Backblaze, Inc. Q2 FY2023 Earnings Call

Good afternoon and welcome to the Backblaze Second Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to James Kisner, Vice President of Investor Relations and Financial Planning. Please go ahead.

Thank you. Good afternoon and welcome to Backblaze's second 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 new offerings, partnerships and sales and marketing initiatives, our ability to compete effectively, manage our growth, our strategy to acquire new customers and retain and expand our business with existing customers, and our efforts to hire and retain key personnel. 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, 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 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 and 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, and this will be moderated by our new Director of Investor Relations, Mimi Kong. 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 19% year-on-year with strong 39% year-on-year growth for B2 cloud storage and 7% growth for Computer Backup. I want to start with two business highlights. First, our increasing success in moving upmarket. I'm proud of our team for executing on larger customer deals for both Computer Backup and B2 cloud storage. I'll go into the numbers in more detail later, but we're seeing success in moving upmarket both among paying customers and in our sales pipeline. Second, I'm happy to report that we are well on our way to our previously announced goal of approaching adjusted EBITDA breakeven in the fourth quarter. Frank will provide some insight on why we believe the company is well-positioned to return to being cash flow positive without needing to access equity capital markets. I'm excited by the cloud storage opportunity ahead by supporting customers in the direction they want to head with the cloud as leading advocates for the value of an open cloud ecosystem where customers can use the combination of clouds best suited to their needs. We believe customers need to be able to store and use their data any way they see fit. Additional cloud service providers are walled gardens that charge customers egregious fees to move data out of their clouds. And yet customers' desire for best-of-breed solutions and the high prices of traditional cloud providers are driving customers toward an open cloud ecosystem being enabled by providers like Backblaze. And as these customers discover our ease of use, our openness to other technical platforms, and our low-priced leadership, they tend to grow their usage and adoption of open cloud solutions as evidenced in the customer story I'll share here. As a reminder, we have two cloud service offerings. The first is our Computer Backup business, and the second is our B2 cloud storage service. I'd like to first give an update on our Computer Backup business. Computer Backup is our more mature business, representing about 56% of revenue this quarter. While the majority of our investments have been focused on our B2 cloud storage service, Computer Backup continues to be a good business for us. In Q2, we closed our largest computer backup deal in company history with one of the most well-known social media companies in the world. This customer chose Backblaze to protect all of their employees' data because of the speed and ease of deployment of our solution. As we worked with them, they gave our technical and support teams special recognition for their outstanding service. We see a significant opportunity to address the needs of more businesses with our computer backup solution. For B2 cloud storage, we continue to execute on our growth strategy, which includes the following key elements: 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 are making on these elements of our strategy. Self-serve remains highly efficient for us, as we continue to find opportunities to enhance the self-serve funnel. We overhauled our website infrastructure with an entirely new backend that provides a giant step forward in our ability to rapidly test and improve the user experience and ultimately drive higher conversion rates. Also on the self-serve front, we launched a more targeted and personalized onboarding process to continue our focus on making it easy for customers to use our cloud. We're encouraged by the early results from this more intuitive customer onboarding experience. Moving on to our sales-assisted efforts. The number of customers with ARR greater than $50,000 increased materially to 74% in Q2 versus 48% a year ago. We don't plan on sharing this statistic every quarter as it may be variable and thus not necessarily meaningful on a quarter-over-quarter basis, but we believe there is a tremendous opportunity for Backblaze to move upmarket. We also began engagements with a number of large potential customers. While there's no guarantee that these opportunities will all close, we are encouraged that more and more larger customers are bringing us into their consideration set. Now let's talk partnerships, the third key element of the growth strategy I mentioned. For B2, partnerships are strategically important. Recall over one-third of our B2 revenue is from customers using our joint solutions with partners. One recent example of a new joint solution with a partner is the announcement of Cloud Instant Business Recovery, or Cloud IDR, by our partner Continuity Centers. They built Cloud IDR using Backblaze B2 as the storage cloud to pursue opportunities in the disaster recovery as a service market, which is forecast to be $23.5 billion in 2027. Now businesses of any size can use this new cloud IBR service to get enterprise-grade disaster recovery capabilities. Another important aspect supporting our partner and channel efforts is trade shows. This quarter we exhibited at Demand and NAB, major conferences for data backup and the media industry respectively. We are encouraged to see an almost threefold increase in pipeline from these shows as compared to last year. Finally, a recent win came through our partnership with technology partner Fastly, an edge cloud platform which resulted in a petabyte scale deal with one of the world's largest video game companies. Together with the Fastly team, we were able to quickly satisfy this customer's requirements. This mutually beneficial arrangement with Fastly is a great example that provides a better solution for the customer and creates opportunities for both open cloud companies. Moving on to the final key aspect of our growth strategy, application storage customers. Recall we define application storage customers as businesses that use Backblaze B2 as the infrastructure for their SaaS or Internet businesses. We've entirely rebuilt and launched a new developer documentation hub on our website to make it even easier for developers to build applications using our storage cloud. This revamped documentation hub makes many aspects of their onboarding easier, especially when working with our API. The new hub is already driving higher user traffic and we have plans for additional enhancements including more how-to videos, API test environments, and documentation to make it easier for developers to onboard. As I mentioned earlier, I'd now like to share a customer story that highlights why Backblaze's low-cost leadership, open cloud partnership program, and ease of use are compelling to SaaS and Internet businesses. A rapidly growing consumer video app startup received free AWS credits to start. Once those were used up, they found AWS pricing to be prohibitive for them to scale. They came to us because they recognized that we were dramatically cheaper than AWS and they were able to switch to Backblaze in just two weeks, in part because Backblaze provides Amazon S3 compatible APIs. The customer initially chose Backblaze for their archival data but realized that Backblaze would also be ideal for all of their application data and they migrated the rest of their data to us, effectively doubling their storage with us. They also switched their network provider to reduce their infrastructure costs, which was enabled because we don't charge egress fees to customers using our open cloud technology partners. This is just one of many examples of how transformational the open cloud ecosystem is for a company's business model. Before handing the call over to Frank, I'd like to touch on two topics of note to investors. First, I'd like to talk about Backblaze's move to a single class share structure. On July 6, all outstanding Class B stock converted to Class A on a one-to-one basis. The elimination of the company's dual class share structure provides all shareholders equal voting rights and underscores Backblaze's commitment to good corporate governance and being a shareholder-friendly company. And second, I'd like to share a personal update regarding my selling of Backblaze shares, which is that I have canceled my 10b5-1 trading plan. I'll now turn the call over to Frank, who will review the financial results in more detail.

