NASDAQ:BLZE Backblaze Q2 2024 Earnings Report $4.51 +0.04 (+0.89%) Closing price 04/25/2025 04:00 PM EasternExtended Trading$4.51 +0.00 (+0.11%) As of 04/25/2025 04:05 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Backblaze EPS ResultsActual EPS-$0.25Consensus EPS -$0.12Beat/MissMissed by -$0.13One Year Ago EPS-$0.38Backblaze Revenue ResultsActual Revenue$31.29 millionExpected Revenue$30.93 millionBeat/MissBeat by +$360.00 thousandYoY Revenue GrowthN/ABackblaze Announcement DetailsQuarterQ2 2024Date8/8/2024TimeAfter Market ClosesConference Call DateThursday, August 8, 2024Conference Call Time4:30PM ETUpcoming EarningsBackblaze's Q1 2025 earnings is scheduled for Wednesday, May 7, 2025, with a conference call scheduled at 5:00 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Backblaze Q2 2024 Earnings Call TranscriptProvided by QuartrAugust 8, 2024 ShareLink copied to clipboard.There are 10 speakers on the call. Operator00:00:00Please note this event is being recorded. I would now like to turn the conference over to Mimi Kong, Investor Relations. Operator00:00:06Please go ahead, ma'am. Speaker 100:00:11Thank you. Good afternoon, and welcome to Backstage's Q2 2024 Earnings Call. On the call with me today are Glenn Budman, Co Founder, CEO and Chairperson of the Board and Frank Patchell, Chief Financial Officer. Today, Barclays will discuss 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 new features and offerings, the impact of price changes, partnerships and sales and marketing initiatives, our ability to compete effectively and manage our growth and our strategy to acquire new customers and retain and expand our business with existing customers. Speaker 100:00:54These 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. Speaker 100:01:33Reconciliation 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 and gross customer retention rate. Thank you for joining us. And I would now like to turn the call over to Glenn. Speaker 200:02:03Thanks, Mimi. Good afternoon, everyone, and thanks for joining us today. We had a great Q2 with strong growth in both revenue and EBITDA, beating our guidance on both. Revenue grew 27% with 43% growth for B2 Cloud Storage. As you may have heard, various tech companies have talked about a difficult macro environment that was negatively impacting their business. Speaker 200:02:28However, we are not seeing that impact on our business. As our numbers show, we beat our Q2 guidance, guided strongly for Q3 and raised guidance for the year. So let's talk about our business now. I'm going to start with 3 key areas of focus for us. First is our accelerated pace of innovation. Speaker 200:02:50In Q2, we continue to deliver new services that win us customers and open new markets with our launch of B2Live Read. 2nd, we're growing our team in exciting ways. I'll tell you more about Jason Wakeham, our new Chief Revenue Officer and Mark Sweden, our new CFO later in the call. But Jason is well suited to help us accelerate our upmarket momentum and mark to drive efficient growth. Finally, we are winning more deals with larger customers. Speaker 200:03:22I'll share stories from an AI company and app developer and an NFL team to explain how we're succeeding in our move up market. But for now, I'll quickly highlight that we grew the number of large customers we serve by 55% year over year. Now let me tell you more about each of these areas of focus. First, I'll begin with innovation. So why is innovation important? Speaker 200:03:45It helps us solve our customers' problems. It expands our strategic value to current and future customers and it differentiates us in the market. In June, we launched B2Live Read. This patent pending cloud service lets customers access files while they're still being uploaded. Here's why this is really valuable for customers. Speaker 200:04:09Take for example, a news reporter working in the field. If they want their in house editors to work on the footage they're recording like adding graphics or cutting something, the editors either need to be on-site to get direct access to the camera feed so they can edit it live or they need to pay for some pretty expensive and complicated solutions to enable remote editing. With live read, all of that goes away. The footage can start to be uploaded to Backblaze and producers anywhere in the world can start working with it before the event and upload is complete. No waiting, no complicated hardware or big price tags, no on-site producers necessary. Speaker 200:04:53We see a promising opportunity here. We innovated this technology and we're the only company that offers it. We believe this functionality can help a broad set of customers, but we're initially focusing on media customers such as broadcasters, event producers and news outlets. We already have several industry leaders in media and entertainment, including Telestream, who are integrating Live Read into their products to bring this benefit to their customers. Whether it's Live Read or event notifications, which we announced last quarter or the integration we launched last month with Internet2, which gives large institutions easier and faster access to B2 cloud storage or any of the numerous other innovations we've announced recently, we are delivering innovation that drives customer value. Speaker 200:05:44Along with enhancing our products and services, we're also strengthening our team to take advantage of these opportunities. I'm excited to welcome Jason Wakeham as our Chief Revenue Officer. Jason has decades of experience building and guiding teams focused on helping customers with their data. He's led direct sales, channels, partnerships and OEM groups at large tech companies including HP and Microsoft and at growth stage companies Cloudera and SnapLogic. As CRO, he's bringing that experience to drive accelerated growth and upmarket momentum to Backblaze. Speaker 200:06:27As we mentioned on the last call, Neele Patel, who previously served as our Vice President of Sales will now lead our efforts on our AI opportunities. The great news is that the go to market teams are already generating significant momentum, especially when it comes to winning larger customers. At the end of the quarter, the number of customers contributing over $50,000 in ARR now stands at 115, a 55% increase over last year. Here's why these customers choose Backblaze. First, whether you look at our performance or reliability or security or functionality, the strength of our platform and our continued innovation helps us win deals. Speaker 200:07:162nd, our support for open cloud solutions enables customers to build their businesses using the cloud services they prefer. And 3rd, with free egress, no delete fees, no complex tiers and pricing at just 1 5th the cost of traditional clouds, our total cost of ownership lets customers save a tremendous amount with which they can increase their margins or reinvest elsewhere in their business. Let me share a few examples of customers that chose Backblaze this quarter. In the AI space, companies have large volumes of data that they need to be able to park somewhere that is inexpensive, but that data has to be accessible immediately when it's needed. It also needs to be transferable without egress fees to a customer's desired GPU cloud. Speaker 200:08:13The characteristics of Backblaze's platform make it ideal for these AI use cases. A good illustration of this from Q2 is a company that uses AI to render 3 d landscapes for major gaming franchises. They previously used both AWS and Azure, but migrated all their data to Backblaze to simplify their storage platform, keep their data readily available and decrease their storage spend by about $300,000 per year. We continue to win developer business also. In Q2, a photo storage and sharing app developer signed a $250,000 ARR deal with us. Speaker 200:09:01When this developer is designing products and features, a major consideration is how the data is accessed. Because they were working within AWS's storage tiers, they had to worry about retrieval fees, timing and egress fees, which meant product decisions were driven by AWS's complicated pricing structure instead of by what customers wanted. With Backblaze's performance and pricing, they can now focus on building features that solve their customers' problems instead of AWS' data retrieval and pricing puzzles. In the media and entertainment space, you may remember that we shared the story of an NFL team that we won last quarter. In Q2, we won another $50,000 plus ARR deal with a different championship NFL team. Speaker 200:09:52This team had some footage in AWS, which had expensive retrieval fees and had other footage locked up in an older storage platform that used proprietary formats. They migrated to Backblaze and now have all their data in one easily accessible place that works seamlessly with their tools. Three last items before I hand off the call to Frank. First, I wanted to call out our recent inclusion in the Russell 2,000 Index, which is another milestone in the company's growth. 