Backblaze Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 9, 2023

There are 10 speakers on the call.

Operator

Day, and welcome to the Backblaze First Quarter 2023 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I'd now like to turn the conference over to Mr.

Operator

James Kissner. Please go ahead, sir.

Speaker 1

Thank you. Good afternoon, and welcome to Barclays' Q1 fiscal year 2023 earnings call. On the call with me today are Gleb Budman, Co Founder, CEO and Chairperson of the Board and Frank Patchelt, Chief Financial Officer. Today, Backblaze will discuss with the financial results that were distributed earlier this afternoon. Statements on this call include forward looking statements about our future financial results, Use of our IPO proceeds, results from our new offerings, partnerships and sales and marketing initiatives, our ability to compete effectively, acquire new customers and retain and expand our business with existing customers, hire and retain key personnel and effectively manage our growth.

Speaker 1

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 annual report on Form 10 ks 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.

Speaker 1

Reconciliation of GAAP to non GAAP results may be found in our earnings release, which was furnished with our Form 8 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 presentation for definitions of additional metrics such as NRR or gross customer retention. Before I turn the call over to Gweb, I'd also like to mention that in the latter portion of our call, as in prior calls, We will be addressing questions from investors that we gathered through the SAI Technologies platform. I would now like to turn the call over to Gleb.

Speaker 1

Gweb?

Speaker 2

Thank you, James, and thanks to all of you for joining us. We continued to execute on our growth strategy this quarter. Total company revenue grew 20% year on year with strong 42% year on year growth for B2 Cloud Storage and solid 8% growth for computer backup. B2's growth rate was more than 2.5 times that of Amazon AWS, which grew only 16% in the same period. Not only did we show strong growth, but as Frank will discuss in a moment with our results and our expectation for continued EBITDA margin improvement in Q2.

Speaker 2

We remain committed to our goal to approach adjusted EBITDA breakeven in Q4. We believe businesses and developers are increasingly recognizing the benefits, including significant cost savings of abandoning or minimizing the use of the traditional cloud providers. These providers aim to trap customers into an expensive walled garden and then charge them excessive fees to retrieve and use their data. As the leading specialized storage cloud, not only do we provide customers tremendous savings by charging approximately 1 5th the price of these traditional cloud providers, but we also enable customers to build the best cloud stack for their business. With providers.

Speaker 2

While the economic environment continues to face headwinds, we're pleased that we can help our customers save money by switching from other expensive storage options. It's also a very exciting time to run a business that benefits from data growth when applications like those based on generative AI are growing explosively. I'm excited to profile another one of our AI focused Our growth strategy to capitalize on our market opportunities includes the following key elements. Number 1, optimizing our self serve go to market motion 2, expanding our sales assisted go to market efforts 3, leveraging partnerships and for cultivating application storage use cases. I'll briefly touch on the progress we are making on these elements of our strategy.

Speaker 2

Let's start with self serve. Recall from most of our company's history, we've acquired customers primarily through our self serve motion in which we attracted new customers to our website with engaging content on our blog, educational material on our website and publicity driven media coverage. These self serve customers can quickly and easily sign up for our service with just an email and credit card, which is a highly efficient means to acquire customers. We've recently increased our focus on improving conversion of visitors to our website into paying customers. For example, we launched in app messaging capabilities at the beginning of January to support guided self serve.

Speaker 2

To date, we've seen an over 10% increase in user conversion from free to paid as a result. We have a roadmap of opportunities to improve the customer experience, which can increase both the number of customers signing up and their usage of our offerings. Next, our sales assisted go to market efforts. To augment our self serve marketing effort Over time, we've also built up a sales team dedicated to serving larger potential customers and we've been investing in building out an outbound sales motion. Early last year, we projected that it would take roughly a year before we begin to see results from our investments in outbound.

Speaker 2

We're pleased to report that in Q1, Our outbound team generated more pipeline in total and per salesperson than in any other quarter as we've honed our approach. Recall we also mentioned last quarter that unlike many other firms, we were seeing shortened sales cycles and improving close rates. A quarter later as we look at the larger deals upon which our sales team is focused, sales cycle shortened again and win rates were within a few percentage points of Q4's high rate. We believe this is yet another proof point that we are well suited for an environment or businesses are tightening their belts. Now let's talk about partnerships.

Speaker 2

For V2, we know that at least 1 third and likewise significantly more of the data stored NV2 comes to us as a result of partnerships. We have 2 types of partners, channel partners and technology partners. We launched our channel partner program last year and it's a strategic focus this year. As we mentioned previously, our B2 Reserve prepaid storage offering is well suited for the channel. We were pleased to see B2Reserve recently crossed $1,000,000 in ARR after roughly just 1 year in the marketplace.

Speaker 2

Partnerships are also key to enabling the open Internet we advocated for. A good example of this was our April announcement of an Spanded partnership and co marketing program with Compute Specialist Vultur, one of our technology partners. This partnership enables more application storage customers to replace traditional cloud providers with our 2 best of breed platforms, gaining benefits ranging from lower costs to data free from lock in. I will now profile one of our customers benefiting from this technology alliance, an AI company developing technology to analyze massive amounts of surveillance video to make it easily searchable for end users. This company originally developed their application on Microsoft's Azure platform, but felt locked in by the walled garden approach to 3rd party tools and Azure's painfully high pricing.

Speaker 2

By migrating to B2 Cloud Storage, they gained the flexibility to build their tech stack with the tools that work best for them, including Voucher for compute and reduce their spend without having to sacrifice performance. This is a great example of an application storage customer using Backblaze B2 in a data intensive AI application. This example along with the next two illustrate how we win customers from each of the traditional cloud providers by helping customers solve their problems and reduce their spend. The first is an esports solutions company that works with Top tier video game brands like Fortnite, Halo and Call of Duty to provide a range of event services including production, broadcast and tournament and program design. Their high volume of production generates massive amounts of data that needs to be processed, shared and stored on behalf of their customers.

Speaker 2

With Google Cloud Platform, costs were cutting into their margin and they were experiencing failures during big events. By migrating to Backblaze, they were able to not just reduce costs and increase reliability, but also significantly increase the productivity of their distributed workforce. Their data is where they need it, when they need it and at a dramatically reduced storage cost compared to Google. Our last example is a school in one of the fastest growing K-twelve public school districts in Washington State that was paying exorbitant amounts to archived data in Amazon S3. They considered Amazon's cold storage solution, Glacier, But uncertainty around retrieval fees and delays gave them pause.

Speaker 2

They went with B2, saved 75% and they are delighted by the predictability of their bill. So 3 customer wins, 1 from each of the traditional cloud providers. These examples demonstrate the breadth of customers and applications that can benefit from B2 and the strength of our product on ease of use, affordability, performance and reliability. I'll now turn the call over to Frank Patchell, who who can review the financial results of the quarter in more detail. Frank?

Speaker 3

Thank you, Gleb, and thanks everyone for joining us today. Turning to our Q1 financial results. Unless otherwise noted, I will be referring to non GAAP metrics and the growth rates mentioned are year on year. We remain focused on 2 key metrics, revenue growth and adjusted EBITDA, which is defined in our earnings release. Our Q1 revenue totaled $23,400,000 an increase of 20%.

Speaker 3

Backlogs B2 contributed sales of $10,000,000 reflecting 42% growth. Computer backup revenue totaled $13,400,000 reflecting 8% growth. And is now allocated to the business line with which it is associated. Physical media is associated with restoration and data capture and is easily allocated to each service. In Q1, B2 Cloud Storage represented 43% of total revenue continuing its upward trend.

Speaker 3

We're pleased to be able to deliver continued strong growth in a challenging economic environment. This highlights the resiliency and predictability of our business model as well as the appeal of our cost effective solutions for customers. Turning to retention metrics. We track net revenue retention or NRR and gross customer retention. Total company NRR was 111% with B2 Cloud Storage at 120% and computer backup at 106%.

Speaker 3

Gross customer retention was 91% overall consistent with the prior year with 90 percent for both V2 cloud storage and computer backup. Working down the P and L, adjusted gross margin was 72%, down from 76% year on year. In quarter 1, we had increased data center costs due in part to data center While we do not guide gross margin explicitly, we expect Q1 gross margin to be the low point for the year and for it to trend back into the mid-70s for the balance of the year. Adjusted EBITDA was a loss of $2,900,000 or negative 12% of revenue compared to a loss of $3,000,000 or minus 15% in Q1 of 2021. Year over year, the better adjusted EBITDA margin reflects the slight leverage on sales and marketing and R and D as our revenue growth outpaces our expense growth.

Speaker 3

On a GAAP basis, we also had one time charges of $2,500,000 for workforce reduction and related severance charges. Turning to the balance sheet, cash and short term investments, including restricted cash Total of $57,000,000 as of March 31, 2023 versus $70,000,000 as of the end of Q4, 2022. In addition to the $2,500,000 of workforce reduction costs mentioned a moment ago, cash usage also included $1,500,000 for an unrelated legal settlement. We expect further one time employee separation is with City National Bank, a subsidiary of Royal Bank of Canada, one of the largest and well capitalized banks in the world. And we have no known exposure to any of the banks that have faltered recently.

Speaker 3

Now I'd like to provide our outlook for quarter 2. For the Q2, we expect revenue to be in the range of $24,100,000 to $24,500,000 We expect quarter 2 adjusted EBITDA margin of minus 11% to minus 7%. At the midpoint, This is an over 3 percentage point improvement quarter on quarter, reflecting our commitment to approach EBITDA breakeven by Q4. We expect Q2 2023 basic share count of approximately $34,500,000 to $36,500,000 Turning to the full year 2023, we are reaffirming our prior outlook for revenue of $98,000,000 to $102,000,000 and an adjusted EBITDA margin of minus 10% to minus 6%. I will now pass the call back to Glenn.

Speaker 3

Glenn?

Speaker 2

Thanks, Frank, and thank you to the entire Backblaze Thank you for executing so well in an environment that has proven challenging for many of our competitors and peers. As you just heard from Frank, We are focused on continued growth and returning to adjusted EBITDA profitability. Operator, we're now ready to take questions from the sell side analysts on our call.

Operator

The first question will come from Simon Leopold with Raymond James. Please go ahead.

Speaker 4

Great. Thanks for taking the question. I just wanted to see if you could maybe reflect on how the macro environment might be affecting your business and really sort of the root of this question is this idea that You might be seeing some tailwinds as some buyers, some customers are dropping down from the hyperscale high expense and that would benefit you whereas on the other side, maybe there are customers that are pressured and just opt not to store their data in the cloud and avoid the subscription. How are you thinking about those kind of net results?

Speaker 2

Hey, Simon, this is Lev. Thanks for the question. I'll start and then if anything maybe Frank can jump in as well. I think it's similar to what you just described, which is like I talked about on the call, Yes. Those were three examples where we took customers away from each of the other traditional cloud providers.

Speaker 2

Part of the reason we each of them switched was to optimize their spend. So those were net benefits to us because we were able to help those customers and we see a lot of that happening. So that's certainly a tailwind of sorts. Overall in the market, Certainly, customers just across the range are looking at where they can save costs and where they can Not invest in future activities for the moment. For the most part, I think we're seeing that as a benefit.

Speaker 2

The but we also saw some reduction in NRR, which is likely a little bit of that as well. The one thing I'll say is kind of on the macro overall for us is we're reiterating our guidance for 2023. And so I think that speaks to the where that where we believe that that lands on balance.

Speaker 4

Yes. And that's sort of where the root of my question is, it sort of seems like the the pros and cons cancel each other out to enable the reiterated guidance, which I think in the current environment is good news, but that seems to be the net of it, isn't it?

Speaker 3

Yes. Hi, Simon, it's Frank. Yes, we agree with that conclusion, we're seeing that our strong business model and the fact that our market is so large and the fact that we're such a good value It's really important to the prospects and they mention it more often and Glenn mentioned how large our pipelines are right now and we think that's in part to not just good sales execution, but the need for companies to really look at these expenses and So we see that. And then, so I think it's really very positive that we can reiterate guidance in this environment.

Speaker 4

Great. And then when we think about the full year outlook, it does appear that the B2 business Maintains a growth rate over 40%. But I just want to sort of check-in how are you thinking about the individual segment growth rate?

Speaker 3

That's right. We think of the individual segment growth rates to be particularly to be strong and we think that 40% is a good, approximation for quarter 2.

Speaker 4

Thank you for taking the questions.

Operator

The next question will come from Chad Bennett with Craig Hallum Capital. Please go ahead.

Speaker 5

Great. Thanks for taking my question. Nice job on the quarter And it's good to see the reiteration on the guide. So I guess just maybe following up on The guidance question from before. If I look at your ARR, your B2 ARR actually Accelerated year over year.

