Good day, and welcome to Backblaze’s Fourth Quarter and Fiscal Year 2023 Earnings Call. All participants will be in 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 Mimi Kong, Investor Relations and Corporate Development. Please go ahead.

Thank you. Good afternoon and welcome to Backblaze's fourth quarter and 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 features and offerings, and the impact of price changes, partnerships, and sales and marketing initiatives. Our ability to compete effectively, manage our growth, and our strategy to acquire new customers and retain and expand our business with existing customers. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including those described in our risk factors that are included in our Annual Report on Form 10-K and our other financial filings. You should not rely on our forward-looking statements as 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 and gross customer retention, number of customers, and ARPU. 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. Thank you for joining us, and I would now like to turn the call over to Gleb.

Thanks, Mimi, and thank you, everyone, for joining us today. We are very pleased with our Q4 results. We delivered new product features and accelerated revenue growth with B2 cloud storage having particularly strong growth of 47% year-over-year. We also demonstrated continued financial strength, as we reached adjusted EBITDA profitability for the first time as a public company and dramatically reduced cash usage. In addition, we are reiterating our forecast to exit this year with at least $20 million of cash on hand. I want to take a moment to highlight some key results. First, we delivered significant innovations. Second, we've continued to move up in the mid-market. Finally, we've accomplished this while dramatically improving our financial position. We've accelerated our overall growth rate to 25% in Q4, while at the same time improving our profitability and cash usage. We achieved adjusted EBITDA of 6%, beating the high end of our prior guidance of 3%, and we used just $2.4 million of cash, which is about $6 million less than we used in the prior quarter. These three achievements provide a strong foundation for the year ahead, positioning us to take advantage of a shift we're seeing in the market. We're seeing larger businesses come to us because they want to build using the cloud providers that best suit their needs instead of being forced to stay in the traditional closed cloud platforms. For some of these businesses, it's about unique functionality. They're able to optimize with specialized solutions fitted to their use case. For others, it's financial. They can achieve massive savings by migrating away from expensive and complex traditional cloud providers, and for some it's about trust that providers won't compete with them indirectly. These are some of the reasons companies are increasingly wanting to use best-of-breed providers in an open cloud ecosystem. Together with other cloud companies, we're well positioned to help drive that open cloud ecosystem, which is defined by interoperability, best-of-breed functionality, affordability, and the free movement of data. I want to share a great customer story that highlights the value companies are seeing with this open cloud approach. The customer is a media streaming service with over 22 million global users. Their previous solution was built on top of AWS, which was constraining their growth due to technical limitations and excessive download fees. Download fees, which are referred to as egress fees in our industry, are one of the restraints that traditional cloud providers use to keep customers from leaving their platforms. Our commitment to free egress, our scalable and performance storage platform, and our easy integration with CDN partners convinced this customer to switch to Backblaze’s B2. By switching to Backblaze, this customer was able to develop and deliver features to their end customers that the previous platform couldn't support. Even more impressively, with Backblaze, they were able to save over $800,000 on egress a year. That's $800,000 each year that they can invest back into their business, grow their customer base and in turn grow the data stored with Backblaze. Turning to innovation, we are focused on providing the performance and functionality businesses need to move away from legacy solutions. For over 16 years, the Backblaze team has excelled at innovating on cloud storage by finding greater performance and greater efficiency in hardware and software. In Q4, we launched shards stash for Backblaze B2, which enables upload speeds up to 30% faster than Amazon S3. Also, in Q4, we introduced free egress up to 3x the amount of data stored for every B2 cloud storage customer, furthering our commitment to the open cloud. We are the only cloud storage provider of scale that is offering this to customers without hidden fees or gotchas. We believe Backblaze is uniquely positioned to be the de facto storage platform at the center of the open cloud ecosystem, as we support customers to use their data where and how they choose. We also recently launched computer backup enterprise control. This is a feature set that gives businesses greater administrative tools for an additional $2 per computer per month. With enterprise control, IT admins have the ability to meet their compliance requirements and easily manage backups for hundreds or thousands of computers. We're only a few weeks into availability, but we're encouraged by the early feedback we've received from customers. I'm really proud of what our team has done, but I'm even more excited for what's next. Our team continually improves the performance of our platform and enhances our products to serve new use cases. For instance, while a number of AI companies are already succeeding with us and we're integrated with leading GPU compute providers. Our team isn't resting on that success. We continue to innovate on our storage architecture to better serve the increased demand and evolving workflows of AI-related storage. We are also excited about the addition of David Ngo, as our new Chief Product Officer. David is the former CTO of Metallic at Commvault and brings over 25 years of experience in the data storage and protection industry. David is coming on board to help lead the team to bring even greater innovation and strategic leadership for our customers and partners. So we've delivered significant innovation and set ourselves up for more. Next, I'd like to talk about moving up market. First, we continue to build our channel program. Working with our channel partners helps to both increase our velocity on smaller deals and to identify and close larger deals. A great example of the latter is a $100,000 plus deal that we closed in Q4. One of our channel partners identified an NFL team that was looking to update their approach to data storage. As many of you probably watched the Super Bowl last weekend, you can imagine the incredible amount of video and other data generated during professional football games. Working together with our channel partner, we helped this customer simplify and improve the way they work with all of that data. Second, on the partnership front, we just launched our new Powered by Backblaze program. Powered by lets businesses add B2 cloud storage to their product offerings without any of the hassle or complexity of managing cloud storage infrastructure. For example, early Powered by customers include an edge compute platform provider and a transcoding cloud service provider. I'm excited for these types of partnerships because they help businesses expand their offerings, make it easy for their customers to get access to best-of-breed cloud storage, and provide Backblaze with access to new distribution channels and customers. Finally, as I've discussed, we have been successfully winning deals with larger customers and we are delivering the features and the performance larger customers are looking for. As the company takes the next step toward winning these customers at scale, we're updating our sales approach accordingly, including growing headcount and adding a new sales commission program. We will also be hiring a new SVP of Sales. Nilay Patel, our current VP of Sales, helped build the go-to-market for B2 cloud storage from the ground up and led the efforts to open up the use cases we currently serve. Nilay and I agreed that now is the right time to pass the baton as the company charts its path beyond $100 million, and executive searches are underway during which Nilay will continue to lead the sales organization to ensure a smooth transition. Once the new head of sales is on board, Nilay will turn his focus to our AI initiatives, which are aimed to help support customers in managing the explosive growth of AI data and its use cases. I'm very proud of what we've accomplished in 2023 by continuing to innovate, moving up market, and enhancing our go-to-market approach. Backblaze is in a great position to help our customers reap the full benefits of the open cloud. At the same time, we have dramatically improved our financial position as we accelerated revenue growth, achieved adjusted EBITDA profitability for the first time as a public company, and dramatically reduced cash usage. I'll pass the call to Frank now to review our financial results.