2nd, as we announced in the press release just before the call, I'm happy to share that Mark Sweden will join Backblaze as our next CFO. Speaker 200:10:36Mark brings more than 20 years of financial and strategic leadership as a public company CFO and also as a senior partner at PricewaterhouseCoopers. His wealth of knowledge across tech from identifying growth opportunities to driving strategic initiatives is impressive and we're all excited for Mark to help lead Backblaze forward. He'll be officially starting on August 16. Finally, I want to give a special thanks to Frank ahead of his retirement. He built our finance team, led us through our IPO and guided us successfully the following 11 quarters. Speaker 200:11:15This is his last earnings call with us and I'm grateful for all that we accomplished together. With that, I'll turn the call over to Frank. Frank? Speaker 300:11:24Thank you, Clive and thanks everyone for joining us today. As a reminder, 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 Q2 revenue totaled $31,300,000 above the high end of our guidance. The beat was driven by a faster than expected ramp up in storage for new B2 deals signed in quarter 1, better than expected renewals and expansions from B2 Reserve and lower churn for computer backup. Speaker 300:12:05This represents an increase of 27% year over year versus 19% the same period last year. V2 cloud storage revenue was $15,400,000 reflecting 43% growth. Computer backup revenue totaled $15,900,000 reflecting 15% growth. Turning now to our net revenue retention or NRR. Total company NRR increased to 114% from 110% a year ago with B2 cloud storage at 126% and computer backup at 105%. Speaker 300:12:46Gross customer retention was 90% overall with 89% for B2 cloud storage and 90% for computer backup. Moving down the P and L, both adjusted gross margin and GAAP gross margin reached all time highs at 78% 55% respectively, up from 75% 49% last year. This improvement was driven by the price increase and data center optimization. The GAAP gross margin also benefited from low capital additions causing nearly identical depreciation expenses to quarter 1. This quarter marked our 3rd consecutive adjusted EBITDA profit, this time rising to $2,700,000 or 9 percent of revenue. Speaker 300:13:38Results were a new high and a 16 point improvement over the same period last year. It also was a 1 point beat to the top end guidance driven by the higher revenue performance and continued low operating expense growth, principally from prudent headcount management. Turning to the balance sheet. Cash, investments and restricted cash totaled $28,300,000 at quarterend. Total cash usage for the first half was $5,100,000 an approximate 80% improvement from last year's first half. Speaker 300:14:17We continue to have strong confidence in our forecast for total cash of at least $20,000,000 at year end. Our improving total cash usage was impacted by a rise in accounts receivable now at 1,800,000 dollars a $1,000,000 increase since the beginning of the year. This increase reflects our move up market as larger accounts are now billed with payment terms versus immediately collected by credit card. From the beginning of the year, cash was positively impacted by the increase in deferred revenue, stemming largely from computer backup customer renewals with 1 or 2 year terms paid for upfront. In the first half, deferred revenue increased $4,000,000 with Q1 at $3,200,000 and Q2 moderating to $800,000 This fluctuation reflects the timing of customer renewals, which occur unevenly across the quarters and were in line with our expectations. Speaker 300:15:26Our finance lease Our finance lease liability, including long term and short term, decreased by $4,100,000 since the beginning of the year. This reduction required for new data center equipment purchases in Q2. Looking ahead, we expect 3rd quarter revenue to be in the range of $32,400,000 to $32,800,000 Continuing our trend of increasing adjusted EBITDA, 3rd quarter margin is expected to be between 9% and 11%. For the year, we are raising our annual guidance and now expect total revenue between $126,500,000 and $128,500,000 an increase from our prior guidance of $126,000,000 to 128,000,000 dollars We continue to see full year growth for B2 at about 40%. We also now expect adjusted EBITDA to be in the range of 9% to 11%, an improvement over the prior guidance of 8% to 10%. Speaker 300:16:44To conclude, I'm very pleased with our Q2 performance and our increase in the outlook for the remainder of the year. Before I hand the call back to Gleb, I would like to take a moment to express my thanks. First, I want to thank Gleb and Back Place for giving me this amazing opportunity. Thanks to our leadership team and Board members for being great partners over these past 4 years and to the entire Backplace team for the incredible execution and teamwork. And now I'll turn the call back over to Glenn. Speaker 200:17:19Thanks Frank. I want to take a moment to thank our whole team for working together to build Back plays and to serve our customers. I also want to thank our investors and customers for putting your trust in us. We're excited to see many of you at the Oppenheimer Conference next week and Lake Street Conference in September. And with that, like to open it up for questions. Speaker 200:17:43Operator? Operator00:17:44Yes. Thank you. We will now begin the question and answer session. And today's first question comes from Jake Hedron with Oppenheimer and Company. Speaker 400:18:11Hey guys, great quarter. And Frank, congratulations and good luck. It's been a pleasure. So maybe I'll start with you Frank then. If you can I appreciate the color around B2? Speaker 400:18:26I mean it's clearly you're seeing extremely good traction over there. Is there a way for you to break down the upside into the components that you mentioned with respect to lower churn, better expansion activity? How do you think the breakdown of the upside, how would you allocate it between the different buckets? Speaker 300:18:46Well, we've had we as far as our upside to our guidance, Itay? Speaker 400:18:51Yes. Speaker 300:18:53Yes. It actually was strength across a number of areas. The largest was the fact that our churn rate remains very good and it was above our expectations, our forecast and budget. So I would say that's number 1. And that's really referring to computer backup. Speaker 300:19:13And then on the B2 side, B2 Reserve, which is our channel product, has had excellent renewal rates above what we had originally thought. So that's a partnering with our resellers. And they also have been renewing for more storage than they previously had. So that had a nice impact as well. And then the third part was just how quickly our major accounts are coming on to service. Speaker 300:19:50These are from the sales of quarter 1, which were largely in the very end of the quarter. And they came on to service very quickly. So that was a nice it was nice to see that as well. Speaker 400:20:02Yes. Maybe on that last point, Gilead, maybe you can add some color on the move up market. How do you think about when you look at the logos you're adding here now versus a year ago, how would you compare contrast either by vertical, company size, use case? Help me understand how this push up market is translating into a different customer profile for you? Speaker 200:20:27Yes. Thanks, Itay. So I think one way I would say to look at it is when we went public, we went we were almost entirely a self serve driven company within ARPU that was just slightly over $100 and we now have 115 customers paying us over $50,000 each. So that's a dramatic difference from the way the company looked just a couple of years ago. The team that we've assembled, we hired up the mid market enterprise focused AE team in the 1st and second quarters. Speaker 200:21:09We expect that team to be fully ramped by the end of this year. And we've got Jason joining us as an experienced CRO to lead that upmarket momentum. So I think we've materially shifted what the company looks like in terms of its customer adoption from the public time and also for the go forward. Speaker 400:21:30Got it. Maybe last one for me on the B2 line to read that you've talked about, Gleb, in your prepared remarks. First of all, how do you collect what's the business model around this? If you could is this just more compute or more storage that's needed to power this? Or there's a special different pricing model for this? Speaker 400:21:53And then second, relating to this, you've talked about a certain few examples of certain verticals or use cases that will be interested. If you had to look at your customer base, how applicable or how broadly applicable is this capability to your base? What percent of your base you think would be highly interested in this? Speaker 200:22:15Yes, we're excited about Live Read. It is new. It's We expect it to come out of preview mode and into GA by the end of this year. So it's still quite new. But it serves an important set of customer use cases because it enables anyone who is working with large and growing files to take advantage of it. Speaker 200:22:38In terms of the verticals, we're starting with the