Speaker 5

I think it was 47% this quarter year over year, up from 44% last quarter, which You're just not seeing in this software cloud environment all of the I don't have to tell you, but all the hyperscalers are decelerating massively. And it seems like sales cycles, like you said, are accelerating Or hanging in there for sure pipeline is accelerating. I guess from an ARR standpoint, Do you have more conviction that ARR growth relative to revenue Is maybe better than expected or could be better than expected because also I think your even your backup business, I think performed probably better than maybe I thought from a year over year growth standpoint. Just any commentary there would be helpful. Thanks.

Speaker 3

I'll start. First of all, thank you for initiating coverage. We do appreciate that. The ARR Growth rate is slightly higher by just one point than our revenue and if they trail together and is there upside Opportunity there, sure. But right now, we're thinking that they're going to be really aligned together.

Speaker 5

Okay. And just do you have your I mean, it seems like the backup business is hanging in there and the gross churn is hanging in there. And I don't know if it's better than worse than maybe what you thought, but Have your expectations on the backup business changed at all for this year?

Speaker 3

No, not really. Our emphasis on all of our investments or not all of them, but the vast majority of our investments are aimed at B2. So that hasn't changed. However, that is we love our computer backup business. It does continue to grow.

Speaker 3

We're very pleased with it. But that single digit range of growth is what we had expected and guided to.

Speaker 5

Okay. And then maybe last one, if I could. Just could you give me a sense of for Q1 here, you had some CapEx investments in Q1. Just kind of how that looks like or how that looks for the rest of And any other kind of cash related investment items we should be aware of? Then I'll hop off.

Speaker 5

Thank you.

Speaker 3

Yes. Our CapEx in the first half quarter as a percentage of revenue is lower. Remember that we get advantages from our platform investments. So our software engineers are making our platform ever more efficient and that does help us in not having to incur as high capital expenses going forward. So we do see that savings and we do think that savings will continue.

Speaker 3

So our trend line is a decline in CapEx as a percentage of revenue.

Speaker 5

Got it. Thanks much. Nice job.

Operator

The next question will come from Erik Suppiger with JMP Securities. Please go ahead.

Speaker 6

Yes. Thanks for taking the question and good quarter. First off, did you say that the reserve Service generated $1,000,000 or past the $1,000,000 mark, in which case is that about 10% of the B2 business overall?

Speaker 3

The ARR on the revenue is $1,000,000 not the actual for revenue we received in quarter 1.

Speaker 5

Okay.

Speaker 4

Not yet.

Speaker 6

What kind of penetration Go ahead.

Speaker 3

I just said it's not yet. That's what I just asked.

Speaker 6

What kind of penetration for that, the reserve business at this point.

Speaker 2

I think Eric, I think if you look at with that? The B2 business, it was at $42,000,000 of ARR. So The quarter for revenue for BTU was $10,000,000 And so I think that that's where we compare maybe the 10% is the revenue versus the AR For the quarter, so it's $1,000,000 out of $42,000,000 of VRR for V2. But we are set by reserve since it has accelerated quite a bit just in for something that's fairly new.

Speaker 6

What I'm trying to understand is, when a customer is ordering the reserve business, Are they ordering a is it almost one for 1 relative to what they're paying for the regular service? Or what kind of additional revenue are you generating from a customer that orders the reserve at this point?

Speaker 2

Yes, they're pretty similar. So the B2 Reserve offering comes with some additional services including the universal data migration, and some additional support functionality and some included egress availability, but they're pretty similar offerings at a pretty similar price point. It's just that the main thing that we see with B2Reserve, the main reason customers choose that and the main reason that channel likes it is that it's a prepaid offering. And so for those that want to have full predictability in terms of what they're going to spend, They can use B2Reserve as a way to buy a certain amount of capacity, know that that's how much they've paid for and not have Consumption charges month to month.

Speaker 3

And also the advantage for us, the advantage for us of course Is that it's sold usually as an annual. So as soon as the invoice is, sent to our reseller, we can recognize a 12th of the revenue right away. And so unlike the B2 regular accounts They're on consumption based pricing. We usually have to wait for them to upload their data before we have a meaningful invoice. So that's a nice advantage as well.

Speaker 3

12 months of cash collected and then in recognition of the revenue.

Speaker 6

Okay. And then the other question, you said that The conversion rate for your self-service improved I think by 10%. Can you tell us what the conversion rate is for self serve customers Going from free to paid?

Speaker 2

Yes. I'm afraid we aren't sharing that number, Eric. What I'll say is that we've always been quite efficient with our conversion rates. I think customers like the experience of showing up to the website, creating an account with just an email address and password, trying the free service, which gives them 10 gigabytes of free data. And then when they cross over that 10 gigabytes, then we start charging them for the storage amount.

