s it’s an ideal form of storage for large scale over the Internet type storage.

Unidentified speaker, Interviewer: And from a positioning and pricing standpoint, that’s probably one of the more unique pieces of the Backblaze story. But talk about the the incumbents, and then how is it you guys are able to enter this market and compete as effectively as you do from a from a pricing standpoint?

Clev Budman, CEO, founder, Backblaze: Yeah. So so compared to the traditional cloud providers, Backblaze is about 80% lower cost. We provide free egress, which sounds subtle potentially, but it’s actually a huge impact on customers because customers need to move their data to different places, and egress is a form of locking people in to stay inside of a single walled garden provider. So we make it free and easy to move your data around, and it’s high performance. We we launched a patent pending functionality called Shard Stash, enables us to be up to 30% faster than the traditional cloud providers for uploads.

And we actually just launched, a couple weeks ago, something called b two cloud storage overdrive, which is an incredibly high throughput, offering for for large datasets, large performance needs.

Unidentified speaker, Interviewer: Great. And customer use case, like, we’re tapping into the initial founding was for, backup. Then based on your needs, expanded into storage. Now you’re, I guess I don’t know if you wanna call it product and packaging, but you have OverDrive, which you guys just recently announced. So can we start talking about the the throughput intensive workloads that OverDrive is meant to handle, the the customer pull in that direction to to launch that for the market and what initial customer feedback’s been like?

I know it’s early, but how’s going? It is early. Yeah.

Clev Budman, CEO, founder, Backblaze: So so so what happened was we’ve always had a a platform that’s high performance and we’ve had customers use us for all sorts of different use cases. I mean our customers use us for streaming, streaming video, streaming audio, for surveillance, for a variety of application search use cases, for analytics. So these are already all high performance workloads. What we were seeing though was customers saying, especially because of AI, I’m collecting this large dataset and I need to move it around rapidly. And can you help me with that?

And we found that our platform was able to support them in those use cases. And what we did was we then launched OverDrive, which did not require a lot of additional r and d or a lot of additional capital expenditures because we were able to tune the platform to support those use cases for those customers at a higher price point. And so I’ll give you, you know, one example is one of our customers is has an application where they are scouring the entire Internet. They’re collecting basically a copy of the Internet, and they’re doing that in order to package it up and sell that data to companies building LLMs. Right?

So that’s a large dataset. And they and so they need to put that data somewhere, and once it’s ready, they need to and and they’ve sold it to a customer, they wanna move it to that customer as quickly as they can. And so what what we’re able to do is allow them to upload all of the data to us, store that data inexpensively at 80% less than they would be storing it with the traditional cloud providers, and then very rapidly egress it to one of the providers. So that’s that’s an example of a use case which is ideal for an overdrive, type customer.

Unidentified speaker, Interviewer: When I think about, like, the throughput intensity and this is sorry, this is probably a basic question for you, but I’m trying to think through like, I have all the the volume of the data understood. It’s it’s you can’t deny just how much data is going to this with these AI workloads. But the second piece is, like, is it also just the delivery of it is almost like instantaneous to a a greater number of endpoints versus what it’s historically been or not necessarily?

Clev Budman, CEO, founder, Backblaze: It’s it’s about so there’s different kinds of performance. Mhmm. Right? So, one example is on the upload side. So on the upload side, the reason we launched Shardstash, which was a it’s patent pending technology to get data uploaded faster is because one use case is backup.

And enterprises who want to back up a lot of data, they use a variety of different tools to do that. You know, common tools are Veeam and Rubrik and Cohesity and, you know, Commvault and other things. Almost all of these tools, they take that dataset, they chop it up into small files, and then they upload it to the cloud for for safekeeping. Well, in order to support large enterprise datasets getting protected quickly, we optimize the platform with Shard Stash to enable lots of small files to get uploaded quickly. So that’s one form of points.

Overdrive is all about throughput. So it’s about moving moving large datasets rapidly, yeah, in and out of the environment. And so it’s less about small or large files and more about just the mass volume of of data transfer. So that requires the actual storage infrastructure to be able to, move the data quickly, and it requires the pipes and all the networking to be able to move the data through rapidly. So we’ve we’ve effectively optimized that entire flow from starting at the hard drive level up through the server level, up through the network level, and out of the data centers out to the to the wherever they want to send it to.