broadcast and media focus because it's the one that's most closely attributable to seeing value directly from this functionality. It is part of our overall strategy that innovation is a key goal for us, both because it provides value to customers and it differentiates us. And so library is a good example of that. In terms of the business model, we charge for usage of Live Read. So we charge $15 per terabyte uploaded and then the storage is at standard B2 list prices. Speaker 200:23:19So the nice thing with it is it provides unique and differentiated value to customers And at the same time, it's a higher margin offering for Backblaze. Speaker 400:23:32Got it. Thanks, Helane. Thank you, guys. Good luck. Speaker 200:23:35Thank you. Thank you. Operator00:23:38Thank you. And the next question comes from Simon Leopold with Raymond James. Speaker 500:23:43Hi, guys. This is Victor Chewy for Simon Leopold. I just wanted to follow-up on that last question. For the LiveRe, how did you guys identify this specific function as an opportunity? Is this something that existing customers have inquired about previously or something that you recognized as a common need that that would be an opportunity for you? Speaker 500:24:05I guess kind of how did you guys identify this opportunity kind of develop this opportunity? Speaker 200:24:11Yes. Thanks Victor. I'll say that the we identified in probably the ideal way that this comes about, right, which is our team talks to customers and prospects all the time. A lot of times when the customers and prospects say something they'll sometimes they'll ask for a specific feature or functionality, but oftentimes our team is trying to get in tune with what challenges are they struggling with in their businesses without them necessarily being able to offer a direct solution. And that was the case with Live Read. Speaker 200:24:43Our team was talking with some customers and understanding what they're struggling with and they were talking about their challenges with having to wait until files were fully uploaded into the cloud with any solution they were using to before they could work with them or having to have on premises equipment to deal with it. And so as our team started talking about the customer challenge and ways it could potentially be solved, they came up with this innovation of being able to actually enable customers to start leveraging the files while they were growing in the cloud without waiting for it to be completed. So it was kind of the best approach of coming up with a unique solution. Speaker 600:25:32Okay. That's helpful. Speaker 500:25:35And I know you guys have noted that the Backblaze is fairly resilient to the broader base macro headwinds that typically have a much more material impact on your competitors. Does this still hold true for periods that where we could see more severe contractions and especially given heightened concerns over Speaker 400:25:51the last couple of weeks? Speaker 200:25:54Yes. It's a good question because we've seen other customers or other companies talking about the macro challenges and the impact it's had on them. I think for us we have not seen that as you saw in the we beat our Q2, we guided strongly. If you look at Q3, we guided up for the year. So we're not seeing the same thing they're seeing. Speaker 200:26:16And I think that what we believe is that the reason for that is our customers are seeing strong product value from the product and platforms we're offering. They also get strong PTO. And so in an environment where they may be concerned about the macro, they're actually potentially looking for ways to do more with less, which we enable them to do. And I would say that finally, there are other products and offerings that customers can choose to not invest behind. But as long as they have data, they need to store it, they need to use it. Speaker 200:26:53It's not optional. So I think we are more insulated from any potential macro concerns. Speaker 500:27:00Okay. That's helpful. And you haven't observed any changes or changes in demand trends so far? Speaker 200:27:08I think as you've seen from the results in the guidance, I would say no. And moreover, we layer on top of that our execution. So in Q2, our sales team actually beat our internal forecasts for closed won deals. And so and that was with the still newer AE team and with Jason not even having been on board yet. So we're enthusiastic about being able to leverage that AAT team that's fully ramped with Jason fully on board. Speaker 300:27:46Okay. That's great. That's very helpful. Thank you. Operator00:27:51Thank you. And the next question comes from Jason Nader with W. B. Speaker 700:27:56Hey guys, thank you. And congrats to you Frank for your retirement. I wanted to talk a little bit about the second half and just kind of the breakdown of the business in the second half. First and foremost, given the 40% B2 guidance that you gave for the year, that imputes a growth rate in the computer backup business of around 13%. And I just want to make sure my math is correct there. Speaker 700:28:29And you had originally said single digit growth in computer backup this year. So what changed? Did Speaker 300:28:38you say could you repeat the percentage that you said, Jason? Speaker 700:28:44Yes. I think you said in the script that 40 you expect 40% growth in B2. So I just kind of and then you gave guidance for, obviously for the full revenue line. So I just imputed computer backup growth in the kind of low double digits versus the single digit original guidance that you had given for the year? Speaker 300:29:07Okay. So the 40% is correct. And then what's happening in the end of the year, remember, is that we've lapsed our price increases. So that's the kind of difference. Speaker 700:29:25Yes. But that would why would that be net? I mean, you're going to grow faster than you originally guided to. That's what I'm trying to figure out on computer backup. Speaker 300:29:35Okay. Yes, that has been happening. The reason for that is that in our budgets and forecasts, we had expected a higher churn rate given our price increase last year. And remember that we have customers constantly renewing. That's going to happen over a 2 year period. Speaker 300:29:54But what we've actually experienced is a very solid retention rate above our expectations and that has caused our growth to be a little bit higher. Speaker 700:30:07Okay. So basically better renewals, less churn? Speaker 200:30:12Yes. Speaker 700:30:12Okay. And then for the Q4, also imputed guidance just based on what you gave for Q3 and for the year. The growth rate for Q4 is going to be about 17% year over year, which is quite a bit below where you've guided to and where you've been in the half of the year. I just want to understand, is there something anomalous in a year over year comparison? Like was there anything one time in Q4 of 2023, which is making for a tougher comparison? Speaker 200:30:47Hey, Jason, this is Glenn. So I think first of all, just the obviously, we're not guiding Q4 today. In general, we expect B2 in Q3 to grow about 45%. And so that's for Q3 and we still feel good about the 40% growth rate for the year for B2. The Q4 is the full lap the full lapse of the price increase for both B1, both computer backup and for B2. Speaker 200:31:25And so there's that piece of it. The in general, we've had strong Q1, strong Q2. We've got a very strong Q3 and full year. I think there's 2 things we're also just paying attention to. We have 2 transitions. Speaker 200:31:42One is the sales transition with Jason coming on board and we're all enthusiastic about him and the ramping of the AEs, but we want to be cognizant of timing implications of that transition. And then the other is for some of the larger pay as you go customers, one of the things we've been doing this year is starting to move some of them to committed contracts. We're doing that because it establishes longer term relationships with them, more opportunity for longer term upsells with them, more visibility in line of sight into revenue forecasting. But some of those are also at some discount as we put them on these longer term committed contracts. So we're just being sensitive to those two transitions happening through the end of this year. Speaker 700:32:32Got you. Okay. So then just Q4, you're not guiding specifically to Q4, but you're trying to be, let's call it, conservative just based on some of these factors? Speaker 200:32:45I'd say we're cognizant of them. Speaker 800:32:49All right. Speaker 700:32:50Thank you. Good luck guys. Speaker 200:32:52Thanks, Operator00:32:59Thank you. And the next question comes from Zach Cummins with B. Riley Securities. Speaker 800:33:04Hi, this is Ethan Wightel calling in for Zach Cummins. Thanks for taking my questions. And congrats Frank on your retirement. Speaker 500:33:11So you Speaker 800:33:11mentioned that you're seeing the same headwinds that are out there for other companies, but are you seeing any incremental changes in churn? Speaker 300:33:20Churn is very slightly lower. You can see in our gross customer retention. So but it's above our original