Thank you, Gleb, and thanks everyone for joining us today. Turning to our fourth quarter 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 Q4 revenue totaled $28.7 million, an increase of 25% year-over-year. B2 cloud storage revenue was $14 million, reflecting 47% growth. Computer backup revenue totaled $14.7 million, reflecting 10% growth. Quarter four represents the introduction of our pricing changes. The exact impact of the Q4 price increase cannot be determined for a number of reasons, including changes we made to the product offerings. However, we believe without the price increase organic growth for both B2 cloud storage and computer backup would have been similar to quarter three. As a result of the price adjustment, it is common to see an increase in customer churn. However, we did not see any incremental customer churn in quarter three at announcement or in quarter four at implementation. This is illustrated by our continued strong gross customer retention rate of 91% for the total company. We did see some incremental data in license reductions, likely due to the price increase, which was expected. We believe our consistent and strong customer retention rate speaks to the value of our services and how offering these popular features of 3x free egress and extended version history further differentiates us from our competition. Turning to our net revenue retention or NRR, total company NRR was 109% with B2 cloud storage at 122% and computer backup at 100%, which have all improved over the prior quarter. Working down the P&L adjusted gross margin increased about 300 basis points sequentially to 77%, which was primarily due to the price increase across our products and to a lesser extent the higher utilization of prior data center expansions. This quarter adjusted EBITDA was a positive $1.6 million or 6% of revenue and beat the high end of our prior guidance of 3%. This favorably compares to a loss of $2.5 million or negative 11% in quarter four of 2022. And as Gleb mentioned, this is the first time we have reached adjusted EBITDA profitability as a public company. This was the result of significantly growing revenue with a limited increase in operating expenses. The beat itself benefited from higher revenue due to lower than expected churn and headcount related savings. Turning to the balance sheet, cash and short-term investments, including restricted cash, totaled $33.4 million at the end of Q4 2023 versus $35.8 million at the end of Q3 2023. Our cash usage for the quarter came in at $2.4 million, which represents a significant reduction of over 70% from $9 million of usage in quarter three. Moving on to our guidance. For the first quarter, we expect revenue to be in the range of $29.6 million to $30 million. We expect Q1 adjusted EBITDA margin between 4% and 6%, reflecting continued strong performance in a quarter, which is typically a high quarter for expenses due to payroll taxes and other compensation-related expenses. For the full year 2024, revenue guidance is $126 million to $128 million with the midpoint reflecting 25% year-over-year growth. The full-year adjusted EBITDA guidance range is 8% to 10%. Because of our confidence in this guidance, we have narrowed the range for revenue and adjusted EBITDA. For year-end 2024, we project having at least $20 million in cash. This cash forecast includes principal lease payments on capital leases of about 15% of revenue. We also anticipate about $2.4 million in ESPP proceeds and an additional amount from employees exercising stock options. For reference, we received $1.3 million from stock option proceeds in quarter four. Looking beyond 2024, we continue to forecast cash flow breakeven by mid-2025.

