Backblaze, Inc.

Thank you for standing by, and welcome to the Backblaze Q3 2021 Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentations, there will be a question-and-answer session. To ask a question at that time, please press star then 1 on your touch-tone telephone. As a reminder, today's conference call is being recorded. I will now turn the conference over to your host, Mr. James Kisner, Vice President of Investor Relations. So you may begin.

Thank you. Good afternoon and welcome to Backblaze's third quarter 2021 earnings call. On the call with me today are Gleb Budman, co-founder, CEO, and chairperson of the board, and Frank Patrell, chief financial officer. Today, Backblaze will discuss the quarterly financial results that were distributed earlier this afternoon. Statements on this call include forward-looking statements, future financial results, our goals and expectations regarding future revenue growth, profitability, use of IPO proceeds, and investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements, our ability to acquire new customers and successfully engage and expand usage of our existing customers, the cost and success of our marketing efforts, our ability to promote our brand, our reliance on key personnel and ability to identify, recruit, and retain skilled personnel, our ability to effectively manage our growth, our ability to compete effectively with existing competitors and new market entrants, and the growth rates of the markets in which we compete. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call. In particular, those described in our risk factors that will be included in our Form 10-Q for the quarter ended September 30th, 2021 in our recently filed S-1 perspectives. 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. Those non-GAAP measures should be considered in addition to and not as a substitute for our GAAP results. Reconciliation of GAAP to non-GAAP results may be found in our earnings release, which was furnished with our form AKFL today with the SEC. You'll also find a slide presentation related to our comments in the webcast viewer. Note that our website is currently redirected to a static page while our external vendor is working to patch for the Log4j vulnerability that is broadly affecting many companies on the global internet. We will post the presentation on the static page as well. I would now like to turn the call over to Gleb. Gleb?