And a common location that they wanna send it to is all the GPU providers. Mhmm. Right? So so one of the things that’s changed in the industry is it used to be that a customer would say, I’m inside of Amazon or Google or Microsoft, and I’m gonna stay inside of that walled garden that and and I’m gonna use the services they provide me. And that was fine for many years.

But increasingly customers are saying, I’m okay maybe with using some of their services, but I also wanna use that service, that service, and that service over there. And the they may want to have service that they use with Amazon and a service they use from Google, or they may wanna use this, have a a service with Google and, use one of the new GPU providers like Nebius, CoreWeave, Vulture, OVH, you know, Lambda. There’s a there’s a whole list. Right? Being able to get their data to those places requires you to have the data somewhere where it is free to travel to these different locations.

And if you have a lot of data and you need to get it there quickly, especially because GPUs are very expensive, you don’t want to be have them sitting idle, you need that kind of mass throughput as well. And I know you’ve spoken about, I guess some

Unidentified speaker, Interviewer: of the differentiated IP that you guys have in house, that was able to underwrite this overdrive launch. Right? Mhmm. So can you just walk us through what you guys did from your basic btwo, basic v1.0 if you will, and then what was, needed from either a software or hardware capability standpoint to get overdrive out out the door?

Clev Budman, CEO, founder, Backblaze: Yeah. Sure. So so first of all, the the core platform. Right? The the we’ve been working on the core platform for seventeen years, like, focused on this one singular problem with a lot of really smart technical people focused on building, hopefully, the world’s best storage platform.

Right? And so that focus enabled us to build this very high performance, durable, efficient cloud storage platform. Then to get OverDrive out the door, what we were able to do is from a software perspective, we were able to optimize the utilization of the platform. So if you’re a a customer coming to us and saying, I would like to use your platform for backup or archive, the utilization of that is pretty low. We don’t have to we you don’t need a lot of performance.

You just need the amount of storage space. If you’re a customer that comes to us and says, I want to use you for my surveillance application, that’s a customer that needs to upload a lot of data but not download the data because with surveillance, it’s mostly inbound, footage that sometimes, but not very often gets looked at. For a customer that is selling their large AI dataset, that’s a lot of getting the data out and getting it out really fast. So what we were able to do with the software side for OverDrive was basically optimize enabling customers to utilize the performance of the platform more aggressively than others who didn’t need it as much. So that’s on the software platform side.

And on the hardware side, the nice thing is the software for the most part takes care of all the performance. It’s all hard drive based storage, so it’s very cost efficient. But we did make some, optimizations because we’re seeing more performance demands from our customers in general, and so we made some additional enhancements, things like some CPU upgrades across the the platforms, some networking upgrades, but things were unlike potentially others who would have had to spend, you know, tens of millions of dollars to upgrade the core infrastructure. The core infrastructure all works. The software was able to optimize that, and then we were able to make a thin layer of CapEx, improvements to to raise the performance level even further.

Unidentified speaker, Interviewer: So, like, your r and d team would probably kill me for, like, the oversimplification. But because you have this platform layer, right, and you can see the different use cases, you leverage software to optimize your pipe to ensure that you could deliver this this level of throughput required for overdrive.

Clev Budman, CEO, founder, Backblaze: Pipe and storage. So I think one of the really key things is the storage platform itself has to enable this incredibly high level of performance. The the pipes are a piece of it, but if you can’t get the data off of the storage systems, there’s no data to send through the pipes. So it’s it’s really optimizing the storage utilization to enable you to get the data and then send it through the pipes.

Unidentified speaker, Interviewer: From a so from a customer use case standpoint, I I just wanna jump for a second to, like, net expansion, net retention, that you guys have demonstrated. Backup, archive, store, like, they all seem relatively close, like, they’re all cousins here. Mhmm. Can you walk us through, like, what is the journey from a typical customer? How long are the commitments that they’re signing with you and what that upgrade or expansion cycle looks like?

Clev Budman, CEO, founder, Backblaze: So lot of customers, they we have we have a couple different go to market channels. Right? And so a lot of customers just show up self serve. They they come to the website. They enter an email.

They enter a credit card, and they just go. Right? And most of those customers are small, but some of them have grown to be $10.50, a hundred thousand dollars, on a on a, you know, credit card type basis self serve motion. We’ve overlaid sales because we’ve been moving upmarket and so heavily direct sales focused approach on that. We also do channel and we also do an OEM style powered by approach, And that has been moving up market for it.