Thanks, Frank. In summary, the team has done an excellent job delivering product innovation, driving revenue growth, and achieving adjusted EBITDA profitability. We are uniquely positioned to capture the massive market opportunity ahead and execute on our mission to help customers leverage the open cloud ecosystem. Operator, we're now ready to take questions on our call.

Our first question comes from Chad Bennett with Craig-Hallum.

Great job on the quarter. I mean, the EBITDA number was phenomenal. Good to see that leverage playing out. Just in terms of Frank, I know you talked about really minimal to non-existent uptick in churn as a result of the price increases to date. Just thinking about the first blush at the fiscal ‘24 guide, are you expecting that to change or anything directionally there on churn on either side of the business? And then with respect to the two segments, is there any difference in kind of growth rates that you're factoring in those two segments relative to what you just did in Q4 for fiscal ‘24?

Let me address the churn first. We were pleasantly surprised and very pleased with the churn rate because you would think when you have a price increase that you would've had some increase in churn. And our customer retention was exactly the same as in the prior Q3, and we had expected to have some increase at announcement, which we didn't see, and some increase at implementation, which we didn't have. So that was very good. So we now have over four months of experience with it and with January over five. So we're not expecting any increase in that churn rate. So we think the customer retention will remain at that very high company, 91%, certainly in that range. But what we did have, if you look at the data and license reductions that we did see, we did have a relatively small reduction there of about 1% to 2%.

And then just in terms of the two segments, Frank, and how you're thinking about that relative to fourth quarter growth rates?

As far as our growth rates go, we think our growth rate without the price increase kind of mirrored what was going on in quarter three. So we were very pleased to see that growth rate of B2 at the high 30% range in organic and 40% or better with the price increase. And we're expecting that through fiscal year ‘24. And then the same on the computer backup that organic side was in the low single-digits and with the price increase we're in the low double-digits, and that's how we're projecting it forward in 2024.

And then maybe one follow-up if I could for Gleb. You highlighted a few times, Gleb, on the call that the increase in deal size as you're seeing and moving up, I think you characterize it in more into the mid-market. I guess is there just you cited a couple very interesting wins. But can you just speak to whether it's B2 reserve, pipeline growth, or maybe it's actually additional use cases you're seeing in the mid-market that maybe you weren't seeing a year or two ago, kind of any characterization of the magnitude of improvement or demand you're seeing from the mid-market?

And by the way, maybe just to say, because I think Frank was talking about the growth rates of the businesses and said high 30. And so, I think just to make sure that came across through the audio, which is it's 30 being a high number, not a high 30 organic growth rate. So just to make sure that was heard correctly. We are still very excited about the fact that in 2024, we're seeing around 40% growth for B2, which I think is obviously a very strong growth rate. In terms of the up market movement. So we're seeing up market movement in various ways. We're seeing that in backup customers, we're seeing that in application storage customers. We're seeing that in media and entertainment customers. In general, we're seeing more up market movement. The application storage customers and committed contracts that we're seeing in particular are some of the areas where we're seeing upmarket attraction. These are customers that typically are on one of the traditional clouds. They have gotten to some scale and they want to move off and do that for a combination of savings on the storage. Often egress is an important component for them, because they're using other cloud providers like CDNs or compute providers, and they need the data to be able to exit from the storage and not be charged normally for that. And so, the example I gave on the call a few minutes ago around the customer that saved $800,000. That's an application developer. It's a media streaming company, but it's an application storage use case. And that's probably where we're seeing some more of the larger deal type traction.

The next question comes from Jason Ader with William Blair.

My first question is regarding the media streaming use case you just mentioned. How are you finding these customers, Gleb? Are they approaching you, or is this related to the investments made in your sales team? Could you provide some insight into how you're securing these upmarket customers?

Media and entertainment is a sector we've been exploring for some time, as these companies manage significant amounts of data, including videos, images, and music. Their workflows benefit greatly from cloud storage solutions. We have customers in this sector who utilize our services for backups and archiving, as well as those who manage their workflows with us. Traditionally, production work was done collaboratively in one physical location, but this has shifted to a more distributed model post-COVID. This change necessitates access to media assets in a cloud environment, allowing teams to work from anywhere. Some customers are also advancing to using our cloud storage for distribution purposes. We view this progression as an evolution, starting from basic backups and archiving, moving to active archiving, then developing media production with our workflows, and ultimately achieving distribution. Many of these customers find us through our existing attraction strategies, combining content and community. Our blogs reach millions, including many media and entertainment clients. Additionally, we enhance our outreach through marketing efforts, including participation in media events like NAD in Las Vegas and other events in locations such as New York and Amsterdam. Our channel partnerships also play a crucial role, as they have connections with media companies seeking assistance in transitioning from on-premise or traditional cloud systems to our solutions.

And then just a second quick question for you, Gleb, is when you talk about the Backblaze or B2 being used for some of the AI-related use cases, I guess I always thought that AI required flash storage just because of the need for speed, especially on the inferencing side. So can you just talk to whether it's just kind of a misperception on my part?

AI encompasses many different aspects, and we have shared some of the workflows that companies use involving AI on our blog. The development of training models begins with a large amount of data, and the process involves running multiple iterations quickly on that data to create the model. This typically requires very high-performance storage positioned close to the computing resources, which isn't currently the ideal use case for us. However, many other workflows actually align well with our offerings. Customers often upload various types of information, whether it's from cameras, existing assets, or data-generating systems. This data is stored in Backblaze B2 and then sent to GPU clouds for processing through our combination of free egress and partnerships. The processed data is then returned to Backblaze B2, where it can be used as part of the application for customers or retained for backups and archives related to AI data. We also have customers who initially store their data with us before it is used for model training. While some use cases for cloud object storage work perfectly, others do not, yet there is a massive amount of data generated for AI. We believe that AI is still in the early stages of the opportunities available for support in this area.

