Thank you for standing by and welcome to the Backblaze Q3 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. As a reminder, today's conference call is being recorded. I would now like to turn the conference over to your host, Mr. James Kisner, Vice President of Investor Relations. Sir, you may begin.

Thank you. Good afternoon and welcome to Backblaze's third quarter 2021 earnings call. On the call with me today are Gleb Budman, Co-Founder, CEO and Chairperson of the Board; and Frank Patchel, Chief Financial Officer. Today, Backblaze will discuss the quarterly financial results that were distributed earlier this afternoon. Statements on this call include forward-looking statements about future financial results and goals and expectations regarding future revenue growth, profitability, use of IPO proceeds, investments in our business or anticipated capital expenditures and estimates regarding our capital requirements. Our ability to acquire new customers and successfully engage and expand usage of our existing customers, the cost and success of our marketing efforts, and our ability to effectively manage our growth, compete with existing competitors and new market entrants are just a few of the risks that could cause actual results to differ materially from those projected or implied during this call. We will also cover non-GAAP financial measures, which should be considered in addition to and not as a substitute for our GAAP results. A 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. Lastly, the site is currently redirected to a static page while our general vendor is working on a patch for the Log4j vulnerability that is affecting many companies. We will post the presentation on this static page as well. I would now like to turn the call over to Gleb. Gleb?

Thank you, James, and thanks to all of you for joining what is Backblaze's first quarterly earnings call as a public company. We had a strong Q3 and we'll delve into the details of the quarter in a moment. But since this is our first earnings call, I'd like to spend a few moments introducing our company to those who may be new to the story. Backblaze is building the leading independent cloud for data storage. Today, for mid-market companies, the cloud storage offerings of the large diversified vendors are complex and expensive. Also, due to the breadth of those vendors, they attempt to lock in data to only using their services and they are increasingly in competition with their own customers and partners. Unlike those vendors, all we do is storage, and we don't compete with our customers. Customers are increasingly wanting to use their data with best-of-breed providers in a multi-cloud fashion. This is why we believe the future is being built on independent cloud platforms and ours has been over 14 years in the making. Each major element of the tech stack has an independent cloud platform, yet no one has done that for data storage. We believe that data storage is among the most critical of all of these elements since none of them would exist without data. We believe that we are well-positioned to be the independent trusted cloud platform that enables developers and businesses to use their data how they want, with whoever they want, at disruptively affordable economics. We have gotten to where we are today through the hard work and dedication of our incredible team of about 250 employees to whom we are incredibly grateful. We'd also like to thank our thousands of partners, nearly half a million customers, and the millions of you that read our blog. Thank you also to the many investors, big and small, who put your trust in us. We expect this is only the beginning of our journey together and we appreciate your support of our company mission to make it astonishingly easy to store, use, and protect data. As I mentioned before, we had a strong Q3 which ended September 30, 2021. Both of our cloud services performed well, led by B2 Cloud Storage, which grew revenue rapidly at 59%, and Computer Backup, which continued strong double-digit growth at 13%. This has resulted in total company growth of 25% to $17.3 million. Importantly, nearly all of our revenues are recurring, which provides good business predictability with annual recurring revenue, or ARR, totaling $71 million as of Q3. Before turning the call over to Frank to discuss the details of our financial and operational results, I'd like to share a little more about who we are, what we do, and our strategy for those on the call that may not be as familiar. We started Backblaze in 2007 and largely bootstrapped it with minimal outside funding. Today, 14 years later, we're all still working together to build and scale the company. In a world where many tech IPOs have already burned through hundreds of millions of dollars of outside investment prior to going public, we got here with less than $13 million in outside equity investment. We are excited by the opportunity to take the over $100 million in proceeds from our IPO and invest towards our large and fast-growing market opportunity. The market for data storage is a great one because data is growing rapidly and no one wants to delete anything. Everyone has become a data hoarder and all of that data needs to be stored, used, and protected. This has resulted in an estimated $91 billion market for public cloud storage in 2025 according to IDC. Now, what does Backblaze sell? We have two storage-focused cloud offerings: Computer Backup, which ended Q3 with $46 million of ARR, is a cloud service that protects data on all laptops and desktops for businesses and consumers. Our second cloud service, B2 Cloud Storage, ended Q3 with $25 million of ARR. B2 is a storage platform for businesses and developers, serving a wide range of use cases. While this market includes large diversified cloud vendors, they have increasingly focused on the largest enterprises with the most complex use cases. Backblaze can scale to any size organization as demonstrated by our two exabytes of data storage under management, which is over 10x the amount of data stored by Spotify when they went public just a few years ago. We are optimized for the mid-market, which we define as companies with less than 1,000 employees, and which IDC has estimated to be over 60% of the market or $55 billion in revenue opportunity in 2025. Our products are easy, affordable, and trusted. We have a unique go-to-market strategy that starts with our content and community. We have been publishing storage-focused content on our blog for nearly 15 years and built a community of over 3 million readers and fans. We have an entire go-to-market motion around this, including a head of publishing, publishing calendar, and distribution through social and press. This content and engagement helps efficiently build brand awareness, bringing qualified leads to our site and making our marketing efforts more efficient. With those efforts, we have two selling motions: self-serve and sales-assisted. Over 80% of our customers come to Backblaze via self-serve, allowing prospects to try the service, enter a credit card, and scale nearly infinitely without talking to a person. The sales-assisted model works with larger customers, with storage needs that are about 20x larger than those of our self-serve customers from a revenue perspective. Both of these motions are scaling and will further benefit from IPO proceeds. Another key aspect of our go-to-market strategy is our partnerships. We have developer partners and alliance partners, where we work jointly to enable developers to build applications. This is how we drive efficiency and scale in our go-to-market. Now, let me highlight a few of our B2 customers and how they use our service. One notable customer decided to move to Backblaze B2 for its ease and affordability, avoiding the cost of upgrading an outdated technology. Another university improved its cybersecurity insurance by instituting an off-site immutable backup with Backblaze. These examples illustrate the wide variety of use cases we have to help customers store, use, and protect their data. Now, I want to highlight three important topics: our IPO, partnership efforts, and developer focus. We completed our initial public offering in November, which was a tremendous success, raising over $100 million in net proceeds to accelerate our growth. We also executed one of the largest directed share programs in U.S. capital markets by inviting hundreds of thousands of U.S.-based Backblaze customers to participate in our IPO. We announced a new developer partnership with one of the largest privately held cloud vendors, allowing more developers to build the tech stacks they want. B2 is a storage platform for developers, and we continue empowering them to be successful. We held our inaugural Developer Day this October, connecting developers with Backblaze and showcasing our cloud storage solutions. I'll now pass the call to Frank, who will review the financial details for the quarter. Frank?

