Earnings call transcript: Backblaze Q1 2025 sees revenue growth and stock surge

Backblaze Inc. (BLZE) reported its first-quarter 2025 earnings, showcasing a notable improvement over expectations. The company posted an adjusted earnings per share (EPS) of -$0.03, surpassing the forecasted -$0.06. Revenue reached $34.6 million, exceeding the anticipated $34.22 million. Following the earnings announcement, Backblaze’s stock price rose significantly by 8.41% in aftermarket trading, closing at $4.9. According to InvestingPro data, four analysts have recently revised their earnings estimates upward for the upcoming period, suggesting growing confidence in the company’s trajectory.

Key Takeaways

• Backblaze’s revenue grew by 15% year-over-year, driven by strong performance in its B2 segment.
• The company achieved a substantial improvement in its adjusted EBITDA margin, which tripled to 18%.
• The AI segment emerged as the fastest-growing area, with a 66% increase in the customer base.
• Backblaze’s stock experienced an 8.41% increase in aftermarket trading following the earnings release.

Company Performance

Backblaze demonstrated robust performance in Q1 2025, with a 15% year-over-year revenue increase. The B2 segment, a key growth driver, saw a 23% revenue acceleration. Additionally, the company’s net revenue retention stood at 113%, highlighting strong customer loyalty and repeat business. The AI segment’s rapid expansion underscores Backblaze’s strategic focus on emerging technology markets.

Financial Highlights

• Revenue: $34.6 million, up 15% year-over-year
• EPS: -$0.03, better than the forecasted -$0.06
• Adjusted EBITDA margin: 18%, tripled from the previous period
• Adjusted free cash flow margin: Improved from -17% to -6%

Earnings vs. Forecast

Backblaze outperformed expectations with an EPS of -$0.03 against a forecast of -$0.06, marking a positive surprise of 50%. The company’s revenue of $34.6 million also exceeded the forecasted $34.22 million, indicating a solid start to the fiscal year.

Market Reaction

Following the earnings announcement, Backblaze’s stock surged by 8.41% in aftermarket trading, reaching $4.9. This increase reflects investor optimism regarding the company’s performance and future prospects. According to InvestingPro, analysts have set a consensus high target of $15.9, suggesting significant potential upside. The stock currently trades 55% below its 52-week high of $10, while InvestingPro’s Fair Value analysis indicates the stock is currently undervalued. Check out more undervalued opportunities at Most Undervalued Stocks.

Outlook & Guidance

Backblaze has raised its full-year revenue guidance to a range of $144-$146 million, reflecting confidence in sustained growth. The company also increased its adjusted EBITDA margin guidance to 17-19%, aiming to achieve positive free cash flow by Q4 2025. The B2 segment is projected to grow by over 30% by the end of the year.

Executive Commentary

CEO Gleb Budman emphasized the company’s growth trajectory, stating, "We are building a great company and these false claims won’t derail Backblaze’s growth story." He also highlighted the AI segment’s expansion, noting, "Our AI customer base grew by 66%. Their data with us grew by 25 times."

Risks and Challenges

• Market competition: Backblaze faces intense competition from established cloud storage providers like AWS.
• Economic uncertainties: Macroeconomic factors could affect customer decision-making and spending.
• Technological advancements: Rapid changes in technology require continuous innovation and adaptation.
• Customer acquisition: While growth is strong, acquiring new customers remains a strategic challenge.

Q&A

During the earnings call, analysts inquired about the company’s AI initiatives and customer acquisition strategies. Backblaze addressed concerns about decision-making delays among customers, emphasizing the flexibility of its pay-as-you-go options and confidence in achieving growth targets despite macroeconomic uncertainties.

Full transcript - Backblaze Inc (BLZE) Q1 2025:

Operator: Thank you for standing by. My name is Gail, and I will be your operator for today’s call. At this time, I would like to welcome everyone to the Backblaze First Quarter twenty twenty five Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session.

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

Mimi Kong, Head of Investor Relations, Backblaze: Thank you. Good afternoon, and welcome to Backblaze’s first quarter of twenty twenty five earnings call. On the call with me today are Gleb Budman, Co Founder, CEO and Chairperson of the Board and Mark Sudan, Chief Financial Officer. Today, Backblaze will discuss the financial results that were distributed earlier. Statements on this call include forward looking statements about our future financial results, the impact of our go to market transformation, sales and marketing initiatives, cost savings initiatives, results from new features, the impact of price changes, our ability to compete effectively and manage our growth and our strategy to acquire new customers, retain and expand our business with existing customers, impact of changes to global trade policies and third party attempts to generate negative news regarding the company regardless of accuracy.