budget and above our updated forecast. So, it's there, but we're just very pleased that it's been a lesser driver for us. Speaker 800:33:43Got it. That makes sense. And then secondly, could you maybe elaborate a little bit on your new CRO hire and maybe how Jason clicks in with your longer term growth aspirations? Speaker 200:33:55Yes. This is Lev. So I'm more excited about him joining. He brings with him an upmarket set of experiences, which is where we're headed and where we've been headed. So he brings that expertise with him. Speaker 200:34:09He also is really unique in having direct sales channels, partnerships and OEM experience. So which are the different ways that we go to market. Scale revenue momentum, but also in cloud and scale revenue momentum, but also in Cloudera and SnapLogic being in smaller and more nimble companies and making them getting them wrapped quickly. I think our great sense of experiences that he brings to us And he's only been on board for a brief moment here, but he's already been having an impact as we've seen in the organization in terms of structuring, planning and driving that effectiveness. So I'm really excited about having him on board. Speaker 800:35:03Got it. Thank you. Appreciate the color. Speaker 200:35:26Operator, do we have any more questions from others? Operator00:35:29Yes. We do have one from Jeff Van Rhee with Craig Hallum Capital Group. Speaker 900:35:33Yes, great. Thanks for taking the questions. Congrats guys and great to see the margins ticking up. Just looks great across the board. A couple for me, Gleb. Speaker 900:35:43Maybe just start with the AI impacts. Can you give a little better a little more finely tuned sense of the magnitude of the AI impacts or trajectory of those impacts you referenced as a driver? Just trying to get a sense of magnitude and trend. Speaker 200:35:59Yes. So I think I would say 2 things. One is that it's obviously a large opportunity in terms of just market size, right? There is all of the AI efforts that are happening out there are driving data creation, data usage and those are things we fundamentally help with. So I think that that's kind of the first part of it. Speaker 200:36:20And the related part of it is that companies are needing to use different GPU clouds for their AI use cases and we are well positioned to help them with that because of you can store the data with us and then use the data in these different GPU clouds. And the example that I shared in the call earlier of the AI customer, they are saving $300,000 $300,000 just by switching to us. So that's a huge savings for their AI use cases. But also they're actually becoming more effective as an organization because they were being limited and constrained by the their by AWS not having enough GPU capacity for their needs at that moment and needing to use another provider. And this allows them to have diversity of GPU providers while keeping their data somewhere that is accessible. Speaker 200:37:17So I think we're really well positioned to help customers with their AI use cases. The other thing that I'll mention is that a lot of the discussion right now that I've seen out in the industry is companies are ramping up CapEx dramatically to service the AI use case and saying it's going to take years years potentially to get a return on that. That's not the case for us, because they're spending CapEx on GPU build outs. We're not a GPU company. We're enabling AI use cases, including how and where they can use those GPU products. Speaker 200:37:59So we're not having the same CapEx requirements while we do get the benefit of supporting those use cases. Speaker 900:38:10Great. That's helpful. And back to Jason Wakeem joining the company, you touched on his skills, but I wonder if we could get you to kind of come at it maybe from a different direction. Speaker 500:38:21And just talk Speaker 900:38:21about what the B2 selling motion is now? And broadly speaking, what you envision it to be in 12 months? Speaker 200:38:29Sure. So when we started when we were going down the path originally, we were almost entirely self serve. So the selling motion at the time was people finding out about Backblaze through various different channels, showing up to the website and entering an email address, a password, clicking create account, trying it, entering a credit card and then starting to use the service. That was how 80% of the business existed at the time of IPO. It's still a significant driver of new business for us today and we still and we've made investments and continue to optimize the self serve part of the go to market motion. Speaker 200:39:07On top of that then we layered a direct selling motion. Direct selling motion is people coming to the company either because they've heard about us through our blog, PR, events and other places or by our outbound SDRs reaching out to targeted verticals and targeted use case and bringing leads into the pipeline that the account executive team then works to close. We then layered on top of that a channel motion working with resellers, companies like CDW and others in order to drive channel business. And then most recently, just earlier this year, last few months ago, we layered on powered by, which was the new technology that enabled us to make ourselves part of other people's offerings. So we talked about edge compute companies, media and transcoding companies and cloud service providers that are starting to integrate B2 into their products as part of their go to market. Speaker 200:40:16So those are the ways that we've been going to market in the layering. And I believe that Jason will continue to drive all of those sales led ones, not the self serve, but the sales led ones. But the increasing efficiency and effectiveness and success of those motions as well as moving up into the larger sizes of the organizations that are taking us up on those motions. Speaker 900:40:46Got it. Very helpful. Thanks so much. Speaker 200:40:50Thank you, Jeff. Operator00:40:51Thank you. And the next question comes from Mark Hagen with Lake Street Capital Markets. Speaker 600:40:57Hi, guys. Congratulations, Frank. In for Eric today. So just wondering, looking at the 2025, we're kind of looking we're expecting sort of cash flow positive mid-twenty 25 and then with the addition of Jason and any changes that may happen there or new sales hires. I'm just wondering if there's any change to that or if that's still kind of the thoughts there? Speaker 300:41:22Yes. As far as our cash, so we're really pleased of course that we have an 80% reduction in total cash usage for the first half of this year versus the first half last year. We continue to project year end cash balance at $20,000,000 and that we will be total cash usage breakeven by the middle of twenty twenty five or the second half of twenty twenty five. So and remember that we define total cash and total cash usage, it's cash from operations, financing and investing. But shortly thereafter in 2025, we also expect to be free cash flow positive as well. Speaker 600:42:11Got it. Well, thank you. Appreciate it. Operator00:42:17Thank you. And that does conclude the question and answer session. I would like to return the floor to Glenn Budbin for any closing comments. Speaker 200:42:26So I want to thank Frank for helping us for these past years and I want to thank all of you for joining us on this call. I also want to send a big thank you to everybody at Backblaze for the work they put into building the company and supporting us in supporting our customers. And finally to thank our investors and customers for putting your trust into us. We are excited to also see many of you at the Oppenheimer Conference next week and Lake Street Conference in September. So with that, I'd like to say thank you, operator, and we can close the call. Operator00:43:06Thank you. The conference has now concluded. Thank you for attending today's presentation.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallBackblaze Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Backblaze Earnings HeadlinesBackblaze Investor News: Rosen Law Firm Encourages Backblaze, Inc. ...April 25 at 5:41 PM | gurufocus.comBackblaze Investor News: Rosen Law Firm Encourages Backblaze, Inc. Investors to Inquire About Securities Class Action Investigation - BLZEApril 25 at 3:40 PM | prnewswire.comTrump’s tariffs just split the AI market in twoTrump’s tariff just split the AI market – among others – in two. One group of AI companies—the ones relying on cheap foreign hardware—just saw their costs shoot through the roof. For the other group of AI companies, they were just handed a massive competitive advantage. Make no mistake, AI as a whole is still a game-changer for the global economy. But within the AI sector, Trump’s tariffs have created a huge divergence.April 26, 2025 | Traders Agency (Ad)BLZE Investors Have Opportunity to Join Backblaze, Inc. Fraud Investigation with the Schall Law FirmApril 24 at 11:02 PM | businesswire.comBackblaze stock plunges amid Morpheus Research reportApril 24 at 2:11 PM | investing.comRosen Law Firm Encourages Backblaze, Inc. Investors to Inquire About Securities Class Action Investigation - BLZEApril 24 at 2:11 PM | tmcnet.comSee More Backblaze Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Backblaze? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Backblaze and other key companies, straight to your email. Email Address About BackblazeBackblaze (NASDAQ:BLZE), a storage cloud platform, provides businesses and consumers cloud services to store, use, and protect data in the United States and internationally. The company offers cloud services through a web-scale software infrastructure built on commodity hardware. It also provides Backblaze B2 Cloud Storage, which enables customers to store data, developers to build applications, and partners to expand their use cases. This service is offered as a consumption-based Infrastructure-as-a-Service (IaaS) and serves use cases, such as public, hybrid, and multi-cloud data storage; application development and DevOps; content delivery and edge computing; security and ransomware protection; media management; backup, archive, and tape replacement; repository for analytics, artificial intelligence and machine learning; and Internet of Things. In addition, the company offers Backblaze Computer Backup that automatically backs up data from laptops and desktops for businesses and individuals, which provides a subscription-based Software-as-a-Service and serves use cases, including computer backup, ransomware protection, theft and loss protection, and remote access. It serves the public cloud IaaS storage and Data-Protection-as-a-Service markets. The company was incorporated in 2007 and is headquartered in San Mateo, California.View Backblaze ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Markets Think Robinhood Earnings Could Send the Stock UpIs the Floor in for Lam Research After Bullish Earnings?Market Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Upcoming Earnings Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Starbucks (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Regeneron Pharmaceuticals (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 10 speakers on the call. Operator00:00:00Please note this event is being recorded. I would now like to turn the conference over to Mimi Kong, Investor Relations. Operator00:00:06Please go ahead, ma'am. Speaker 100:00:11Thank you. Good afternoon, and welcome to Backstage's Q2 2024 Earnings Call. On the call with me today are Glenn Budman, Co Founder, CEO and Chairperson of the Board and Frank Patchell, Chief Financial Officer. Today, Barclays will discuss 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 new features and offerings, the impact of price changes, partnerships and sales and marketing initiatives, our ability to compete effectively and manage our growth and our strategy to acquire new customers and retain and expand our business with existing customers. Speaker 100:00:54These 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. Speaker 100:01:33Reconciliation 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 and gross customer retention rate. Thank you for joining us. And I would now like to turn the call over to Glenn. Speaker 200:02:03Thanks, Mimi. Good afternoon, everyone, and thanks for joining us today. We had a great Q2 with strong growth in both revenue and EBITDA, beating our guidance on both. Revenue grew 27% with 43% growth for B2 Cloud Storage. As you may have heard, various tech companies have talked about a difficult macro environment that was negatively impacting their business. Speaker 200:02:28However, we are not seeing that impact on our business. As our numbers show, we beat our Q2 guidance, guided strongly for Q3 and raised guidance for the year. So let's talk about our business now. I'm going to start with 3 key areas of focus for us. First is our accelerated pace of innovation. Speaker 200:02:50In Q2, we continue to deliver new services that win us customers and open new markets with our launch of B2Live Read. 2nd, we're growing our team in exciting ways. I'll tell you more about Jason Wakeham, our new Chief Revenue Officer and Mark Sweden, our new CFO later in the call. But Jason is well suited to help us accelerate our upmarket momentum and mark to drive efficient growth. Finally, we are winning more deals with larger customers. Speaker 200:03:22I'll share stories from an AI company and app developer and an NFL team to explain how we're succeeding in our move up market. But for now, I'll quickly highlight that we grew the number of large customers we serve by 55% year over year. Now let me tell you more about each of these areas of focus. First, I'll begin with innovation. So why is innovation important? Speaker 200:03:45It helps us solve our customers' problems. It expands our strategic value to current and future customers and it differentiates us in the market. In June, we launched B2Live Read. This patent pending cloud service lets customers access files while they're still being uploaded. Here's why this is really valuable for customers. Speaker 200:04:09Take for example, a news reporter working in the field. If they want their in house editors to work on the footage they're recording like adding graphics or cutting something, the editors either need to be on-site to get direct access to the camera feed so they can edit it live or they need to pay for some pretty expensive and complicated solutions to enable remote editing. With live read, all of that goes away. The footage can start to be uploaded to Backblaze and producers anywhere in the world can start working with it before the event and upload is complete. No waiting, no complicated hardware or big price tags, no on-site producers necessary. Speaker 200:04:53We see a promising opportunity here. We innovated this technology and we're the only company that offers it. We believe this functionality can help a broad set of customers, but we're initially focusing on media customers such as broadcasters, event producers and news outlets. We already have several industry leaders in media and entertainment, including Telestream, who are integrating Live Read into their products to bring this benefit to their customers. Whether it's Live Read or event notifications, which we announced last quarter or the integration we launched last month with Internet2, which gives large institutions easier and faster access to B2 cloud storage or any of the numerous other innovations we've announced recently, we are delivering innovation that drives customer value. Speaker 200:05:44Along with enhancing our products and services, we're also strengthening our team to take advantage of these opportunities. I'm excited to welcome Jason Wakeham as our Chief Revenue Officer. Jason has decades of experience building and guiding teams focused on helping customers with their data. He's led direct sales, channels, partnerships and OEM groups at large tech companies including HP and Microsoft and at growth stage companies Cloudera and SnapLogic. As CRO, he's bringing that experience to drive accelerated growth and upmarket momentum to Backblaze. Speaker 200:06:27As we mentioned on the last call, Neele Patel, who previously served as our Vice President of Sales will now lead our efforts on our AI opportunities. The great news is that the go to market teams are already generating significant momentum, especially when it comes to winning larger customers. At the end of the quarter, the number of customers contributing over $50,000 in ARR now stands at 115, a 55% increase over last year. Here's why these customers choose Backblaze. First, whether you look at our performance or reliability or security or functionality, the strength of our platform and our continued innovation helps us win deals. Speaker 200:07:162nd, our support for open cloud solutions enables customers to build their businesses using the cloud services they prefer. And 3rd, with free egress, no delete fees, no complex tiers and pricing at just 1 5th the cost of traditional clouds, our total cost of ownership lets customers save a tremendous amount with which they can increase their margins or reinvest elsewhere in their business. Let me share a few examples of customers that chose Backblaze this quarter. In the AI space, companies have large volumes of data that they need to be able to park somewhere that is inexpensive, but that data has to be accessible immediately when it's needed. It also needs to be transferable without egress fees to a customer's desired GPU cloud. Speaker 200:08:13The characteristics of Backblaze's platform make it ideal for these AI use cases. A good illustration of this from Q2 is a company that uses AI to render 3 d landscapes for major gaming franchises. They previously used both AWS and Azure, but migrated all their data to Backblaze to simplify their storage platform, keep their data readily available and decrease their storage spend by about $300,000 per year. We continue to win developer business also. In Q2, a photo storage and sharing app developer signed a $250,000 ARR deal with us. Speaker 200:09:01When this developer is designing products and features, a major consideration is how the data is accessed. Because they were working within AWS's storage tiers, they had to worry about retrieval fees, timing and egress fees, which meant product decisions were driven by AWS's complicated pricing structure instead of by what customers wanted. With Backblaze's performance and pricing, they can now focus on building features that solve their customers' problems instead of AWS' data retrieval and pricing puzzles. In the media and entertainment space, you may remember that we shared the story of an NFL team that we won last quarter. In Q2, we won another $50,000 plus ARR deal with a different championship NFL team. Speaker 200:09:52This team had some footage in AWS, which had expensive retrieval fees and had other footage locked up in an older storage platform that used proprietary formats. They migrated to Backblaze and now have all their data in one easily accessible place that works seamlessly with their tools. Three last items before I hand off the call to Frank. First, I wanted to call out our recent inclusion in the Russell 2,000 Index, which is another milestone in the company's growth. 