Backblaze, Inc. Q4 FY2024 earnings call

• Go-to-market transformation progress: ARR win rates up significantly, sales productivity doubled year-over-year, team beat quota despite initial challenges. Signed a significant expansion for an existing customer over $1 million in annual contract value and had a record sales booking quarter.
• B2 Cloud Storage: Net new ARR sequential growth of $5 million, driven by price increase and existing customer data expansion. Signed larger customers in various industries, including an application developer platform, a Japanese social media company, and a digital music media company.
• Customer expansions: Existing customers in surveillance, gaming, and AI industries expanded usage, and a customer signed a significant expansion for over $1 million in annual contract value using the Powered by Backblaze offering.
• AI momentum: Serving hundreds of AI customers, with data stored by these companies nearly tenfold, and three out of top 10 customers being AI companies. AI use cases include data collection, processing, model training, inference, and monitoring.
• White label solution: Powered by Backblaze launched in Q1 2024, with several channel and technology partners signed on, including a $1 million-plus ACV deal.

Revenue grew 18% year-over-year to $33.8 million in Q4 2024. B2 Cloud Storage, the fastest-growing solution, grew 22% to $17.1 million, accounting for over 50% of the business in Q4. Computer Backup revenue was $16.7 million, up 13% year-over-year. B2 Cloud Storage had net new ARR sequential growth of $5 million, and adjusted gross margin was 78% for the quarter.

• 2025 full-year revenue expected to be in the range of $144 million to $146 million, and Q1 revenues within $34.1 million to $34.5 million.
• B2 expected to grow over 30% by end of 2025, driven by new customer acquisition and existing customer expansion.
• Adjusted EBITDA for full-year projected to be in the range of 16% to 18%, and Q1 adjusted EBITDA guidance in 13% to 15%.
• Aim to be adjusted free cash flow positive in Q4 2025, with operating leverage expected to kick in for sustainable free cash flow growth.

Q: On the partner front, any quantitative goals for partners in 2025?

A: On the channel, monitor pipeline and sales productivity (average ARR closed per person). On alliances, focus on co-build, co-market, and co-sell to build joint solutions.

Q: How do you see B2 and Computer Backup growth rates over three to five years?

A: B2 should continue growing over 30% year-over-year; Computer Backup's consumer side is in secular decline, business side has growth opportunity, with backup side expected to be flattish for 2025.

Q: How do you see gross margins progressing in 2025?

A: Pretty stable, expected to remain around the 78% level seen at the end of 2024.

Q: Can you give more color on AI use cases?

A: AI use cases include data collection (scraping data for model training), data processing (labeling with third-party tools), model training (using data to train models with multi-cloud GPUs), inference (running applications with models), and monitoring (storing log files).

Q: What needs to happen for strong visibility into B2 growth acceleration?

A: Continued execution, with healthy win rates and doubled sales capacity, though channel and alliance benefits may flow into 2026.

Q: How much of B2 stored data is from AI use cases?

A: Data has grown tenfold, with three of top 10 customers being AI companies, but it's a fast-growing part not yet a massive percentage.

Q: Materiality of new Canada data center?

A: Fourth region opened, done in partnership with an anchor tenant, derisking investment and creating a playbook for future regions. No meaningful foreign exchange risk as Canadian billings are mostly in USD.

Q: Impact of backup software market resurgence on B2?

A: Backup and cyber-resiliency is a core sales play for B2, part of the four key sales plays (application storage, IT backup, media and entertainment, powered by Backblaze).

Q: Competitive landscape update?

A: Amazon, Google, and Microsoft remain major players, but other companies have started offering storage, with Backblaze still chosen for scalable, affordable, open cloud storage.

Q: Growth rate of customers with over $50,000 in ARR for 2025?

A: Momentum on moving upmarket is good, with ongoing deals in $50,000+ range and $1 million+ deals, assuming continued momentum.

Q: Other cost levers for margins besides those mentioned?

A: Operating leverage is $0.75 on the dollar, with OpEx held in line through zero-based budgeting, and ongoing culture of scrutinizing and rethinking everything for efficiency.