Backblaze at JMP Technology Conference: Strategic Growth and AI Opportunities

On Tuesday, 04 March 2025, Backblaze Inc. (NASDAQ: BLZE) presented its strategic outlook at the JMP Technology Conference 2025. The company highlighted its significant growth in cloud storage, driven by its B2 business, while also acknowledging ongoing challenges in achieving free cash flow targets. CFO Mark Sweden provided insights into the company’s financial performance and future plans, emphasizing Backblaze’s competitive advantages in the cloud storage market.

Key Takeaways

• Backblaze’s Q4 2024 Annual Recurring Revenue (ARR) reached $137 million, a 22% increase year-over-year.
• The B2 Cloud Storage business achieved a Net Revenue Retention (NRR) of 123%.
• The company aims to grow its B2 business by 30% and achieve a 0% free cash flow margin by the end of 2025.
• AI sector growth is a key driver, with a tenfold increase in data usage from AI customers.
• Backblaze is focusing on strategic partnerships and upskilling its team to enhance market reach.

Financial Results

• Q4 2024 Performance:

- ARR: $137 million, up 22% year-over-year.

- Adjusted EBITDA: 14%, more than double the previous year.

- Full year 2024 revenue: $127.6 million, a 25% increase from 2023.

- Full year 2024 Adjusted EBITDA: $13.0 million, or 10% of revenue, compared to a loss in 2023.

• Trends:

- Five consecutive quarters of positive and improving EBITDA.

- B2 Cloud Storage revenue grew 22% year-over-year.

Operational Updates

• Go-to-Market Transformation:

- Upskilling the team with new leadership in sales and strategic alliances.

- Emphasis on deeper partnerships and core sales strategies targeting AI, media, and entertainment.

• AI Sector Traction:

- Three of the top ten customers are AI companies.

- Significant increase in data usage by AI customers, positioning Backblaze as a key player in the AI infrastructure space.

Future Outlook

• B2 Growth Target:

- Aim to achieve a 30% growth rate by the end of 2025.

• Financial Goals:

- Committed to reaching a 0% free cash flow margin by Q4 2025.

- Targeting an operating margin of $0.75 on the dollar post-Q4 2025.

• Strategic Partnerships:

- Enhancing pipeline and deal sizes through channel improvements.

- Building solutions and marketing together with strategic partners.

Q&A Highlights

• Partnerships and Alliances:

- Channel improvements are evident but not fully reflected in current guidance.

- Strategic alliances are expected to contribute more significantly in 2025 and 2026.

• AI Opportunities:

- AI customers are primarily focused on data collection and licensing.

- Backblaze serves as a foundational resource for AI companies exploring GPU work.

• Regional Expansion:

- New data centers planned with anchor clients to mitigate capital expenditure impacts.

• Competition:

- High win rate against competitors, with challenges mainly from IT inertia.

In conclusion, Backblaze’s presentation at the JMP Technology Conference 2025 underscored its strategic initiatives and growth potential, particularly within the AI sector. For more detailed insights, readers are encouraged to refer to the full transcript.

Full transcript - JMP Technology Conference 2025:

Russ, Host: Technology conference. Hopefully, everyone’s finished their lunch by now. I have the pleasure of having backblaze’s Mark Sudan, the CFO of the company. We’re gonna run through some slides, and then we’ll open it up to an extended q and a session today. So thank you for being here with us today, Mark.

I’ll let you take it away.

Mark Sweden, CFO, Backblaze: Thank you, Russ, and thank you for hosting us. It’s a great conference. So, Mark Sweden, I joined as CFO about six months ago. My background, I spent most of my career, I was a senior partner at a firm called PwC, leading M and A and transformation. I’ve done over 100 deals in the tech sector.

Prior to that, I was a public accountant with a CPA background and I’ve done my share of stints in co founding startups and selling them. And I was a public company CFO before joining Bag Blaze. So with that, let me jump in. I mean, there’s the standard forward looking statements and disclosures I’ll let you all look at. All our filings are up to date.

We released our earnings last week and we’ll be releasing our 10 ks shortly. So with that let me just say our mission is to make it astonishingly easy to store, use and protect data. So as I dive into the presentation you’ll quickly get a sense of why why and how we make it easy and how that drives our business model. So quickly for those that don’t know us a few numbers, we’re in a really big TAM, data storage. There’s data analytics.

There’s a lot of things we need today. This is purely data storage. This is the public cloud infrastructure storage. It’s expected to grow to 118,000,000,000 by 2028 and grows at 18% a year. We just reported our Q4 numbers and our ARR was $137,000,000 growing 22% year over year and that’s predominantly recurring revenues.

We have 500,000 customers in 175 countries. Our business is made up of cloud storage and backup. There’s two offerings. So I’ll be talking about both along the way. So the cloud storage is called B2 and has an NRR of 123% and that both the revenues and the ARR in Q4 grew 22% year over year.