These statements are subject to risks and uncertainties that could cause actual results to differ materially, including those described in our risk factors that are included in our quarterly report on Form 10 Q and our other financial filings. You should not rely on our forward looking statements as predictions of future events. All forward looking statements that we make on this call are based on assumptions and beliefs as of today, and we undertake no obligation to update them except as required by law. Our discussion today will include non GAAP financial measures. These non GAAP measures should be considered in addition to and not as a substitute for our GAAP results.

Reconciliation of GAAP to non GAAP results may be found in our earnings release, which is furnished with our Form eight ks filed today with the SEC. You can also find a slide presentation related to our comments in the webcast, which will also be posted to our Investor Relations page after the call. Please also see our press release or presentations for definitions of additional metrics such as NRR, gross customer retention rate, ARPU and adjusted free cash flows. We will be participating in Needham’s Tech Conference on May 13 in New York and the Craig Hallum Conference in Minneapolis on May 28. Looking forward to seeing some of you in person.

Thank you for joining us. And I would now like to turn the call over to Gleb.

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: Thank you, Mimi, and welcome everyone to the call. We delivered strong results this quarter and are building towards a strong year overall. In Q1, revenue and adjusted EBITDA margin beat the high end of guidance. Overall, company revenue grew 15% over the same period last year. B2 cloud storage, which is now the largest part of our business, continued to gain momentum with organic growth accelerating for the second consecutive quarter and achieving 23%.

We’re not only driving growth, but also the bottom line. Our adjusted EBITDA margin tripled over the same period last year to 18% and we’ve made substantial progress on improving our adjusted free cash flow from negative 13% in the fourth quarter to negative 6% in the first quarter. By combining B2 revenue growth and adjusted free cash flow margin in a single quarter from Q4 to Q1, we’ve moved from 9% to 17%, a great step toward becoming a Rule of 40 company. Looking ahead, we continue to be on track to accelerate B2 growth each quarter reaching at least 30% by Q4 of this year and to achieve adjusted free cash flow positive in Q4 as well. In a moment, I’m going to talk about AI and why we’re excited about Backwood’s ability to continue to deliver superior services for its customers and superior performance for its investors.

But first, I think we need to take a moment and talk about a recently published misleading report that relied on false claims by two disgruntled former employees, one of whom was fired for poor performance and the other for gross misconduct. We believe reports like this are part of a common market manipulation schemes in which short positions are taken ahead of issuing a deceptive and distorting report, which when published is intended to push the share price down, allowing a market manipulator to profit at the expense of everyone else. The claims in that report alleged the company’s financials were untrustworthy. Those claims were false when they were made last October in self serving lawsuits by two disgruntled employees and they were still false when this report repeated them. Following industry best practices, the audit committee previously retained an independent law firm and a forensic accounting firm to review the financial claims.

Those reviews confirmed there was no wrongdoing or issues with the financials. We have also since filed two fully audited annual financial statements, which are publicly available on our Investor Relations site and the SEC website. Market manipulation schemes hurt retail investors, pension funds and others. That’s why accurate information is so important to investor decisions. We are building a great company and these false claims won’t derail Backblaze’s growth story.

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

We are leaning into our long term growth opportunity by delivering new products and forging key partnerships. On the new products front, I’m excited about the recent announcement of our new offering Backblade B2 Cloud Storage OverDrive. Driven by customer interest, OverDrive offers very fast performance optimized for large datasets and high performance throughput. This offering is great for use cases including AI, machine learning, high performance compute, origin store for content delivery networks, analytics, and more. Now I wanna highlight something significant about OverDrive.

Building on Backblaze’s history of cost leading innovation, OverDrive achieved remarkable speeds made possible by our underlying platform, which allowed us to do this without the need for massive R and D investment. This efficiency highlights the significant and often underestimated value of our differentiated IP. OverDrive is a prime example of how we are strategically leveraging our existing assets to unlock greater value for our broad range of customers and for Backblaze. Now let’s discuss our go to market transformation, which focuses on three key areas, upscaling, partnerships, and sales place. On upscaling, we are building on great momentum here.

I’m pleased to share that in Q1, the team more than doubled bookings year over year, which was driven by strong sales execution and growing existing accounts. This achievement highlights the added rigor we put in place. This quarter, we completed building out our sales team and expanding our sales capacity and these new hires are halfway through their ramp up period. We also invested behind the customer experience by hiring a VP of customer success to improve onboarding and post sales support. With partnerships, I’m pleased to share a number of new technology alliances to support AI workloads and media and entertainment workflows.