2nd, as we announced in the press release just before the call, I'm happy to share that Mark Sweden will join Backblaze as our next CFO. Speaker 200:10:36Mark brings more than 20 years of financial and strategic leadership as a public company CFO and also as a senior partner at PricewaterhouseCoopers. His wealth of knowledge across tech from identifying growth opportunities to driving strategic initiatives is impressive and we're all excited for Mark to help lead Backblaze forward. He'll be officially starting on August 16. Finally, I want to give a special thanks to Frank ahead of his retirement. He built our finance team, led us through our IPO and guided us successfully the following 11 quarters. Speaker 200:11:15This is his last earnings call with us and I'm grateful for all that we accomplished together. With that, I'll turn the call over to Frank. Frank? Speaker 300:11:24Thank you, Clive and thanks everyone for joining us today. As a reminder, 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 Q2 revenue totaled $31,300,000 above the high end of our guidance. The beat was driven by a faster than expected ramp up in storage for new B2 deals signed in quarter 1, better than expected renewals and expansions from B2 Reserve and lower churn for computer backup. Speaker 300:12:05This represents an increase of 27% year over year versus 19% the same period last year. V2 cloud storage revenue was $15,400,000 reflecting 43% growth. Computer backup revenue totaled $15,900,000 reflecting 15% growth. Turning now to our net revenue retention or NRR. Total company NRR increased to 114% from 110% a year ago with B2 cloud storage at 126% and computer backup at 105%. Speaker 300:12:46Gross customer retention was 90% overall with 89% for B2 cloud storage and 90% for computer backup. Moving down the P and L, both adjusted gross margin and GAAP gross margin reached all time highs at 78% 55% respectively, up from 75% 49% last year. This improvement was driven by the price increase and data center optimization. The GAAP gross margin also benefited from low capital additions causing nearly identical depreciation expenses to quarter 1. This quarter marked our 3rd consecutive adjusted EBITDA profit, this time rising to $2,700,000 or 9 percent of revenue. Speaker 300:13:38Results were a new high and a 16 point improvement over the same period last year. It also was a 1 point beat to the top end guidance driven by the higher revenue performance and continued low operating expense growth, principally from prudent headcount management. Turning to the balance sheet. Cash, investments and restricted cash totaled $28,300,000 at quarterend. Total cash usage for the first half was $5,100,000 an approximate 80% improvement from last year's first half. Speaker 300:14:17We continue to have strong confidence in our forecast for total cash of at least $20,000,000 at year end. Our improving total cash usage was impacted by a rise in accounts receivable now at 1,800,000 dollars a $1,000,000 increase since the beginning of the year. This increase reflects our move up market as larger accounts are now billed with payment terms versus immediately collected by credit card. From the beginning of the year, cash was positively impacted by the increase in deferred revenue, stemming largely from computer backup customer renewals with 1 or 2 year terms paid for upfront. In the first half, deferred revenue increased $4,000,000 with Q1 at $3,200,000 and Q2 moderating to $800,000 This fluctuation reflects the timing of customer renewals, which occur unevenly across the quarters and were in line with our expectations. Speaker 300:15:26Our finance lease Our finance lease liability, including long term and short term, decreased by $4,100,000 since the beginning of the year. This reduction required for new data center equipment purchases in Q2. Looking ahead, we expect 3rd quarter revenue to be in the range of $32,400,000 to $32,800,000 Continuing our trend of increasing adjusted EBITDA, 3rd quarter margin is expected to be between 9% and 11%. For the year, we are raising our annual guidance and now expect total revenue between $126,500,000 and $128,500,000 an increase from our prior guidance of $126,000,000 to 128,000,000 dollars We continue to see full year growth for B2 at about 40%. We also now expect adjusted EBITDA to be in the range of 9% to 11%, an improvement over the prior guidance of 8% to 10%. Speaker 300:16:44To conclude, I'm very pleased with our Q2 performance and our increase in the outlook for the remainder of the year. Before I hand the call back to Gleb, I would like to take a moment to express my thanks. First, I want to thank Gleb and Back Place for giving me this amazing opportunity. Thanks to our leadership team and Board members for being great partners over these past 4 years and to the entire Backplace team for the incredible execution and teamwork. And now I'll turn the call back over to Glenn. Speaker 200:17:19Thanks Frank. I want to take a moment to thank our whole team for working together to build Back plays and to serve our customers. I also want to thank our investors and customers for putting your trust in us. We're excited to see many of you at the Oppenheimer Conference next week and Lake Street Conference in September. And with that, like to open it up for questions. Speaker 200:17:43Operator? Operator00:17:44Yes. Thank you. We will now begin the question and answer session. And today's first question comes from Jake Hedron with Oppenheimer and Company. Speaker 400:18:11Hey guys, great quarter. And Frank, congratulations and good luck. It's been a pleasure. So maybe I'll start with you Frank then. If you can I appreciate the color around B2? Speaker 400:18:26I mean it's clearly you're seeing extremely good traction over there. Is there a way for you to break down the upside into the components that you mentioned with respect to lower churn, better expansion activity? How do you think the breakdown of the upside, how would you allocate it between the different buckets? Speaker 300:18:46Well, we've had we as far as our upside to our guidance, Itay? Speaker 400:18:51Yes. Speaker 300:18:53Yes. It actually was strength across a number of areas. The largest was the fact that our churn rate remains very good and it was above our expectations, our forecast and budget. So I would say that's number 1. And that's really referring to computer backup. Speaker 300:19:13And then on the B2 side, B2 Reserve, which is our channel product, has had excellent renewal rates above what we had originally thought. So that's a partnering with our resellers. And they also have been renewing for more storage than they previously had. So that had a nice impact as well. And then the third part was just how quickly our major accounts are coming on to service. Speaker 300:19:50These are from the sales of quarter 1, which were largely in the very end of the quarter. And they came on to service very quickly. So that was a nice it was nice to see that as well. Speaker 400:20:02Yes. Maybe on that last point, Gilead, maybe you can add some color on the move up market. How do you think about when you look at the logos you're adding here now versus a year ago, how would you compare contrast either by vertical, company size, use case? Help me understand how this push up market is translating into a different customer profile for you? Speaker 200:20:27Yes. Thanks, Itay. So I think one way I would say to look at it is when we went public, we went we were almost entirely a self serve driven company within ARPU that was just slightly over $100 and we now have 115 customers paying us over $50,000 each. So that's a dramatic difference from the way the company looked just a couple of years ago. The team that we've assembled, we hired up the mid market enterprise focused AE team in the 1st and second quarters. Speaker 200:21:09We expect that team to be fully ramped by the end of this year. And we've got Jason joining us as an experienced CRO to lead that upmarket momentum. So I think we've