Backblaze Q4 2025 Earnings Call - Adjusted Free Cash Flow Positive as Company Bets on NeoClouds with a $15M+ TCV Win

Operator: Good day, everyone. Welcome to the Backblaze fourth quarter and full year 2025 earnings call. Just a reminder, this call is being recorded. I would now like to hand the call over to Ms. Mimi Kong. Please go ahead.

Mimi Kong, Investor Relations, Backblaze: Thank you. Good morning, and welcome to Backblaze’s fourth quarter and full year 2025 earnings call. On the call with me today are Gleb Budman, Co-founder, CEO, and Chairperson of the Board, and Marc Suidan, Chief Financial Officer. Today, Backblaze will discuss the financial results that were just read 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. 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 10-Q 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 8-K filed 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 presentation for definitions of additional metrics such as NRR, gross customer retention rate, and Adjusted Free Cash Flow.

Finally, we will be participating in the Citizens Technology Conference on March second in San Francisco. Thank you for joining us, and I would now like to turn the call over to Gleb.

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: Thank you, Mimi. Welcome everyone to the call. We finished 2025 with solid fourth quarter results. Revenue came in line with guidance and adjusted EBITDA margin reached 28%, doubling over the prior year. We also delivered Adjusted Free Cash Flow profitability for the first time as a public company, a major milestone demonstrating the inherent operating leverage in our business model. For the full year, total company revenue grew 14% year-over-year, with B2 Cloud Storage growing 26%. Today, I want to focus on three things. First, the strength and durability of our core business. Second, an update on the meaningful progress of our go-to-market transformation. Third, how we’re positioning Backblaze to take advantage of the AI opportunity. Let me start with the core of our business.

As data creation accelerates exponentially, Backblaze addresses a large and growing market where long-term demand for scalable, cost-effective storage compounds over time. Our business compounds within that market as we add new customers and retain them for an average of nine years. B2 net revenue retention of 111% reflects consistent expansion within our installed base, reinforcing durable long-term growth. We’ve proven our ability to grow in that market, delivering an annualized growth rate of 21% since IPO. Being a cash-generating business is an important financial milestone. Year-over-year, we meaningfully improved profitability, demonstrating how we are building a sustainably durable company, one that can invest in growth while maintaining financial strength. Let me talk about our investment in growth and the progress on our go-to-market transformation.

While we didn’t achieve our budgeted Q4 B2 growth rate, we made meaningful progress and have positioned ourselves for success. More importantly, the underlying fundamentals of the business remain stable, and the investments we’ve made position us for durable growth going forward. Excluding the highly variable growth of the large AI customer we previously mentioned, we stabilized on a baseline of around 20% B2 revenue growth in each of the last five quarters. We’ve shared our goal of moving upmarket. We ended the year with 168 customers, generating more than $50,000 in ARR each, up 35% year-on-year. The ARR of this cohort increased 73% year-on-year to $26 million of ARR. We’re very proud of this upmarket progress. We’ve also launched three key initiatives. Number one, increasing awareness.

We launched Flamethrower, our startup program designed to engage high-growth companies early and establish Backblaze as their long-term storage infrastructure partner. Number 2, driving greater pipeline consistency. We’re upgrading our top-of-funnel systems and scaling demand generation programs to drive higher velocity sales motion. Number 3, expanding revenue within our installed base. We are implementing processes to proactively identify and capture additional share of wallet across our more than 119,000 B2 customers. People are the cornerstone of our success, and we continue to strengthen our leadership bench to support these initiatives. We have already hired the co-founder of an edge compute company to drive our Flamethrower program, a business systems leader for our systems work, and a head of customer success to build out that expansion effort. We will keep up-leveling our leadership and talent.

For instance, we are also in the final stages of hiring a sales development leader to drive pipeline and a revenue operations leader to drive tighter coordination and accountability across the entire go-to-market organization. Scaling into this next phase requires even greater execution discipline. To support that, Elias Mendoza joined us as Strategic Transformation Leader. He previously served as partner and COO at private equity firm, Cirrus Capital, and held leadership roles at IBM and Morgan Stanley. In these roles, he’s helped companies drive strong strategy to execution. Under his leadership, we also established a go-to-market advisory committee of operators who have scaled enterprise and platform businesses to $1 billion in revenue and beyond, at companies such as Okta, Snowflake, ZoomInfo, and Carta. Their role is to bring pattern recognition, pressure test key decisions, and provide external perspective as we scale.

We have made meaningful progress in our go-to-market transformation, I’m excited about the team we’re putting in place to drive it forward. Now, let’s talk about how we’re positioning Backblaze to take advantage of the massive AI opportunity ahead. We all understand there’s a lot happening in AI today, sometimes the scale is still hard to fully comprehend. I saw a report recently that capital spending on AI as a % of GDP by just the hyperscalers in 2026 is forecast to be 5 times larger than the entire spend to create the US Interstate System, 10 times larger than the Apollo space program. AI CapEx spending accounted for 92% of all U.S. GDP growth. It’s hard to hyperbolize AI. With AI, a big focus is who’s disrupting and who’s getting disrupted?