For AI workloads, we are building upon our OverDrive announcement by working with high performance compute providers such as PureNodal, a powered by Backblaze partner, as AI companies seek flexibility to send their data to best of breed solution providers. Backblaze is a foundational platform which empowers them to achieve their goals with high performance and value. In the media and entertainment space, we’re seeing strong momentum around modern cloud first workflows, and our partnerships with companies like Suite Studios and Iconic are central to that strategy. These collaborations enable creative teams to break free from traditional heavy iron infrastructure and embrace remote work from anywhere pipelines that are both powerful and cost effective. By combining Iconic’s intelligent media asset management and Suite Studios virtual file system with Backblaze b two cloud storage, teams can ingest, index, and stream content directly from the cloud no matter where they are.

This kind of seamless access and real time collaboration used to require significant on prem investment. Now it’s achievable at a fraction of the cost, making high performance media workflows accessible

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Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: an era of tightened budgets. These partnerships enable customer success and position BackBoys as an increasingly strategic partner. Building these relationships today will significantly benefit our team’s results in 2026. And finally, sales plays. Last quarter, we outlined our four key sales plays.

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

I am pleased to announce that we signed our largest TCV deal ever, a multimillion dollar contract over a multiyear period. This customer offers a popular application and first became a customer a year ago with a smaller initial contract. Less than a year later, they decided to migrate their entire dataset from AWS to Backblaze. This is another powerful validation of the unique blend of value and performance that Backblaze offers. As you may remember, last quarter we shared a chart of our growth outlook for B2, which would accelerate each quarter and exit the year at over 30%.

While some customers are taking more time to make decisions in the current business environment, we continue to see progress on our go to market transformation and thus remain confident that we’re on track to achieve our accelerating growth targets including reaching 30% plus B2 growth and positive adjusted free cash flow in Q4. Key additional factors driving this include our strong self serve business, our sales bookings which more than doubled and the customer value we deliver which underpins our consistent recurring business. In summary, we delivered strong Q1 results. The launch of B2 OverDrive underscores the strength and differentiation of our platform. Our go to market transformation is gaining traction as evidenced by our reported results.

We are excited about where we’ve come and we’re even more excited about our path forward. Thank you. And I would like to hand the call over to Mark. Mark?

Mark Sudan, Chief Financial Officer, Backblaze: Thank you, Gleb, and good afternoon, everybody. As Gleb noted, we’re very pleased to report a strong first quarter with both revenues and adjusted EBITDA exceeding the upper end of our guidance. Additionally, adjusted EBITDA margin tripled over the same period last year. Moving on to the specific results for the quarter. Total revenue came in at $34,600,000 representing a 15% increase over the prior year.

B2 revenue growth accelerated to 23% on a year over year basis compared to 22% in the previous quarter. This marks the second consecutive quarter of increased organic growth. We define organic growth as the underlying growth of our business excluding the 2023 price increase impact to help provide a more meaningful comparison. Our organic growth in Q3 twenty twenty four factoring out the 2023 price increase was 19%. The increase in revenue growth is driven by improving our direct sales execution, better customer retention and the ramp up of a large customer.

The computer backup business grew 8% from the prior year, primarily driven by the 2023 price increase. Now let’s turn to net revenue retention or NRR. For the quarter, our overall NRR is 113% compared to 112% in the prior year. For our B2 segment, NRR continues to be strong at 117%. The decrease from last year’s 126 is mainly due to the lapping of the price increase.

In our Computer Backup business, NRR is 108% compared to 101% in the prior year. This metric continues to benefit from the price increase implemented in 2023, which will taper off in Q2. On gross customer retention, this remains consistently strong at approximately 90% across both our B2 and Computer Backup segments, as our customers continue to demonstrate high customer loyalty and retention. Turning to profitability. Our GAAP gross margins for the quarter was 56 compared to 53% in the prior year.

Adjusted gross margin improved to 79% from 77% in the same period last year. This improvement is a result of increased efficiency in our data center infrastructure operations. Also, looking ahead, we see additional benefits to our GAAP gross margin given the useful lives of our hardware. We evaluated the usage of our fixed assets during Q2 and are finding our hardware is lasting six years. We plan to implement the new depreciation schedule in Q2 and that would benefit gross margins by 200 to 300 basis points.

Now, I’d like to address the potential impact of tariffs. While tariff policies are still evolving, we want to share perspectives that can help for modeling purposes. If there were to be a 10% tariff placed on all U. S. Imports, such as storage hardware, that would increase our cost of sales by approximately 1.5%.

However, this will not be instantaneous. This would take six years of the life of the asset to fully roll through. Tariffs would have to be meaningfully higher to have a significant impact on our gross margin. We are monitoring it carefully, but for the time being, it is not a significant impact to our business. Additionally, we source from multiple countries, which provides a hedge against supply chain risk.