You know, those sales cycles are three ish months typically. The they are typically signing a one year contract. Sometimes they’re multi year. And, we have 90% gross customer retention. So an average customer stays with us, like, a decade, and then we have net revenue retention that, you know, in this quarter, we reported b two net revenue retention of a 17%.

So our customers get on the platform, they stay on the platform for a really long time, and they expand on the platform when they’re on it. One thing we announced in this q one was that we signed our largest total contract value customer ever. Right? Multimillion dollar contract, over a multiyear period. And that customer was on AWS.

They decided to switch from AWS and got onto our platform last year and signed a 6 figure deal and moved some of their data over, and it was a 6 figure deal, one year commit. One year later, after becoming fully comfortable with the platform, they signed a multiyear deal, moved all of the data over, and upsized the the size of the deal. So it’s so that’s kind of the the journey, I guess, is coming, trying, starting, and then growing over time.

Unidentified speaker, Interviewer: So largest TCP deal ever. They started with you guys last year with a 6 figure. What was that bake off most recently for you guys versus AWS? Again, they’ve seen the the value of the platform here. What what was that sales cycle to them get that convert and get that large TCV deal?

Are we talking again, was it ever since they started with you? Was it multiple months? Like

Clev Budman, CEO, founder, Backblaze: So the original, I mean, we we had our, you know, our first contact with them was years ago. Just kind of a, hey, you know, this is us. This is Backblaze, and, you know, we we’d be interested in talking. At that point, they were all in on AWS and thought that that was just fine and that was where they were gonna stay. At some point before they signed last year, they started actually engaging with us because they felt like their AWS spill was getting too expensive.

The the customer service that they were getting and the engagement they were getting, they didn’t love. And they started looking at at choices. They did some cursory, considerations, of other things, but they honed in on Backblaze as the, likely choice for them. But they needed to make sure that they felt fully comfortable because it’s they are effectively counting on Backblaze for the existence of their business. Right?

So it’s, you know, this is not a backup or an archive. This is the fundamental way their business runs. So they they have an application, their customers use the application. If we don’t work, they don’t work. Like, their company stops working.

So so they have to feel totally comfortable that we were gonna be durable, performant, available, as well as cost efficient with great customer support. So once they are comfortable with that, then they, you know, signed signed this expanded deal. Awesome. Awesome. And you had noted on the go to market earlier.

Let let’s tackle that for second because I know you

Unidentified speaker, Interviewer: guys are going through this transformation. Where are we with the direct team as far as hiring of reps, ramping of reps, anything that would be beneficial?

Clev Budman, CEO, founder, Backblaze: So we’re we started that go to market transformation middle of last year. We we hired our new chief revenue officer, Jason Wakeham. He’s brought on, a number of people. He brought on the VP of sales, most recently a VP of customer success. He has ramped, and instilled rigor in the sales process.

We’ve, through q one, we were hiring the rest of the planned rollout of reps. So we are we are done. We’ve hired all the people that we intended to hire, which is not to say we’ll never hire sales reps again, but we are done with the current plan. The it takes about six months for a rep to ramp. We are about halfway through that journey, with the with the sales team.

So, some of them are fully ramped because they were on before. Some of them just started on, you know, in March, so they are newer to it, but it kind of on blend probably about halfway through.

Unidentified speaker, Interviewer: And you had cited in addition to the direct piece also like channel and OEM. Right? So direct versus channel, how should we think about revenue contribution? And then also just on the partnership front, like, I I think about PureNodal that was it just stuck with me as far as the powered by Blackbays Backblaze partner. Can we talk about what you guys are doing on on that partnership front as well?

Clev Budman, CEO, founder, Backblaze: Yeah. So so so we have self serve and we have, the sales side. The sales side direct is still the biggest contributor of that, channel is a little earlier in the journey although it’s you know it is a growing part and then the OEM part is also interesting because we only launched that in q one of last year And we talked about how, in the last year, we announced an edge compute partner, a transcoding partner, an MSP partner, all of whom have built and integrated Backblaze into their offerings so that customers can directly get search from them. And we also announced, you know, a that we had a very large deal in q four that was powered by deals, you know, 7 figure deal. And we’ve, you know, we’ve signed a number of others.

So that’s an area where, I think it is not a large number of customer partners that that sign up for that, but they those tend to be larger deals in size. In terms of the partnerships, so PureNodal is a GPU infrastructure provider, and we’ve partnered with them where they are using our PowerBuy. They’ve built Backblaze into their GPU platform so that when a customer shows up and wants to use their GPU platform, they almost de facto have to have storage somewhere. And so we are the default storage provider for their customers. So when you spin up their their GPU cloud, it offers you Backblaze as the place for you to keep all your data.

We are also on our side, we have customers that come to us. They wanna use data with us, and they want to send it to a GPU provider. We partner with with, you know, various providers, but PureNodal is one of the places that they can send to, and and they’re they provide liquid cooled, highly efficient GPUs for customers.

Unidentified speaker, Interviewer: And you guys also have the partnerships that you’re talking to in the media and entertainment space too. Think about, like, iconic suite studio or studio suite. Yeah.

Clev Budman, CEO, founder, Backblaze: Yep.

Unidentified speaker, Interviewer: So can we talk about the the media and entertainment use case as well and how you guys are are moving into that space through partnerships as well?

Clev Budman, CEO, founder, Backblaze: So media entertainment is not just Hollywood. Every every company at this point has media. Right? So, pretty much every medium to large company has a group whose focus is producing commercials, producing, customer support materials, producing employee training, producing the trade show materials, all of that content. And the flows of how they do that have somewhat of a similar approach.

Right? You can you generally create or shoot the the content. You have a media asset management system through which you organize all the, all the photos and videos and other content. You, do editing on it, and then you distribute it in some way. You possibly distribute it out to the website or you distribute it out to a streaming platform, etcetera.

So that’s kind of the flow. Backblaze supports all parts of that media workflow. So as customers are shooting or creating the video, it can land on Backblades as a destination for the storage. Media asset management systems like Iconic use that as the base, for all of the organization of all the assets. Suite Studios is a partner that enables you to work remotely with your data, as a as almost a virtual file system.

The underlying source of that is Backblaze, and then if you want to distribute that data out, then you serve it out and stream it out from BackBoys. So we are the underlying platform for the media workflow that you would use.

Unidentified speaker, Interviewer: Awesome. Okay. If I just jump for a second, I I know macro has been top of mind for a lot of folks. Go back to the most recent earnings call, you guys had cited some extended or elongated decision making from, like, a handful of customers, and that was a little bit of, like, a a boots on the ground view. Can you just further qualify what you guys are seeing in self serve?

I guess the number of customers that are seeing that pause and if if they’re opting in any way for different commitments or or how they’re using backlinks differently today versus just four months ago.

Clev Budman, CEO, founder, Backblaze: You know, we we were just talking about that that we almost wonder whether we should have even not said that on the call because it’s certainly because of the macro a lot of people kind of focused in on that and it was a I guess a small comment not a big comment Mhmm. On what we’re seeing. On the self serve side we have thousands of customers showing up every quarter. They continue to show up, don’t seem to be affected by the macro. On the existing customer base, we had a 17% net revenue retention.

So net of customers who left, their existing customers added, 17%. So, again, don’t see any any impact on that front. On the new customers on the direct sales front, many of them, again, didn’t make make any commentary, didn’t see any issue, but some of them were slowing down and pausing decision making. So what’s interesting is because we are so low cost and because people need their data, in some ways both the scenario of growth in the economy and a scenario of a recession in economy can actually be good for us. If it’s growth and people are investing and they wanna do more, that’s great.

We have we can help them with that. In a recessionary environment, customers are looking where can I get more out of my current spend and we are a great way to do that and we we cut your cost by 80% it’s a great way of doing that? The scenario of I just don’t know what the world looks like and I’m going to not do anything isn’t great for anybody. Right? And so we saw some customers kind of freeze and wait.

We were just having a conversation that already it’s only been, you know, a matter of weeks. Already those customers seem to be getting past that. So I think that I think we’re in that there’s not a lot to that as far, but we did see some of them. We wanted to be cautious and share that we we were seeing some of it. One the things, know, you talked about the earnings call, you know, as you saw, we beat the top line of our revenue guidance as well as beating top line of our EBITDA guidance.

And I think a lot of that is because the go to market transformation that we’re doing is outweighing any macro impact. Right? We are we are executing better than we were in the past, and the AI use cases are providing a good tailwind, for the company. So between those two things, you know, we continue to be confident in in where we’re going.

Unidentified speaker, Interviewer: Yeah. And and just like one of the things I was trying to think through as well is self-service been untouched. Right? And so I I appreciate the transparency of the comment on the handful of customers, but at the same time, I don’t know. I’m trying to explain it away, but I would have thought the self serve channel is much more macro sensitive.

If you guys were going to see something anywhere, it would probably be hitting you there. And the fact that you’re not would indicate that this might just be just a handful of customers like like what you guys are describing here.

Clev Budman, CEO, founder, Backblaze: Yeah. And we and we haven’t seen anything on the self serve. I think if you think about it, the thing about what we do is it’s not for for most companies, it’s just not optional. Right? Like you know like this company that I was talking about this you know the one that signed their you know the largest deal that we’ve ever signed they don’t have a choice to not keep the data.

They have a choice to use us or Amazon at, you know, five times the price, but they don’t have a choice to not do it. They’d shut the company down. And so, you know, the use cases that we have, a lot of them are like that. The the companies are relying on us for their core business. Even in the scenario where that’s not that critical like a backup, right, it’s still hard for a company to say you know what we’re just not going to keep any backups of our systems and we’re just going to hope that nothing happens.

I mean that’s also generally not considered an acceptable practice.

Unidentified speaker, Interviewer: Awesome. And then to your point earlier as far as the offset when you think about the full year guide, we talking about go to market, but maybe you could take a second just to talk about the bookings or even the AI customer traction you’re seeing, whether it’s customer count increase or data volume coming from those AI customers.

Clev Budman, CEO, founder, Backblaze: We saw a 66 increase in the number of AI customers. We saw a 25 times increase in the amount of data from those customers. So the AI thing is definitely real, and it’s driving real meaningful growth for Backblaze. The our largest customer now is an AI company. The primary driver from a use case perspective of growth in q one was driven by AI.

So it is it is meaningful. And and we’re being, I guess, pretty constrained on what we’re calling AI. So the when we just call an AI customer what we are saying is it’s a company who either explicitly has the .ai domain name so they are, you know, focusing on that as their thing or it’s a use case that we know is specifically it is what they are doing as AI. I think over time all of this is gonna get blended away because everybody’s gonna be doing AI in everything and it’s gonna be hard to say well this is an AI company because everybody’s gonna be an AI company. But we’re being very specific right now, but, like, these are literally companies doing AI as the core of what they’re doing.

And it’s still very material.

Unidentified speaker, Interviewer: Alright. And I wanna be true to my word here. Happy to keep going on my side. Questions out there in the audience? Yeah.

What would the growth rate be for b two beyond this year? You’ve kind of talked about the acceleration sequentially over the course of ’25. And then I guess whatever it is, it’ll be against tougher comps for for this year.

Clev Budman, CEO, founder, Backblaze: Yeah. So so in terms of what will the growth rate be beyond 2025, so what we have published is that, an outlook for quarter over quarter acceleration of growth this year. We accelerated growth in organic growth in q four over q three, q ’1 over q four. We are we’ve shared an outlook that q two will be faster, q three will be faster, q four will be faster, and q four will exit at least at 30%. We have not provided 2026 guidance yet.

What I will say is it’s a hundred billion dollar market. We obviously own a very, small fraction of that. We don’t believe there’s any reason why net growth shouldn’t be higher than 30%. Right? There’s nothing kind of inherently limiting to it.

The you know, we wanna get to that stage first and prove that out and and then, you know, kind of set our new targets. But inherently, you know, we’re we’ve been moving up market. We’re at we’re about halfway through the, you know, the sales ramp of the team that we have, not to speak of teams that we will add. We just hired a VP of customer success who’s revamping that part of the business, and, you know, we’re we’re very proud of the 17% net revenue retention. But again, I think that there’s an opportunity for that, you know, in ’26 and beyond to even be higher.

We have a hundred thousand customers on B 2. When we’ve looked at those, you know, kind of, you know, sporadically, there’s so many customers in there who, you know, they’re paying us a thousand dollars, 3 thousand dollars, 5 thousand dollars, but they are, you know, the IT director at a billion dollar revenue company. There is much more that we can do with them than what we’re doing. So revamping that customer success to drive NRR, working on, scaling the direct sales, leveraging the OEM, leveraging the channel, I think there’s a lot of opportunity there.

