Backblaze, Inc. Q1 FY2023 Earnings Call

Good day and welcome to the Backblaze First Quarter 2023 Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Mr. James Kisner. Please go ahead, sir. Thank you. Good afternoon and welcome to Backblaze's first quarter fiscal year 2023 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 financial results that were distributed earlier this afternoon. Statements on this call include forward-looking statements about our future financial results, use of our IPO proceeds, results from our new offerings, partnerships and sales and marketing initiatives, our ability to compete effectively, acquiring new customers and retain and expand our business with existing customers, hire and retain key personnel and effectively manage our growth. These statements are subject to risk and uncertainties that could cause actual results to differ materially, including those described in our risk factors that are included in our Annual Report on Form 10-K 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 or gross customer retention. Before I turn the call over to Gleb, I'd also like to mention that in the latter portion of our call, as in prior calls, we will be addressing questions from investors that we gathered through the Say Technologies platform. I would now like to turn the call over to Gleb.

Thank you, James, and thanks to all of you for joining us. We continue to execute on our growth strategy this quarter. Total company revenue grew 20% year-on-year, with strong 42% year-on-year growth for B2 Cloud Storage and solid 8% growth for Computer Backup. B2's growth rate was more than 2.5 times that of Amazon AWS, which grew only 16% in the same period. Not only did we show strong growth, but as Frank will discuss in a moment, with our results and our expectation for continued EBITDA margin improvement in Q2, we remain committed to our goal to approach adjusted EBITDA breakeven in Q4. We believe businesses and developers are increasingly recognizing the benefits including significant cost savings of abandoning or minimizing the use of traditional cloud providers. These providers aim to trap customers into an expensive walled garden and then charge them excessive fees to retrieve their data. As the leading specialized storage cloud, not only do we provide our customers tremendous savings by charging approximately one-fifth the price of these traditional cloud providers, but we also enable them to build the best cloud stack for their business. We do that by providing customers the ability to store their data with Backblaze and connect it easily and often for free to other best-of-breed cloud providers. While the economic environment continues to face headwinds, we're pleased that we can help our customers save money by switching from other expensive storage options. It's also a very exciting time to run a business that benefits from data growth when applications like those based on general AI are growing explosively. I'm excited to profile another one of our AI-focused B2 customers later in this call. Our growth strategy to capitalize on our market opportunities includes the following key elements: number one, optimizing our Self-Serve go-to-market motion; two, expanding our sales-assisted go-to-market efforts; three, leveraging partnerships; and four, cultivating application storage use cases. I'll briefly touch on the progress we're making on these elements of our strategy. Let's start with Self-Serve. Recall that for most of our company's history, we've acquired customers primarily through our Self-Serve motion in which we attracted new customers to our website with engaging content on our blog, educational material on our website, and publicity-driven media coverage. These Self-Serve customers can quickly and easily sign up for our service with just an email and credit card, which is a highly efficient means to acquire customers. We recently increased our focus on improving the conversion of visitors to our website into paying customers. For example, we launched in-app messaging capabilities at the beginning of January to support guided Self-Serve. To date, we've seen a more than 10% increase in user conversion from free to paid as a result. We have a roadmap of opportunities to improve the customer experience, which can increase both the number of customers signing up and their usage of our offerings. Next, our sales-assisted go-to-market efforts. To augment our Self-Serve marketing effort over time, we've also built up a sales team dedicated to serving larger potential customers, and we've been investing in building out an outbound sales motion. Early last year, we projected that it would take roughly a year before we began to see results from our investments in outbound. We're pleased to report that in Q1, our outbound team generated more pipeline in total and per salesperson than in any other quarter as we've honed our approach. Recall that we also mentioned last quarter that, unlike many other firms, we were seeing shortened sales cycles and improving close rates. A quarter later, as we look at the larger deals upon which our sales team is focused, sales cycle shortened again and win rates are within a few percentage points of Q4's high rate. We believe this is yet another proof point that we are well-suited for an environment where businesses are tightening their belts. Now let's talk about partnerships. For B2, we know that at least one-third and likely significantly more of the data stored in B2 comes to it as a result of partnerships. We have two types of partners: channel partners and technology partners. We launched our channel partner program last year and it's a strategic focus this year. As we mentioned previously, our B2 Reserve prepaid storage offering is well-suited for the channel. We were pleased to see B2 Reserve recently cross $1 million in ARR after roughly just one year in the marketplace. Partnerships are also key to enabling the open Internet we advocated for. A good example of this was our April announcement of an expanded partnership and co-marketing program with competitive specialist Vultr, one of our technology partners. This partnership enables more application storage customers to replace traditional cloud providers with our two best-of-breed platforms, gaining benefits ranging from lower costs to data free from lock-in. I will now provide one of our customers benefiting from this technology alliance: an AI company developing technology to analyze massive amounts of surveillance video to make it easily searchable for end-users. This company originally developed their application on Microsoft's Azure platform but felt locked in by the walled garden approach to third-party tools and Azure's painfully high pricing. By migrating to B2 Cloud Storage, they gained the flexibility to build their tech stack with the tools that work best for them, including Vultr for compute, and reduce their spend without having to sacrifice performance. This is a great example of an application storage customer using Backblaze B2 and a data-intensive AI application. This example, along with the next few, illustrates how we win customers from each of the traditional cloud providers by helping customers solve their problems and reduce their spend. The first is an eSports solutions company that works with top-tier video game brands like Fortnite, Halo, and Call of Duty to provide a range of event services including production, broadcast, and tournament program design. Their high volume of production generates massive amounts of data that needs to be processed, shared, and stored on behalf of their customers. With Google Cloud platform, costs were cutting into their margin and they were experiencing failures during big events. By migrating to Backblaze, they were able to not just reduce costs and increase reliability, but also significantly increase the productivity of their distributed workforce. Their data is where they need it, when they need it, and at a dramatically reduced storage cloud compared to Google. Our last example is a school in one of the fastest-growing K-12 public school districts in Washington State that was paying exorbitant amounts to archive data in Amazon S3. They considered Amazon's cold storage solution Glacier, but uncertainty around retrieval fees and delays gave them pause. They went with B2, saving 75%, and they are delighted by the predictability of their go. So three customer wins, one from each of the traditional cloud providers. These examples demonstrate the breadth of customers and applications that can benefit from B2 and the strength of our product on ease-of-use, affordability, performance, and reliability.