Thank you, Gleb, and thanks everyone for joining us today. Turning to our Q2 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 Q2 revenue totaled $24.6 million, an increase of 19%. Backblaze B2 contributed sales of $10.8 million, reflecting 39% growth. Computer Backup revenue totaled $13.8 million, representing 7% growth. Please note that included in this number is a one-time catch-up payment of approximately $200,000 from one customer that was received ahead of our estimates, which will not reoccur in quarter three. In Q2, B2 cloud storage represented 44% of total revenue, continuing its upward trend. We're pleased by the continued strong growth as this highlights the resiliency and predictability of our business model and the appeal of our cost-effective solutions for customers. Turning to retention metrics. We track gross customer retention and net revenue retention or NRR. Gross customer retention was 91% overall, with 90% for B2 cloud storage and 91% for Computer Backup. Total company NRR was 110%, with B2 cloud storage at 121% and Computer Backup at 103%. Working down the P&L. Adjusted gross margin was 75%, down from 77% last year but an improvement from 72% in quarter one 2023. The primary driver of the decrease in gross margin year-on-year is due to the costs associated with our new and expanded data centers which we mentioned in Q1. Adjusted EBITDA was a loss of $1.8 million, or negative 7% of revenue compared to a loss of $1.9 million, or a negative 9% in Q2 of 2022. Turning to the balance sheet. Cash and short-term investments, including restricted cash totaled $45 million at the end of Q2 2023, versus $57 million at the end of Q1 2023. Both Q1 and Q2 included significant expenditures for severance and other restructuring costs. We expect lower cash usage in Q3 and Q4 since these expenses have substantially concluded. I will elaborate more fully on the cash usage improvements momentarily. Now, I'd like to provide our outlook for Q3. For the third quarter, we expect revenue to be in the range of $25 million to $25.4 million. We expect Q3 adjusted EBITDA margin between minus 8% to minus 4%. For the full year 2023, we are reiterating our full year revenue guidance of $98 million to $102 million. We are improving our full year adjusted EBITDA guidance from the prior range of negative 10% to negative 6% to a new guidance range of minus 8.5% to minus 4.5%. Turning back to cash usage. We have several noteworthy improvements. While we do not guide to cash usage or generation specifically, there are several reasons why we feel comfortable in our cash position. First, our recent restructuring, which included reductions in staff, a consolidation of facilities, and other savings totals over $6 million in annual savings. Second, in Q3 and Q4 2023 we will conclude the principal and interest payments on pandemic-era leases commenced in late 2020. These leases total an additional amount of over $6 million in capital expenditures plus interest, previously established as an extra buffer to safeguard against supply chain disruptions. We continue to maintain sufficient buffers today but no longer require elevated levels. Thirdly, due to both our software innovation and greater hardware efficiency from the manufacturers, our capital expenditures for production equipment are lower both as a percentage of revenue and in total dollars year-on-year. For example, during the most recent three-year period, capital expenditures as a percentage of revenue are expected to decline from 28% in 2021 to approximately 18% in 2023. This reduction is occurring despite the 2023 data center expansions and openings. Please keep in mind, we financed our capital expenditures for production equipment purchases over multiple years. Finally, we remain on track to approach adjusted EBITDA breakeven in Q4 2023. This improvement stems from the areas already mentioned plus lower growth in headcount additions relative to 2022 when many departments stood up brand-new teams that were critical to pursuing our growth initiatives and supporting our new public company requirements. We believe this combination of restructuring savings, moderating growth in headcount, and slower capital additions positions us well to reach cash flow breakeven without accessing equity capital markets. I will now pass the call back to Gleb.

