Backblaze, Inc.

Good afternoon, and welcome to the Backblaze third quarter 2022 earnings call. All participants will be in a listen-only mode today. Should you need any assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note that this event is being recorded today. I would now like to turn the conference over to James Kisner. Please go ahead, sir.

Thank you. Good afternoon, and welcome to Backblaze's third quarter of fiscal year 2022 earnings call. On the call with me today are Gleb Budman, co-founder, CEO, and chairperson of the board, and Frank Patchell, chief financial officer. Today, Backblaze 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 our new products, partner announcements and sales and marketing initiatives, our ability to compete effectively, acquire new customers, and retain and expand our business with existing customers, hire and retain key personnel, and effectively manage our growth. These statements are subject to risks and uncertainties that could cause our actual results to differ materially, including those described in our risk factors that are included in our Form 10-Q for the quarter ended September 30, 2022, 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. Reconciliation of GAAPs and non-GAAP results will be found in our earnings release, which was furnished with our Form 8K 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. Before I turn the call over to Gleb, I would like to mention that in the latter portion of our call, as in prior calls, we will be addressing questions from investors that we gathered through the Say Technologies platform. I would now like to turn the call over to Gleb. Gleb?

Thank you, James, and thanks to all of you for joining us. We delivered a strong third quarter with 27% year-on-year revenue growth. Our B2Cloud storage business grew 48% twice the rate of the broader cloud infrastructure market, according to Synergy Research. And B2 cloud storage now makes up 40% of total revenue. Our computer backup business grew a healthy 17%. As a reminder for those on the call that may be newer to the story, Backways is the leading independent cloud for data storage. And our mission is to make it astonishingly easy to store, protect, and use data. We have two cloud service offerings that operate on our storage cloud platform. First, our B2 cloud storage service provides developers, IT personnel, and others cloud storage that is dramatically easier to use and is one fifth the price of Amazon Web Services S3 and others. And second, our computer backup service provides unlimited cloud backup for laptops and desktops for companies and individuals. While the computer backup business remains the larger of our two cloud service offerings at the moment, our strategy and increasing investments center around capitalizing on the approximately 100 billion total 2025 market opportunity for B2 cloud storage based on projections from IDC and company analysis. I want to highlight three items on this call. First, Our strategy of investing behind our B2 cloud storage offering is demonstrated with B2 now representing 40% of total revenue. Second, our strategy of targeting developers as a key market is working with nine of our top 20 accounts now being developers and the data stored by developers with us growing by 80% over the course of the prior year. And third, our partnership strategy has been important, and we are now also scaling a channel partnership approach with major national resellers. As we stated during our IPO Roadshow, both of our cloud services are an important aspect of Backblaze. However, our investment thesis is behind scaling B2 to pursue the large storage cloud market. B2 continues to become an ever larger part of our overall business, reaching 40% of overall revenue today. Since B2 has a higher growth rate than our computer backup business, as B2 becomes the majority of the business, it drives the growth rate of the whole company. A brief update on developers. We are continuing to cultivate our relationships with developers, which we define as customers that are using B2 Cloud Storage as the storage backend for their SaaS, e-commerce, or other business. We saw strong growth on B2 with developers, with paid data storage up over 80% year-on-year in Q3. Our developer evangelism team has been busy the last few months, attending and presenting at a number of conferences, including QCon in San Francisco, Spice World in Austin, Infotech Live in Las Vegas, and the Storage Developer Conference in Fremont. On October 31st, we held our Technology Day with thousands of registrants and multiple interactive sessions aimed at helping developers easily and affordably succeed in the cloud. As another proof point of our progress, we were very pleased that just last week, Backboys was named to Inc. Business Media for the inaugural Power Partner List which honors B2B organizations across the globe that have proven track records supporting entrepreneurs and helping startups grow. There were a number of exciting developments for B2 Cloud Storage since we recorded Q2. In addition to the modest reacceleration and growth we experienced, we continue to make significant progress in expanding our partner program. Partnerships are very important to us. And as we discussed on our last call, a significant amount of B2 revenue, well more than one third, has come to our partners. Given their increasing strategic importance to Backblaze, I'd like to take a moment to highlight the different types of partnerships Backblaze is building. We've talked before about how we work with our technology partners. Now, we have started a major push to succeed with channel partners, which are resellers and distributors that sell products to end customers. Each new channel partner can