Moving on to operating expenses. We saw benefits from the restructuring that we implemented in Q4. Both R and D and G and A expenses were in line with our expectations, while sales and marketing expenses came in lower than expected. This was primarily due to slower hiring of our new sales personnel and the shifting of marketing campaigns into the second quarter. We also plan to participate in additional marketing conferences that take place in Q2, which are important to demand generation.

So we anticipate sales and marketing to increase in Q2 by approximately $2,000,000 over Q1. Moving further down the income statement, our net loss margin improved significantly by 1,000 basis points from the prior year, improving from a loss of 37% to 27%. Adjusted EBITDA margin tripled to 18%, up from 6% in the prior year, driven by strong growth in our ability to hold expenses steady. Looking at the balance sheet, we ended the quarter with $53,000,000 in cash and marketable securities, a decrease of $2,000,000 from the prior quarter. Next, I’d like to discuss the equity dilution and how we plan to reduce it.

As our free cash flows improve, our aim is to reduce equity dilution from our employee equity awards. We have numerous tools that we may deploy over the coming year and beyond. For instance, we just started to settle executive tax withholdings in cash on a net share settlement basis instead of selling their shares in the open market to cover the tax withholdings. We also plan to gradually shift from issuing our annual bonus in equity to cash. This means I’ll be issuing less shares.

Once again, reducing our equity dilution will be a key focus in the coming years. Finally, our adjusted free cash flow margin improved significantly from negative 17 to negative 6%, a 1,100 basis points improvement over the course of one year. This was driven by revenue growth and the operating leverage that we have achieved through the Q4 twenty twenty four restructuring and our commitment to be adjusted free cash flow positive in Q4 of twenty twenty five. On the discussion of adjusted free cash flow margin, we believe that this is a more relevant measure of profitability as opposed to adjusted EBITDA margin. As an Infrastructure as a Service company, the associated capital investments in both hardware and software are captured in the adjusted free cash flow margin.

Ultimately, our goal is to be both free cash flow and GAAP net income positive. I would like to take a moment to talk about SOX. I’m very excited to announce that our 2024 annual 10 ks report confirmed the complete remediation of SOX material weaknesses. Since becoming a public company, addressing these issues has been a priority and we’re proud to have successfully resolved them. We’ve also previously filed an eight ks disclosing the appointment of Deloitte and Touche as our new auditors as we prepare to be four zero four compliant.

Deloitte and Tush offered us strong capabilities and cost savings. And we extend our sincere gratitude to VDO for their valuable partnership over the last several years as a public company. Looking ahead to our guidance, we expect our Q2 twenty twenty five revenues to be in the range of $35,200,000 to $35,600,000 which represents B2 revenue growth in the range of 23% to 25%. And reflecting the seasonal factors noted earlier, adjusted EBITDA margins in the range of 14% to 16%. We remain confident in the underlying strength of our business, the tangible benefits of our transformation and our ability to execute on our strategic priorities.

Based on these circumstances, we are maintaining our full year revenue guidance of $144,000,000 to $146,000,000 and are raising our adjusted EBITDA margin guidance from the range of 16% to 18% to a range of 17% to 19%. Now, I would like to turn it over to the operator, so we can open it up for questions.

Operator: Okay. So your first question comes from the line of Jeff Van Rhee with Craig Hallum Capital Group.

Jeff Van Rhee, Analyst, Craig Hallum Capital Group: Please go Great. Guys. Thanks for taking the questions. So several, I mean congrats on the quarter. Curious on the AI side.

Can you put a little finer point on that? I mean anything you can share in terms of, I don’t know, targets as a percent of revenues, where it is now or context as to the magnitude of impact on the pipeline?

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: Jeff. This is Glenn. Thanks for the question. Hey, Glenn. So in general, we’re just excited about the AI opportunity.

It was the fastest growing part of the business in q one. It’s a significant part of the business now overall. Our our largest customer now is actually an AI company. So there’s just there’s a lot of momentum on that front. You know, there’s also a lot of different variety of use cases that we’re seeing there.

So there’s there’s a lot going on there. You know, one thing I’ll I’ll just touch on that also is we you know, there’s a lot of discussion around our AI companies being used for are the use cases around modeling or inference, which I think the answer is yes. But also, there’s a whole pipeline where, you know, you have data creation, you have labeling, you have modeling, you have inference, you have, treatment, the the relearning afterwards. And we have customers doing things at each stage of that. We have customers who are collecting the data with us.

We also have customer AI companies that are customers that are doing autonomous vehicles and industrial automation, robotics, drug discovery. I mean, it’s a it’s a long set. So we’re we’re we’re excited about the AI opportunity. And one thing I’ll highlight also is, you know, we talked about the 25 times data growth, and OverDrive, which is an offering that we just launched recently last about a week ago, with with a target to help more of those AI use cases because we’re seeing even more demand from from companies for larger larger throughput there.