Thank you, Gleb, and thanks, everyone, for joining us today. I'll start by providing a brief overview of our financial model and then review our third quarter results, concluding with our guidance for the fourth quarter. We provide cloud-based storage solutions using our proprietary global software platform. Our products, B2 Cloud Storage and Computer Backup utilize our shared storage cloud technology platform. They share the same go-to-market motions with nearly 80% of our revenue generated from the self-serve motion. Our revenue is nearly 100% recurring, primarily paid via credit card. Computer Backup clients have monthly, one-year, and two-year subscriptions with the one and two years built in advance and recognized ratably over the subscription period. Our B2 customers are billed monthly in arrears based upon the actual storage used. Before I discuss the financial highlights, I want to comment on the impact of the COVID pandemic on our business. We believe that the pandemic can serve as an accelerator for the adoption of public cloud solutions like ours. Over the short term, the impact has caused some variability in the amount of new data created and the number of new subscriptions needed for Computer Backup customers. Fortunately, these impacts have been limited. Turning to our Q3 financial results, unless otherwise noted, I will be referring to non-GAAP metrics, and the growth rates mentioned are year-on-year. We remain focused on two key metrics: revenue growth and adjusted EBITDA. Our Q3 revenue totaled $17.3 million, an increase of 25%. B2 contributed sales of $6 million, reflecting growth of 59%, while Computer Backup revenue totaled $11.2 million, reflecting 13% growth. In Q3, B2 represented 34.5% of total revenue, continuing its upward trend. The primary driver of growth for both products lies in new customers and secondarily, growth in spend by existing customers. Computer Backup also benefited from the start of its price increase effective for about half of the quarter, and since most backup customers are on annual or two-year subscriptions, this increase will continue to phase in as they renew at the higher price. Our retention metrics remained strong, tracking two key metrics: net revenue retention (NRR) and gross customer retention. Total company NRR was 110%, with B2 at 129% and Computer Backup at 103%. Gross customer retention was 91% overall, 92% for B2 Cloud Storage, and 91% for Computer Backup, all within 1 point of Q2 2021 values. Adjusted gross margin, excluding non-cash expenses, was 74%, improving from 72% last year due to slower headcount growth in our data center and support teams. Adjusted EBITDA totaled $0.8 million or 5%, down from $2.8 million or 20% last year, reflecting expenses for pre-IPO professional services and investments in sales, marketing, and R&D. Near-term investments have been funded in part by a $10 million safe financing, which converted to equity at the IPO, adding $103 million of cash after fees and expenses in Q4. Now, I'd like to provide our quarter four outlook. For Q4, we expect revenue to be in the range of $17.7 million to $18.2 million. This guidance implies full-year revenue between $66.5 million and $67 million, representing 24% to 25% full-year growth. We expect Q4 adjusted EBITDA margin to be between minus 10% and minus 6%, reflecting new public company expenses and increased investments to drive future growth. We will also provide Q1 and full-year 2022 outlook when we report Q4 earnings in early 2022. In closing, we believe we are well positioned to take advantage of our large market opportunity and we remain focused on accelerating key growth investments from our recent IPO proceeds to drive shareholder value. I will now turn the call back to Gleb for closing comments before Q&A. Gleb?