Speaker 2

The one thing that we've learned is that some customers show up and they get into that, that they create that account, but they don't necessarily know what they do next. And so the guide itself serves helps them with specific use cases that they may want to solve and helps navigate them through that. So It's an opportunity for us to make it even easier than it has been. And as you know, most of our business historically was built on the self serve motion. So it was something that we were good at, but this is another step up from that.

Speaker 6

Very good. Thank

Speaker 2

you. Thanks, Eric.

Operator

The next question will come from Zach Cummins with B. Riley Securities. Please go ahead.

Speaker 7

Hi, good afternoon. Thanks for taking my questions. I mean, it's nice to hear that your business is holding up well in the current environment, especially, but I mean, obviously, I've heard some feedback from some major technology distributors in the U. S. Of a slowing IT So I'm just curious of kind of the feedback you've received from some of your reseller partners or even major distributor partners and what were really your expectations for that channel in the coming year?

Speaker 2

Yes. I think that a little bit to the conversation about IT spend overall may be slowing because customers are looking for ways to spend less. But for storage and data, Unless they're going to stop their businesses, many of them have to continue having a place to both store it and then use it. And so if the choices are, am I going to buy an additional set of servers? Am I going to Spend money on additional traditional cloud vendors at 5 times our price point or am I going to expand on Backblaze or switch to Backblaze?

Speaker 2

I think many customers are choosing to switch to Backblaze instead of buying more servers or buying more traditional cloud. So I think from the channel side of it, it's an area that we're excited about. As you know, the B2 Reserve It's a channel friendly offering. It's primarily something that we offer through the channel. And so the rate of growth on that offering Speaks to some of what we're seeing with the channel and why we're excited about the combination of B2Reserve with the channel motion.

Speaker 2

So we have the guidance does bake in our expectations around the growth of the channel, but the channel is definitely something that we're excited about and it's an initiative that we're investing behind.

Speaker 7

Understood. And just one question, probably more geared toward Frank. But just as you're Still targeting approaching breakeven adjusted EBITDA by the end of the year. How should we think about the progression of cash burn as we continue throughout 2023?

Speaker 3

Well, we don't project cash as you know. But as you're going through the quarters, you should expect to see

Speaker 7

Understood. Well, thanks for taking my questions and best of luck for the rest of the quarter.

Operator

Your next question will come from Jason Ader with William Blair. Please go ahead.

Speaker 8

Specific verticals or geographies, any anecdotes from folks out there, customers just On kind of the trend line and if in particular you're seeing any improvement from January, February, March to April. We're in early May now, so you'd have another month of data. So just kind of curious as to what you're seeing.

Speaker 2

So our business is very distributed with over 500,000 customers and Over 175 countries in basically every vertical out there. So I would say that we're I don't think I've Seeing very concrete trend lines that segment by vertical, to say this vertical is Doing better in the macro or doing worse in the macro. There are certainly verticals that are more Inclined to be good customer segments for us. We've talked about media as one of those examples. Part of the reason that media It's a good vertical for us is because the customers there have a lot of video footage, a lot of photos, a lot of audio and all that takes up a lot of data space.

Speaker 2

And so they are more attuned to making decisions about where and how do they store their So we see certain verticals that are more attuned to caring about data and what the implications Where they choose to store it, but I wouldn't say I have much in the way of specific changes of macro specific by vertical. I don't know, Frank, if you have anything else you want to add to that.

Speaker 8

Okay. Fair enough. I guess not Frank.

Speaker 3

No, I didn't have more to add. Sorry. Can

Speaker 8

I guess next question for you, Gleb, is When you're talking to customers, what are the most requested features or services that you currently don't have

Speaker 2

So I think I want to be a little careful obviously because For competitive reasons, I don't want to be sharing our future roadmap? But what I will say is that one of the things that we had heard A fair bit from customers in the past was, hey, I love your service and the only thing about it is that every I might have to go to our finance department and talk to them about how much it's going to cost. It's It's not that they have any issue with the amount it's going to cost. It's just that I have to explain every month what this what it is and why the bill varied and how much it's going to be next month and I can't answer that question. So With that feedback from customers, we built B2 reserve.

Speaker 2

And there are some features on the sides of those B2 reserve That we here requested that we're working on to make it even easier for customers to adopt B2Reserve. They're not major, but they're things that just we shipped our first version of B2Reserve and we have functionality that's coming For the second version of it, one of the things that we heard was customers wanting to be able to store their data in East Coast of the U. S. Some of that was just to happen in the East Coast and some of that was in order to replicate data into 2 regions, but keeping inside of the U. S.

Speaker 2

So that was something that we launched in Q4 to support that. So we continue focusing on enabling customers to not only store their data, but also to protect and to use their data. And so we have items on our roadmap that are in support of some of those other parts of our mission.

Speaker 8

Got you. Okay. And then the last one for me, the requisite Generative AI question that's on every earnings call. In particular for you guys, I was wondering, does it make sense at some point for you guys to add compute to your platform, especially with how compute intensive things like Gen AI are. I mean, I know they're storage intensive as well, but Are you at risk of losing some workloads because you don't have compute and customers go to another platform that has both compute and storage?

Speaker 2

So I think that we believe in the open Internet And we believe that customers want and will increasingly want to pick the best parts of their tech stack with specialized clouds that are really good at that. And so today we focus on the storage aspect of it and we work with partners for other pieces of the tech stack. One of the partnerships that we talked about this quarter was Vultr, which is a compute focused company and we can cross connect with them and make it free and easy to move the data back and forth between us and them. So If a customer wants to store large data sets and then they want to run a compute on those large data sets and then they want to keep the output So those large data sets, they can do all of that with us and them. So they can keep all the data with BackWays V2, they can run the compute inside of Ultra, they can put the data back on BackWave V2, it all can work seamlessly and we think that that works really well for customers.

Speaker 2

So, I gave you the example of the generative AI customer on this call and gave the example of the generative AI customer on the last earnings call, we have others that do it as well. I think that We're showing that customers with generative AI in particular, but in general, can be successful in this open Internet approach.

Speaker 8

Thanks very much. Good luck.

Speaker 2

Thank you.

Operator

The next question will come from Maxwell Michaels with Lake Street Capital Markets. Please go ahead.

Speaker 4

Hey guys, good afternoon and congrats on

Speaker 9

the quarter. I was wondering if you could touch on gross margin. You answered my second half of my question on the outlook throughout the year, but I was just wondering if you can go into a little more detail on Q1 and the step down from Q4.

Speaker 3

Sure. So first of all, Q1 gross margin at the 72% is the low point of gross margin for the year. And we do expect the gross margin will return into the mid-seventy percent range in the Q2 and for the full year. So, but for the specific reasons why it was lower in this quarter, is this just the quarter where we had A full quarter of expenses for our new data centers and our expanded data centers and that included the setup, the mapping the space and utility charges for those new centers. And then we also had some duplicate expenses in moving from one data center to another that will dissipate in quarter 2.

Speaker 3

And I think like everyone, we also experienced higher energy costs as well. So we did have some we had announced these additions to our data center footprint and we will grow into and leverage those as we go forward.

Speaker 9

Okay. Thanks guys. And then my next one,

Speaker 4

Good color on the Voalte partnership.

Speaker 9

I was wondering if you could share any other potential partnerships you have in the works you're thinking about announcing this year?

Speaker 2

Yes. So we don't preannounce partnerships, but you can look at it and see that we've previously announced partnerships in with other Independent cloud providers including Cloudflare, Fastly, HashiCorp and others. So We continue to add partners as it makes sense and as our customers show that it's something that's valuable for them. We also partner with companies on the technology alliance side of things. So we've partnered with Veeam and Quantum and MSP360 and others to support typically more IT type use cases.

Speaker 2

And one of the big areas that we're focusing on now is the channel type of partnerships, which we're largely doing with national distributors that we've signed and are now selling primarily be to reserve with them.

Speaker 6

All right. Thanks guys.

Speaker 2

Thank you.

Speaker 1

All right. Thanks to all our covering analysts for these insightful questions. As is our custom, we're going to take questions that we gather from the So the first one is for go ahead. It's actually a combination of a couple of questions around the same topic. What's your plan to get the stock back on track?

Speaker 1

What are your plans to increase shareholder value?

Speaker 2

Shareholder value in the stock. So Unfortunately, we're not alone as a SaaS or a cloud company in terms of the stock performance. Many of our peers Have seen similar stock price declines since November of 2021, which is when we went public. As Probably with many other public company CEOs, we don't believe that the stock price that we see today is reflective of the long term value of our business, nor is it consistent with the growth we've delivered since we've gone public. And so while we can't control the market conditions, What we do believe is that executing on our growth plan is the best thing we can do to enhance shareholder value.

Speaker 2

We remain committed to that. And so we're taking some strong actions to deliver that shareholder value. Part of that is driving growth We've talked quite a bit about some of our growth initiatives. Part of that is aiming to achieve profitability again. So That's we've talked about achieving adjusted EBITDA breakeven by end of the year.

Speaker 2

We're doing that through both the revenue growth and the careful cost management for our business. So those are the key things that I think about in terms of both executing on the company side and delivering shareholder value. The other piece to it to shareholder value is we need to make sure that we get the story out to investors. And so we've been doing a reasonable amount of increasing awareness of our story through conferences, meetings, the Stocks and Storage video blog and other Investor Relations activities. So between executing on the company and getting our story out, that's what we're focused on in terms of delivering shareholder value.

Speaker 2

All right.

Speaker 1

Thanks, Clive. Another one for you. So this is really going to be the combination of, I think, about, there were 8 questions. Almost most of your center around just generating awareness in reaching new potential customers with their value prop, driving growth And just sort of general marketing plans.

Speaker 2

General marketing planning growth. So certainly makes sense that There would be a lot of questions about awareness in our growth strategy. It makes sense since the market we're pursuing is a $50,000,000,000 market and we have a tremendous opportunity to pursue it. We raised the IPO proceeds specifically with the goal of going after that opportunity and a Part of that was around both building awareness and investing in the go to market activities behind that. So we hired a Chief Marketing Officer in the middle of last year.

Speaker 2

So I'm excited about that addition to the team and helping us build that awareness and scale the go to market efforts. On the awareness side of things, Some of what we have been scaling are the programs around content. So we've talked about our blog and how the blog is an important part of getting awareness out there. We're scaling programs around that both in terms of generating additional content, improving the way that that content is presented, getting the additional publicity, search engine optimization and some of the community awareness around it. And we've also and invest behind both live and virtual events.

Speaker 2

So those are some of the things that we're doing to scale awareness. And then on the go to market side, we've talked I think a fair bit now about self serve optimization, the sales motion, the channel and technology partnerships and focusing on those application storage use cases. And so fundamentally, we're excited about all the various steps we're taking and some of the results that we're seeing from it.

Speaker 1

Great. One for you, Frank. Can you just talk about insider selling in February? It looked like it was higher than in prior quarters.

Speaker 3

There's not a large difference in the selling month to month. But in February, in particular, That is the month where our bonuses, which are paid in restricted stock units, RSUs, are vested to our employees and then we have an obligation to sell on their behalf to cover the federal and state income tax associated with it. So there was selling to do that. And then of course those proceeds are immediately remitted to the government. Thanks, Frank.

Speaker 3

Glev, these are we had a couple

Speaker 1

of questions just around layoffs, like what steps we're taking to guard against having to do layoffs while chasing profitability.

Speaker 2

So we've talked about aiming to be adjusted able to breakeven by end of the year. And there's really 2 fundamental ways that we're doing that. 1 is growing revenue And the other is keeping a lid on expenses across the board. We've talked quite a bit about how we're aiming to grow revenue. On The expense side, we're looking at optimizing a variety of things, including our facilities usage versus various programs and other opportunities to save.

Speaker 2

So growing revenue, optimized expenses and optimize expenses that are not just people.

Speaker 1

Great. Frank, do we have a forecast for next year and onwards?

Speaker 3

Well, what we do is we do create a budget for every year, so we have that. And then we do create rolling forecast. And what we mean by that is that we take current revenue and expenses and we start rolling that, and seeing what the trends are there. And then we use all of that to build a multiyear outlook for all the years going forward. So yes, we do and we do use it.

Speaker 3

You can tell that we have it because we keep providing more and more guidance on in the different quarters or reiterating guidance in our case this full year.

Speaker 1

Thanks, Frank. So, Glenn, What are your plans in the next year to be more competitive with the larger cloud services besides just a lower subscription fee? Are there new products or features that are coming to differentiate from the competition.