Jeff Van Rhee, Analyst, Craig Hallum Capital Group: Yes. Helpful. And on the B2 sales build, as you’re trying to get a repeatable enterprise sales motion, which of those talk about the progress you’ve made, kind of what’s been proven out and what are the curies you’ve still got work in progress?

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: The go to market transformation is definitely underway. And I think you can see that because we’ve accelerated organic growth for the second quarter and we’ve doubled sales bookings. We do have still path to go. So I think the direct sales efforts are going well. The we’ve still got more more wood to chop on on getting the partner and channel and, some of the demand gen side of things working.

You know, we’re seeing progress on those, but I think there’s still a lot of opportunity there. And we’re it’s an area that we’re leaning into. And I think it’s a $100,000,000,000 market. So we feel like we’ve got a lot of opportunity to try and drive more awareness and more demand gen.

Jeff Van Rhee, Analyst, Craig Hallum Capital Group: Yes. Great. Maybe just one last one, if I could sneak it in for Mark. On the numbers, you mentioned dilution. Love the initiatives to keep the dilution down.

What do you think we should assume for the next year or two in terms of actual dilution? And then while we’re on numbers, just your thoughts on software capitalized software for the rest of the year.

Mark Sudan, Chief Financial Officer, Backblaze: Yes. Thanks, Jeff. Good questions. So first of all, I mean, on dilution, we started the journey. So I think we will aim to share more on what it could look like, not ready to do it yet.

But definitely, it’s a big priority for us to tackle. And we started in Q1 because if you look at our statement of cash flows, you could see a line for us settling the tax in cash instead of shares. On your second question, listen,

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: the way we look at R

Mark Sudan, Chief Financial Officer, Backblaze: and D is if you take our R and D expense on the P and L plus the capitalized R and D, that’s really our all in expense together. We hit a high of 60% of revenue in Q1 of twenty twenty three. A year ago, that was 44%. And this quarter was 40%. So we’re holding that investment relatively steady in absolute dollars.

And as a percentage of revenue, we’ll keep benefiting from scale there.

Jeff Van Rhee, Analyst, Craig Hallum Capital Group: Sounds good. Nice to see the progress on cash flow and the guide there. So appreciate the info, guys.

Operator: Your next question comes from the line of Mike Sikos with Needham. Please go ahead.

Mike Sikos, Analyst, Needham: Hey guys, thanks for taking the questions here and congrats on the quarter. Really good to see that record TCV deal you’re signing over multiple years here with this customer. I just wanted to tease that out for a second. And I know that you said that you’d signed with you about a year ago. And now you have the full, I guess, full piece coming to you with this contract.

Just curious, what was the negotiation process like? Did they put that out to bid? Or once they got a flavor of Backblaze, so to speak, they decided to come over to you? I’m just interested what that process was like from your side.

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: Yeah. Thanks for the question, Mike. So, you know, first of all, it was a displacement of AWS. Right? So it was a so we’re excited that, you know, it continues to show that we’re winning winning deals, winning upmarket deals.

It was the largest TCV deal that we’ve signed in the history of the company. The we we started talking with them actually a few years back. They were at at that point, they were on AWS. They were, you know, just kind of contemplating where their infrastructure was going to go. And then, last year, we signed a 6 figure deal with them where they moved all where, you know, part of their, their infrastructure over to us.

And then as they got more and more familiar with the platform, saw how how performing it was, saw how valuable it was, how efficient it was, and also, frankly, the the customer service that they got from us versus what they were seeing before from AWS, they they decided to lean in and move all of their data over. And so it became a a multimillion dollar deal this quarter.

Mike Sikos, Analyst, Needham: Great. And the I guess the follow-up, I know that you guys only announced the b two cloud storage overdrive last week. Was that in any way a deciding factor for this customer or maybe the visibility into the road map? I’m just curious if that came into play as well.

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: It it wasn’t one for this customer. Their their use case did not necessitate overdrive, but I will say that overdrive is something that we decided to build because we had customers that were coming to us and saying, you know, I I love the performance that I’m seeing, and I could use more if if if there was more possible. Just the the demands, especially around some of the AI customers, but not exclusively. And so as we were digging into the opportunities around our platform, we felt like we can actually optimize our platform to allow for this new offering without a massive, r and d investment in it. So we did have we did optimize some of the software.

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

Mike Sikos, Analyst, Needham: Great. Appreciate the color. Maybe one more if I could. Mark, appreciate you calling out some of the dynamics around tariffs, especially with the uncertainty that’s out there in the market. Just

: to

Mike Sikos, Analyst, Needham: bring it back to the lead gen for a second, I know you guys are talking about some pretty impressive statistics. But if I think about top of funnel activity from a demand gen standpoint or new leads coming into the pipe, has there been any change at the margin there? And again, just trying to get a temperature check as far as what might be playing out in real time given how things feel almost week to week at this point?