We believe Backblaze is one of the disruptors, participating in this infrastructure replatforming as a storage backbone for the next wave of cloud infrastructure. While like any major new innovation, there will be market volatility, we are firm believers in the long-term growth opportunity and are leaning into it. We’re doing that with two growth vectors. Number one, on the supply side of AI, NeoClouds and other AI tooling companies are building the platforms for AI workflows. Our opportunity is to be the storage backbone of those platforms. Number two, on the demand side of AI, companies are using AI to build everything from anomaly detection to zonal forecasting. These companies are using and generating large datasets. Our opportunity is to be the storage of choice for their developers and use cases. We are uniquely positioned to be the glue between these, creating a virtuous cycle.

Developing a platform that can deliver massive performance with large-scale datasets while providing that cost-efficiently is a significant technical challenge. Backblaze has done that, and AI is driving an increasing need for this technology. On the supply side, roughly 200 NeoClouds have sprung up, and industry estimates project that market to reach $237 billion within the next 5 years. These companies provide GPUs as a service, and most will need cloud storage to fully service their customers. We’ve already signed multiple of these multi-billion-dollar NeoClouds with not only 6 and 7-figure deals, but our company’s first 8-figure TCV deal and over $15 million deal. We believe all of these have material upside potential, and we’re in discussions with more than 6 others. By our estimates, NeoCloud storage for our solution alone represents a $14 billion opportunity by 2030.

To further pursue our NeoCloud opportunity, this morning we launched B2 Neo, a high-performance white label storage offering specifically designed for NeoClouds. Developed in collaboration with our NeoCloud customers, B2 Neo allows NeoClouds to offer a top-tier storage solution without the massive capital costs or years of engineering required to build a storage back end from scratch. On the demand side, the growth in AI developers is exponential. GitHub disclosed they were adding, on average, a new developer every second. Hundreds of AI companies and countless individual AI developers already use B2. For example, one of our customers uses AI to generate audio. They just launched a year ago and already have multiple petabytes with us, signing a six-figure annual deal with us. As they add new users, and those users generate more audio, that data grows exponentially.

Our self-serve platform, where we added 12,000 customers this year alone, is a great enabler for this class of AI developers who just want to get going. We launched our startup program called Flamethrower and a developer relations initiative to ensure developers are building with Backblaze. To drive our roadmap forward for the AI opportunity ahead, we strengthened our product and engineering leadership. Dan Spraggins joined as SVP of Engineering and Rhett Dillingham as SVP of Product, bringing deep experience in AI and high-performance cloud infrastructure. We also added Russ Artzt, co-founder and former head of R&D at CA Technologies, as an advisor. Together, this team strengthens our ability to scale the platform for larger, more complex AI-driven deployments.

We enter 2026 with a strong and growing business, a rapidly improving go-to-market motion, and a tremendous AI opportunity with a targeted B2 Neo offering and a strong product team. AI is reshaping how data is created and scaled, and storage sits at the center of that transformation. Across Neo cloud platforms and AI native developers, we are building the foundation for the next generation of data infrastructure. Durable growth and massive AI potential are the hallmarks of our opportunity. With that, I’ll turn the call over to Marc. Marc?

Marc Suidan, Chief Financial Officer, Backblaze: Thank you, Vlad, and good afternoon, everyone. We grew revenue while achieving Adjusted Free Cash Flow profitability in Q4. This is a significant milestone and an important step forward in our profitability journey. This progress was not driven by short-term cost actions, but by the inherent leverage in our operating model as revenue scales. For the quarter, total revenue was in line with guidance at $37.8 million, and adjusted EBITDA exceeded the high end of our guidance by approximately 600 basis points. In the fourth quarter, B2 revenue grew 24% year-over-year, up from 22% in the prior year. This is modestly below the range that we outlined last quarter. We delivered record bookings this quarter. As Vlad noted, we closed our largest contract in the company’s history with over $50 million in Total Contract Value. We’re excited about this eight-figure deal.

This deal validates the product market fit at scale. We don’t expect to see meaningful revenue in 2026 as we complete certain development work. In 2027, we expect this customer to contribute over 300 basis points to B2 revenue growth. This customer helped drive our RPO up 60% year-over-year to $66 million. In quarter B2, NRR was 111%, compared to 116% in the prior quarter. The sequential decline reflects variability from the large customer that we mentioned in our past two earnings calls. Factoring out that one customer, the underlying retention and expansion trends remain stable. Moving to the income statement, Q4 gross margin was 62%, flat sequentially and up from 55% in the same period last year. Adjusted gross margin was 80%, compared to 78% last year.