Thanks, Frank. Finally, I would like to recognize the commitment and hard work of the entire Backblaze team for delivering another strong quarter. Operator, we're now ready to take questions from the sell-side analysts on our call.

We will now begin the question-and-answer session. And our first question will come from Chad Bennett of Craig-Hallum. Please go ahead.

Thank you for taking my question. Congratulations on the quarter. Gleb, could you discuss the B2 Cloud side a bit? I didn't hear much about the macro commentary, if there was any. In the past few quarters, we've discussed the sales cycle shrinking and win rates improving. It would be helpful to know how that business performed compared to your expectations in terms of bookings or ARR.

Yeah. Thanks, Chad, for the question. Good to hear from you. So maybe I'll start and then if Frank has anything to add to it. I think from the macro perspective one of the things that we talked about in prior quarters is that the traditional cloud providers have been talking about the headwinds and challenges of customers looking to optimize their spend with them. Customers are basically looking at it and saying how can I provide the same value to my customers while decreasing my cost of infrastructure. And obviously, a great way to do that is to switch to a lower-cost provider like Backblaze. They've been seeing significant optimization challenges to their environment. On the one hand, some of the headwinds in the past of customers just generally doing less industry-wide. But on the other hand, we get to be the beneficiaries of customers looking to optimize away from some of the traditional clouds. I think we're still seeing customers coming to us for those same reasons, right? Customers are continuing to try to optimize off of the traditional cloud providers and continuing to look for high-value choices, and we're the beneficiaries of that. So we talked about close rates and close cycles in the past. We're not going to report on those quarter-on-quarter. But what I'll say is that they've been relatively consistent with what we've said in prior quarters even improving slightly. So I think we're enthusiastic about kind of how that's looking overall.

Okay. And then maybe a follow-up on B2 Cloud. Just any commentary on B2 reserve bookings and in particular kind of performance through the channel there. And then I believe from a guidance standpoint, you guys have talked about B2 Cloud ARR growing 40% this year. Are you still comfortable with that growth rate?

So let me touch on the B2 reserve and then I'll hand to Frank for the growth rate for B2. On B2 Reserve, one of the things just for people who may not remember from prior calls, the reason we are excited about B2 Reserve is that we see it as something that is good for customers, for the channel, and for Backblaze. B2 Reserve is the packaged version; it's the fixed price version of our B2 offering. So it's good for the customers because they have predictability. It's good for the channel because it's easier for them to sell that. And so we launched that in roughly the middle of last year. So B2 Reserve has continued to grow strongly sequentially quarter-on-quarter. So we're seeing good traction with it. As we talked about last quarter, it was $1 million in ARR, so it's not a dominant portion of the business. It's not super material yet. But we are enthusiastic about the growth. And maybe Frank, you can talk to the B2 growth numbers.

