Summary of Backblaze Conference Call Company Overview - **Company**: Backblaze - **Industry**: Cloud Storage and Data Management - **Recent Developments**: Backblaze reported its fourth-quarter results, reflecting significant changes and progress since its IPO in 2021 Key Financial Metrics - **Revenue Growth**: Revenue growth improved from 21% to 24% year-over-year, with a free cash flow margin increasing from -13% to +11% [4][5] - **Rule of 40 Score**: Increased from 9% to 35% within a year, indicating improved financial health [5] - **Customer Growth**: The company aims to stabilize its customer base in the computer backup segment, which currently has a churn rate of about 10% [10] Product Developments - **B2 Cloud Storage**: The primary growth driver for Backblaze, with expectations for faster growth and healthier economics [6] - **Computer Backup Product**: New features like Advanced Installer and Command Line Interface aimed at attracting Managed Service Providers (MSPs) [8] - **B2 Neo**: A white-label service for Neocloud providers, contributing to the largest Total Contract Value (TCV) deal to date [13] - **Market Opportunity**: The Neocloud market is expected to grow at 46% annually, representing a $14 billion opportunity for Backblaze [14] Market Dynamics - **Neocloud Providers**: Many existing solutions are open-source and lack reliability, creating opportunities for Backblaze to offer superior storage solutions [16] - **Competitive Landscape**: Backblaze's performance metrics, such as eleven nines of durability, position it favorably against competitors [16] Sales and Marketing Strategy - **Go-to-Market Transformation**: Aiming to double the sales pipeline from $15 million in 2024 to $60 million by 2026 [48] - **Sales Cycle**: Larger deals (over $500K in ARR) have longer sales cycles due to increased complexity, leading to their exclusion from forward guidance [56] - **Pipeline as an Indicator**: The health of the sales pipeline is viewed as a leading indicator of success, with a focus on both new customer acquisition and expansion within existing accounts [62] Future Outlook - **Expansion Plans**: The company is focused on building a repeatable sales process to capture larger deals while maintaining growth in smaller accounts [60] - **Performance Metrics**: Emphasis on tracking metrics related to advertising effectiveness, site visits, and conversion rates to ensure pipeline growth [62] Additional Insights - **Diversity of Offerings**: Backblaze serves a variety of workloads, including backup, archiving, and live storage, which contributes to its customer base of 119,000 self-serve users [35] - **Brand Repositioning**: The launch of B2 Overdrive has helped re-anchor Backblaze's brand as a high-performance platform, enhancing its market presence [42] This summary encapsulates the key points discussed during the conference call, highlighting Backblaze's financial performance, product developments, market opportunities, and strategic initiatives.

Core Insights - Backblaze achieved its first-ever adjusted free cash flow profitability as a public company, showcasing inherent operating leverage as the platform scales [4] - The company stabilized B2 Cloud Storage growth at approximately 20% over the last five quarters by focusing on core use cases and upmarket expansion [4] - Backblaze launched B2 Neo, a high-performance storage offering aimed at serving emerging 'neocloud' GPU providers [4] Financial Performance - The company secured its first eight-figure deal, a contract exceeding $15 million in total contract value (TCV) with a publicly traded neocloud provider, validating product-market fit at scale [4] - There was a 73% year-over-year increase in annual recurring revenue (ARR) from customers generating over $50,000, totaling 168 customers [4] - Computer backup revenue is projected to decline by approximately 5% in 2026, which may act as a headwind to total company growth [4] Strategic Initiatives - Backblaze adopted a 'derisked' guidance philosophy for 2026, focusing on contractual minimums rather than variable upside [4] - The company anticipates B2 revenue growth of approximately 20% for the full year 2026, with expected quarterly variability in Q2 and Q3 due to challenging comparisons from a large 2025 customer [4] - A new optimization initiative has been launched to address gross margin pressure from rising data center and equipment costs [4] Operational Changes - The company increased capital expenditure requirements to the high-20s percentage of revenue to build capacity ahead of large-scale AI deployments [5] - Executive compensation has been shifted toward performance-based stock units to better align management incentives with shareholder objectives and specific performance targets [4]