Thank you, Gleb, and thanks everyone for joining us today. Turning to our Q1 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, which is defined in our earnings release. Our Q1 revenue totaled $23.4 million, an increase of 20%. Backblaze B2 contributed sales of $10 million, reflecting 42% growth. Computer Backup revenue totaled $13.4 million, reflecting 8% growth. Note, these segment figures now include $0.2 million of revenue from Physical Media that was previously disclosed separately and is now allocated to the business line with which it is associated. Physical Media is associated with restoration and data capture and is easily allocated to each service. In Q1, B2 Cloud Storage represented 43% of total revenue, continuing its upward trend. We're pleased to be able to deliver continued strong growth in a challenging economic environment. This highlights the resiliency and predictability of our business model, as well as the appeal of our cost-effective solutions for customers. Turning to retention metrics, we track net revenue retention or NRR and gross customer retention. Total company NRR was 111%, with B2 Cloud Storage at 125% and Computer Backup at 106%. Gross customer retention was 91% overall, consistent with the prior year, with 90% for both B2 Cloud Storage and Computer Backup. Working down the P&L, adjusted gross margin was 72%, down from 76% year-on-year. In quarter one, we had increased data center costs due in part to data center expansion, a planned migration between data centers, and a higher than anticipated increase in power costs. While we do not guide gross margin explicitly, we expect Q1 gross margin to be the low point for the year and for it to trend back into the mid-70s for the balance of the year. Adjusted EBITDA was a loss of $2.9 million or negative 12% of revenue, compared to a loss of $3 million or minus 15% in Q1 of 2021. Year-over-year, the better adjusted EBITDA margin reflects the slight leverage on sales and marketing and R&D as our revenue growth outpaces our expense growth. On a GAAP basis, we also had one-time charges of $2.5 million for workforce reduction and related severance charges. Turning to the balance sheet, cash and short-term investments including restricted cash totaled $57 million as of March 31st, 2023 versus $70 million as of the end of Q4 2022. In addition to the $2.5 million of workforce reduction costs mentioned a moment ago, cash usage also included $1.5 million for an unrelated legal settlement. We expect further one-time employee separation cash costs of approximately $1 million in quarter two. Investors should also know that our primary banking relationship is with City National Bank, a subsidiary of Royal Bank of Canada, one of the largest and well-capitalized banks in the world, and we have no known exposure to any of the banks that have faltered recently. Now I'd like to provide our outlook for quarter two. For the second quarter, we expect revenue to be in the range of $24.1 million to $24.5 million. We expect a quarter two adjusted EBITDA margin of minus 11% to minus 7%. At the midpoint, this is an over 3 percentage point improvement quarter-on-quarter, reflecting our commitment to approach EBITDA breakeven by Q4. We expect Q2 2023 basic share count of approximately 34.5 million to 36.5 million. Turning to the full-year 2023, we are reaffirming our prior outlook for revenue of $98 million to $102 million and an adjusted EBITDA margin of minus 10% to minus 6%.