Yeah. Thank you, Gleb. Hi, Chad. So recall that B2 grew around 40% in quarter one and in quarter two, and we expect a similar growth rate in quarter four. But specifically in quarter three, we do see a one-quarter dip in that B2 growth to around 30%. And this is due to certain headwinds including softer data growth recently, some seasonality, and really a tough comparison to quarter three 2022 due to that prior initial ramp of our largest account ever. But as I said, we expect that Q3 dip to be temporary and we believe B2 will accelerate back to its Q4 40% or above.

Got it. And then maybe the last question for you, Frank. It seems that you have removed over $12 million in annual costs from the business. I have a couple of questions regarding this. Does that annualized run rate begin in Q3? Additionally, could you share some details on how this segmentation appears on the P&L from a cost perspective and where those costs were eliminated from?

Yes, what's happening is that costs are moderating in many areas because in 2022 we established all of our new departments. We really aimed to tap into the enormous potential for B2 and to be a public company. Currently, we are moderating that growth significantly. From a profit and loss perspective, we have savings across all line items. For instance, our gross margin has improved because we have lower lease costs and are purchasing less equipment, which reduces depreciation. We also have headcount reductions or much slower growth across almost all areas. It's a pretty widespread effect.

And evenly spread would you say? I mean, is there a way to think about the magnitude of each line? Rough magnitude of the line items?

Well, the facilities goes into the G&A, but we have other moderating expenses there. And in our restructurings we reported that it was in sales and marketing areas that were not performing as well as we had hoped. So, we did some moderation there.

The next question comes from Elle Niebuhr of Lake Street Capital Markets. Please go ahead.

Hey, this is Elle on for Eric Martinuzzi. I'm hoping you could talk a bit more about your expectations on IT spending going into 2024. And what sort of feedback you've received from your channel partners?

Hi, Elle. Thanks for the question. So, by IT spending, do you mean just general kind of customer spend on IT infrastructure? I'd say we're certainly not guiding 2024 yet. And I don't know that we have a tremendous amount of visibility into what customers are expecting to spend in 2024. I think we've seen some of the traditional cloud providers and some of our peers talking about that they expect customers to continue to be focused on optimization for the near term and possibly slightly longer-term future. So, just from kind of the industry data that we're seeing, it seems like this trend of customers continuing to look for where to find value so that they can provide the services that they want to provide to their customers while continuing to look for spend optimization doesn't seem to have quite stopped yet. I think AWS announced that their growth still slowed to 12% year-on-year, and I think that was still driven in large part by customers continuing to look to optimize their infrastructure. And so it seems like that has not yet stopped. And so as they continue to look to optimize, we'll continue to look to help them.

Great. Thank you. And then last question. Could you just touch on gross margin a bit more and go into detail on Q2 and what you're expecting for the rest of 2023?

We always expect the non-GAAP gross margin to be in the mid-70% range. In the first quarter, we were lower than that at 72%. The improvement in the second quarter occurred due to the elimination of many duplicate expenses as we transitioned to our larger data centers. We also opened new data centers, which involved significant one-time setup costs. Once we had these behind us in the second quarter, we saw a positive rebound. Looking ahead, we believe gross margins will remain in that range because we consistently invest in our data centers, but we do not anticipate a significant increase in the number of data centers or expansions.

The next question comes from Erik Suppiger of JMP Securities. Please go ahead.

Thank you for taking my questions. I would like to know about your hiring plans for the rest of the year and what your headcount was at the end of Q2. Additionally, you mentioned that your year-over-year growth would decrease to 30% in Q3 and then rise back to 40% in Q4. What is the primary reason for the decline in Q3? Is it mainly due to tough comparisons, or what gives you confidence that the growth rate will recover?

We haven't provided quarterly headcount figures. However, I can share that last year our headcount increased by 45% due to the reasons I mentioned earlier. Since it was our first year as a public company, we needed to establish teams to pursue the significant opportunities available to us. Currently, we are moderating our hiring, filling positions as needed for specific programs. While we did experience a reduction in staff, our headcount remains low with only a slight increase expected for the remainder of the year. This contributes to our fast approach toward EBITDA breakeven. Okay. Regarding our confidence in what caused that one-time dip, it is due to the reasons previously mentioned, and they are fairly equal in weight. When your largest account begins as rapidly as it did in the second quarter, growing significantly throughout the quarter and reaching its peak within that timeframe, it creates a tough comparison because of its size. We've previously noted the $1 million account annualized. Other factors are also present, but looking ahead to the fourth quarter, we feel more optimistic about the 40% growth, as it aligns with our previous performance.

Okay. And then lastly, have you seen any change from AWS from a pricing perspective?

We haven't. I mean, I think that from a competitive landscape perspective, with them we continue to see somewhere that has been fairly consistent. So we still see a number of customers moving over to us from AWS. We shared another one on the call. This time, I think in the last quarter we shared one coming from Amazon, one coming from Google, one coming from Azure. We continue to see customers moving from those both for pricing reasons. I think that we're about one-fifth of their price point. But also because of our open ecosystem, the free egress that we provide to our technology partners is something that a lot of our customers appreciate as well as the ease of use of the service.

All right, very good. Thank you.

Thanks, Erik.

The next question comes from Simon Leopold of Raymond James. Please go ahead.

Great. Thanks for taking my question. I wanted to see if maybe you could help us understand the sensitivity of your cost of goods sold to essentially the cost in data centers. And really the question sort of rooted in the view that data center space is scarce and therefore there's a lot of people competing for the capacity. And then also, just relative to a year or two years ago, the cost of electricity has gone way up. And your gross margins have been pretty stable. So I'm trying to get an understanding of sort of how that's affected you and how you think about that within the cost of goods sold. Thanks.

Yes, you're correct, Erik. The data centers have remained stable in that we haven't been significantly impacted by what you mentioned. Our data centers are colocation sites, and we only contract for what we expect to use. If we need more capacity, we can arrange that. We have fixed rates with the major providers, allowing us to project our future costs. Regarding electricity, we did expect significant increases, although not as severe as those experienced in Europe. However, Europe has a smaller data center footprint. Therefore, we've felt confident in our ability to forecast and manage those costs.

And just as a quick follow-up, sort of rough math suggests that your operating expenses should be maybe just south of $19 million in the next quarter. So you're just putting a number to it would be helpful. I think everybody sort of asked that question in a couple of different fashions. Maybe just south of $19 million makes sense to you to what you're expecting?

What we've said before is that we really expect quarter-on-quarter expenses to be relatively flat. They're not exactly flat because we have programs that are in some quarters out of others, but I think you can continue to see that. What you saw from quarter one to quarter two was only a 1% increase in OpEx expense. So that's been our trend.

The next question comes from Zach Cummins of B. Riley Securities. Please go ahead.

Hi, good afternoon. Thanks for taking my questions. Gleb, I just wanted to ask you about the prospects of moving upmarket. As you're thinking about getting involved with larger customers, I mean, what's the primary channel that you believe is going to be getting you towards those larger customers? Is it really the outbound channel or through strategic partners?

Thanks for the question, Zach. So one of the things we said at the IPO was that while we're focused on the mid-market, our platform can support any size of customer. And so the first part of that is I'm excited that we're seeing larger customers wanting to use the platform and we're successfully winning those deals and having them be happy, satisfied customers on our platform. In terms of where do we find them from our outbound sales team that we stood up with some of the proceeds from the IPO has started generating pipeline and bringing in some of those deals. So we're seeing a healthy pipeline of which larger deals are an important part of that pipeline. But we're also seeing deals that come to us inbound. And I think this is a function of the blog and the content marketing that we have invested into over the years. Some of those customers read about us, learn about us, and then come to us proactively. So we see it from both. I would say that we expect that we will be getting some from channel. We mentioned one that came through our technology partner Fastly. We think that our partners benefit from working with us. So the Fastly example is any customer that works with one of the edge compute providers; they need to have data, and that data needs to be stored somewhere. If that data is locked up inside of one of the traditional cloud providers, that it makes it expensive and difficult for the customer to use those other best-of-breed edge cloud providers. And so it's in the customer's best interest, it's in our partner's best interest to have them move their data to us. And so we had that win from Fastly that they brought to us, and we expect to see more deals coming from technology partners as part of the ecosystem that brings deals to us. Some from the channel we're already seeing pipeline from outbound and we're already seeing inbound deals as well.