Speaker 2

Certainly, the lower price point is obviously very compelling and we continue to invest in the Form to drive efficiencies in the actual storage cloud platform and that's it takes a lot of technology to do that. Obviously, We spent a lot of time, money and effort over the last 15 years to make sure that our storage platform is really robust and very cost efficient. So we continue to invest We don't preannounce features, but we do continually explore what we can do to deliver more value to customers, I think we're already very competitive. You can see that as why we're seeing growth that is more than 2.5 times as our larger competitors. It's also why we show customers leaving those companies and switching to Backblaze.

Speaker 2

And so while I'm not going to preannounce features, I'll point to some of the things that we've done in the recent past, right. So from a roadmap perspective, we added the East Coast region. We added locked Object Lock, which enabled customers to help them protect themselves from ransomware. We had a V2 reserve, which as we mentioned just recently crossed $1,000,000 of ARR and other features and functions that we've launched and announced over the last year to 2 years. So, we're not going to preannounce, But we are excited about our roadmap and how we can serve our customers ever better.

Speaker 2

Okay.

Speaker 1

All right. Thanks, Cliff. Back to Frank. When do you expect earnings to stop falling?

Speaker 3

Earnings that we use as the best measure for earnings adjusted EBITDA. And that's really, how we report our fiscal improvements. And as you just heard, we did improve in our adjusted EBITDA. This quarter is minus 12 and in our next quarter, at the midpoint, it's minus 9. And for the full year, that's at the midpoint.

Speaker 3

And at the full year, we're still approaching the EBITDA breakeven. So I think we're on our way. We've been getting some initial good results, but we're on our way to that EBITDA to keep in.

Speaker 1

Back to you, Quell, how do you plan to I'm going to summarize questions longer than this in the actual platform. But Basically, how do you plan to educate investors and who are not as technically savvy and to not have Folks get too freaked out by near term perturbations in the business.

Speaker 2

So we have great investors, Which I appreciate and I love. We also have a broad Investor Relations program And it aims to keep our investors informed about the business and where we're headed. Investors where they are. So for institutional investors, we work with our We attend conferences and do non deal roadshows. For our retail investors, we publish our Stocks and Storage Video Blog.

Speaker 2

We also have our Stock Perks program. And so we aim to have a robust

Speaker 1

Frank, what are your plans to increase your green energy sources?

Speaker 3

The best way for us to be greener example of that is one of our data centers has innovation in cooling technologies to save on energy. So we'll continue as we to expand in our data centers to look for these kinds of innovations.

Speaker 8

And that one for Frank.

Speaker 1

Any plans to do a reverse stock split?

Speaker 3

No, we have no plans to do a reverse stock split.

Speaker 8

I'm probably more for Glad to hear.

Speaker 1

What are the company's plans to bringing an effective management team with experience running a public company, with a focus on increasing shareholder value.

Speaker 2

So we've had a team that with whom we went public That included a number of people with strong public company management expertise. Over the last 12 months, we've added a few more people to the team that have strong public company expertise. So I think we have a strong executive team that do have our company expertise to do that. I'd also say that the as a company, I think I'm proud of what we have achieved. We've Executed on our growth plans, we've met all of our guidance for all the quarters since we've been public.

Speaker 2

And I want to also recognize that I think we have a lot that we still want to do. We've talked about some of the initiatives around the growth opportunities and the road map that we have. So, I think we have a good team. We've added people to make it an even stronger team. We've done Done a lot of good things and we have a lot of work still to be done.

Speaker 1

All right. Last one for you, Gweb. When do you believe that Blackwave is going to be the number one

Speaker 2

I love that. So I would say that we are the leading specialized storage cloud today. We certainly believe we can be a much larger company given the size of the market is over $50,000,000,000 and that we have a very compelling Value proposition. And I'd say considering that Backwave V2 grew 42% this quarter, which is more than 2.5 times that of Amazon AWS, I think we're well on our way.

Speaker 1

All right. Thanks, Gleb and Frank for those thoughtful answers. We're heading off to Q1 for closing comments. I'd like to mention a few investor events we've got planned for Q2. They include first, the Oppenheimer Virtual Emerging Growth attending the Cantor Fitzgerald, Cybersecurity and Infrastructure We're attending the Cantor Fitzgerald Cybersecurity and Infrastructure Software Conference in New York City on June 14th.

Speaker 1

And we also have I have investor meetings hosted by Craig Hallum in New York City on June 15th. All right, back to you, Webb.

Speaker 2

Well, thank you, James, and thanks to everybody for joining us today. We look forward to talking again in just a few short months. Operator, you may now end the call.

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Earnings Conference Call
Backblaze Q1 2023
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