The next question comes from Simon Leopold with Raymond James.

This is Victor Chuan for Simon Leopold. I just want to follow up on that AI question. Did you guys say that you have some AI-specific functions and initiatives kind of in the works? Or were you just mentioning that the use cases currently for AI? I'm just wanting to elaborate on specifically your exposure to AI and kind of what your AI solutions kind of focus features are?

This is Gleb. The short answer is yes to both. If you look back at some of what we did in the last year, the first part of it is making sure that we have a durable, high-performance available storage platform that's affordable is a key component of providing value to customers who want to service their AI data needs. Fundamentally, making sure that we provide them a top-tier storage platform for all of that AI data that needs to be sourced somewhere, needs to be delivered to other locations, and needs to be delivered to customers is key. We've been investing behind that platform, and in Q4 we built or launched shards stash, which was the higher performance way of B2 to work, which is a helpful piece of continuing to add value to that platform. So that's kind of step one. Step two is making sure that we're supporting our customers in understanding how to run these different workflows and how to use object cloud storage as part of that. And so we've been working on like, as I mentioned on our blog, there are stories and case studies around the different workflows and how to use them and understanding that landscape better. The third thing is partnerships. We mentioned that we partnered with CoreWeave, we partnered with Vulture. We have these GPU clouds that we partnered with and we make it easy for customers to move their data between us and them as part of this open cloud ecosystem supporting their AI usage. And then the last part of it is that, as I mentioned, our head of sales, once we hire a new head of sales is going to be focusing his entire area of focus on our AI initiatives, which includes both the go-to-market aspect, some of which I talked about, but also the product platform side. And David Ngo, who's our new Chief Product Officer, is also looking at the product roadmap opportunities to help customers. At core, there's a tremendous amount of data getting generated. There's a lot of use cases around that. Just providing a robust platform for all that data, we believe is the most important job one. But then we do see an opportunity to help customers in additional ways beyond that.

And I guess I just have one more kind of general industry question. More recently, we've heard commentary from a number of cloud providers who have kind of noted an industry-wide trend around cloud cost optimization and kind of increased scrutiny around public cloud spending from their entire customer base. So, just kind of curious if you've observed any similar dynamics, and if not, why do you think that's the case?

I believe we stand out from many traditional cloud providers, which have been receiving feedback regarding their pricing and the confusion it causes for customers. Many users have expressed surprise at their cloud bills and were unclear about where their money was going. In contrast, Backblaze has always prioritized transparency, ensuring customers understand their expenses while maintaining affordability. As a result, our customers have generally been better optimized with our services. Consequently, we haven't been affected by the same trends that others are experiencing. However, as mentioned by Frank, we did observe a slight reduction of 1% to 2% in licenses and data in Q4, which we attribute mainly to our recent price increase.

This is Frank. I would add one item. Of course, this greater scrutiny and attention on data storage costs benefits us because we have such a good value play in the market. So, we really appreciate that attention and that commentary.

The next question comes from Erik Suppinger with JMP.

Do you have an estimate of what percentage of your customer base is on the new pricing? I understand you have both month-to-month customers and annual contract customers. I'm curious about the proportion that is on a month-to-month basis. Additionally, regarding your larger customers, are they generally using services like AWS or Azure and then completely transitioning their applications away, especially if they're working with AI applications, or are they just relocating their storage from those hyperscalers?

This is Frank. I'll take the first part of the question. Who's on the new pricing? So on our B2 side, the group that is on it is the pay-as-you-go customers. The rest of our client base is on committed contracts, or they are the B2 reserve group, which pay in advance. So they were unaffected by the price increase. But they all went on immediately. So that pay-as-you-go group was immediately affected in the beginning of the quarter. As far as the computer backup group, 25% of them approximately are monthly and they immediately had the increase. And then 75% are either one year or two year, and they are graduating in upon renewal.