Mark Sudan, Chief Financial Officer, Backblaze: Yes. I mean, I would say on the demand gen side, Mike, the change is more on our side versus the market dynamics. And let me say to explain what that means. Back in Q4, we did a restructuring. We restructured the whole marketing department and budget where we set it out so we’re have a lot more outbound spend versus internal payroll.

So I would say like January through February, the team was really kind of adjusting to their new plans and where they need to go. And March is really when we started cranking the outbound effort. And that’s why we said that into Q2, there’s going to be more spend there. So going back to Gleb’s comments around the go to market transformation, that is a big area of focus now of really ramping up that demand generation, that awareness because our win rate is really high. We just need to be flowing more opportunities through there.

I mean, the tariffs and the topic of that kind haven’t really impacted the demand side in any notable way.

Mike Sikos, Analyst, Needham: Very clear. Thank you very much, guys. I’ll turn it over to my colleagues. Thank you.

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: Operator, are there more questions in the queue?

Mimi Kong, Head of Investor Relations, Backblaze: So I I’ll handle this one. See, Zach, I’m gonna put you up next. I’m gonna unmute you. Please ask your question. Oh, actually, I can’t unmute.

Hold on. Let me find out what’s going on.

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: Operator, are you there? Operator?

Mimi Kong, Head of Investor Relations, Backblaze: We seem to have lost our operator. Unfortunately, I can’t quite handle the queue right now.

Operator: I am here. Your next person comes from Zach Cummins with B. Riley Securities. Please go ahead.

Ethan Whitehall, Analyst, B. Riley Securities: Hi there. Yeah, this is Ethan Whitehall calling in for Zach Cummins. Thanks for taking my questions. Looks like, you know, you’ve got nice nice growth in b two, but little downtick in NRR. Is is that just from lapping the the price tailwinds or is there anything else there?

Can you maybe talk a little bit about the dynamics you’re seeing there?

Mark Sudan, Chief Financial Officer, Backblaze: Hi, Zach. This is Mark. Yeah. Listen, our, I mean, our NRR, remains, remains really solid high. Now given we lapped the price increase, that’s what you’re seeing.

So I would say it will be it’s a rolling trailing four quarter average. So it will be around that range for a few quarters. As we continue our path of generating higher revenue growth for B2, that will then start trickling in, and you’ll see it improve from there.

Ethan Whitehall, Analyst, B. Riley Securities: Got it. Appreciate that color. And then just, you know, touching on some of the the tailwinds you’re seeing from AI demand and the OverDrive solution. You know, it seems like good good early traction there. I I I guess in terms of the use cases that you spoke to, it seems like there’s a lot of different use cases.

But are there any in particular that are, driving outsized interest so far?

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: Well, think that it that that, you know, the two kind of core ones that people talk about, right, the model building and the inferencing are two of the larger ones. So on the model building side, we have customers who, are either generating data. So, for example, they’re they’re indexing the Internet or they’re taking imagery from satellites and other types of locations where they’re where they’re capturing data that is being used to train models, or they already have large datasets that they’re then repurposing in different ways to help the AI models being built. So that that whole category is is a fairly large, aspect for us. And then we have lots and lots of customers that are doing a variety of different inferencing type use cases.

You know, some of the ones I shared around are autonomous vehicles and then automation, industrial automation, robotics, and drug discovery and others are ones where they’re heavy inferencing type workloads. But the the overall flow, right, where you collect the data, you label it, you create the models, you do inferencing on them, and then you retrain, there, you know, we have people doing each part of that, and a number of these are gonna be doing multiple pieces of that pipeline to, as part of their core AI workflow.

Ethan Whitehall, Analyst, B. Riley Securities: Great. Appreciate the color. Thank you.

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: Mhmm. Thank you for the question.

Operator: Your next question comes from the line of Maxwell Michalis with Lake Street Capital Markets. Please go ahead.

Maxwell Michalis, Analyst, Lake Street Capital Markets: Hey guys, thanks for taking my questions and solid quarter. First one, I just want to revisit the record contract here. When we look at maybe why they came over to back or Backlace, I know you mentioned customer service, better performance, value. But maybe outside of customer service, maybe what specifically about the performance of the product is what drove them to bring on their entire infrastructure over to Backblaze?

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: Yeah. I mean, I think if you look at it, the the you know, they are a company that’s an application storage company. They have they have an application where they have many, many end customers that use it. They store a lot of data for their customers. They need to have that data not only be stored, but then delivered out to their customers.