materially shifted what the company looks like in terms of its customer adoption from the public time and also for the go forward. Speaker 400:21:30Got it. Maybe last one for me on the B2 line to read that you've talked about, Gleb, in your prepared remarks. First of all, how do you collect what's the business model around this? If you could is this just more compute or more storage that's needed to power this? Or there's a special different pricing model for this? Speaker 400:21:53And then second, relating to this, you've talked about a certain few examples of certain verticals or use cases that will be interested. If you had to look at your customer base, how applicable or how broadly applicable is this capability to your base? What percent of your base you think would be highly interested in this? Speaker 200:22:15Yes, we're excited about Live Read. It is new. It's We expect it to come out of preview mode and into GA by the end of this year. So it's still quite new. But it serves an important set of customer use cases because it enables anyone who is working with large and growing files to take advantage of it. Speaker 200:22:38In terms of the verticals, we're starting with the broadcast and media focus because it's the one that's most closely attributable to seeing value directly from this functionality. It is part of our overall strategy that innovation is a key goal for us, both because it provides value to customers and it differentiates us. And so library is a good example of that. In terms of the business model, we charge for usage of Live Read. So we charge $15 per terabyte uploaded and then the storage is at standard B2 list prices. Speaker 200:23:19So the nice thing with it is it provides unique and differentiated value to customers And at the same time, it's a higher margin offering for Backblaze. Speaker 400:23:32Got it. Thanks, Helane. Thank you, guys. Good luck. Speaker 200:23:35Thank you. Thank you. Operator00:23:38Thank you. And the next question comes from Simon Leopold with Raymond James. Speaker 500:23:43Hi, guys. This is Victor Chewy for Simon Leopold. I just wanted to follow-up on that last question. For the LiveRe, how did you guys identify this specific function as an opportunity? Is this something that existing customers have inquired about previously or something that you recognized as a common need that that would be an opportunity for you? Speaker 500:24:05I guess kind of how did you guys identify this opportunity kind of develop this opportunity? Speaker 200:24:11Yes. Thanks Victor. I'll say that the we identified in probably the ideal way that this comes about, right, which is our team talks to customers and prospects all the time. A lot of times when the customers and prospects say something they'll sometimes they'll ask for a specific feature or functionality, but oftentimes our team is trying to get in tune with what challenges are they struggling with in their businesses without them necessarily being able to offer a direct solution. And that was the case with Live Read. Speaker 200:24:43Our team was talking with some customers and understanding what they're struggling with and they were talking about their challenges with having to wait until files were fully uploaded into the cloud with any solution they were using to before they could work with them or having to have on premises equipment to deal with it. And so as our team started talking about the customer challenge and ways it could potentially be solved, they came up with this innovation of being able to actually enable customers to start leveraging the files while they were growing in the cloud without waiting for it to be completed. So it was kind of the best approach of coming up with a unique solution. Speaker 600:25:32Okay. That's helpful. Speaker 500:25:35And I know you guys have noted that the Backblaze is fairly resilient to the broader base macro headwinds that typically have a much more material impact on your competitors. Does this still hold true for periods that where we could see more severe contractions and especially given heightened concerns over Speaker 400:25:51the last couple of weeks? Speaker 200:25:54Yes. It's a good question because we've seen other customers or other companies talking about the macro challenges and the impact it's had on them. I think for us we have not seen that as you saw in the we beat our Q2, we guided strongly. If you look at Q3, we guided up for the year. So we're not seeing the same thing they're seeing. Speaker 200:26:16And I think that what we believe is that the reason for that is our customers are seeing strong product value from the product and platforms we're offering. They also get strong PTO. And so in an environment where they may be concerned about the macro, they're actually potentially looking for ways to do more with less, which we enable them to do. And I would say that finally, there are other products and offerings that customers can choose to not invest behind. But as long as they have data, they need to store it, they need to use it. Speaker 200:26:53It's not optional. So I think we are more insulated from any potential macro concerns. Speaker 500:27:00Okay. That's helpful. And you haven't observed any changes or changes in demand trends so far? Speaker 200:27:08I think as you've seen from the results in the guidance, I would say no. And moreover, we layer on top of that our execution. So in Q2, our sales team actually beat our internal forecasts for closed won deals. And so and that was with the still newer AE team and with Jason not even having been on board yet. So we're enthusiastic about being able to leverage that AAT team that's fully ramped with Jason fully on board. Speaker 300:27:46Okay. That's great. That's very helpful. Thank you. Operator00:27:51Thank you. And the next question comes from Jason Nader with W. B. Speaker 700:27:56Hey guys, thank you. And congrats to you Frank for your retirement. I wanted to talk a little bit about the second half and just kind of the breakdown of the business in the second half. First and foremost, given the 40% B2 guidance that you gave for the year, that imputes a growth rate in the computer backup business of around 13%. And I just want to make sure my math is correct there. Speaker 700:28:29And you had originally said single digit growth in computer backup this year. So what changed? Did Speaker 300:28:38you say could you repeat the percentage that you said, Jason? Speaker 700:28:44Yes. I think you said in the script that 40 you expect 40% growth in B2. So I just kind of and then you gave guidance for, obviously for the full revenue line. So I just imputed computer backup growth in the kind of low double digits versus the single digit original guidance that you had given for the year? Speaker 300:29:07Okay. So the 40% is correct. And then what's happening in the end of the year, remember, is that we've lapsed our price increases. So that's the kind of difference. Speaker 700:29:25Yes. But that would why would that be net? I mean, you're going to grow faster than you originally guided to. That's what I'm trying to figure out on computer backup. Speaker 300:29:35Okay. Yes, that has been happening. The reason for that is that in our budgets and forecasts, we had expected a higher churn rate given our price increase last year. And remember that we have customers constantly renewing. That's going to happen over a 2 year period. Speaker 300:29:54But what we've actually experienced is a very solid retention rate above our expectations and that has caused our growth to be a little bit higher. Speaker 700:30:07Okay. So basically better renewals, less churn? Speaker 200:30:12Yes. Speaker 700:30:12Okay. And then for the Q4, also imputed guidance just based on what you gave for Q3 and for the year. The growth rate for Q4 is going to be about 17% year over year, which is quite a bit below where you've guided to and where you've been in the half of the year. I just want to understand, is there something anomalous in a year over year comparison? Like was there anything one time in Q4 of 2023, which is making for a tougher comparison? Speaker 200:30:47Hey, Jason, this is Glenn. So I think first of all, just the obviously, we're not guiding Q4 today. In general, we expect B2 in Q3 to grow about 45%. And so that's for Q3 and we still feel good about the 40% growth rate for the year for B2. The Q4 is the full lap the full lapse of the price increase for both B1, both computer backup and for B2. Speaker 200:31:25And so there's that piece of it. The in general, we've had strong Q1, strong Q2. We've got a very strong Q3 and full year. I think there's 2 things we're also just paying attention to. We have 2 transitions. Speaker 200:31:42One is the sales transition with Jason coming on board and we're all enthusiastic about him and the ramping of the AEs, but we want to be cognizant of timing implications of that transition. And then the other is for some of the larger pay as you go customers, one of the things we've been doing this year is starting to move some of them to committed contracts. We're doing that because it establishes longer term