Backblaze, Inc.

Thank you for standing by. My name is Danica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Backblaze second 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 this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Mimi Kong, head of IR.

Please go ahead. Thank you. Good morning, and welcome to Backblaze's second quarter of 2025 earnings call. On the call with me today are Gleb Budman, co-founder, CEO, and chairperson of the board, and Mark Sweetan, 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 saving 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. These statements are subject to risks 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 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 was furnished with our Form 8K file today with the SEC. You can also find a slide presentation related to our comments in the webcast, which will be posted to our Investor Relations page after the call. Please also see our press release or presentation for definitions of additional metrics, such as NRR, gross customer retention rate, and adjusted free cash flows. And finally, we will be participating in the Oppenheimer Technology Internet and Communications Conference on August 11th. Thank you for joining us, and I would now like to turn the call over to Gilles.

Thank you, Mimi. Good morning, and thank you, everyone, for joining us today. SACWISE delivered a strong Q2, exceeding both the revenue and adjusted EBITDA guidance for the second quarter in a row. Total revenue was $36.3 million, up 16% year-over-year, B2 revenue was $19.8 million, up 29% year over year. Adjusted EBITDA margin doubled year over year to 18%. As we outlined last year, our focus has been to accelerate B2 growth and become adjusted free cash flow positive. We've accelerated year over year B2 growth from 22% at the end of last year to 29% this past quarter, and we remain on course to be adjusted free cash flow positive in Q4. This marks an important step as we continue our progress towards becoming a profitable Rule of 40 company. Now, what's behind these numbers is the value we provide to customers, our increased pace of innovation, our go-to-market transformation, and our incredible opportunity with AI. Regarding the customer value we provide, a recently published report we commissioned from independent analyst firm Enterprise Strategy Group found that Backblaze B2 is up to three times more cost efficient and takes up to 92% less time to manage data compared with competitors. Up to three times more cost efficient and up to 92% less time to manage. That is significant customer value. We also continue to hear from customers frustrated with other cloud providers for their surprise fees. In fact, over 80% of organizations using competitors report unexpected storage charges. In today's cost-conscious environment, can you imagine having to explain to your CEO, CFO, or board that you had significant cost overruns because your cloud provider has surprise storage charges? At Backblaze, Our predictable pricing and ease of use consistently set us apart. It's a key reason customers switch to us and stay with us. Now let's talk about our increased pace of innovation. On our last earnings call, we introduced B2 Overdrive, which delivers the highest throughput performance per dollar in the market. In early Q3, just two months after launch, we've already signed our first six-figure B2 Overdrive customer, a clear indicator of its strong product market fit, and we're thrilled to help customers with their high-throughput performance needs. We also announced a suite of new tools to help customers protect and manage their data. Anomaly Alerts uses AI to detect suspicious data transfers. helping customers spot potential data exfiltration or ransomware early. Enterprise Web Console with role-based access controls makes it easier for larger companies to manage access and stay aligned with zero trust principles. Finally, bucket access logs gives customers detailed visibility into how their data is used and accessed. As we move up market, These features continue the BackWay's tradition of making it astonishingly easy for customers to use and protect their data. These innovations provide customers a unique combination of performance and security, further differentiating BackWay as the leading cloud storage innovator. Now let me update you on our go-to-market transformation. We are seeing great results. as demonstrated by our B2 growth accelerating to 29% in Q2. The number of customers generating over $50,000 in ARR hit 150, a 30% year-over-year increase, thanks to our upmarket focus. We added yet another seven-figure customer. This marks the fourth quarter in a row where we have highlighted a customer of this scale. Compared to our average $270 per year customer, this speaks to our dramatic upmarket shift. Our pipeline has grown significantly year over year, and we've had a steadily growing increase in six-figure opportunities enter the pipeline quarter over quarter, a sign that the machine is gaining momentum. Some of the changes we made in our go-to-market include rebuilding account-based marketing, which requires significant systems and process work, but now enables us to more precisely target organizations for whom we should be an ideal fit when they're in market and to the broader buying committee. We also revamped our approach to customer success to better identify and expand use cases with existing customers. We added a field enablement function to further uplevel the sales team We deployed AI in various activities across the go-to-market motion, and of course, much more. The accelerated growth and upmarket momentum are encouraging results, and we are continuing to refine our go-to-market model to drive even greater growth. Earlier, I mentioned that a mere two months after launching B2 Overdrive, we won our first six-figure customer. Let me share the details behind that win. This customer is a generative AI video company and works with massive volumes of data to train models. They initially came to us because of the egregious egress fees they were incurring from the hyperscaler they were using. As we engaged with them, we learned that in addition to needing a cost-effective solution, they really needed speed, reliability, and availability. And speed is something customers are willing to pay more for. because it unlocks opportunities for them. We introduced B2 Overdrive to provide the high-performance customers like this need, and their excitement around our performance was palpable. We are so happy to be partnering with this cutting-edge AI company and thank them for trusting us to help them scale. This B2 Overdrive customer I just talked about is an AI customer, but they're obviously not the only one. Let me share how impactful AI is to the market we sell into overall, to our products, and to our internal initiatives. To highlight the AI market opportunity for us, one year ago, we had no AI companies in our top 10 customers. In Q2, three of our top 10 customers are AI companies. This quarter, the number of AI customers grew 70%. and data stored by these customers grew 40 times year over year. AI use cases drove the outperformance on our financial metrics this quarter, and this is by far the most data-hungry industry we have witnessed, and we're confident that AI will significantly drive our market opportunity. In our products, we launched V2 Overdrive targeted at AI use cases, and we are using AI to offer new products such as those in our security offerings. Internally, we're actively embracing AI across our organization, not just to drive efficiency, but to unlock new opportunities for innovation and growth. Leading this effort is our Chief Human Resources Officer, which reflects how we see AI as a company-wide culture shift, not just a technology initiative. His role puts him at the heart of how we work. making him uniquely positioned to embed AI into our daily operations and mindset. In closing, I'm so proud of our team's accomplishments. We innovated for our customers with the launch of B2 Overdrive and a suite of security-focused functionality. We made great progress on our go-to-market transformation, which was visible in our accelerated B2 revenue growth. We've leaned into our incredible opportunity with AI. And overall, we delivered strong revenue adjusted EBITDA, and cash flow numbers, putting us well on our way to our Rule 40 target. With that, over to you, Mark.