Regarding your question about upmarket customers, are you inquiring if they are completely transitioning away from traditional cloud providers or simply moving their data? It's a combination of both. We've observed instances where customers have minimal reliance on traditional cloud services, needing only a few key services like storage, compute, and networking. They might choose us for storage and utilize other companies for networking and compute, fully migrating to an open cloud setup to gain data freedom. Conversely, some customers continue to use traditional clouds for certain services while opting for us for storage. For example, one customer retained their storage in AWS but integrated Backblaze, making us their default, which improved their durability and halved their overall costs. They saved enough from switching to us to reduce their expenses significantly while enhancing their infrastructure. It varies based on their infrastructure needs.

As you move up market, is this going to create more opportunities for you to work with your bandwidth alliance and to strengthen that partnership?

Yes, I believe so. As we move up market, we're engaging in more consultative discussions with our customers. We have a substantial self-serve business, and these customers are making their own choices, with many opting to switch from traditional cloud providers without direct conversations with us. We are focusing on discussing what makes strategic sense for our customers as they plan for the future and how they want their infrastructure to support their long-term goals.

The next question comes from Eric Martinuzzi with Lake Street Capital Markets.

Good quarter and outlook. I was curious to know on the 2024 view, where do you expect the gross margin ranging for the full year?

We previously indicated that our gross margin was expected to be in the mid-70% range, and now we are confident that it will be in the upper 70% range on a non-GAAP basis. This reflects approximately a 4 percentage point improvement, with about half of that improvement linked to the price increase.

And then I did see a decline in the computer backup customers as of year-end, you we're down to 431,745 versus 436,080. So what is the explanation there?

This is Gleb. First of all, as Frank mentioned, we saw a 1% to 2% licensed usage decline in the quarter. So, the number that you're talking about is the customer number, which stayed consistent at that high gross customer retention rate. What I will say is that, that number in general is something that we're looking at to see whether it's a relevant metric going forward into the future because it's so heavily influenced by the number of consumer customers on that product line. Whereas, we are increasingly focused on servicing businesses, in particular, more upmarket businesses. And so you can imagine that number is driven by one consumer customer being treated the same as one customer that pays us six figures.

The next question comes from Zach Cummins with B Riley Securities.

Congrats on the quarter and the guide. Just a few questions for me. Gleb, you were talking about initiatives of moving up market and potentially changing some of the commission structure for some of your salespeople. So, can you talk about maybe potential changes as you move up market in any sort of incremental investments you need to make outside of the leadership change that's ongoing right now?

So we've been taking steps down this path. So you probably remember when we went public, we were 80% of all of our business was from self-serve. And we had talked about how the sales-assisted customers were larger and it was a somewhat nascent motion for us, but we were seeing larger deals and customers liking that service that we provide. And so we said we were going to be using some of the proceeds to stand up a sales team and start putting more focus behind the sales effort. And so some of the things that we've done over that time was we stood up an SDR team, which is an outbound team. We staffed up some of the sales team in terms of SDRs, BDRs, account executives, solutions engineers, and built out that team. We've also divided the groups up into territories. We've changed some of the ways that we structure and guide leads through the funnel to them. And some of the sales operations aspects of it introducing B2 reserve and the ability to sell committed contracts were two important steps that allowed us to actually have the sales team sell as opposed to only assist in a self-serve type motion. And then adding the channel motion helped the sales team as well. So those are a number of changes we've been making over the last two years to help enable the sales team to sell to organizations and sell to larger organizations. We're looking for the new Head of Sales. In addition to that, we have a number of open recs on the sales team for senior account execs to sell to those larger organizations. We have the commission program that we talked about. These are just some of the things that we have done and some of the things that we are doing as part of continuing to move up market. There are things around the other organizations, marketing, customer support, cloud operations, and others that are also being supportive in that entire company focus of moving up market.