This concludes our question-and-answer session. I would like to turn the conference over to Mimi Kong, Director of Investor Relations.

Thank you, Andrea. I want to thank all the analysts for joining the call today and thank you for all your questions. Next, we will answer questions submitted by retail investors on the Say Technologies platform. The first question I have is for both Gleb and Frank. What is management's plan to become a more profitable company?

So in terms of becoming a more profitable company, there are two obvious pieces to that. We're going to grow revenue and we're going to moderate expenses. On the growing revenue side of it, we talked about the four pillars that we're focused on with our growth initiatives, which are optimizing our self-serve motion, which makes it very efficient for customers to sign up; scaling our sales-assisted efforts for deals like the ones that we talked about over $50,000 that we're seeing traction with and the $1 million deal that we signed last year as well as the largest computer backup deal that we just announced this quarter. So that's on the sales-assisted side. On the partnership side in expanding both with technology partners and channels, and then, the last one being the application storage use case where we help customers as a strategic part of their structure. So, investing behind the growth of the company so that we grow revenue and then moderating on the expense side. And maybe Frank, you can touch on the moderating on the expense side.

Yes. We're continuing to drive efficiency, and it's through disciplined headcount additions. And as Gleb said, we're really investing in projects with solid returns. We measure everything. So we can see which ones are doing the best where more investment should be and which ones we should pull back on because we're not as happy with those returns. And the other important thing is that we're on track to approaching adjusted EBITDA breakeven in that fourth quarter.

Now, the next question is for you Gleb. What are some future projects for the company?

So future projects, I assume, also include future products. So we have a long history of improving our services, adding value to customers. We don't disclose our product roadmap for competitive reasons. But you can look back at some of the things that we have done. For example, we opened the East Coast data region for customers to choose that. We added cloud application, which enabled customers to store their data in multiple regions by turning on that functionality. We launched B2 Reserve, which we talked about a little bit earlier during the Q&A, a partner API, which helps our partners make it easier for them to integrate our service into their product offerings, and extended version history for our computer backup customers. So we've done a lot of things to help customers store their data, protect their data, and also use their data, and that's where we continue to invest. We're also working with our partners on enabling solution sets. So the solution set that we talked about with our continuity centers for disaster recovery is an example of that as well as some of the other services that move on with our edge compute partners. Overall, I think you can look back at some of the roadmap items that we have shipped as examples of things that are on our roadmap to ship.

And Gleb, what do you view as Backblaze's competitive advantage over other companies offering similar services? What is distinct or unique about Backblaze compared to competitors?

In terms of distinct and unique, so first of all, we are dramatically easier to use. I know a lot of people say that. I know a lot of technology companies in particular say that. One of the things that we've seen is customers that sign up with us and then later come back and say, oh my God, it was so easy to use your services. The conversations I had with some of them was like, well, yes, we've said that it was easy. But the response I often get is, I know you said it was easy; everybody says their technology is easy, but yours actually was. I think a lot of times ease of use is an underrated benefit. Analysts found that our customers save 92% of their time because we're so much easier to use. Apple has built a $1 trillion company by focusing on making products easy to use. I think ease of use is one very key differentiator for us. We're also dramatically less expensive than other providers, and we are supporting the open cloud ecosystem. We do that by making it easy and inexpensive for customers to use their data in the way they see fit, to use it with other edge compute providers, with other AI services, with other compute providers, etc. So by enabling them to have that open ecosystem of data, we make it so that it's easier for them to build their business the way they want to build it. So much easier to use, much less expensive, and supporting the open ecosystem.

And this next investor would like to know where do you see growth opportunities in the coming year?