And so they need they needed to work quickly in getting getting the that content out to their customers, as well. So it’s it’s the performance of getting the data out to their customers, wherever they happen to be, as well as the the cost and value of both storing the data, using it, and then distributing it.

Maxwell Michalis, Analyst, Lake Street Capital Markets: Okay. And then I wanted to shift over to AI here. Seems like you guys have solved demand around the AI, portion of the business. Maybe in terms of numbers, maybe from, like, a new business standpoint, maybe what percentage of new business coming into Backblaze has some sort of AI aspect attached to it?

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: So we’re not sharing specific, you know, subdivision numbers on that, but what I will tell you is that it was the fastest growing part of our q one business. So Yeah. It’s it’s a it’s a material material part of the the the growth at this point.

Maxwell Michalis, Analyst, Lake Street Capital Markets: Okay. And then in terms of b two overdrive pricing, like, how similar is that to just your typical b two product?

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: So b two is starts at $6 per terabyte per month. B two overdrive starts at $15 per terabyte per month. So it’s it starts at 2 and a half times the price point. One of the things that I’ll I’ll mention on the competitive side of things, it if you took, for example, a 10 petabyte customer that wanted to send that 10 petabytes out three times each month somewhere to the customers, a GPU cloud, to another partner, that would cost about $1,700,000 per month on AWS. It would cost about a hundred and $50,000 on on Backwood v two overdrive.

So, it’s two and a half times our price point for v two, but it’s still about 90 percent less expensive than the alternatives that that customers have to do the same type of workloads.

Maxwell Michalis, Analyst, Lake Street Capital Markets: All righty. Thanks for taking my question guys.

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: Yes. Thank you.

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

: Thanks. Good afternoon, guys. Glenn, can you elaborate a little bit on the comment where you said, while some customers are taking more time to make decisions in the current business environment, What did you mean by that? Are you actually seeing that play out in Backblades’ business? Or are you just making kind of a broader comment and sort of hedging against the sort of macro headwinds that that could emerge here?

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: Yeah, Jason. Thanks for the question. So we have seen some customers take more time. And and so I it’s not just a hedge for the the macro overall. It it is something that we’ve seen some customers kind of, you know, take a little more time with their thinking in general as they’ve been, you know, I would say distracted by, in inside of their own business by the by the macro.

Having said that, it’s our self serve business seems to be going unfettered in its growth. We’ve doubled sales bookings into the quarter. So like Mark said, I think we have more control over the things that we do versus the implications of the macro, but I did wanna call out that, we have seen some customers actually take more time.

: Gotcha. Okay. But you it’s you’re still confident on that 30% exit growth rate?

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: Yeah. We’re still confident on Exactly. So the the yeah. Exactly. So what we shared last quarter, which was that we would accelerate growth for b two quarter over quarter over quarter this year and exit the year at 30% plus, we’re still confident to hit that journey and that exit rate.

: Okay. And so you’re balancing the, call it, handful of customers that are, maybe a little bit slower in their decision making with the momentum that you had in Q1. Is that the right way to think about it?

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: Yes. The momentum that we have in Q1 plus the other early indicators that we have in our business.

: And the month of April was sort of fair to say that was kind of in line with your expectations and consistent with Q1 demand?

Mark Sudan, Chief Financial Officer, Backblaze: Yes. Hi, Jason. This is Mark. Yes, that’s exactly right. It’s pretty consistent.

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

: Okay. Excellent. And then last thing for me is for you, Gleb. Can you talk about just sort of how the competitive landscape may have changed or not since the IPO? Are you running into any, call it, new players versus what it was at the time of the IPO?

Are you in more bake offs today because you’re more of an established player? Let me just talk to some of those competitive landscape questions.

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: Yeah, Jason. Thanks. So since IPO, obviously, it’s been it’s been a few years now. The the world has changed a smidge. Having said that, you know, in the big picture of things, things haven’t changed that much.

And what I mean by that is back then, we were looking and saying, it’s a huge market. Amazon, Google, and Microsoft are certainly big players in the market, but it’s a really big market and there’s a lot of opportunity. I would say that that is still largely true today. It’s about a hundred billion dollar market, and they are still the big players in the space, but there’s still a lot of opportunity, a lot of space. And we are taking, you know, winning customers both away from them, like this, you know, large TCV customer I talked about, and also from customers that haven’t yet moved to the cloud.

So a lot of our customers, we are their first cloud provider, which, you know, in 2025 might seem surprising still, but, it is still the case. So I I would say, you know, there are a variety of smaller players in in the market, some of which existed back then, some of which are newer. But, you know, our our win rates, you know, according to kind of industry averages, are still pretty world class. So people like the product line. They like the platform.

I think the the key thing for us was getting the go to market motion really cranking so that people would be aware that this was an option for them. They would be, that we would be put in front of them at the right moment when when there was something to consider and then working through that. And I think what you know, things like the doubling of sales bookings and other things are are a sign that we’re we’re starting to see that success.