Margins remained stable despite higher data center costs, reflecting continued efficiency in our infrastructure and disciplined management of our operating model. Looking ahead, we anticipate some pressure on gross margins driven by increased costs. In response, we are proactively launching a gross margin optimization initiative focused on structural improvements across pricing, packaging, and infrastructure. Our Q4 adjusted EBITDA margin was 28%, doubling year-over-year. The adjusted EBITDA outperformance was primarily driven by non-recurring items, including variable compensation alignment and office restructuring savings. Excluding those one-time items, adjusted EBITDA would still have been above the 22% high end of our guidance. Adjusted Free Cash Flow was positive $4 million in the quarter, representing a margin of 11%, exceeding our outlook of being Adjusted Free Cash Flow neutral. We ended the quarter with $51 million in cash and marketable securities.

Based on our current operating plan, we expect to fund our growth through operating cash flows and capital leases. We do not anticipate a need to raise additional capital. We will continue to evaluate opportunities to optimize our capital structure over time in a disciplined manner. To improve accountability and further align management incentives with shareholders, we are shifting part of the compensation to Performance-Based Stock Units. These awards are tied to clearly defined performance objectives. Turning to our guidance for the year, our objective is to provide a clear and credible baseline that reflects the most predictable portions of our business. While pipeline activity remains healthy, larger customer wins and usage-driven workloads can introduce variability in timing and revenue recognition. To maintain forecast discipline, we have de-risked our outlook by excluding large swing deals and anchoring guidance on opportunities with more predictable demand characteristics.

For customers with high variable usage patterns, our assumptions reflect contractual minimum commitments rather than potential upside consumption. Our outlook is therefore based on continuing expansion within our existing customer base and steady adoption of B2 across core use cases, consistent with recent operating trends. We believe this approach provides a prudent and reliable foundation for the year while preserving upside as deployment, timing, and usage visibility improve. For the first quarter of 2026, we expect revenue to be in the range of $37.6 million-$38 million, with adjusted EBITDA margins in the range of 18%-20%. For the full year, we expect revenue to be in the range of $156.5 million-$158.5 million. Full year adjusted EBITDA margins are expected to be 19%-21%.

We expect Adjusted Free Cash Flows to be roughly neutral for the year, with normal quarterly variability. Due to the difficult comp from last year’s large variable customer, we expect B2 year-over-year growth in Q2 and Q3 to be in the range of 12%-19% and approximately 20% for the full year. To wrap up, over the past year, we made meaningful progress towards becoming a Rule of Forty company, with our combined B2 revenue growth and free cash flow margin improving from 9%-35%. As we look towards 2027 and beyond, we believe Backblaze is well-positioned to grow efficiently. Our platform is already built, our infrastructure scales with discipline, and incremental revenue increasingly translates into profitability and cash generation.

This capital-efficient model allows us to pursue the massive AI-driven opportunity ahead while maintaining financial discipline, expanding margins over time, and building a durable self-funding business. With that, operator, let’s open it up for questions.

Operator: Thank you, sir. Everyone, if you would like to ask a question, please press star one on your telephone keypad. Again, that is star one if you have a question today. We’ll take the first question from Ittai Kidron from Oppenheimer.

Ittai Kidron, Analyst, Oppenheimer: Hey, guys, solid numbers. Thank you very much for de-risking the outlook for the year. It’s hopefully a very smart move. Gleb, I wanted to dig, of course, into the NeoClouds and the large deal. First of all, just from a big picture standpoint, are demand patterns any different? Can you explain how Neo, your B2 Neo Cloud solution, how is it different than B2? In what way are the demands different, the pricing different, the margin different? If you could elaborate also why this deal is gonna take a year before we start seeing revenue, would appreciate that.

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: Yeah, thanks, Itay. All good questions. One thing I’ll say, first of all, is our pursuit of the NeoClouds is 1 part of the business pursuit. There are about 200 of these NeoClouds. We do think it’s a large and important opportunity for us, right? Just our part of the NeoCloud opportunity we view as about $14 billion, so it’s, it’s important, and we are really well suited for it. The hyperscalers are not key competitors here because they are competing with the NeoClouds as opposed to being vendors for them, the way that, that we are. It’s, it’s a good opportunity which we’re well positioned for. In terms of what B2 Neo is, it is a white label offering, so B2 is generally sold directly to the end customer.

B2 Neo is a white label offering that they can build in directly into their service. It provides a lot of the same functionality that B2 provides. It’s high performance, it’s low cost, it’s durable, it’s scalable, but it also provides them the ability to manage that storage on behalf of their customers through APIs, with API integration, single sign-on, et cetera. It’s really leveraging all of the technology that we’ve built over the last 17 or so years for the company, and then layering on top of that technology to make it simpler for them to integrate natively and make it easy for them to manage and offer that storage offering. That’s what B2 Neo is.

Now, in terms of why it’s going to take a year for this one NeoCloud provider to start seeing the benefits of it, it’s a combination of work we need to do and work they need to do. They have an existing storage offering that they’re going to be switching to use B2 Neo instead. It’s, it’s basically we have some work to do that to make it so that it’s even easier and more robust to automate and natively integrate for them. One thing I, I’d like to make clear is all the work that we’re doing for them is useful for other NeoCloud providers and also other companies, but not required for most.

We have multiple NeoClouds that have already signed up that don’t need this work, and we think that there’s a large number of them that won’t need any of this work, but the work that we’re doing is broadly useful for others as well.

Ittai Kidron, Analyst, Oppenheimer: Okay, appreciate it. I, I guess, first of all, the TCV $50 million, that’s great, but can you tell us the, the duration of the contract? Is the margin profile of this business, you know, as you ramp up the NeoClouds, Gleb, is there, is there a potential, upfront cost hit to you as they ramp before margin normalizes on these businesses?

Marc Suidan, Chief Financial Officer, Backblaze: Yeah, I mean, hi, Ittai, this is Marc. I, I can take that question. We, we do have to accelerate some capital expenditures, that would impact that and other things happening in the market would impact our gross margin by a few hundred basis points, to help us prepare for this. Because it’s obviously a large deal, we need to have the capacity in place.

Ittai Kidron, Analyst, Oppenheimer: Okay, then lastly, on computer backup, Marc, can you comment on the expectation? I mean, this, this business is, you know, the number of customers is now declining here. I guess, help me think about a framework for this business for 2026. How should I think about the quarterly cadence and the annual cadence of this business? Is there a different long-term outlook for this?

Marc Suidan, Chief Financial Officer, Backblaze: Yeah. I mean, I’ll start off by the, the coming year, Etai. We see this business, declining 5% year-over-year. Currently, in Q1, that’s more like a -3% that builds up throughout the year, and makes and averages out for the end of the year at a -5%.

Ittai Kidron, Analyst, Oppenheimer: Okay. And longer term, is there, is there any... Should we just continue to expect this business to slowly decline?

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: Well, what I would say, Etai, on that one is we have programs that we’ve put in place and are putting in place to stabilize the business. We would like to get it to a place where it is flat and possibly even slowly growing. We don’t think this is a fast-growth business, as you know, but it would be good for it to not be a declining business. It’s, it’s a little too early for us to have confidence in those programs, getting to that place. For this point, we’re, we’re estimating it at that shrinking rate, but we are putting effort into, getting that to, to be flat to slightly growing.

Ittai Kidron, Analyst, Oppenheimer: Appreciate it. Thank you.

Operator: The next question will come from Jeff Van Riel from Craig-Hallum Capital Group.

Jeff Van Riel, Analyst, Craig-Hallum Capital Group: Great. Thanks for taking the questions, and congrats on the free cash flow. Great to see it. A couple from me. Maybe if you could just start in terms of B2 coming into Q4, came in a bit below expectations. Just expand a bit more on what missed there. Then, you know, as you’re looking at the annual number, I didn’t catch what you had guided it for in Q1, so if you could just fill in the gap. I think we can back into it, but maybe you could just share it. What happened in Q4, and what are you thinking Q1?

Marc Suidan, Chief Financial Officer, Backblaze: Yeah. Hi, hi, Jeff. Good to hear from you. This is Mark. On the Q4 2025, we were expecting when we set our guide, quite a few deals to close in November. They came in very late in the quarter, so they didn’t benefit Q4. That’s why we’ve adjusted our guidance philosophy going forward, where we said, "Going forward, we’re gonna factor out the swing deals ’cause they’re, they’re less predictable in timing of closing." That’s, that feeds into the guide going forward. We said for B2, year-over-year, it will be 20% in 2026. The ranges that we provided of 12-19, a lot of that has to do with the comps of that high variable customer in 2025.

Q2 would be the low end of that range, and Q3 would be about the higher end of that range. Overall, the year would average up to 20%. Does that answer your question?

Jeff Van Riel, Analyst, Craig-Hallum Capital Group: Yeah, I think it does. The growth is, if I do the quick math, maybe in Q1, looks like it’s 9%, if I have it right, on year-over-year, and you’re decelerating to 8% for the overall year. It actually looks like maybe you’re assuming some deceleration in the year. I, I’m, I’m sure there’s a little bit of lumpiness from the large customer, but generally speaking, you had some pretty good momentum in sort of phase 1 of the sales build and build out. Sounded like you felt like you had some early good signs on phase 2, but the numbers are painting a picture of deceleration. Just help me reconcile the two.

Marc Suidan, Chief Financial Officer, Backblaze: Yeah. I mean, the, the deceleration that you’re seeing is largely driven by that 1 monthly customer. If you go to slide 21 of our earnings deck, and you factor out that 1 customer, you could see that it pretty much we’ve been stable around the low 20s. If you recall, factory on a price increase, B2 growth rate has always been growing but decelerating for 5 years. We’ve managed to stabilize it in the low 20s. Now with this new guidance philosophy, we’re seeing 20 year-over-year, and that includes, you know, the lumpiness that I described in Q2 and Q3. Then with all the phase 2 changes we’re doing, Gleb could elaborate on that, that will then afterwards come drive benefits.

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: I think, also, Jeff, I think you were talking about the whole company, not, not just B2, right?

Jeff Van Riel, Analyst, Craig-Hallum Capital Group: Mm-hmm.

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: Part of what’s, part of what’s driving that is that, computer backup was growing in part due to the price increase before, and it’s, as Marc said...

Jeff Van Riel, Analyst, Craig-Hallum Capital Group: Mm-hmm

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: ... we expect it to shrink about 3%, so it’s, it’s putting some downward pressure on the overall company in Q1. On the GTM transformation, I think some of the things that we look at is, is, you know, in terms of progress, there is progress that we’re making in terms of actions, things like we’ve hired the VP of Revenue Operations, we’ve made material progress in moving the systems forward and expect that work to be largely completed at the end of this quarter. We’ve gotten, you know, pretty far down the path with some sales development leaders to, to bring in. You know, we’ve, we’ve made a number of kind of improvements, and then you can also see some of the outcomes, like the 73% growth in ARR from customers over $50K and this 8-figure deal.

I think we’ve made progress on the GTM side. Obviously, we all, we all want more work to be done there.

Jeff Van Riel, Analyst, Craig-Hallum Capital Group: Great. Maybe just one last one, if I could. On the, on the large NeoCloud win, can, can you just expand a bit on what the competitive landscape looked like there? Maybe you know, the finalists, you know, the kind of the two or three that it came down to at the end of the day, and if there were specific features, capabilities that were the deciding factors for your win there.

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: Yeah, it’s actually, it’s interesting because this, this NeoCloud, they, they had their own storage. They started realizing from their customers that the storage that they had wasn’t going to provide what they needed for, for this next phase of evolution. So they started thinking about how to handle that. A number of their internal, internal engineering and business leaders were actually familiar with Backblaze from prior roles in other places, and they knew that Backblaze had a really strong reputation for providing a great storage platform, that it was trusted. That basically, we built a moat around this idea of high performance, but predictable economics and low-cost storage. So we were the top of their list for consideration.

When they went and evaluated, you know, they, they wanted to make sure, because they were going to be basically placing their brand on, on the line for saying, you know, they’re going to use us for this underlying platform for all of their customers. They wanted to make sure it absolutely worked. They did, you know, pretty detailed technical due diligence, and then, and then chose us. You know, the why, I think, came in part because we had established a lot of credibility over many years, that we are a great storage platform, and then we met their technical requirements for both performance, scale, affordability, and openness.

Jeff Van Riel, Analyst, Craig-Hallum Capital Group: Mm-hmm. Okay, great.

Operator: Your next question today comes from Mike Cikos from Needham.

Mike Cikos, Analyst, Needham: Hey, great. Thanks for taking the questions here, guys. If I could just come back to the gross margin comment on this expected headwind that we’re up against. I guess it’s a bit of a two-parter here, but when I think about the headwind we’re facing this year, is that really tied to customer success initiatives or deployment in advance of recognizing revenue from this large NeoCloud agreement that we’re talking to today, or is there potentially an ongoing presence or multi-year factor we need to consider when evaluating corporate gross margins on a go-forward basis?

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: Yeah. Hey, Mike, it’s Mark. There’s, there’s a few factors in there, right? First of all, data center cost and equipment have gone up. That, combined with us needing to accelerate some CapEx, does reduce our gross margin this coming year by a few hundred basis points. That’s why we said we’re doing that gross margin optimization initiative to look for opportunities to offset that. Now, in terms of business model, when you go after a white label, large-scale solution like that, generally speaking, the gross margin will be a bit lower, and the OpEx will be lower as well because you have to spend less on sales and marketing. So it nets out to the same economic model for us, but that’s, that’s the P&L benefit, if that makes sense.

Mike Cikos, Analyst, Needham: It does. It does. Thank you for that. I, I just wanted to come back again, to this, this de-risk guide that we’re talking through here, appreciate the commentary and the prepared remarks, but just to better understand these swing factor deals, or the idea that we’re only going to underwrite minimum contract commitments from customers. Is that really tied to the NeoClouds when thinking about those swing, swing factor deals, or is it maybe the move-up market? Is anything else you could provide that’s creating that dynamic? Then secondly-

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: Yeah.

Mike Cikos, Analyst, Needham: Yeah, go, go ahead. Go ahead. I just have a follow-up.

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: Okay, I’ll answer this one, and then you could ask your, your next question if you want. Moving up market, I mean, there’s different sides of up markets, but when you look at the average deal size of those 168 customers, it has grown quite a bit. But I think the even larger ones, and let’s, let’s call larger ones $500,000 in ARR and greater, they do take longer to close. There’s less predictability for us to factor that into our guide, so that’s why we factored them out. Doesn’t mean they won’t happen, it’s just harder for us to, to guide on them. I think it’s less around the, the NeoCloud. I mean, the NeoClouds are big deals, too, and they have similar attributes, right?

Where you got to take longer to do the technical feasibility and, and make sure you win over the POCs. That’s, that’s what’s driving that side of it.

Mike Cikos, Analyst, Needham: I guess the, the final follow-up on my side. For those, let’s say, $500,000+ deals that you’re signing, can we start bifurcating the extent to which those sales cycles are longer versus your more typical run rate business? Final piece, for this calendar 2026 guide, is there any way you can give us some, some pointers as, as far as the NRR that you’re, you’re thinking about when we look at this calendar 2026 guide? That’s all on my side. Thank you so much.

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: Hey, Mike. This is Clevan. In terms of bifurcating the size of the deals and the length of time, you know, when we look at those, they certainly are longer sales cycle ones, but it’s interesting because they’re not dramatically longer. Some deals, like the 8-figure deal that we talked about, that did take the better part of a year, in part because they had to look through their own systems, they had to understand what it would take to switch out to a different system, what integration that would require, et cetera.

A number of the other NeoClouds didn’t take anywhere near that long, and many of the other larger customers, especially ones that are 50K, 100K, 200K, were actually moved quite quickly. Certainly, you know, some of the largest of those deals, they did take, you know, call it, so some of them took six months or so, to close, whereas we’ve seen a lot of the deals close in, in sub 90 days.

Marc Suidan, Chief Financial Officer, Backblaze: Yeah, and then I could jump in and discuss the NRR outlook. You know, due to the lumpiness of that large customer in 2025, we factored out any usage above their minimum commitment level in our guide for 2026. Assuming that that’s what materializes, the NRR, just like the revenue growth rate for B2 and just like the overall growth rate of the company, will be lower in Q2 and Q3. NRR could go down to closer to 100% for 1 or 2 quarters. Our overall growth rate of 20%, which is where we should be finishing the year, and year-over-year overall, should equate to an NRR that’s closer to 110%. Pretty much where we are now, plus or minus to 300 basis points.

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: Mike, one, one thing actually I’ll mention also on NRR that, I think I find quite, quite exciting, you know, we have a broad base of customers, but we’re leaning in heavier to the overall AI customer type, not just the NeoClouds. We have hundreds of those customers that are using us for AI workflows, specifically. We’ve seen a growth rate of 75% in the number of those AI customers, but one of the things that I, I find even more exciting is that the growth rate of those customers is about 3 times faster than the growth rate of our average customer. As we sign up more of these AI customers, we see the opportunity for NRR to go up over time as well, because they are generating data at a faster rate than your average customer.

Mike Cikos, Analyst, Needham: Thank you again.

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: Thanks, Mike.

Operator: Up next, we’ll go to Jason Ader from William Blair.

Jason Ader, Analyst, William Blair: Thanks. Good afternoon, guys. Wanted to first ask about your comment, Gleb, that most NeoClouds don’t have storage. I think that’s what you said. I just wanted to understand why that might be, and then also, your comment that the eight-figure win was with a NeoCloud that did have storage, but the storage wasn’t going to handle what they needed. Maybe just, if you could elaborate on why it wouldn’t be able to handle what, you know, their customers needed?

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: Yeah. Thanks, Jason. Both good questions. With these 200 NeoClouds that have come up, they, they almost all started with GPUs. Right, the, the need for... That happened was, for these AI use cases, they needed the GPUs first. The second thing then that they need, is they need a place to keep the data to feed these GPUs. Initially, they set up data centers. A lot of them set up data centers that were more specifically designed for GPUs, which are, you know, very power-hungry. Oftentimes, they want liquid-cooled environment. They, they don’t need nearly the square footage in the data centers that they need. They need more power in the space, et cetera. They built these providers focused on the GPU opportunity.

What they realized then is customers who want to use the GPUs need a place to keep the data. They needed the place to keep their data to build the models, and then they need the place to keep the data when they’re when they’re doing inferencing for the outputs. What some of them have done, many of them have not done anything on that front yet, they’ve just set up the GPUs side of things. What some of them have done is said, "Okay, well, we can do something." Some of them have used open source projects for to stand up their own infrastructure, or some of them have set up a storage infrastructure using flash systems.

The problem is, what they found is, you know, the flash systems are incredibly expensive, to operate, and so for large-scale data sets, that becomes very quickly unaffordable. The open source tooling is difficult to manage. You know, you have to have experts ongoingly, working to tune it, operate it, et cetera, and they’re really not designed to scale to exabyte scale. Most of those open source projects were designed for potentially handling a single enterprise’s scale, and so once they start seeing some movement, some success, they start reaching the limitations of those projects. The opportunity for us is that there are these 200 providers, they’ve built out the GPUs, they’re starting to realize that they need storage.

They’re not gonna get that from the hyperscalers for the most part, because those are their direct competitors, and the solutions that they have are either really expensive, really complicated, or don’t scale.

Jason Ader, Analyst, William Blair: Gotcha. Okay, and then the, the Neo cloud, that you announced or that you, you talked about, the eight-figure win, can you say if that is a publicly traded company?

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: They are a publicly traded company, yeah.