Our adjusted EBITDA in Q4 was 14%, more than double what it was a year before that. And we’ve had five quarters of consistent positive and improving EBITDA. So quick overview of our two businesses. The cloud storage, most people are familiar with the AWS, Azure, Google public cloud. Those hyperscalers are the dominant players in that space.

We have an innovative and disruptive solution that delivers the comparable storage component, not compute, the storage component at 80% less, roughly speaking. And then we also have a computer backup business. So the cloud storage B2 started in 2016 and is our growth component. The computer backup is the one that was with the legacy of the company started in 02/2007. That’s built up to have 400,000 customers.

Computer backup for consumers, which is predominantly what ours is, is in a secular macro decline. So that’s no longer our growth business. Our growth business at this point is the cloud storage. So I talked about the market time earlier growing to 118,000,000,000. If there’s any consistent thing is data is growing everywhere.

There’s a big proliferation of data. Companies a lot of them are holding on to a lot of data both for legal reasons like legal hold but also because it’s a digital asset and if you think about the amount of sensors and cameras proliferating everywhere, they’re just collecting more and more unstructured data and the whole power of AI and we’ll talk about that is how they make sense out of that data and draw intelligence out of it. So when you compare us to the hyperscalers, when I say our value prop is really how do we price this at 80% lower, it’s an incredible value proposition, right? And if a company is looking to use of services, they typically look for three things. Number one is what we call in our industry durability, the 11 nines.

They want to make sure if they’re putting their data with us that they could access their data when they need it in an integral way. So we provide 99 times a whole bunch of nines of uptime and integrity around that data. And we have a seventeen year track record around that. So that helps a lot in this industry. That is critical because nobody wants to endanger that data.

Number two is performance. And so they run a lot of tests through us and we have a very performant platforms. And number three is value for money. So it’s hard to beat this kind of value for money. The other big trend that’s happening in this industry is what we call you know the open cloud.

So the early innovators around this were the hyperscalers but that’s typically become a very walled garden environment where they lock you up and they handcuff you and it costs money to take data out if you want to work with another solution. So in this Cloud two point zero era, it’s all about the specialized open cloud. So you see us and many other players thriving where data can move between us. And we’ve developed a lot of partnerships. And what we’re known for is zero egress fees.

So if you look up Google the pain of egress fees, you’ll notice it’s kind of a hidden cost out there that a lot of cloud engineers and IT leaders and departments kind of are really getting frustrated with. And that’s the opportunity for us. So backing up to our Q4 earnings that we just announced last week on Tuesday. I started, like I said, six months ago, our Chief Revenue Officer, oddly enough, he’s in the room too. I got him here with me, Jason Weikim.

We both started last summer. So pretty quickly from there, we launched a go to market transformation. So we shared some really good results around that. I’ll walk through them shortly. AI is turning out to be an incredible tailwind to us.

I mean, we’re the pretty much picks and shovels of the AI industry and I’ll walk through that. And the other thing that’s really important about where we’re going is what we said is we just grew that B2 business 22% and our aim is to grow at 30% by end of year in Q4. And likewise for free cash flow margins, we just finished a quarter where it was minus 13% free cash flows and we committed to getting that to zero by the end of Q4 of twenty twenty five. So some really big year over year improvements. All right.

On the go to market transformation, there’s three big things we’ve launched there. One is upskilling the team. Two is deepening the partnerships. And three is executing to some core sales plays. So on the upskilling the team, we spoke about a new Chief Revenue Officer.

He’s recruited a pretty solid leadership underneath him, including new field leadership, new customer success, new channel and strategic alliances, and then really enabling and training the team underneath that and putting a lot more process and rigor to improve their productivity. And you’ll see on the right hand side we’ve doubled the sales productivity year over year. Deepening partnerships, really picking fewer and going deeper with them is key to our strategy. You’ll be hearing a lot more about that throughout the year. And then core sales plays.

So really when we step back and look at listen where’s the best market for us to go focus on and have the biggest wins, we found there’s a few areas including application storage, AI, backup, media and entertainment. Those are the four big ones. So going really heavy there in an integrated sales play from how you position your marketing, your landing pages, your publications, and that’s early proof points are really good on that front. So coming out of Q4, we said we’ve had two quarters of record sales bookings. So after a really great start, I mean, we’re early stages, usually go to market transformations take a year and a half to two years.

So already two quarters into this, we’re showing some really good early proof points, double sales productivity. In Q4, the team exceeded their quota and more than made up for whatever they were late in the year to finish the year ahead of quota as well. We’ve been talking about going upmarket with $50,000 plus ARR deals. We’ve announced $3,000,000 type deals. So we’re off to really pushing upmarket as much as possible and you’ll be seeing more about that.