Thanks, Frank, and thank you to the entire Backblaze team for executing so well in an environment that has proven challenging for many of our competitors and peers. As you just heard from Frank, we are focused on continued growth and returning to adjusted EBITDA profitability. Operator, we're now ready to take questions from the sell-side analysts on our call.

I just wanted to see if you could maybe reflect on how the macro environment might be affecting your business, and really sort of the root of this question is this idea that you might be seeing some tailwinds as some buyers, some customers are dropping down from the hyperscale high expense, and that would benefit you. Whereas on the other side, maybe there are customers that are pressured and just opt not to store their data in the cloud and avoid the subscription. How are you thinking about those kind of net results?

Maybe I'll start, and then if anything, maybe Frank can jump in as well. I think it's similar to what you just described, which is, and like I talked about on the call, those were three examples where we took customers away from each of the other traditional cloud providers. Part of the reason each of them switched was to optimize their spend. So those were net benefits to us because we were able to help those customers, and we see a lot of that happening. So that's certainly a tailwind of sorts. Overall, in the market, customers just across the range are looking at where they can save costs and where they can not invest in future activities for the moment. For the most part, I think we're seeing that as a benefit. But we also saw some reduction in NRR, which is likely a little bit of that as well. The one thing I'll say is, kind of on the macro overall for us, we're reiterating our guidance for 2023, and so I think that speaks to where we believe that lands on balance.

Yes, that's essentially the crux of my question. It appears that the advantages and disadvantages offset each other, allowing us to maintain our guidance, which I believe is positive news in the current environment. That seems to sum it up.

Yes, we agree with that conclusion. We're seeing that our strong business model and the size of our market, along with our value proposition, is really important to prospective clients, and they've mentioned it frequently. Gleb pointed out how large our pipelines are right now, and we believe that's due not only to effective sales execution but also because companies are increasingly focused on reviewing and reducing their expenses. Therefore, we see this as very positive, and we are pleased to reaffirm our guidance in this environment.

And then when we think about that full-year outlook, it does appear that the B2 business maintains a growth rate over 40%, but I just want to sort of check-in, how are you thinking about the individual segment growth rate?

That's right. We think of the individual segment growth rates, particularly B2, to be strong, and we think that 40% is a good approximation for quarter two.

Great job on the quarter, and it's encouraging to see the guidance reiterated. I wanted to follow up on the guidance topic. Looking at your annual recurring revenue, your B2 annual recurring revenue actually accelerated year-over-year to 47% this quarter, up from 44% last quarter, which is something not seen in the current software cloud environment. All the hyperscalers are experiencing significant deceleration. It seems like, as you mentioned, sales cycles are accelerating and the pipeline is improving. From an annual recurring revenue perspective, do you feel more confident that the growth in annual recurring revenue compared to revenue is potentially better than expected? Also, I believe your Backup business performed better than I initially anticipated in terms of year-over-year growth. Any insights on this would be appreciated.

I'll start. First of all, thank you for initiating coverage. We do appreciate that. The ARR growth rate is slightly higher, by just one point, than our revenue, and they trail together. Is there upside opportunity there? Sure. But right now, we're thinking that they're going to be really aligned together.

And just do you have any expectation on the Backup business? It seems like the Backup business is hanging in there, and the gross churn is hanging in there, and I don't know if it's better than worse than maybe what you thought? But have your expectations on the Backup business changed at all for this year?