Financial Data and Key Metrics Changes - Revenue for Q4 2025 was $37.8 million, in line with guidance, with an adjusted EBITDA margin of 28%, doubling from the previous year [6][20] - Total company revenue grew 14% year-over-year for the full year, with B2 Cloud Storage revenue growing 26% [6][20] - Adjusted free cash flow was positive at $4 million in Q4, representing an 11% margin, exceeding expectations of being neutral [23][20] Business Line Data and Key Metrics Changes - B2 revenue grew 24% year-over-year in Q4, up from 22% in the prior year, although slightly below the expected range [20][21] - The number of customers generating over $50,000 in ARR increased by 35% year-over-year, with their ARR growing 73% to $26 million [10][21] - B2 net revenue retention (NRR) was 111%, down from 116% in the prior quarter, reflecting variability from a large customer [21][22] Market Data and Key Metrics Changes - The company ended the year with 168 customers generating more than $50,000 in ARR, indicating strong market demand [10] - The neocloud market is projected to reach $237 billion within the next five years, representing a significant opportunity for the company [16] - The company estimates that neocloud storage alone represents a $14 billion opportunity by 2030 [17] Company Strategy and Development Direction - The company is focusing on a go-to-market transformation to drive growth, including initiatives to increase awareness and expand revenue within the existing customer base [9][11] - The launch of B2 Neo, a high-performance white label storage offering for neoclouds, is aimed at capturing the growing demand for AI-related storage solutions [17][19] - The company is positioning itself as a storage backbone for AI workflows, leveraging its technology to meet the needs of neoclouds and AI developers [15][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term growth potential driven by AI, despite short-term market volatility [14][19] - The company anticipates some pressure on gross margins due to increased costs but is implementing a gross margin optimization initiative [22][20] - For 2026, the company expects revenue in the range of $156.5 million to $158.5 million, with adjusted EBITDA margins of 19% to 21% [25][26] Other Important Information - The company achieved adjusted free cash flow profitability for the first time as a public company, marking a significant milestone [6][20] - The company is actively hiring to strengthen its leadership team to support growth initiatives [12][19] Q&A Session Summary Question: Can you explain how B2 Neo differs from B2 and the demand patterns? - B2 Neo is a white label offering designed for neoclouds, allowing them to manage storage for their customers through APIs, while B2 is sold directly to end customers [32][30] Question: What is the duration of the $50 million contract and its margin profile? - The contract is a three-year deal, and there may be upfront costs impacting margins as the company ramps up capacity [35][21] Question: What is the outlook for the computer backup business? - The computer backup business is expected to decline by 5% year-over-year, with efforts in place to stabilize it [36][37] Question: What drove the deceleration in B2 growth? - The deceleration is largely attributed to variability from a large customer, but underlying trends remain stable [44][21] Question: Can you elaborate on the competitive landscape for the large neocloud win? - The neocloud provider chose the company due to its strong reputation for providing a reliable storage platform that meets their technical requirements [50][51]

Financial Data and Key Metrics Changes - For Q4 2025, total revenue was $37.8 million, in line with guidance, and adjusted EBITDA margin reached 28%, doubling from the prior year [6][17] - Full year revenue grew 14% year-over-year, with B2 Cloud Storage growing 26% [6][17] - Adjusted Free Cash Flow was positive $4 million in Q4, representing a margin of 11% [20][23] Business Line Data and Key Metrics Changes - B2 revenue grew 24% year-over-year in Q4, up from 22% in the prior year [17] - B2 net revenue retention (NRR) was 111%, down from 116% in the prior quarter, reflecting variability from a large customer [18] - The number of customers generating over $50,000 in ARR increased by 35% year-over-year, with their ARR growing 73% year-over-year to $26 million [8][18] Market Data and Key Metrics Changes - The market for NeoClouds is projected to reach $237 billion within the next five years, with Backblaze estimating a $14 billion opportunity in NeoCloud storage by 2030 [13] - The company added 12,000 customers in its self-serve platform this year, indicating strong demand from AI developers [15] Company Strategy and Development Direction - Backblaze is focusing on a go-to-market transformation to drive growth, including initiatives to increase awareness, drive pipeline consistency, and expand revenue within the existing customer base [9][10] - The company is positioning itself to take advantage of the AI opportunity by becoming the storage backbone for AI workflows [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term growth opportunity presented by AI, despite potential market volatility [11] - The company anticipates some pressure on gross margins due to increased costs but is launching a gross margin optimization initiative [19] Other Important Information - The company closed its largest contract in history with over $15 million in total contract value, validating product-market fit at scale [17] - Management is shifting part of compensation to Performance-Based Stock Units to align incentives with shareholders [21] Q&A Session Summary Question: Can you explain how B2 Neo differs from B2 and the demand patterns? - B2 Neo is a white label offering designed for NeoClouds, allowing them to manage storage for their customers through APIs, while B2 is sold directly to end customers [27][28] Question: What is the duration of the $50 million contract? - The contract is a three-year deal [75] Question: What is the expected decline in the computer backup business? - The computer backup business is expected to decline by 5% year-over-year, with a -3% decline in Q1 [32] Question: What factors are affecting gross margins? - Increased data center costs and the need to accelerate capital expenditures are expected to reduce gross margins by a few hundred basis points [52] Question: What is the outlook for NRR in 2026? - NRR could drop to around 100% for 1 or 2 quarters due to the lumpiness of a large customer, but is expected to stabilize around 110% by year-end [61][63]

Financial Data and Key Metrics Changes - In Q4 2025, total revenue was $37.8 million, in line with guidance, and adjusted EBITDA margin reached 28%, doubling from the previous year [5][16] - For the full year, total company revenue grew 14% year-over-year, with B2 Cloud Storage growing 26% [5][16] - Adjusted Free Cash Flow was positive $4 million in Q4, representing a margin of 11%, exceeding the outlook of being neutral [18][22] Business Line Data and Key Metrics Changes - B2 revenue grew 24% year-over-year in Q4, up from 22% in the prior year [16] - B2 net revenue retention (NRR) was 111%, down from 116% in the prior quarter, reflecting variability from a large customer [17] - The number of customers generating over $50,000 in annual recurring revenue (ARR) increased by 35% year-over-year, reaching 168 customers [7] Market Data and Key Metrics Changes - The company is positioned to capitalize on the growing AI market, with estimates suggesting a $14 billion opportunity in NeoCloud storage by 2030 [12] - The NeoCloud market is projected to reach $237 billion within the next five years, with Backblaze already signing multiple significant deals [12] Company Strategy and Development Direction - The company is focusing on a go-to-market transformation to enhance sales and marketing initiatives, aiming to stabilize and grow its core business [6][9] - Backblaze launched B2 Neo, a high-performance white label storage offering designed for NeoClouds, to capture the growing demand for AI-related storage solutions [13] - The company is investing in leadership and talent to support its growth initiatives, including hiring experienced professionals from notable firms [10][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term growth potential driven by AI, despite short-term market volatility [11] - The company anticipates some pressure on gross margins due to increased costs but is proactively launching a gross margin optimization initiative [18] - For 2026, the company expects revenue in the range of $156.5 million to $158.5 million, with adjusted EBITDA margins of 19% to 21% [21] Other Important Information - The company achieved Adjusted Free Cash Flow profitability for the first time as a public company, marking a significant milestone [5] - Management is shifting part of compensation to Performance-Based Stock Units to align incentives with shareholders [19] Q&A Session Summary Question: Can you explain how B2 Neo differs from B2? - B2 Neo is a white label offering that allows NeoClouds to integrate storage directly into their services, providing high performance and low cost [27] Question: Why will it take a year before revenue from the large NeoCloud deal is realized? - The delay is due to necessary work on both sides to ensure a smooth transition from their existing storage solution to B2 Neo [28] Question: What is the expected growth rate for the computer backup business? - The computer backup business is expected to decline by 5% year-over-year, with efforts in place to stabilize it [32] Question: What factors are affecting gross margins? - Increased data center costs and the need for accelerated capital expenditures are expected to reduce gross margins by a few hundred basis points [52] Question: What is the outlook for NRR in 2026? - NRR could drop to around 100% for a couple of quarters due to the impact of a large customer, but is expected to stabilize around 110% by year-end [60][61]

Q4 & FY 2025 Results February 23, 2026 Gleb Budman CEO and Co-Founder Backblaze Marc Suidan CFO Backblaze ©2026 | 1 Important Information About This Presentation Cautionary Note Regarding Forward-Looking Statements This presentation contains forward-looking statements, which involve risks and uncertainties. These forward-looking statements are generally identified by the use of forward-looking terminology, including the terms "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "lik ...

Group 1 - Backblaze, Inc. (NASDAQ:BLZE) is recognized as a small-cap tech stock with a focus on cloud storage solutions, particularly B2 object storage and Computer Backup [1][3] - On November 6, 2025, Needham maintained a Buy rating on Backblaze but reduced its 12-month price target to $8, with no additional commentary provided [1][2] - In Q3 2025, Backblaze reported a 28% increase in B2 Cloud Storage revenue, reaching $20.7 million, while Computer Backup revenue remained flat [2] Group 2 - The company's gross margin improved to 62% from 55%, and adjusted EBITDA margin approached 23%, indicating operational efficiency [2] - Annual Recurring Revenue (ARR) increased by 13% to $147.2 million, driven by B2 revenue of $81.8 million [2] - A cautionary note was raised as Net Revenue Retention (NRR) decreased to 106% from 118%, suggesting a slowdown in upselling compared to the previous year [2]