And our B2 business ARR grew $5,000,000 in Q4 sequentially, the largest increase when you factor out the price increase that we did a year before that. AI. AI is going really strong with us. Three out of our top 10 customers are AI. We have hundreds of AI customers using our platforms.

And year over year, the increased data usage by over tenfold. So really, really a nice story on that front. And this is our B2 growth journey, right? So when you step back and you look at this business that was growing much faster, there was a deceleration in the growth. And the light gray is the growth that was driven by a price increase.

So if you factor that out and you just look at the dark blue, you know you could see that deceleration happening and in Q3 it hit a low point. And in Q4 we had a 300 basis points improvement in that growth rate. And then what we set out to do in this coming year is get this growth rate back up to over 30%. So I would say like if there’s any measure of success we got to be monitored on and be held accountable to, it’s this measure and our free cash flow margin. Because if you take this measure and if we take Q4 twenty twenty four as an example 22% less minus 13% which was our free cash flow margin in Q4 on a rule of 40 basis that’s 9% that’s not really strong.

So fast forward a year if we get this to 30% plus and a 0% free cash flow margin by then that would take us from nine to 30 in a year on a rule of 40 basis. So that’s how we’re measuring ourselves to get to rule of 40 and then eventually this B2 business becomes majority of the revenue and the rule of 40 would then apply to the whole business as a 30% should keep increasing and this 30% becomes the overall business growth rate. And our operating margin once we cross Q4 of twenty twenty five, our operating margin is $0.75 on the dollar. So every incremental dollar of revenue, 25% is variable cost, the rest flows to the bottom line. So I just covered the revenue growth.

On the left hand side here, you’ve got the adjusted EBITDA margin. So in 2024, we had the first year since IPO of being EBITDA positive at 10%. The two previous years were negative. You could see that journey. And we’ve committed to finish Q4 twenty twenty five at over 20%.

And the adjusted free cash flow margin, given we have quite a bit of CapEx in our business, we felt it was really important to start disclosing adjusted free cash flows. And you could see that journey as well and how we’re planning to turn it positive within eyesight. So with that, Russell,

Russ, Host: get

Mark Sweden, CFO, Backblaze: some questions from you and the audience.

Russ, Host: I’ll be selfish for a moment and ask some of my questions since you guys just reported a great Q4. One of the things that wasn’t factored into your forward looking guidance but is a big initiative for you is what you’re doing on the partnerships and alliances front. So just taking a step back first, what what are what are the actions you’re taking on that front? Two, what when when what will it take for you to sort of say, like, that’s fully activated? We can bake that into our guidance?

And how significant do you foresee that to be knowing that it’s still early on?

Mark Sweden, CFO, Backblaze: Yeah. Thank you, Russ. I mean, good question, right? So we break that down into channel and strategic alliances. So on the channel front, I mean, we’ve already been seeing the pipeline from the channel improve, and we’re working to increase the deal sizes.

And the channel for us story is really about picking fewer and going deeper with them, and being a channel friendly business. So being channel friendly is definitely part of our strategy, but we felt like you got to foster some relationships and ecosystem for that to really work in our favor. So we’re seeing good early results there, but that takes time and that’s why we didn’t bake it into the heavily for the guidance for this year. The strategic alliances those are even bigger to work on, but as we announced on the call, I mean that’s like if you go deeper there and build a solution together and then market it together and deliver it together, that could be really nice as well. Because if you build something together, then you’re making it easier for the end consumer to assume a specific use case with ease.

So you’re removing all inertia from decision making and you’re putting a lot of skin in the game also for the channel rather the SI and the strategic partner. So I think there’ll be really fruitful two channels for us, route to markets rather say, but I’d see that more kind of at the later of ’25 and really kicking into ’26.

Russ, Host: K. Understood. Makes sense. And then one more. Understood there’s, you know, the focus is gonna be on the b two organic growth.

And you mentioned the consumer business is, you know, in a secular decline. But I think, on on the business backup side, there are some trends perhaps that could be, providing some benefit to that business. Like, is that something you could share about, like, in terms of cyber resilience and ransomware prevention? I think those are still areas of market tailwinds.

Mark Sweden, CFO, Backblaze: Yes. I mean, listen, backup in the world of businesses is really critical and they have data sitting in different places. So in the case of endpoint devices, backing those up is important for them. So we do see that as a as opportunity to grow. And we started, you know, because that was only launched a few years ago.

So as we launch more and more features to make that backup solution more business friendly, like a business needs to know if they have a thousand employees, if they all back it up, when was the last time it was backed up, can they force a backup, force restoration. So there’s a lot of things they need and so that’s what we’re focused on there. And I think as you see that come out we’ve even signed a few partnerships of recent that’ll start turning into growth. Plus if you think about the B2 client business that creates a really fertile ground to cross sell back up into it. So I think as you see both building the features and the fertile ground to cross selling, we’ll start communicating more about where that’s going.

Russ, Host: Yes, that’s a great point. I’ll open up to the audience for any questions that you may have.

Mark Sweden, CFO, Backblaze: Actually, we just did in Q4. So this quarter that just passed was the first quarter where the B2 cloud storage was larger than the backup business. Yes. I mean, listen, if you assume one is relatively flattish and the other one is growing at well over 30%, it should become in two point five, three years at least three quarters of the business. So on the first question you asked, which is what sits on our platform, I think most of them are you know either scraping or collecting or licensing data and that’s a very large volume of data that comes in.

So we see some of them bring in some really big volumes of data and then they run that data through their their algorithm to develop their LLMs, via GPU farms. So so in our case, it’s really serving as a place where they could figure out where they wanna go work with which GPUs. But the data sits with us, both for training and inference purposes. So it’s usually that that underlying data. I don’t I mean, what’s interesting about AI is there’s I don’t think there’s gonna be any let up.

Right? This is not a one year blip right this is like easily a ten year go forward model so this could easily keep growing at a really high velocity I think just to be prudent as it relates to the you know the guidance we just gave given in three months we went from AI not being in our top 10 customers to being three. We didn’t want to get ahead of ourselves and say, great, we think we’re going to finish the year with seven and here’s how this bakes into growth. So there should, there should be some nice upside there, but we don’t want to since it’s so nascent, a lot of these companies didn’t even exist two years ago. So we took it a bit more would have been more prudence there.

Just

Russ, Host: to expand on that question, on the AI front, I think you’ve cited that the success you’ve seen there is with kind of digital cloud native startups, expanding there. Do you foresee an opportunity to maybe start with smaller use cases with larger organizations as you sort of drive more upmarket?

Mark Sweden, CFO, Backblaze: So what’s interesting about the larger organizations, Russ, is first of all, almost all of them now have a digital media division. And I think eventually they’ll all have either an AI division or a way to monetize your data. So I think the answer is yes, because we’re already seeing it on the media front, right? I mean a large retailer is going to have a pretty active website with digital streaming data. And likewise they’ll put start putting tags on everything from the things they sell and collect that data and then figure out are they going to monetize it or monetize it with somebody else.

So I think all this stuff creates opportunity on both fronts.

Russ, Host: That’s great.

Mark Sweden, CFO, Backblaze: Yes. I mean, the topic is tariffs is an important one. We monitor it daily. A good news to date, we haven’t seen any impact to us. Our supply chain does have a heavy U.

S. Component and drives in general are heavy Thailand, Taiwan. And those we haven’t seen those enter the fray of the trade war or be impacted by what goes live on April 2. But we got to monitor that really closely because it changes fast.

Russ, Host: Just to piggyback off that one, I think you’ve talked about sales playbooks. But in the context of your new regional data center, I think you’ve talked about there’s kind of a playbook you have there, which I think is pretty interesting. Could you talk about how you sort of anchor clients with that approach?

Mark Sweden, CFO, Backblaze: Yes. I mean, so like the way we just expanded to Canada, we do line up a large anchor client, because that softens our ability not to go CapEx heavy and front loaded and damage our margins. So I mean I think we get a lot of clients U. S. Based also that say, you know, listen we got workloads, we got a heavy volume we want to do in X region.

So I’d say anywhere where we secure a good commitment we would definitely there’s good flexibility to expand because our expansion model is not that intensive if there’s business coming with it. Because we don’t build our own data centers. We rent a portion of the data centers and then, you know, we start utilizing that capacity and, you know, you create flexibility where how you upsize it over time and not get too aggressive. So it’s a pretty flexible model.

Russ, Host: Great. And then last one for me. I think, you know, there’s always questions about the competition, but we know who they are. It’s the cloud cloud storage providers and the alternative providers. But I remember from our last conversation, you kinda said that’s not who you see as sort of the biggest competitor, and I think that’s an interesting perspective to share with the audience.

Mark Sweden, CFO, Backblaze: Yes, it is. I mean, it is, once we create the awareness and create an opportunity, our win rate from there is incredibly high, higher than what you’d expect the industry average standard is. Then if you’re not winning it’s typically because you know IT departments or decision makers said you know what I’m not ready to do this I’m gonna stay where I am now which could be another cloud provider but it’s not losing to somebody else. Then comes the third category of you lost to somebody else and that’s typically fragmented across the board. So it’s a it’s a very powerful value proposition and and you see it in that win rate.

So it is all about creating enough awareness upfront to flow more throughput through the conversion cycle. But yeah, it’s an incredible story.

Russ, Host: Awesome. I think that takes us to time. Thanks so much, Mark.

Mark Sweden, CFO, Backblaze: Thank you, Russ. Thank you, everybody.

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