No, not really. See, our emphasis on all of our investments, or not all of them, but the vast majority of our investments are aimed at B2. So that hasn't changed. However, we love our Computer Backup business; it does continue to grow. We're very pleased with it, but that single-digit range of growth is what we had expected.

Could you give me a sense of after Q1 here, you had some CapEx investments in Q1, just kind of how that looks like or how that looks for the rest of the year? And other kind of cash-related investment items we should be aware of, then I'll hop off.

Yes, our CapEx in the first quarter as a percentage of revenue is lower. Remember that we get advantages from our platform investments, so our software engineers are making our platform ever more efficient, and that does help us not having to incur as high capital expenses going forward. So we do see that savings, and we do think that savings will continue. So our trend line is a decline in CapEx as a percentage of revenue.

First off, did you say that the reserve service generated $1 million or passed the $1 million mark in which case is at about 10% of the B2 business overall?

The ARR on the revenue is $1 million, not the actual revenue we received in quarter one.

What kind of penetration?

I just said it's not yet as well I just that.

What kind of penetration for that the reserve business at this point?

I think, Erik, if you look at the B2 business, it was $42 million of ARR. So the quarter for revenue for B2 was $10 million, and so I think that's where you compared maybe the 10% is the revenue versus the AR for the quarter. So it's $1 million out of $42 million of ARR for B2. But we are said, in fact, reserve, since it has accelerated quite a bit just for something that's fairly new.

What I'm trying to understand is, when a customer is ordering the reserve business, are they ordering, a, is it almost one-for-one relative to what they're paying for the regular service or what kind of additional revenue are you generating from a customer that orders the reserve at this point?

Yes, they are pretty similar. So the B2 Reserve offering comes with some additional services including universal data migration, some additional support functionality, and let's say some included egress availability, but they're pretty similar offerings at a pretty similar price point. It's just that the main thing that we see with B2 Reserve, the main reason customers choose that and the main reason that channels like it, is that it's a prepaid offering. And so for those that want to have full predictability in terms of what they're going to spend, they can use B2 Reserve as a way to buy a certain amount of capacity and know that's how much they paid for, and not have consumption charges month-to-month.

And also the advantage for us, of course, is that it's sold usually on an annual basis. So as soon as the invoice is sent to our reseller, we can recognize the 12th of the revenue right away. And so, unlike the B2 regular accounts that are on consumption-based pricing, we usually have to wait for them to upload their data before we had a meaningful invoice. So that's a nice advantage as well. Twelve months of cash collected and then in recognition of the revenue.

And then the other question, you said that the conversion rate for your self-service improved, I think, by 10%. Can you tell us what the conversion rate is for Self-Serve customers going from free to paid?

Yes, I'm afraid we aren't sharing that number, Erik, but what I'll say is that we've always been quite efficient with our conversion rates. I think customers like the experience of showing up to the website, creating an account with just a name, address, and password, trying the free service which gives them 10 gigabytes of free data. And then when they crossover that 10 gigabytes, then we start charging them for the storage amount. One of the things that we've learned is that customers shop and they get into that, they create that account, they don't necessarily know what to do next, and so the guided Self-Serve helps them with specific use cases that they may want to solve and helps them navigate them through that. So it's an opportunity for us to make it even easier than it has been. And as you know, most of our business historically was built on the Self-Serve motion, so it was something that we were good at, but this is another step-up from that.

Gleb, I mean it's nice to hear that your business is holding up well in the current environment especially, but I mean, obviously, I've heard some feedback from some major technology distributors in the U.S. of a slowing IT spending environment. So I'm just curious of kind of the feedback you've received from some of your reseller partners or even major distributor partners? And what are really your expectations for that channel in the coming year?

I believe that overall IT spending may be slowing as customers seek to reduce expenses. However, when it comes to storage and data, businesses still need to store and utilize their information unless they decide to halt operations. Many customers are opting to switch to Backblaze rather than purchasing additional servers or investing in traditional cloud services that are considerably more expensive. We're particularly enthusiastic about our channel partnerships, especially with our B2 Reserve offering, which is designed for the channel. The growth rate of this offering reflects our positive outlook on channel dynamics, and we are committed to investing in this initiative. Our guidance incorporates our growth expectations for the channel, and we are genuinely excited about its potential.