Thanks, Frank. We're very excited about the opportunity to be the leading independent cloud for data storage. Our strong Q3 financial results and other accomplishments highlight our building momentum, and we're thrilled to be at this inflection point. Operator, we're now ready to take questions.

Thank you. Our first question comes from Ittai Kidron of Oppenheimer & Company. Your line is open.

Thanks, guys, and congrats on the first quarter out of the gate, well done. Gleb, I wanted to spend some time on your go-to-market motion, especially on B2 and your investment in the direct sales force. Could you talk about the hiring pace and any productivity gains? How's the adjustment to this new model going?

Ittai, good to hear from you. Thanks for the questions. We have two different go-to-market motions: self-serve and sales-assisted. We began the outbound sales effort at the beginning of 2021 and have been scaling those as we see positive results. We are excited by the opportunity that the sales-assisted motion brings as we grow. Our partnership team, which we started a couple of years ago, is also seeing growth with proceeds from our IPO.

Can you elaborate on the investments made prior to the proceeds and how productivity has improved during this time frame?

We started the outbound sales effort cautiously, initially hiring one person. We quickly expanded as we saw pipeline growth. The sales-assisted group overall drives customers about 20 times the size of our self-serve customers, allowing us to scale effectively through this model.

Very good. Good luck. I'll jump back in line. Thanks.

Thanks, Ittai.

Thank you. Our next question comes from Jason Ader of William Blair. Your line is open.

Yes. Hi guys, good afternoon. I wanted to talk about AWS's new lower-cost instant retrieval storage class. What's your reaction to that? Do you see that as competitive with your B2 service? What are the risks over time regarding pricing gaps?

Good insights, Jason. On product announcements, AWS's complexity around pricing remains a leading differentiator. Our simplicity continues to be more appealing to mid-market companies. The reduction in egress fees is a small step forward but positive for us as it promotes multi-cloud strategies for customers.

Thanks, Gleb. Have you done performance benchmarking for your B2 service against S3 and others?

Performance varies based on customer needs, ensuring our system supports diverse workloads. Our architecture allows customers the flexibility to enhance performance by using additional threads.

Great, thank you.

Thank you.

Thank you. Our next question comes from Simon Leopold of Raymond James. Your line is open.

Thanks for taking the question. Regarding B2's revenue per customer trends, where are you now, and where do you expect to be in a year? And how are your marketing efforts enhancing the Backblaze brand?

Our revenue per customer for B2 is roughly 3x that of Computer Backup and continues to increase as we grow. Our marketing efforts include scaling content engagement and initiating paid advertising campaigns to raise brand awareness further.

We are better known, having invested in more recruiting efforts to find top talent as we continue hiring more positions for growth.

Thank you very much.

Thank you. Our next question comes from Eric of JMP Securities. Your line is open.

I wanted to follow-up on AWS. Their egress fee reductions seem nominal; what do you think their objective is and should we expect more reductions soon?

While I don’t have insight on AWS's boardroom discussions, there is significant pressure to reduce egress fees given how unfairly customers are treated. This pressure could lead to more gradual reductions over time.

Regarding net revenue retention, how do you see NRR moving over the next 12 months?

We think of ourselves as having best-in-class NRR. While it may fluctuate slightly, we expect customer data growth will keep driving NRR upward.

Additionally, the recent price increase on Computer Backup will contribute positively over time, impacting these metrics as well.

Great, thank you.

Thank you.

Thank you. Our next question comes from Erin of Lake Street Capital. Your line is open.

Congrats on the solid Q3 and guidance. I wanted to ask about hiring — the headcount of 250; was that from September 30 or November 30?

It was approximately 250 as of October, up from the 240s on September 30.

And can you provide details on hiring efforts for the partnership team?

We've seen good success hiring for our partnership team, with members actively participating in our IPO events. We are looking to enhance our partnerships effectively.

On the sales executive side, it's easier to attract candidates to join dynamic companies like ours, aiding our hiring efforts.

Thanks for the insights.

Thank you.

Thank you. Our next question comes from Zach Cummins of B.Riley Securities. Your line is open.

Thanks, and congrats on the first quarter results. How should we approach the growth potential for B2 given IPO investments? Will it continue to rely more on new customer acquisition or expansion within existing accounts?

New customer growth continues to dominate our revenue. However, with a high NRR of around 130%, there's significant upside through expansion and upsells among current customers.

On the Computer Backup side, with the recent price increase, have you noticed any significant attrition?

We haven't seen significant attrition, maintaining strong customer retention that reflects the value of our services.

Thanks for addressing my questions and congratulations again on the solid results.

Thank you. Appreciate it.

I'm showing no further questions at this time. Let's turn the call back over to Gleb Budman for any closing remarks.

Thank you, operator. Just wanted to say, thank you everybody for taking the time to engage with us on our first earnings call as a public company. We're very excited to be taking this next step, and wishing you happy holidays. We look forward to talking to you in a couple of months. Thank you.

Thank you.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect.