Backblaze, Inc. Q2 FY2025 earnings call

• Innovation: Launched B2 Overdrive, which has already secured a six-figure customer within 2 months of launch. Also introduced Anomaly Alerts (AI-powered suspicious data transfer detection), Enterprise Web Console (role-based access controls), and Bucket Access Logs. - Go-to-market transformation: B2 revenue growth accelerated to 29% in Q2, with 150 customers generating over $50,000 in ARR, a 30% YOY increase. Pipeline has doubled year-over-year, with a growing number of six-figure opportunities. - AI impact: 3 of top 10 customers are AI companies, and data stored by these AI customers grew 40x year-over-year. AI use cases drove financial outperformance this quarter.

Total revenue for the second quarter was $36.3 million, a 16% year-over-year increase. B2 revenue was $19.8 million, representing a 29% year-over-year growth, contributing significantly to the overall revenue. Computer Backup revenue grew 4% year-over-year, but is expected to decline in the low to mid-single digits in the second half of 2025. B2 revenue's contribution to total revenue is substantial, with a 29% YOY growth outpacing the overall revenue growth.

• Q3 2025 revenue guidance: $36.7 million to $37.1 million, with B2 revenue growing 28%-30%. - Adjusted EBITDA margin guidance for Q3: 17%-19%. - Full-year 2025 revenue guidance raised to $145 million to $147 million from $144 million to $146 million due to better-than-expected B2 performance. - On track to be adjusted free cash flow positive in Q4 2025.

• Potential variability in B2 revenue due to the ramp-up of large AI customers. - Market competition and the issue of competitors imposing surprise storage charges. - Equity dilution concerns, addressed in part by a stock repurchase program and RSU net cash settlement initiatives.

Q: Just two or three from me, if I could. Gleb, maybe on the seven-figure customer that you talked about in the quarter, just curious a little more background on that deal. Was that a displacement? And if it was, who was it? Maybe just a little more color there.

A: Yes. Thanks, Jeff. Appreciate the questions. So on the seven-figure customer, they were an existing customer that was smaller before. They've been with us for a handful of quarters at this point. And effectively, their data has been just growing very significantly. And it's an AI company. It's greenfield data. It's data that didn't exist before. And we're seeing this with more AI companies that the data is actually getting created for them. So we're absolutely doing displacements. The B2 Overdrive is an example of a displacement where we took the data away from a hyperscaler. But in the case of a lot of the AI companies, they're actually creating new data, whether it's for model building or because of the generative nature of AI.

Q: Ittai Kidron: Nice quarter as well. Maybe we're running too far ahead here, Gleb, but what percent of your B2 customers do you think can be Overdrive customers?

A: Yes, it's a good question, Ittai. I think that one of the things that we see, obviously, is that AI use cases, we think, are going to continue to increase and become a bigger and bigger part of the overall. And I mean, there's no reason why the AI alone at some point isn't a $1 billion opportunity for storage, right? And a lot of those AI companies need the performance because the GPUs are so expensive that the faster they can get the data to the GPUs when they're actually ready, it makes sense, right? So I think that any of the companies who are building models, Overdrive is a good value for them. We also see other use cases where they're doing high-performance computing and some of the media workflows where moving lots of data is also important. So I think at this point, Overdrive is only being offered for multi-petabyte customers. So that's going to be on the larger set. But it's -- in general, we think that Overdrive is potentially available for anybody who's doing significant AI workload. And as you can imagine, AI is potentially a huge opportunity for us.

Q: Ittai Kidron: Last one for me, Marc, on the Computer Backup, solid quarter actually. And so -- and you have very good retention rates. I hear your guidance on -- now that we're lapping the price increase. I guess the question is, with good gross retention here, how do you think about the puts and takes in your -- in the decision whether to raise price again or just keep things as is and let this slightly decline over time. Help me think about your thought process here. What are the triggers to think about over the next 12 months in this business?

A: Yes. So what I would say is we really focused on B2 growth. I mean we doubled down on that, and we said we're going to get it up to 30% by the end of the [Technical Difficulty]