And just one question, probably more geared toward Frank. But just as you're still targeting approaching breakeven adjusted EBITDA by the end of the year, how should we think about the progression of cash burn as we continue throughout 2023?

Well, we don't project cash, as you know, but as we're going through the quarters, you should expect to see lower and lower cash usage.

Gleb, maybe just on the macro front, any color commentary on specific verticals or geographies? Any anecdotes from folks out there, customers just on kind of the trend line? And if in particular, you're seeing any improvement from January, February, March to April, we're in early May now, so you have another month of data. So just kind of curious as to what you're seeing?

Our business is quite diverse, with over half a million customers across more than 175 countries and various industry sectors. I haven't noticed any clear trend lines that indicate which verticals are performing better or worse in the current macroeconomic environment. However, certain sectors are indeed more likely to be favorable customer segments for us, with media being a notable example. This is primarily because media customers generate substantial amounts of video footage, photos, and audio, all of which require significant data storage. As a result, they are more focused on how and where they store their data. We have identified some verticals that are more engaged in understanding the implications of their data storage choices. Nonetheless, I don't have specific insights regarding macroeconomic changes by vertical. Frank, do you have any additional thoughts on this?

Okay. Fair enough. I guess not, Frank.

Can you still hear me?

Yes, I was just wondering, I went blank there for a sec. I guess the next question for you, Gleb, is when you're talking to customers, what are the most requested features or services that you currently don't have, where customers are coming to you and saying, 'God, we wish you had this?'

I want to be cautious about sharing our future plans for competitive reasons. However, I can share that we've received feedback from customers who love our service but find it challenging to explain billing to their finance department. They don't have an issue with the cost itself; it's more about the need to clarify the varying expenses each month. In response to this feedback, we developed B2 Reserve, which includes a few features we've been asked for to simplify customer adoption. We recently launched the first version and are working on additional functionalities for the next version. One request from customers was the ability to store their data on the East Coast of the U.S., either for locality or for replication purposes, which we implemented in Q4. We're committed to enabling our customers to store, protect, and utilize their data effectively, and we have plans on our roadmap to support these goals.

And then the last one for me, the requisite generated AI question that's on every earnings call. In particular, for you guys, I was wondering, does it make sense at some point for you guys to add compute to your platform, especially with how compute-intensive things like generative AI are? I mean, I know they're storage-intensive as well, but are you at risk of losing some workloads because you don't have compute and customers go to another platform that has both compute and storage?

We believe in the open Internet and that customers increasingly want to select the best parts of their technology stack using specialized clouds that excel in their respective areas. Currently, our focus is on storage, while we collaborate with partners for other components of the tech stack. One notable partnership this quarter was with Vultr, a company focused on compute, which allows us to create a seamless connection for data transfer between our services. Customers can easily store large datasets with us, run computations on those datasets within Vultr, and save the outputs back to our service, Backblaze B2. This integration works well for our customers. I mentioned an example of a generative AI customer during this call and in the last earnings call, and we have other customers benefiting from this setup as well. We believe this open Internet approach can lead to success for our clients, especially those in the generative AI space.

I was wondering if you could touch on gross margin. You answered my second half of my question on the outlook throughout the year. But I was just wondering if you could go into a little more detail on Q1 and the step down from Q4?

Sure. First of all, the gross margin for Q1 is at 72%, which is the lowest point for the year. We expect the gross margin to improve to the mid-70 percentage range in the second quarter and for the entire year. The reasons for the lower margin this quarter include full expenses related to our new and expanded data centers, including setup, staffing, space, and utility charges. We also incurred some duplicate expenses while transitioning between data centers, which will decrease in the second quarter. Additionally, like many others, we faced higher energy costs. We had announced plans to expand our data center footprint, and we will continue to develop and utilize these capabilities moving forward.

And then my next one, good color on the Vultr partnership. I was wondering if you could share any other potential partnerships you have in the works here, thinking about announcing this year?

