Backblaze, Inc.

Thank you for standing by. My name is Gail and I will be your operator for today's call. At this time, I would like to welcome everyone to the Backblaze first quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, kindly press star one again. It is now my pleasure to turn today's call over to Mimi Kong, Head of Investor Relations. Please go ahead.

Thank you. Good afternoon and welcome to Backblaze's first quarter of 2025 earnings call. On the call with me today are Gleb Budman, Co-Founder, CEO, and Chairperson of the Board, and Mark Soudan, Chief Financial Officer. Today, Backblaze will discuss the financial results that were distributed earlier. Statements on this call include forward-looking statements about our future financial results the impact of our go-to-market transformation, sales and marketing initiatives, cost savings initiatives, results from new features, the impact of price changes, our ability to compete effectively and manage our growth, and our strategy to acquire new customers, retain and expand our business with existing customers, impact of changes to global trade policies, and third-party attempts to generate negative news regarding the company regardless of accuracy. These statements are subject to risk 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 10Q 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 obligations 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 GAAP to non-GAAP results may be found in our earnings release, which is furnished with our Form 8-K file 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 presentations for definitions of additional metrics such as NRR, gross customer retention rate, ARPU, and adjusted free cash flows. We will be participating in Needham's Tech Conference on May 13th in New York and the Craig Hallam Conference in Minneapolis on May 28th. Looking forward to seeing some of you in person. Thank you for joining us, and I would now like to turn the call over to Gleb.

Thank you, Mimi, and welcome everyone to the call. We delivered strong results this quarter and are building towards a strong year overall. In Q1, revenue and adjusted a bit of margin beat the high end of guidance. Overall company revenue grew 15% over the same period last year. B2 Cloud Storage, which is now the largest part of our business, continued to gain momentum with organic growth accelerating for the second consecutive quarter and achieving 23%. We're not only driving growth, but also the bottom line. our adjusted EBITDA margin tripled over the same period last year to 18%. And we've made substantial progress on improving our adjusted free cash flow from negative 13% in the fourth quarter to negative 6% in the first quarter. By combining B2 revenue growth and adjusted free cash flow margin, in a single quarter from Q4 to Q1, we've moved from 9% to 17%, a great step toward becoming a Rule of 40 company. Looking ahead, We continue to be on track to accelerate B2 growth each quarter, reaching at least 30% by Q4 of this year, and to achieve adjusted free cash flow positive in Q4 as well. In a moment, I'm going to talk about AI and why we're excited about Backboys' ability to continue to deliver superior services for its customers and superior performance for its investors. But first, I think we need to take a moment and talk about a recently published misleading report that relied on false claims by two disgruntled former employees, one of whom was fired for poor performance and the other for gross misconduct. We believe reports like this are part of a common market manipulation scheme in which short positions are taken ahead of issuing a deceptive and distorting report, which when published is intended to push the share price down. allowing a market manipulative profit at the expense of everyone else. The claims in that report alleged the company's financials were untrustworthy. Those claims were false when they were made last October in self-serving lawsuits by two disgruntled employees, and they were still false when this report repeated them. Following industry best practices, the audit committee previously retained an independent law firm and a forensic accounting firm to review the financial claims. Those reviews confirmed there was no wrongdoing or issues with the financials. We have also since filed two fully audited annual financial statements, which are publicly available on our investor relations site and the SEC website. Market manipulation schemes hurt retail investors, pension funds, and others. That's why accurate information is so important to investor decisions. We are building a great company. And these false claims won't derail Backblaze's growth story. Now, let's focus on why we're excited about our company, starting with the overall business and with our success in AI. I've previously said that Backblaze is a great platform for AI use cases because we provide a high-performance, low-cost storage platform that supports the open cloud. thus enabling customers to leverage the best GPU providers and other AI services out there rather than being locked into and limited by a walled garden. That value proposition continues to resonate. Our AI customer base grew by 66%. Their data with us grew by 25 times and AI use cases represented the fastest-growing piece of our business in the first quarter. We are leaning into our long-term growth opportunity by delivering new products and forging key partnerships. On the new products front, I'm excited about the recent announcement of our new offering, Backblaze B2 Cloud Storage Overdrive. Driven by customer interest, Overdrive offers very fast performance optimized for large datasets and high-performance throughput. This offering is great for use cases, including AI, machine learning, high-performance compute, origin store for content delivery networks, analytics, and more. Now, I want to highlight something significant about OverDrive. Building on Backblaze's history of cost-leading innovation, OverDrive achieves remarkable speeds made possible by our underlying platform. which allowed us to do this without the need for massive R&D investment. This efficiency highlights the significant and often underestimated value of our differentiated IP. Overdrive is a prime example of how we are strategically leveraging our existing assets to unlock greater value for our broad range of customers and for Backblaze. Now, let's discuss our go-to-market transformation, which focuses on three key areas. upskilling, partnerships, and sales plays. On upskilling, we are building on great momentum here. I'm pleased to share that in Q1, the team more than doubled bookings year over year, which was driven by strong sales execution and growing existing accounts. This achievement highlights the added rigor we put in place. This quarter, we completed building out our sales team and expanding our sales capacity, and these new hires are halfway through their ramp-up period. We also invested behind the customer experience by hiring a VP of customer success to improve onboarding and post sales support. With partnerships, I'm pleased to share a number of new technology alliances to support AI workloads and media and entertainment workflows. For AI workloads, we are building upon our OverDrive announcement by working with high performance compute providers such as PureNodal, a Powered by Backblaze partner, As AI companies seek flexibility to send their data to best of breed solution providers, Backblaze is a foundational platform, which empowers them to achieve their goals with high performance and value. In the media and entertainment space, we're seeing strong momentum around modern cloud first workflows and our partnerships with companies like Sweet Studios and Iconic are central to that strategy. These collaborations enable creative teams to break free from traditional heavy iron infrastructure and embrace remote work-from-anywhere pipelines that are both powerful and cost-effective. By combining ICONiQ's intelligent media asset management and Suite Studio's virtual file system with Backblaze B2 Cloud Storage, teams can ingest, index, and stream content directly from the cloud, no matter where they are. This kind of seamless access and real-time collaboration used to require significant on-prem investment. Now it's achievable at a fraction of the cost, making high-performance media workflows accessible even in an era of tightening budgets. These partnerships enable customer success and position Backboys as an increasingly strategic partner Building these relationships today will significantly benefit our team's results in 2026. And finally, sales plays. Last quarter, we outlined our four key sales plays. We've revamped our marketing efforts to align with these key plays with dedicated landing pages and a more focused content strategy and targeted demand gen efforts. We've also further optimized our content to improve search performance, responding to zero-click AI results. We have restructured the team, onboarded our new VP of demand gen, added customer insight tools to our marketing tech stack, and more. We're certainly not done, but are making good progress in establishing a robust, scalable, upmarket-focused go-to-market machine. One proof point of our go-to-market transformation success is our ability to sign larger deals. I am pleased to announce that we signed our largest TCV deal ever, a multimillion dollar contract over a multi-year period. This customer offers a popular application and first became a customer a year ago with a smaller initial contract. Less than a year later, they decided to migrate their entire data set from AWS to Backblaze. This is another powerful validation of the unique blend of value and performance that Backblaze offers. As you may remember, last quarter we shared a chart of our growth outlook for B2, which would accelerate each quarter and exit the year at over 30%. While some customers are taking more time to make decisions in the current business environment, We continue to see progress on our go-to-market transformation and thus remain confident that we're on track to achieve our accelerating growth targets, including reaching 30% plus B2 growth and positive adjusted free cash flow in Q4. Key additional factors driving this include our strong self-serve business, our sales bookings, which more than doubled, and the customer value we deliver, which underpins our consistent recurring business in summary we delivered strong q1 results the launch of b2 overdrive underscores the strength and differentiation of our platform our go-to-market transformation is gaining traction as evidenced by our reported results we are excited about where we've come and we're even more excited about our path forward thank you and i would like to hand the call over to mark mark