And final question for me is just around cash usage. Nice to see the reaffirmed $20 million target at the end of this upcoming year. Frank, aside from the improved profitability in the business, I mean, can you walk me through just some of the other key inputs in terms of expectations for CapEx and some of your principal payments for capital lease obligations?

On the CapEx side, we expect to spend around $16 million to $18 million on new equipment, which is slightly less than the previously indicated range of $18 million to $20 million. The reason for this slight decrease is similar to what we spent at the midpoint this year, as we are still utilizing the additional equipment we acquired during the pandemic. This usage will largely conclude after the first quarter. In terms of innovation, our engineers are continuously enhancing the platform, and this year we anticipate benefiting from faster data deletion. Quicker deletions enable us to store new data on the same hard drive, contributing to this improvement. Regarding leasing, if you review our total leases, including both long and short-term, you will see a decline. This is due to a more significant drop in existing leases compared to the new leases we are signing. Many of our pandemic-era leases, which started around three years ago, are expiring rapidly, and the new leases related to new CapEx do not match the volume of those expiring. Consequently, we are observing a flat to slightly declining trend in lease payments.

This concludes our question-and-answer session. I would like to turn the conference back over to Mimi Kong.

Thank you. At this time, I'd like to go over some of the questions submitted to us from Say Technologies. Looks like we might be able to get one in and this one's for you, Gleb. Last year, Microsoft made a change to how OneDrive syncs files, resulting in Backblaze no longer being able to back up folders such as docs, desktop, picks when they're set to back up sync. Carbonite has M-365 backup option. What is Backblaze's solution given how popular OneDrive sync is? And another part of that question is what would the cost and share price implications to launch a similar but improved equivalent to Microsoft and other leading backup and storage program speed?

So, I think the way that question sounds like Microsoft did something specific to make it so that we can't back that up to be clear that that's not what happened. So, what Microsoft did was customers keep files on their computer and what OneDrive did was it enabled customers to put some of their files in the cloud and not on the computer. So our computer backup service is designed to protect all of the data on your laptop or desktop. And we back up everything that is on your laptop or desktop. We back up everything that's on your external hard drives. We do that for consumers and for businesses. If the data does not exist on your computer, because it's in the cloud, our computer backup service does not protect that data. And so there, so I'll say two things on that front. One is that we are very focused on continuing to grow computer backup. We think it's a good growth business. It's grown every single quarter since the start of this company, and we aim to continue to provide value to our customers with that service. The customers that we are focused on trying to add more functionality and features to are especially on the business side and the enterprise control functionality that we added is an example of that. But we're very much listening to customers and seeing what else they want from us with that offering. The other thing that I will say is that with our B2 cloud storage, we serve a variety of use cases. Backing up SaaS applications, data that's in other cloud services, and data that's in Microsoft Office 365 OneDrive are things that our customers absolutely do. They do that with B2 as the cloud storage destination and leveraging our partners for the different use cases. So some of those use cases are served by partners of ours like Veeam, Veritas, Commvault, and others, where they take care of the software side of backing up those different file types and applications and customers can then put that data into B2 and have that be the destination. So, I would say, we currently service those use cases. We service them along with our partners.

And then this would probably be the last question for today. Gleb, what is the single most impactful strategy over the next couple of quarters?

I wouldn't say there's a single most impactful strategy, but moving up market is definitely a key focus for us, along with our channel efforts. The innovations we have introduced and continue to pursue are expected to bring significant value to our customers and drive our growth. We believe that the trend towards an open cloud is crucial. In terms of impactful strategies, these are the main areas we are concentrating on. Additionally, we have mentioned our involvement with AI at some level. We are effectively providing the essential tools for the AI era, which we see as a major long-term opportunity for us.

And that's it for those questions. I'm going to hand the call back to Gleb.

Thank you, Mimi. Thank you, everybody, for the questions. Thank you to our investors that asked questions through the Say Technologies platform to the analysts that joined us. And operator, we're now ready to end the call. See you next quarter.

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