Yes, so we don't pre-announce partnerships, but you can look at it and see that we've previously announced partnerships with other independent cloud providers, including Cloudflare, Fastly, Hashicorp, and others. So we continue to add partners as it makes sense and as our customers show that it's something that's valuable for them. We also partner with companies on the technology alliance side of things, so we partnered with them, VM, Quantum, and other to support typically more IT-type use cases. And one of the big areas that we're focusing on now is the channel-type partnerships, which we're largely doing with national distributors that we've signed and are now selling primarily B2 Reserve through these partners.

All right. Thanks to all our covering analysts for those insightful questions. As is our custom, we're going to take questions that we gathered from the retail investors on the platform. It is on the phone here. So the first one is for Gleb, it's actually a combination of a couple of questions around the same topic. What's your plan to get the stock back on track? What are your plans to increase shareholder value?

Shareholder value in the stock is a concern for us. Unfortunately, we are not unique as a SaaS or cloud company regarding stock performance. Many of our peers have experienced similar declines since November 2021, when we went public. Like many public companies, we believe that the current stock price does not reflect the long-term value of our business or the growth we've shown since going public. While we cannot control market conditions, we believe that executing our growth plan is the best way to enhance shareholder value, and we are committed to that. We are taking significant actions to deliver that value, including driving growth through various initiatives and aiming to achieve profitability again. We aim for adjusted EBITDA breakeven by the end of the year, which we will accomplish through revenue growth and careful cost management. In addition to executing our company strategy, we need to effectively communicate our story to investors. We have been actively increasing awareness through conferences, meetings, blogs, and other investor relations activities. Our focus is on both executing our business plan and sharing our story to enhance shareholder value.

Another one for you. So this is really going to be the combination I think of literally questions most of your center around just generating awareness and reaching new potential customers with their value proposition, driving growth, and just sort of general marketing plans.

General marketing plan and growth? So it certainly makes sense that there would be a lot of questions about awareness in our growth strategy. It makes sense since the market we're pursuing is a $50 billion market and we have a tremendous opportunity to pursue it. We raised the IPO proceeds specifically with the goal going after that opportunity, and a lot of that was around both building awareness and investing in the go-to-market activities behind them. So we hired a Chief Marketing Officer in the middle of last year. So I'm excited about that addition to the team and helping us build that awareness and scale the go-to-market efforts. On the awareness side of things, some of what we have been scaling are the programs around content. So we've talked about our blog and how the blog is an important part of getting awareness out there. We're scaling programs around that both in terms of generating additional content, improving the way that content is presented, getting the additional publicity, search engine optimization, and some of the community we want to surround it. And we've also invested behind both live and virtual events. So those are some of the things that we're doing to scale awareness. And then on the go-to-market side, we've talked, I think a fair bit now about Self-Serve optimization, the sales motions, the channel technology partnerships, and focusing on those application storage use cases. And so fundamentally, we're excited about all the various steps we're taking and some of the results that we're seeing from it.

Can you just talk about insider selling in February? It looked like it was higher than in prior quarters?

Yes, there's not a large difference in the selling month-to-month. But in February, in particular, that is the month where our bonuses, which are paid in restricted stock units, RSUs, are vested to our employees. And then we have an obligation to sell on their behalf to cover the federal and state income tax associated with it. So there was selling to do that. And then, of course, those proceeds are immediately remitted to the government.

Gleb, we received a few questions about layoffs. What measures are we implementing to prevent layoffs while pursuing profitability?

So we talk about aiming to be adjusted EBITDA breakeven by the end of the year, and there are really two fundamental ways that we're doing that. One is growing revenue, and the other is keeping a lid on expenses across the board. We've talked quite a bit about how we're aiming to grow revenue. On the expense side, we're looking at optimizing a variety of things, including our facilities usage versus various programs and other opportunities to save. So, growing revenue, optimizing expenses, and optimizing expenses that are not just people.

Frank, do we have a forecast for next year and onwards?

Well, what we do is we do create a budget for every year, so we have that. And then we do create a rolling forecast, and what we mean by that is that we take current revenue and expenses and we start rolling that and seeing what the trends are there. And then we use all of that to build a multiyear outlook for all the years going forward. So yes, we do and we do use it. You can tell that we have it because we keep providing more and more guidance on the different quarters or reiterating guidance in our case this full year.

