Backblaze, Inc. Q3 FY2025 earnings call

Key Points

• Delivered strong Q3 results with revenue and adjusted EBITDA margin above guidance; on track for adjusted free cash flow positive in Q4.
• AI is central to customers and opportunity; models are more accessible, compute GPUs fragmented, and data is a key differentiator where Backblaze helps.

Customer Examples

• Signed a new 6-figure deal with an AI start-up focused on large-scale vision language models.
• An AI customer in surveillance expanded commitment almost 10x to a 7-figure TCV deal.
• A 6-figure win via white label deal with a media app developer.

Go-to-Market Transformation

• Phase 2 focuses on accelerating self-serve and direct sales motions. For self-serve, aiming to deepen connection with developer community. For direct sales, adding talent and upgrading systems, partnering with advisers/consulting teams.
• R&D spending held steady in dollars but declined as % of revenue; operating expenses improved to 71% of revenue, reflecting structural changes.

Total company revenue grew 14% year-over-year to $37.2 million in Q3. B2 Cloud Storage delivered strong results, growing 28% year-over-year. Computer Backup revenue was flat year-over-year, reflecting the final roll-off of the price increase implemented in 2023. B2 Cloud Storage contributed significantly, with its 28% growth being a key driver.

• Q4 revenue expected in the range of $37.3 million to $37.9 million.
• B2 growth in Q4 expected to be between 25% and 28% year-over-year.
• On track to be adjusted free cash flow positive in Q4. Focus on operating leverage and continuing go-to-market transformation to drive stronger growth.

• AI industry evolution and fragmentation pose challenges.
• Data variability from AI customers, with usage fluctuating as AI use cases evolve rapidly.
• Larger deals taking longer than expected to close, requiring balance between large deals and smaller ones for consistency.

Q: Talk to me about how you were envisioning the sales sort of evolution in Phase 2.

A: Phase 2 is about driving execution velocity, continuing to move upmarket but focusing more on moving things through the funnel more explicitly. Most reps are through ramps, and we want to increase core base of smaller deals for consistency.

Q: What changed in your mind versus your expectations when you set the B2 growth goal?

A: Set goal a year ago, aim remains the same. Phase 1 doubled pipelines, bookings, channel, but outbound motion muscle needed strengthening. Inbound motion strong, but outbound requires more work.

Q: Talk about the variability on the data usage with AI customers.

A: AI use cases evolve rapidly. Customers' data needs fluctuate, and we support them accordingly. Different AI use cases are being learned and supported with customers, with some customers ramping up and pulling back on data needs.

Q: How many 7-figure ARR customers do you have now?

A: Generally announced 1 or 2 per quarter over the last year, not a large number but proof of moving upmarket.

Q: What are you budgeting for next year in terms of Phase 2 investment?

A: Sales and marketing percentage of revenue should stay stable. Restructuring funds one-time costs for transformation work, talent refresh within existing OpEx budget.

Q: Can you give a sense of some of the things you're looking to improve within the self-serve motion?

A: Focus on making it easy for new AI native start-ups and developers, ensuring content, flows, and integrations support data-heavy use cases. Self-serve account creation up 56% due to adjusting to AI search algorithms.