Jason Ader, Analyst, William Blair: They are. Okay, great. Then last one for me, just, Webb, what’s your confidence level that you could win additional deals like the one that you announced on the call tonight?

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: I mean, I, I, I’m, I’m very confident that we can do additional deals. The timing is obviously always uncertain, but, you know, this is it’s not like this NeoCloud is the only NeoCloud that we have won. We’ve got others that are $6 figures and $7 figures already. Those that we’ve already signed at $6 and $7-figure deals, I think they themselves have the opportunity to become $8-figure deals. As they roll this out to more of their customers and more scale, they’re big enough that they could become $8-figure deals for us themselves. We’re currently in discussions with about 6 other NeoCloud providers that are somewhere in this same scale of size of organizational opportunity.

You know, timing is obviously a, a question for us, but our ability to be a good fit for these kind of customers and the discussions we’re, we’re in, give me a lot of confidence.

Jason Ader, Analyst, William Blair: I may have missed it, but did you say how the duration of that eight-figure win was?

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: that one’s a 3-year deal.

Jason Ader, Analyst, William Blair: Three-year deal. Okay. Thanks very much. Good luck, guys.

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: Mm-hmm. Thank you.

Operator: Eric Martinuzzi from Lake Street Capital Markets has the next question.

Eric Martinuzzi, Analyst, Lake Street Capital Markets: Yeah, you mentioned the revenue impact from the eight-figure transaction really doesn’t start to hit until 2027. Based on your answer about the 3-year duration and over $50 million, is that to say then that we’re, you know, a small amount, maybe the end of 2026, and the bulk of it split between 27 and 28?

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: Yeah, that’s, that, that’s correct, Eric. For now, honestly, we’re, we’re not factoring anything into, into 2026 for that. Yeah, by the way, Eric, you said... I, I just wanna make sure that, it sound like you said $50 million. It’s $15+ million, 1 5.

Eric Martinuzzi, Analyst, Lake Street Capital Markets: Gotcha. Thanks for clarifying that.

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: I’ll, I’ll, I’ll look forward to a $50 million deal in the future, but we’re not there just yet.

Eric Martinuzzi, Analyst, Lake Street Capital Markets: The other thing I wanted to ask about was your comment regarding the Adjusted Free Cash Flow. You talked about it being neutral for the year, and I’m just wondering, given the investments you’re making to have the infrastructure in place here, it seems like it’s sort of front half loaded. Is that to suggest then that the Adjusted Free Cash Flow positive, we’re, we’re Q4 for sure, and potentially Q3? Is that the right way to think about it, quarter by quarter?

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: Yeah, Eric, I mean, generally speaking, the first half of the year is, our cost base increases. It starts kicking into Q1, and our OpEx lines, honestly, should not be really increasing that much other than maybe around 500 basis points. Not as a % of revenue, just off the dollar baseline from last year on a non-GAAP basis, as it relates to just basic inflation, salary raises, and so on. Other than that, we’re, we’re, we’re keeping our OpEx model pretty tight. I spoke about the gross margin being set back by a few hundred basis points. So when you combine all those factors and accelerating some of the, the expenditures to prepare for these customers, that’s why we’re free cash flow neutral for 2026. It is lumpy during the year.

Usually Q2 is also where we have the least of our computer backup renewals, so Q2 is usually the worst set, and the second half of the year is in better shape. That would be, you know, a nice improvement from the -$5 million for 2025 as a year and the -$20 million in 2024. I think we’re pretty well set on exiting the phase of cash burn, and, and our aim is to stay here and get better.

Eric Martinuzzi, Analyst, Lake Street Capital Markets: Got it. Thank you.

Operator: Everyone, just a reminder, it is star one if you have a question today. Up next is Zach Cummins from B. Riley Securities.

Ethan Waddell, Analyst, B. Riley Securities: Hi there, Ethan Waddell calling in for Zach Cummins. Thank you for taking my questions. I guess to start with, Neo Cloud, and with there being a high portion of, of leverage there to AI and HPC, how would you define, I guess, the incremental revenue opportunity or overlap, whether it be, you know, like customer base or function or revenue opportunity versus B2 Overdrive?

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: Yeah, thanks, thanks, Ethan. It’s a good question. B2 Overdrive was initially actually developed because we heard from customers saying they wanted to use high-performance storage, high-throughput storage, that would enable them to send their data to the NeoClouds when they, when they needed them, or to other hyperscalers, for example. B2 Overdrive is not a white label offering, it’s designed for end customers to actually use themselves. B2 Neo is specifically designed as a white label offering for the NeoClouds to then themselves offer storage to customers. They’re largely serving different sides of the market, but both serving the needs of AI and HPC-type use cases.

Ethan Waddell, Analyst, B. Riley Securities: Understood. That’s helpful. then the, the large TCV deal, can you clarify whether that was from a existing customer? Generally, is the, the revenue upside from existing customers there, based on increasing usage?

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: The $15 million+ TCV deal is a new customer, completely new to us. However, what I would say is if, if, if you look across the $1 million+ deals that we’ve had over the last year-ish, it’s roughly 50/50. Half of them are net new customers to us that came in, evaluated, considered, tested, and then signed a 7-figure deal with us. The other half are customers that started off small. Some of them started off self-serve, some of them came in as just smaller sales deals, got familiar with the platform, liked the platform, and then expanded into 7-figure deals.

Marc Suidan, Chief Financial Officer, Backblaze: Yeah, Ethan, this is Marc. What I would add, if you look at slide 17 of the earnings deck, it breaks down the new versus expansion from the existing, it’s certainly 50/50. It’s pretty well distributed because the self-serve Product-Led Growth is about half of that as well, the larger direct sales customers are half, each one is kind of breaks out into a half by itself of what is expansion versus new logo. It’s basically, that’s why if you look at the stacked bar, it’s like 4 quarters. It’s pretty well diversified in terms of how it comes through.

Ethan Waddell, Analyst, B. Riley Securities: Got it. Well, I appreciate the color.

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: Yeah, maybe, maybe one other piece of color just to add, in terms of... One of the things we look at is, as a, as a forward-leading indicator, is pipeline. In 2024, we generated about $15 million of pipeline, and in 2025, we roughly doubled pipeline to about $30 million. Our aim with our continued GTM transformation is to get to a run rate of about double that. You know, with our industry-leading win rates, pipeline transfers into AR quite efficiently. You know, we’re not there yet, but that’s, you know, we, we made meaningful progress in 2025 and aim to make more meaningful progress on that in 2026.

Ethan Waddell, Analyst, B. Riley Securities: Understood. That’s very helpful. Thank you.

Operator: The next question is from Rustom Kanga from Citizens.

Ethan Waddell, Analyst, B. Riley Securities0: Good afternoon, Marc and Gleb. Congrats on the RPO acceleration. Just building on another question that you answered, Marc, Gleb, where you kind of mentioned that B2 Overdrive versus B2 Neo are serving 2 different sides of the market. You know, as we sort of think about the build-out of the pipeline for B2 Neo, is it fair to say that these opportunities are gonna be anchored towards larger deals, albeit maybe not as large as this one that you’ve just put it up in the quarter? Is it fair to say that this is kind of the larger opportunity, and is that likely to sort of lead to, you know, higher ASP engagements as you look towards this opportunity?

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: Yeah, it’s a good question, Rustam. One of the ways I would look at it is the market for the NeoClouds, if you take just the hard drive-based storage opportunity inside of those 200 providers, that market is estimated at about $14 billion in the next 5 years. With 200 players representing $14 billion of opportunity, every single one of those deals on average is going to be a large deal. The short answer to your question is yes, the B2 Neo deals we see as large opportunity deals. The ones that we’ve signed so far are 6 and 7, and now 8-figure opportunities on those.

Some of those I imagine may start smaller just as, as they start getting familiar with it, but I think all of them have the opportunity to get quite large.

Ethan Waddell, Analyst, B. Riley Securities0: Great, that’s helpful. Then just kind of thinking about the investment cycle for next year, is there any sort of relative color that you can share with us in terms of the level of CapEx investment that you guys are thinking about for 2026?

Marc Suidan, Chief Financial Officer, Backblaze: Yeah, Rustam, this is Marc. Good to hear from you. Our CapEx will be higher next year. As a percent of revenue, when you look at our PP&E at the end of the year, it should be in that high 20s% of revenue. We typically finance our CapEx through capital leases, and we’re fully set up to do that, and that would be the principal lease payments on a statement of cash flows, which is around mid-teens of revenue, right? Because you’re buying today, but financing over 5 years over a growing revenue base. That mid-teens, I mean, over the past few years, has actually improved from our side as we continue to optimize our cost of capital.

Ethan Waddell, Analyst, B. Riley Securities0: Great. Appreciate the color. Thanks, guys.

Operator: Everyone, at this time, there are no further questions. I would like to hand the conference back to Gleb for any additional or closing remarks.

Gleb Budman, Co-founder, CEO, and Chairperson of the Board, Backblaze: Thank you. We have a strong and durable core business, made meaningful progress in our go-to-market transformation, and have a tremendous opportunity in AI. We drove growth while becoming adjusted free cash flow positive. We launched B2 Neo and signed multiple NeoClouds, including this $15 million plus deal. We also launched Flamethrower, our program for high-performance startups. In just the last few days since the launch, it’s exceeded expectations, growing faster than the kickoffs at other leading companies that are, leader for that has driven. We’ve had about 12 startups that have applied, been evaluated, accepted, and given credits, including ones from Andreessen Horowitz and Y Combinator, and we’ve bolstered our team overall to take advantage of this tremendous opportunity. I’m really excited about the year that we have upcoming together.

I wanna thank our employees, our customers, and our investors for taking this journey with us, and we’ll look forward to chatting with you next quarter. Thank you.

Operator: Once again, everyone, that does conclude today’s conference. We would like to thank you all for your participation today. You may now disconnect.