So growth opportunities in the coming year. I mean, we're pursuing this $50 billion market by 2027. So there are many opportunities. I think that we've talked about the growth initiatives that we're pursuing. We also highlighted that we're seeing momentum and investing behind going after the larger customers in the mid-market. And so I see that as an interesting opportunity for us. B2 Reserve, which we talked a little bit about earlier on this call, it's not a very large part of B2, but it is a rapidly growing part of B2. And on the computer backup side, we have helped both individuals and businesses for a long time. We're continuing to see more businesses specifically come to us looking for us to help them protect all of their employees in all their employee data with our computer backup service.

Now this next shareholder asks, how will I benefit with the other shareholders putting my faith and money with your company? I have been optimistically happy and supportive to date. Why should I continue down this path?

First of all, I appreciate all investors and shareholders investing and having faith in us and giving us the runway to execute on our growth initiatives. I certainly also hope that as shareholders some of you may choose to become customers, which will both help the growth of the company and also hopefully help you as well. From the investor side specifically, since the time we went public we entered into a market, which we're facing inflation, recession fears, interest rate hikes. And despite that, we executed as we said we have been building the company in a stable and predictable fashion. We executed on our growth initiatives. We grew revenue double digits year-on-year in every quarter since we went public. We're approaching adjusted EBITDA breakeven, which is a key milestone on our path to profitability. As Frank talked about, we have taken action on improving our cash flow trajectory as well. Recently, we also eliminated the dual class share structure that we had, which now gives all shareholders equal voting rights. We saw that as a good step for corporate governance and also just being a shareholder-friendly company. I think we've executed well and we're taking actions to be supportive to shareholders overall.

The next question is a little bit more technical. What strategies are in place to ensure privacy and store data?

So privacy and security of data are critically important for us. We have a Chief Information Security Officer with a staff in place. That team works every day to ensure privacy. This team also has throughout the organization other partners that work with them across the company to ensure the security and privacy of data. We encrypt data in transit. We offer various levels of encryption at rest. We use third parties to attempt to find vulnerabilities in our systems. Overall, we have a robust security and privacy program with physical, digital, and policy safeguards. We recently completed our SOC 2 audit. So overall, we’re seeing a host of actions and have the teams in place to protect customer data privacy and security.

And Gleb, this next investor asks: Your competitors have raised prices. Are you considering the same? Should you?

So we certainly believe that we're a great value. As we talked about, we're seeing many customers leaving the traditional clouds to continue providing high value to their customers while reducing their infrastructure costs. We believe we're a great value in the current market, and we are always considering ways to both optimize our product offering and ways to grow our business.

Now this next question is very topical: Is Backblaze going to use AI for future growth?

AI is certainly something that's top of mind. It's a very exciting time to run a business that benefits from data growth when there are new applications constantly generating data. Certainly, generative AI is growing explosively. We are starting to use and looking at additional ways to improve productivity inside of the company using AI. On the AI front, our customers are using AI. We have dozens of AI customers that are through our sales-assisted motion alone. You may remember, our sales customers are about 20 times larger than our self-serve customers. So, there's certainly a lot of growth being generated in data by AI use cases and we're excited about the opportunities to leverage that for the growth of Backblaze.

The next question, how are you encouraging employees to seek more responsibilities and leadership roles? Now, this investor also notes, I believe this promotes staff to self-promote the company and in part create positive culture and increase ROI.

I appreciate the question because we share that sentiment. Ultimately, our people are what make the company thrive, and when they are happy and successful, it leads to positive outcomes for everyone, including investor returns. Our culture is paramount, and we strongly believe in promoting from within. We have data that indicates our commitment to this. We were recognized by Great Places to Work and received a 2023 diversity award. Additionally, we were acknowledged by Fortune's Best Workplaces in the Bay Area. Our turnover remains low, and we continuously assess ways to support our employees in being happy and successful within the company. We hope that they also feel motivated to promote Backblaze to their customers, friends, and partners.

Let me give you a rest, Gleb. You did a marathon of questions. Next question will be for Frank. So how has the management managed or limited possible exchange rate fluctuations?

No, it’s a good question because we do have customers in 175 countries. But we don't have large foreign currency risk. The reason for that is that our customers pay us in US dollars. When we look at our expense side, we just don't have a lot of international expenses. We have some for our international data centers. We have international taxes. But overall, the foreign currency risk for us is very low.

And that concludes the portion of questions from Say Technologies. Andrea?

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