Core Insights - Backblaze released its Q3 2025 Drive Stats report, analyzing the performance and reliability of over 328,000 hard drives, highlighting a quarterly failure rate increase from 1.36% in Q2 to 1.55% in Q3, with an annualized failure rate (AFR) of 1.57% for 2024 [2][3] Drive Performance and Reliability - Four hard drive models achieved zero failures this quarter: Seagate HMS5C4040BLE640 (4TB), Seagate ST8000NM000A (8TB), Toshiba MG09ACA16TE (16TB), and Toshiba MG11ACA24TE (24TB) [2] - High-capacity drives (20TB+) increased by nearly 8,000 units, now representing 21% of the active drive pool, while the lifetime AFR remained steady at 1.31% [3] Failure Analysis Methodology - Backblaze employs SMART monitoring, drive monitoring tools, and automated data enrichment to differentiate between true mechanical failures and temporary removals, classifying a drive as failed if it does not re-enter the active population by the end of the quarter [4] - The outlier Toshiba MG08ACA16TE (16TB) recorded a high AFR of 16.95%, attributed to ongoing upgrades requiring temporary drive removals rather than mechanical issues, with expectations for normalization in future reports [5] Data Transparency and Community Engagement - Backblaze has built one of the largest collections of drive reliability data over more than ten years, inviting global IT and data science communities to analyze and learn from its openly available reliability metrics [2][6]

Financial Data and Key Metrics Changes - Company revenue grew 14% year over year, reaching $37.2 million, exceeding the high end of guidance of $37.1 million [13] - Adjusted EBITDA margin reached 23%, almost double the 12% from a year ago [18] - GAAP net loss improved to $3.8 million, a 70% improvement from a loss of $12.8 million in the prior year [17] - Adjusted free cash flow was negative $3.5 million, improving by roughly $500,000 year over year [18] Business Line Data and Key Metrics Changes - B2 Cloud Storage revenue grew 28% year over year, compared to organic growth of 19% in the same period last year [13] - Computer Backup revenue was flat year over year, reflecting the final rolloff of the price increase implemented in 2023 [14] - Net revenue retention (NRR) for B2 improved to 116% in Q3 from 109% in Q2 [15] Market Data and Key Metrics Changes - The company is seeing diversification within B2 across core use cases, including live application hot storage, backup, media, and AI-related workloads [14] - Industry-wide demand for data storage is expected to grow rapidly, positioning the company well to support expanding needs [14] Company Strategy and Development Direction - The company is launching phase two of its go-to-market transformation to accelerate sales velocity and improve efficiency [12] - Focus on moving upmarket with larger deals while also increasing the core base of smaller deals for consistency [26] - The company aims to achieve a rule of 40 profile, with a current score of 9 expected to triple by Q4 [20] Management's Comments on Operating Environment and Future Outlook - Management acknowledges variability in data usage from large AI customers, impacting growth expectations [26][30] - The company remains confident in its ability to deliver consistent, durable growth over time despite not reaching the 30% B2 growth goal [20] - Management emphasizes the importance of AI workloads and the company's positioning to support these transformative needs [72] Other Important Information - The company ended the quarter with $50 million in cash and marketable securities, largely unchanged from the previous quarter [18] - A modest share repurchase program was initiated, with $1.2 million of shares repurchased in Q3 [19] Q&A Session Summary Question: Sales evolution in phase two - Management discussed the focus on driving execution velocity and moving upmarket while supporting larger deals [25] Question: B2 growth expectations - Management noted that variability from a large AI customer and longer execution times for larger deals impacted growth expectations [26] Question: Data variability from customers - Management explained that AI use cases are evolving rapidly, leading to fluctuations in data storage needs [30] Question: Long-term growth expectations for B2 and CBU - Management indicated that B2 is on track for mid-20s growth in 2025, while Computer Backup is expected to contract in low to mid-single digits [35] Question: Phase two initiative investments - Management clarified that sales and marketing expenses should remain stable as a percentage of revenue, with restructuring costs being one-time charges [52] Question: Larger deals in the pipeline - Management noted that larger deals are more complex and can take longer to close due to various internal factors [57] Question: Improvements in self-serve motion - Management highlighted efforts to enhance the self-serve experience for data-heavy AI use cases [59] Question: Powered By white-label solution - Management expressed excitement about the Powered By initiative and its potential in the Neo Cloud market [67] Question: Uptick in AI video companies - Management confirmed an increase in customers from the AI video sector, reflecting the growing data needs associated with video generation [72]

Financial Performance - B2 Cloud Storage revenue grew by 29% year-over-year in Q2 2025[11, 19, 33], accelerating from 23% growth in Q1 2025[11] - Total company revenue reached $36.3 million in Q2 2025, representing a 16% year-over-year increase[42] - The company's adjusted EBITDA margin doubled year-over-year[33, 61], reaching 18% in 1H 2025[44] - The company is targeting 30%+ B2 growth in Q4 2025[34, 35, 40] Customer Growth and Value - The number of customers with ARR (Annual Recurring Revenue) above $50,000 increased by 30% year-over-year[19, 20] - AI customers' data stored grew by 40x year-over-year[28] - The AI customer count increased by 70% year-over-year[28] - 3 of the top 10 customers are AI companies[28] Financial Strategy - The company secured a new $20 million line of credit[32, 33] - A stock buyback program of up to $10 million was approved[32, 33, 49, 50] - The company aims to reduce equity dilution by 15% to 25%[34]