So Gleb, what are your plans in the next year to be more competitive with the larger cloud services besides just a lower subscription fee? Are there new products or features that are coming to differentiate from the competition?

Certainly, the lower price point is obviously very compelling, and we continue to invest in the platform to drive efficiencies in the actual storage cloud platform. It takes a lot of technology to do that. Obviously, we spent a lot of time, money, and effort over the last 15 years to make sure that our storage platform is really robust and very cost-efficient. So we continue to invest in that. We don't preannounce features, but we do continually explore what we can do to deliver more value to customers. I think we're already very competitive. We can see that as why we're seeing growth that is more than 2.5 times that of our larger competitors. It's also why we show customers leaving those companies and switching to Backblaze. And so why, I'm not going to preannounce features, I'll point to some of the things that we've done in the recent past, right? So from a roadmap perspective, we added the East Coast region; we added object lock, which enabled customers to help them protect themselves from ransomware; we added B2 Reserve, which, as we mentioned, just recently crossed the $1 million of ARR and other features and functions that we've launched and announced over the last year to two years. So we're not going to preannounce, but we are excited about our roadmap and how we can serve our customers ever better.

Back to Frank, when do you expect earnings to stop falling?

Well, earnings that we use as the best measure for earnings adjusted EBITDA, and that's really how we report our fiscal improvements. As you just heard, we did improve in our adjusted EBITDA. This quarter is minus $2 million and in our next quarter, at the midpoint, it's minus $9 million. And for the full year, that's at the midpoint, and at the full year, we're still approaching the EBITDA breakeven. So I think we're on our way. We've been getting some initial good results, but we're on our way to that EBITDA breakeven.

How do you plan to summarize the questions longer than this in the actual platform? But basically, how do you plan to educate investors who are not as net savvy and to prevent folks from getting too frazzled by near-term fluctuations in the business?

So we have great investors, which I appreciate and love. We also have a broad investor relations program, and it aims to keep our investors informed about the business and where we're headed. It also is focused on introducing our story to new investors. We do aim to meet and educate investors where they are. So for institutional investors, we work with our covering analysts. We attend conferences and do non-deal roadshows for our retail investors. We publish our stocks in storage video blog. We also have our stock perks program. And so we aim to have a robust program to both educate and also introduce investors into the store.

Frank, what are your plans to increase your green energy sources?

The best way for us to be greener is really in the selection of our data center vendors because we use so much energy. For an example of that, one of our data centers has innovation and cooling technologies to save on energy. So we'll continue as we expand in our data centers to look for these kinds of innovations.

Another one for Frank. Any plans to do a reverse stock split?

No, we have no plans to do a reverse stock split.

I think probably more for Gleb here. What are the company's plans to bring in an effective management team with experience in running a public company, with a focus on increasing shareholder value?

We've had a team that included several individuals with significant experience in managing public companies since we went public. Over the past year, we've strengthened our team by adding more members with this expertise. I believe our executive team is well-equipped to handle the challenges we face. I'm proud of our accomplishments as a company, as we've successfully executed our growth plans and met our guidance for all quarters since going public. However, there's still much to accomplish. We have discussed various initiatives related to growth opportunities and our future roadmap. I believe we have a capable team, and we've added talent to enhance our strength. We've achieved a lot, but there's still more work ahead.

Last one for you, Gleb. When do you believe that Backblaze is going to be the #1 cloud company?

I love that. So I would say that we are the leading specialized storage cloud today. We certainly believe we can be a much larger company given the size of the market is over $50 billion and that we have a very compelling value proposition. And considering that B2 grew 42% this quarter, which is more than 2.5 times that of Amazon AWS, I think we're well on our way.

All right. Thanks, Gleb and Frank for those thoughtful answers. We're heading off to web for closing comments. I'd like to mention a few investor events we've got planned for Q2. They include, first, the Oppenheimer Virtual Emerging Growth Conference on May 11 later this week. We're having investor meetings hosted by Sencos in London on June 12. We're attending the Cantor Fitzgerald cybersecurity and infrastructure software conference in New York City on June 14. And we also have investor meetings hosted by Craig-Hallum in New York City on June 15. All right. Back to you, Gleb.

Well, thank you, James, and thanks for everybody for joining us today. We look forward to talking again in just a few short months. Operator, you may now end the call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.