relationships with them, more opportunity for longer term upsells with them, more visibility in line of sight into revenue forecasting. But some of those are also at some discount as we put them on these longer term committed contracts. So we're just being sensitive to those two transitions happening through the end of this year. Speaker 700:32:32Got you. Okay. So then just Q4, you're not guiding specifically to Q4, but you're trying to be, let's call it, conservative just based on some of these factors? Speaker 200:32:45I'd say we're cognizant of them. Speaker 800:32:49All right. Speaker 700:32:50Thank you. Good luck guys. Speaker 200:32:52Thanks, Operator00:32:59Thank you. And the next question comes from Zach Cummins with B. Riley Securities. Speaker 800:33:04Hi, this is Ethan Wightel calling in for Zach Cummins. Thanks for taking my questions. And congrats Frank on your retirement. Speaker 500:33:11So you Speaker 800:33:11mentioned that you're seeing the same headwinds that are out there for other companies, but are you seeing any incremental changes in churn? Speaker 300:33:20Churn is very slightly lower. You can see in our gross customer retention. So but it's above our original budget and above our updated forecast. So, it's there, but we're just very pleased that it's been a lesser driver for us. Speaker 800:33:43Got it. That makes sense. And then secondly, could you maybe elaborate a little bit on your new CRO hire and maybe how Jason clicks in with your longer term growth aspirations? Speaker 200:33:55Yes. This is Lev. So I'm more excited about him joining. He brings with him an upmarket set of experiences, which is where we're headed and where we've been headed. So he brings that expertise with him. Speaker 200:34:09He also is really unique in having direct sales channels, partnerships and OEM experience. So which are the different ways that we go to market. Scale revenue momentum, but also in cloud and scale revenue momentum, but also in Cloudera and SnapLogic being in smaller and more nimble companies and making them getting them wrapped quickly. I think our great sense of experiences that he brings to us And he's only been on board for a brief moment here, but he's already been having an impact as we've seen in the organization in terms of structuring, planning and driving that effectiveness. So I'm really excited about having him on board. Speaker 800:35:03Got it. Thank you. Appreciate the color. Speaker 200:35:26Operator, do we have any more questions from others? Operator00:35:29Yes. We do have one from Jeff Van Rhee with Craig Hallum Capital Group. Speaker 900:35:33Yes, great. Thanks for taking the questions. Congrats guys and great to see the margins ticking up. Just looks great across the board. A couple for me, Gleb. Speaker 900:35:43Maybe just start with the AI impacts. Can you give a little better a little more finely tuned sense of the magnitude of the AI impacts or trajectory of those impacts you referenced as a driver? Just trying to get a sense of magnitude and trend. Speaker 200:35:59Yes. So I think I would say 2 things. One is that it's obviously a large opportunity in terms of just market size, right? There is all of the AI efforts that are happening out there are driving data creation, data usage and those are things we fundamentally help with. So I think that that's kind of the first part of it. Speaker 200:36:20And the related part of it is that companies are needing to use different GPU clouds for their AI use cases and we are well positioned to help them with that because of you can store the data with us and then use the data in these different GPU clouds. And the example that I shared in the call earlier of the AI customer, they are saving $300,000 $300,000 just by switching to us. So that's a huge savings for their AI use cases. But also they're actually becoming more effective as an organization because they were being limited and constrained by the their by AWS not having enough GPU capacity for their needs at that moment and needing to use another provider. And this allows them to have diversity of GPU providers while keeping their data somewhere that is accessible. Speaker 200:37:17So I think we're really well positioned to help customers with their AI use cases. The other thing that I'll mention is that a lot of the discussion right now that I've seen out in the industry is companies are ramping up CapEx dramatically to service the AI use case and saying it's going to take years years potentially to get a return on that. That's not the case for us, because they're spending CapEx on GPU build outs. We're not a GPU company. We're enabling AI use cases, including how and where they can use those GPU products. Speaker 200:37:59So we're not having the same CapEx requirements while we do get the benefit of supporting those use cases. Speaker 900:38:10Great. That's helpful. And back to Jason Wakeem joining the company, you touched on his skills, but I wonder if we could get you to kind of come at it maybe from a different direction. Speaker 500:38:21And just talk Speaker 900:38:21about what the B2 selling motion is now? And broadly speaking, what you envision it to be in 12 months? Speaker 200:38:29Sure. So when we started when we were going down the path originally, we were almost entirely self serve. So the selling motion at the time was people finding out about Backblaze through various different channels, showing up to the website and entering an email address, a password, clicking create account, trying it, entering a credit card and then starting to use the service. That was how 80% of the business existed at the time of IPO. It's still a significant driver of new business for us today and we still and we've made investments and continue to optimize the self serve part of the go to market motion. Speaker 200:39:07On top of that then we layered a direct selling motion. Direct selling motion is people coming to the company either because they've heard about us through our blog, PR, events and other places or by our outbound SDRs reaching out to targeted verticals and targeted use case and bringing leads into the pipeline that the account executive team then works to close. We then layered on top of that a channel motion working with resellers, companies like CDW and others in order to drive channel business. And then most recently, just earlier this year, last few months ago, we layered on powered by, which was the new technology that enabled us to make ourselves part of other people's offerings. So we talked about edge compute companies, media and transcoding companies and cloud service providers that are starting to integrate B2 into their products as part of their go to market. Speaker 200:40:16So those are the ways that we've been going to market in the layering. And I believe that Jason will continue to drive all of those sales led ones, not the self serve, but the sales led ones. But the increasing efficiency and effectiveness and success of those motions as well as moving up into the larger sizes of the organizations that are taking us up on those motions. Speaker 900:40:46Got it. Very helpful. Thanks so much. Speaker 200:40:50Thank you, Jeff. Operator00:40:51Thank you. And the next question comes from Mark Hagen with Lake Street Capital Markets. Speaker 600:40:57Hi, guys. Congratulations, Frank. In for Eric today. So just wondering, looking at the 2025, we're kind of looking we're expecting sort of cash flow positive mid-twenty 25 and then with the addition of Jason and any changes that may happen there or new sales hires. I'm just wondering if there's any change to that or if that's still kind of the thoughts there? Speaker 300:41:22Yes. As far as our cash, so we're really pleased of course that we have an 80% reduction in total cash usage for the first half of this year versus the first half last year. We continue to project year end cash balance at $20,000,000 and that we will be total cash usage breakeven by the middle of twenty twenty five or the second half of twenty twenty five. So and remember that we define total cash and total cash usage, it's cash from operations, financing and investing. But shortly thereafter in 2025, we also expect to be free cash flow positive as well. Speaker 600:42:11Got it. Well, thank you. Appreciate it. Operator00:42:17Thank you. And that does conclude the question and answer session. I would like to return the floor to Glenn Budbin for any closing comments. Speaker 200:42:26So I want to thank Frank for helping us for these past years and I want to thank all of you for joining us on this call. I also want to send a big thank you to everybody at Backblaze for the work they put into building the company and supporting us in supporting our customers. And finally to thank our investors and customers for putting your trust into us. We are excited to also see many of you at the Oppenheimer Conference next week and Lake Street Conference in September. So with that, I'd like to say thank you, operator, and we can close the call. Operator00:43:06Thank you. The conference has now concluded. Thank you for attending today's presentation.Read morePowered by