Unidentified speaker, Interviewer: Alright. Tariffs are like a a touch and go subject. It’s day to day, but have you guys thought about potential impact of tariffs if you’re looking to, I don’t know, optimize or or retool your supply chain, what that might have as far as impact on gross margins from where we sit today?

Clev Budman, CEO, founder, Backblaze: We we looked at it. Luckily, it there wasn’t really any any impact, of them, partially because the set of things that we are buying and from the places that we are buying aren’t, aren’t currently as as we, you know, depending, you know, ask depending on the day, but aren’t aren’t affected. The we did do a modeling exercise to say if there were 10% tariffs applied on all of our imports, from all the places that they come from, that would phase in over the course of six years and max out at, 1.5, basis points, 1.5%, impact on gross margin six years from now. So if if there were tariffs and if they were at a 10% level and if they were on all of our equipment, it still would be pretty minor. Obviously, if, you know, those tariffs end up being 30% or 50% or something, you know, that would be more major.

We’d have to consider what to do about that. But at the current kind of levels, nothing and at the 10% level is nothing meaningful.

Unidentified speaker, Interviewer: And in the meantime, you guys are still executing to improve the mortgage structure on your side. Like, I think about the non GAAP gross margins in q one was up two points year on year, just because of some of the, restructuring activity and optimizations that you guys had in in the past, and how you’re talking about how in q two, there should be anywhere from, a 200 to 300 basis point improvement to GAAP gross margins because of the extended useful life for the underlying hardware. Yeah. So it’s not like you guys are just sitting still on that front either, which is great.

Clev Budman, CEO, founder, Backblaze: No. I mean, I I you know, we are an infrastructure as a service company so we really do have equipment that we have to buy and that really does cost money. Mhmm. And at the same time we do see continual path to optimization. In q one gross margin increased because we were able to effectively get more utilization out of the the system.

In q two, you know, like, what we’ve talked about is that the margin increases because the analysis we did on the useful life of the equipment, it’s actually showing up to be longer than what we were, amortizing for. So but we continue to look for ways through the software and through the optimization of how we, we run the platform to continue driving more efficiency out of it. And I think that there is definitely space for us to continue to do that. The the other thing I would just mention also is we’ve also introduced new features and functionality. We’ve launched, live read.

We’ve launched enterprise control. We’ve launched event notifications. These are things which have a potentially different margin profile. So there’s also not only the cost side of it, but also the revenue side where we have an opportunity to increase margin.

Unidentified speaker, Interviewer: And on that gross margin point, I know we were talking about this a little bit earlier, but can you just help us think about how Backblaze balances that underlying utilization coming from your customers versus the continued data center rollout to ensure that you’re appropriately growing, moving into new territories, etcetera, and and best servicing your customers? Like, how do you walk that fine line between utilization and the DC rollout?

Clev Budman, CEO, founder, Backblaze: It’s very important because it is it it it it’s it’s part of the core of, you know, how how we run as a company. Right? Is is driving efficiency in our ability to leverage the hard assets right and so part of that is the platform is good at utilizing the capacity of the capex that we have, part of that is being thoughtful about where we invest. And so with new data center locations, what we aim to do is find anchor tenants with whom we do do a new new facility. So we launched Canada just a couple months ago, and we did that with a partner who was an anchor tenant.

So they committed that if we put our data center in place, they will sign up for a certain commit level. With them, we we work together. We said we will do that, and we we also do our, have a shared go to market to go after the opportunities there. And that’s the mental model that we’re using as we aim to deploy additional locations is not a build it and hope they come, but find, partners or customers to work together to make it to justify building out a data center and then leverage that as the as the starting off point.

Unidentified speaker, Interviewer: And then the the last point on that is if I think about the push that you kind of feel on a global basis as far as data sovereignty. Is that in any way pulling you into new geographies, faster than what you had initially anticipated? Or is that a secular driver when you think about the the market backdrop that you’re executing against?

Clev Budman, CEO, founder, Backblaze: It it is a secular backdrop. It is a benefit. I would say it is a smaller benefit than AI, But part of the reason we launched the Canadian data center is because Canada has certain laws and regulations around that, and we saw some customer demand, around having a region in that location. But just on the scale of the tailwind, we see AI as the bigger tailwind.

Unidentified speaker, Interviewer: Alright. That’s awesome.

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