: And that’s total total sales bookings or just b two?

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: That’s total sales bookings.

: Thank you guys.

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: The bookings from the sales team, doubled, more than doubled from Q1 of last year to Q1 of this year.

: Got you.

Operator: Your next question comes from the line of Victor Chiu with Raymond James.

Mimi Kong, Head of Investor Relations, Backblaze0: This is Victor in for Simon Leopold. I just wanted to follow-up on your comment regarding the elongated decision process that you’re observing from some customers. On the flip side of that coin, is it possible that you could see some tailwinds from customers looking to migrate towards lower TCO solutions? Or maybe are you observing some of that in kind of the net of what you’re seeing as kind of your comments about the slower decision making process and kind of lower net overall? Or what would the timing of that kind of look like if you know, that dynamic, you know, is is something that we could expect?

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: Yeah. I mean, I think you’re exactly right. We we provide a great value proposition for customers. Right? It’s a it’s 80 to 90% lower cost than the traditional cloud providers.

We provide free egress out to the customers so it supports the open cloud. We give them access so that they can provide use whichever GPU cloud they want for their AI workloads. We have this high performance offering that that with OverDrive. I mean so there’s there’s a lot of value at a at a low price. And in a in a in an environment where companies are focused on squeezing more out of their dollars, whether they’re focused on tightening their budgets, Backwood is a great solution for that.

So I think, you know, there are when when customers are concerned, they sometimes are indecisive, and that slows things down, which I think is what we’ve seen with some customers. And at the same time, when customers are decisive about wanting to improve their businesses, they they can choose Backpoint to help them do that.

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

Mimi Kong, Head of Investor Relations, Backblaze0: Great. Great. That’s helpful. And then just on the B2 overdrive announcement. I’m sorry if I missed this, but, you know, does the offering involve any kind of material changes to your physical hardware infrastructure?

Or is it primarily, you know, leveraging software, you know, the the software optimization that you noted, earlier?

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: Yeah. It’s it’s mostly in the software side, although we’ve done some hardware optimization to support it as well. So we you know, we’ve been building performance functionality into the platform for a while. What you know, one of the things that we had talked publicly about was Shardstash, which was both a software and hardware optimization for the platform that enabled us to be up to 30% faster for uploads of small files than the than the traditional companies. And, you know so we’ve done a lot of work on the software optimization side.

There are some hardware changes that we made as well to to optimize it as well.

Mimi Kong, Head of Investor Relations, Backblaze0: And, you know, kind of what are the the kind of use cases that that you envision, kind of driving this? Or are customers building data lakes with this? Or is it kind of supplementing their AI clusters, their existing AI clusters? Kind of just help us understand what you know, are the primary use cases that you envision, you know, for for this.

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: So, AI has been one of the big ones that drove the original interest in in this. We’re starting to have companies reach out to us with other use cases as well. So the the ones that we’ve talked about are AI being the the big one, other high performance compute being another one where they may want to do whether it’s weather modeling, drug discovery, or other things, and analytics where what they need to do is have a lot of data, move it somewhere to do a lot of processing, and then bring it back or or take the results out of it. You know, those are the types of things where we see, this being a really good, good offering. And I’ll just say, I mean, I you know, I I I’m really proud of our team, you know, both on the engineering and operations side and everything that that have been able to pull this off.

One of the prospects that we spoke to, they they said they were they were basically blown away. They had no idea that you could get this kind of performance out of a a and then a platform built on spinning drives. That, normally, this is the kind of thing that requires flash and SSD to be used, which is much more expensive. And we’ve been able to pull that off, on on spinning drives. So we get the value and the performance out of it, and that’s really a testament to the team that that built it.

Mimi Kong, Head of Investor Relations, Backblaze0: That’s very helpful. Thank you.

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: Yes. Thank you.

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

Gleb Budman, Co-Founder, CEO and Chairperson, Backblaze: Thank you. So we’ve delivered a strong Q1, beating both top and bottom line guidance. We accelerated B2 organic growth again, and we’re on track for 30% plus growth in q four. We’re winning with AI use cases. We’ve launched this high performance offering with b two OverDrive.

So, you know, I’m more excited about where we are, where we’re going, and I wanna thank our employees for delivering these results, our customers and partners for working with us, our investors for continuing to support us, and I want to thank all of you for joining us today. We’ll see some of you at the Needham Conference in New York next week. We’ll see some of you at the Craig Hallum Conference in a couple weeks, and we look forward to seeing everyone in our next earnings call. Thank you. Operator,

Mimi Kong, Head of Investor Relations, Backblaze0: we’ll set

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

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