Thank you, James. And thanks to all of you for joining what is Backblaze's first quarterly earnings call as a public company. We had a strong Q3, and we'll delve into the details of the quarter in a moment. But since this is our first earnings call, I'd like to spend a few moments introducing our company to those who may be new to the story. Backboys is building the leading independent cloud for data storage. And I'd like to explain why that's so critical. Today, for mid-market companies, the cloud storage offerings of the large diversified vendors are complex and expensive. Also, due to the breadth of those vendors, they attempt to lock in data to only using their services. And they are increasingly in competition with their own customers and partners. Unlike those vendors, all we do is storage, and we don't compete with our customers. Customers are increasingly wanting to use their data with best-of-breed providers in a multi-cloud fashion. This is why we believe the future is being built on independent cloud platforms, and ours has been over 14 years in the making. For each major element of the tech stack, an independent cloud platform, such as our partners CloudFlare for networking or DigitalOcean for compute, has emerged and built a large business. Yet no one has done that for data storage. We believe that data storage is among the most critical of all of these elements, since none of them would exist without data. We believe that we are well positioned to be the independent, trusted cloud platform that enables developers and businesses to use their data how they want, with whoever they want, at disruptively affordable economics. We have gotten to where we are today through the hard work and dedication of our incredible team of about 250 employees to whom we are incredibly grateful, especially during a very challenging global pandemic. We'd also like to thank our thousands of partners, our nearly half a million customers, and the millions of you that read our blog. Thank you also to the many investors, big and small, who put your trust in us. We expect this is only the beginning of our journey together, and we appreciate your support of our company mission to make it astonishingly easy to store, use, and protect data. As I mentioned before, we had a strong Q3, which ended September 30th, 2021. Both of our cloud services performed well, led by B2 Cloud Storage, which grew revenue rapidly at 59%. and computer backup, which continued strong double-digit growth at 13%, resulting in total company growth of 25% to $17.3 million. B2 has higher growth rate, NRR, and other key metrics than our computer backup business. And as the mix shift continues toward B2, it drives even stronger metrics for the whole company. Importantly, nearly all of our revenue is recurring, which provides good business predictability with annual recurring revenue, or AR, totaling $71 million as of Q3. Before turning the call over to Frank to discuss the details of our financial and operational results, I'd like to share a little more about who we are, what we do, and our strategy for those on the call that may not be as familiar. First, I'll touch on our history and what makes us unique. Prior to Backblaze, I and the other four co-founders built and successfully sold two tech companies. We started Backblaze in 2007 and largely bootstrapped it with minimal outside funding. Today, 14 years later, we're all still working together to build and scale the company. In a world where many tech IPOs have already burned through hundreds of millions of dollars of outside investment prior to going public, We got here with less than $13 million in outside equity investment. We are excited by the opportunity to take the over $100 million in proceeds from our IPO and invest it towards our large and fast-growing market opportunity. Now let's talk about that market, the market for data storage. It's a great market to be in because data is growing rapidly and no one wants to delete anything. We all experience that every day. Everyone has become a data hoarder. And all of that data needs to be stored, used, and protected. That has resulted in an estimated $91 billion market for public cloud storage in 2025, according to IDC. Now, what does Backway sell? We have two storage-focused cloud offerings. Our original cloud offering was computer backups. which ended Q3 with $46 million of ARR. Computer backup is a cloud service that protects data on all laptops and desktops for businesses and consumers. Computer backup is a great service. It's completely unlimited and costs only $7 per month. Wirecutter, the product review section of the New York Times, consistently selected it as the best backup service for most people. Our second cloud service, B2 Cloud Storage, ended Q3 with $25 million of ARR. B2 is a storage platform for businesses and developers. It is a pay-as-you-go, storage-as-a-service, public cloud offering that serves a wide range of use cases, including application development, ransomware protection, backup, and multi-cloud. While this market includes large diversified cloud vendors, namely Amazon Web Services, Google Cloud, and Microsoft Azure, they have increasingly focused on the largest enterprises with the most complex use cases. This has left a void where the mid-market is ignored and underserved. BackWise can scale to any size organization as demonstrated by our two exabytes of data storage under management. which is over 10 times the amount of data stored by Spotify when they went public just a few years ago. But we are optimized for the mid market, which we define as companies with less than 1000 employees and which IDC has estimated to be over 60% of the market or $55 billion in revenue opportunity in 2025. Built by developers for developers, B2 Cloud Storage is differentiated because it's easy affordable, and trusted. We're easy because we focus on just storage, on cutting away all the complexity, and on making simple-to-use products, which delivers third-party verified savings for customers of up to 92% of operational time. This can save developers and IT administrators potentially hours from their week to do more value-added tasks. We're affordable, charging just $1.50 of the diversified cloud platforms pricing, which we are able to do as a result of the software innovation we've achieved over 14 years of development on our storage cloud. And we're trusted. And trust is critical when you're talking about your data. Unlike the diversified cloud vendors, we do not aim to compete with our customers and partners. As an independent cloud, we don't lock in customer data. through expensive egress fees to get their data out or through other gotchas. Customers increasingly want their data to not be trapped so that they can use it with best of breed services and also can rest assured that it won't be used against them competitively by their vendor. In addition to having differentiated products built on our storage cloud, we have a unique go to market. It starts with our content and community. We have been publishing storage-focused content on our blog for nearly 15 years and built a community of over 3 million readers and fans. We have an entire go-to-market motion around this, including a head of publishing, publishing calendar, and distribution through social and press. This content and engagement helps efficiently build brand awareness and love for the company, bringing qualified leads to our site and making our marketing efforts more efficient. With those efforts, we have two selling motions, self-serve and sales-assisted. 80% of our customers come to Backblaze via self-serve, which enables prospects to show up, try the service, enter a credit card, and scale nearly infinitely without talking to a person. With sales-assisted, we have inside salespeople helping prospects along their journey, and they're typically working with customers with storage needs that are about 20 times larger larger than that of our self-serve customers from a revenue perspective. Both of these motions are scaling and will further benefit from IPO proceeds. Another key aspect of our go-to-market strategy is our partnerships. We have developer partners and alliance partners. Developer partners tend to be cloud platforms with whom we work to jointly enable developers to build applications. Cloudflare is an example developer partner for us where customers moving away from Amazon Web Services build on us and our developer partner. Alliance partners are typically software that IT deploys to solve some specific use cases and through which customers select to have their data flow to Backblaze. Veeam, a data protection software company, is an example of an alliance partner where customers run Veeam software, simply enter their Backvoice credentials, and the customer's data flows to and is protected in our cloud. We also do joint go-to-market activities with these partners. And as they get more customers, as those customers have more data, and as more of those customers choose to use cloud, all of these stack to drive more revenue for us. This unique content and community with our self-serve and sales assisted motions and powerful partnerships is shared among both cloud services and is how we drive efficiency and scale in our go-to-market. Now, let me highlight a few of our B2 customers and how they use our service. One such customer is a developer of a popular music app competitor to Spotify in Japan, that came to us from Google Cloud and now stores over half a petabyte in B2. We've become a critical part of this developer's technology stack. We also have many customers choosing Backboys for their off-site backups to protect against ransomware. One notable customer was a school system in Illinois. They've been using a legacy on-premise storage system for years, and it was at the end of its life. They had to decide whether to spend tens of thousands of dollars paying to upgrade a technology that debuted in the 1970s or move to cloud storage. They decided to move to Backboys B2 because it was easy and affordable. Another example, a university in the Midwest was told that they could receive a discount on their cybersecurity insurance premiums if they instituted an offsite immutable backup of their servers. They chose Backblaze because it was the easiest and most affordable service to get them that insurance premium discount. These are just three examples of the wide variety of use cases and opportunities that we have to help customers store, use, and protect their data. If you'd like more examples, we share many more on the customer stories section of our website and periodically on our blog. I now want to highlight three important topics. our IPO, partnership efforts, and developer focus. First, our IPO. In November, we completed our initial public offering, which was a tremendous success. For a company that was effectively bootstrapped, it was an especially important financial event, raising over $100 million in net proceeds, which we plan to use to accelerate our growth. It was also a significant awareness-generating and branding event. Finally, as part of our commitment to our community, we executed one of the largest directed share programs in the history of US capital markets by inviting hundreds of thousands of US-based Backblaze customers to participate in our IPO. Second, our partnerships. In September, we announced a new developer partnership with one of the largest privately held cloud vendors. The Backblaze Vulture Partnership means more developers can build the flexible tech stacks they want. Organizations now no longer have to tolerate vendor lock-in complexities and costs that have traditionally come with legacy options. And third, our developer focus. B2 is a storage platform for developers and we continue to empower developers to be successful. We already have thousands of developers on our platform. Partnerships with other leading cloud platforms to enable developers to build. And our recent partnership with Vulture is yet another step in supporting developers. This October, we also held our inaugural Developer Day, which was a great event that helped developers connect with Backblaze and learn how to further leverage the advantages of our cloud storage solution. I'll now pass the call to Frank, who will review the financial details for the quarter.