be a sales force multiplier, increasing the number of salespeople promoting our cloud services to customers. A key development was the launch of our online partner portal, a dedicated place for partners to access deal registration, discounts, support, and self-service promotional resources. Several new national resellers and distributors have recently begun to sell B2 reserves. and we have also continued to expand our partner team. Channel partners have shown enthusiasm for a new platform offering, B2 Reserve, which is our predictable capacity-based pricing program for B2. B2 Reserve also includes premium support and use of our recently launched universal data migration program, which makes it easy and free for eligible customers to move data from a wide variety of sources, While only in its first full quarter of availability and still relatively small, we are pleased to see B2 Reserve show a nice initial ramp in demand with revenue increasing each month of Q3. In other partner news, we announced MSP360 customers can now protect their backup data with Backwise B2 Object Lock. This delivers a new level of ransomware protection for one of our oldest and those significant alliance partners, MSP360. For those not familiar, ransomware refers to when hackers take control of individual or business data and demand a ransom to release the data. ObjectLock ensures data cannot be deleted over a specified period of time by bad actors or inadvertently by staff. Extending this functionality enables MSP360 to help solve a major need for customers thus resulting in more data protected with B2. Additionally, we integrated B2 with Elements, a cloud-based media asset management provider. Media and entertainment remains a vertical that we focus on given their high level of data storage needs. We also recently attended NAB New York in October, and we're pleased to see continued growth in mind share and interest from companies in this industry. We believe continued success with media and entertainment customers will help drive future B2 growth. I'd like to share a couple of new customers that highlight how B2 has helped customers succeed. First, a developer customer in the information security space. Every day, Web Threat Analysis Service, urlscan.io, runs 700,000 plus website scans seeking out malicious content, capturing over 3.5 million files and artifacts in the process. With a commitment to keep the results of website scans in perpetuity, the company needed capacity and performance that would scale with growth. Unfortunately, their original solution couldn't keep up. When it came time to upgrade, the urlscan.io team evaluated a few solutions, including Backblaze and AWS. Storage pricing was not an immediate concern, but it was the unknown transfer costs and other hidden fees with AWS that were a concern for the business. Urlscan.io chose Backblaze B2 cloud storage for its speed and consistent response times, but the ease of integration sealed the deal. The Backblaze S3-compatible API made integrating their workflow with Backblaze B2 incredibly simple, enabling 10 thousands of daily users simultaneously access files without needing a CDN. Now urlscan.io easily manages retrieving and permanently storing billions of files on a lean stack that scales effortlessly with their daily data growth. Budgeting is simple and performance is right where urlscan.io wants it, with customers reporting a great user experience. Back Boys gives the team absolute peace of mind and the freedom to focus on their mission, protecting businesses and individuals from malicious websites. Now I'd like to highlight a B2 Reserve customer. Digital fitness company Fitcher had an ambitious production schedule and huge quantities of raw footage coming in constantly and was rapidly running out of room on their Synology network-attached storage device. To free up space locally and streamline production workflows, they set out to find a solution. Fitcher's system integrator recommended a single solution, Backblaze B2 Reserve, our capacity-based cloud storage solution, which includes free transaction calls, no delete penalties, and free data migration. In addition to being cost-effective, Backblaze B2 Reserve offered predictable billing and freed Fitcher from worrying about future storage growth. Fitcher's adoption of Backboys has already paid off. Now they're archiving new footage directly to Backboys B2, freeing up local storage space and keeping costs low. The Fitcher team can access all the files in B2 cloud storage from anywhere and with the peace of mind that their content is safely stored in the cloud. Before I turn the call over to Frank, I'd like to welcome Robert Fitt to Backboys as our first Chief Human Resources Officer Robert has over 20 years of experience in human resources. Backblaze has received numerous awards for the strength of its culture, diversity, and leadership. We believe this strength is a source of competitive advantage that allows us to hire, develop, and retain some of the best talent in the world. We're excited to have Robert on board to help us maintain and evolve that culture as we continue to scale the business. I would also like to congratulate Brian Beach, on being promoted to Chief Technical Officer, CTO, replacing Brian Wilson, who will be continuing with Backblaze in a senior engineering role and advisory capacity to the CTO. Dr. Beach has over 40 years of engineering experience, including playing a key part in the development of the DVR at TiVo and holding senior engineering roles at Silicon Graphics and Hewlett Packard. And he has played a key role in the Backblaze technology platform for nearly a decade. I'll now turn the call over to Frank Patchell, who can review the financial results of the quarter in more detail.