Backblaze, Inc. Q1 FY2025 earnings call

• Delivered strong Q1 results, beating top and bottom line guidance. - B2 Cloud Storage continued to gain momentum with 23% organic growth, accelerating for the second quarter. - AI customer base grew by 66%, with data from AI customers growing 25x, and AI use cases as the fastest-growing part of the business. - Launched Backblaze B2 Cloud Storage Overdrive, a high-performance offering optimized for large data sets and high-performance throughput. - Go-to-market transformation focuses on upskilling, partnerships, and sales plays, with sales bookings doubling year-over-year. - Addressed a misleading report from disgruntled former employees, confirming financials are trustworthy and market manipulation won't derail growth.

Total revenue for the quarter was $34.6 million, a 15% increase over the prior year. B2 Cloud Storage, the largest segment, saw organic growth accelerate to 23% for the second consecutive quarter. Computer Backup grew 8% year-over-year. Overall net revenue retention (NRR) was 113%, with B2 segment NRR at 117% and Computer Backup at 108%. GAAP gross margin was 56% compared to 53% prior year, and adjusted gross margin improved to 79% from 77% the previous year.

• Q2 2025 revenue expected to be in the range of $35.2 million to $35.6 million, with B2 revenue growth 23% to 25% and adjusted EBITDA margin 14% to 16%. - Full year revenue guidance maintained at $144 million to $146 million. - Adjusted EBITDA margin guidance raised from 16% to 18% to 17% to 19%. - Aim to achieve adjusted free cash flow positive in Q4 2025 and B2 growth of at least 30% by Q4 2025.

• Market manipulation schemes from false reports by disgruntled former employees, which hurt retail investors and others. - Potential impact of tariffs: a 10% tariff on U.S. imports could increase cost of sales by ~1.5% over 6 years, but not a significant immediate impact. - Supply chain risks mitigated by sourcing from multiple countries.

Q: Can you put a finer point on the AI side, including targets as a percent of revenues?

A: AI was the fastest-growing part of the business, with a 66% growth in customer base and 25x data growth. There are various AI use cases across stages of the pipeline, and Overdrive was launched to support more AI use cases.

Q: Talk about progress in B2 sales build and remaining work in progress?

A: Go-to-market transformation is underway with doubled sales bookings, but still work to do on partners, channels, and demand gen.

Q: Thoughts on dilution and software capitalized software?

A: Aiming to reduce equity dilution by settling tax withholdings in cash and shifting bonus issuance from equity to cash. R&D expense plus capitalized R&D is held relatively steady.

Q: Negotiation process for the record TCV deal?

A: Started talking with the customer a few years back, signed a 6-figure deal last year, and they expanded to a multimillion dollar deal after experiencing Backblaze's performance.

Q: Impact of B2 Overdrive on the customer?

A: Not a deciding factor for this customer, but Overdrive was launched to address demand for larger throughput, with early interest from Fortune 500 companies.

Q: NRR downtick and dynamics?

A: NRR remains solid, with the downtick due to lapping price tailwinds, and will improve as B2 revenue growth continues.

Q: AI new business percentage and B2 Overdrive use cases?

A: AI was the fastest-growing part of Q1 business, but specific subdivision numbers not shared. Use cases include AI, machine learning, high-performance compute, etc.

Q: B2 Overdrive pricing and competitive comparison?

A: B2 starts at $6 per terabyte per month, Overdrive at $15 per terabyte per month. A 10-petabyte customer would save significantly compared to alternatives like AWS.

Q: Decision-making process observation and competitive landscape?

A: Some customers taking more time due to macro environment, but self-serve and upselling momentum continues. Competitive landscape still has large players, but Backblaze is winning customers away and in bake-offs.

Q: Tailwinds from lower TCO solutions and B2 Overdrive use cases?

A: Backblaze provides low TCO, and Overdrive is used in AI, high-performance compute, analytics, etc., with benefits like using spinning drives for high performance.