2, 2026 CALL PARTICIPANTS Director of investor relations and corporate development - Mimi KongCo Founder, CEO and Chairperson of the Board - Gleb BudmanChief Financial Officer - Marc Suidan Total Revenue -- $46.7 million, representing 26% year-over-year growth and exceeding the high end of guidance by $2 million.B2 Cloud Storage Revenue -- $30.5 million, up 47% year over year reflecting broad-based momentum across self-serve and sales-led segments.B2 Annual Recurring Revenue -- $127 million, growing 53% year over year and adding $14 million sequentially from the second quarter.Adjusted EBITDA -- $15.2 million, with margins expanding 10 percentage points year over year to 33%.B2 Organic Growth -- 35% excluding the impact of the May pricing increase, up from 26% on the same basis in the second quarter.$50,000-plus ARR Customers -- 254 accounts, representing 57% year-over-year growth in this upmarket segment.B2 Net Revenue Retention -- 115%, up from 113% in the previous quarter due to higher expansion and lower churn.Large Sales Bookings -- four agreements over $500,000 in annual recurring revenue signed in the quarter, including three expansions with existing AI builders.Cash Reserves -- $230.2 million in cash and marketable securities, bolstered by a $201 million convertible debt offering.B2 Self-Serve Momentum -- fourfold increase in net new self-serve customer additions compared with the same period last year.Full Year Revenue Guidance -- $177.8 million to $178.2 million, reflecting a $5 million raise at the midpoint.Fourth Quarter Revenue Guidance -- $49.8 million to $50.2 million, anticipating B2 growth to accelerate to approximately 60% year over year.Capital Expenditures -- $33 million year-to-date, with full year guidance of 55% to 65% of revenue to fund capacity for contracted demand.GAAP Gross Margin -- 64%, up from 62% last year, supported by the May 1 pricing update.Computer Backup Revenue -- $16.2 million, a decrease of 2% year over year despite a slight sequential increase from the second quarter.Non-GAAP Net Income -- $6.7 million, more than triple the $1.9 million reported in the third quarter of 2025.AI Search Visits -- 230% year-over-year growth in traffic from AI search engines, which convert to accounts at more than twice the rate of organic search.B2 ARR from Large Customers -- $50 million, up 109% year over year from customers contributing over $50,000 annually.Operating Leverage -- total operating expenses fell to 67% of revenue from 72% in the prior year as revenue growth outpaced the expense base.

Need a quote from a Motley Fool analyst? Email [email protected] CFO Suidan warned that adding capacity ahead of customer ramps would lead to a temporary GAAP gross margin reduction of 3 to 6 percentage points as depreciation begins before associated revenue.CFO Suidan stated, "The data center, I mean, no secret.

It is a tough logistics issue," noting the company is actively monitoring capacity to sustain growth.

Backblaze, Inc.

(BLZE -2.50%) reported accelerated revenue growth driven by significant expansion in its B2 Cloud Storage segment and the initial execution of major artificial intelligence infrastructure contracts.

Management indicated that the company is transitioning from a period of platform development to one of large-scale capacity deployment, particularly for NeoCloud partners and high-growth AI builders.

The company raised its full year guidance based on broad-based demand and improving operating leverage while securing capital through a recent convertible debt offering to fund accelerated infrastructure investments.

CEO Budman reported that one large NeoCloud customer, originally expected to begin loading data in early 2027, started several months ahead of schedule due to engineering development finishing early.Management stated that the company's contract with CoreWeave is valued at $135 million over five years, including a two-way minimum commitment through July 2027.CFO Suidan noted that for every $1 of annual recurring revenue added, the company typically invests $2 in capital expenditures, with a historical payback period of approximately two years.The pipeline of new AI builders entering the sales process doubled in the third quarter compared with the second quarter of 2026.Management reported that AI search engine traffic now results in new account creation or sales contact at more than twice the rate of traditional organic search.

INDUSTRY GLOSSARY B2 Cloud Storage: The company's consumption-based, S3-compatible cloud storage service for developers and businesses.ARR: Annual Recurring Revenue, a measure of the annualized value of active customer arrangements.NRR: Net Revenue Retention, representing the percentage of recurring revenue retained from existing customers, including expansion and churn.NeoCloud: Specialized cloud infrastructure providers focused on high-performance compute and GPU workloads for artificial intelligence.MCP Server: Model Context Protocol server, a tool enabling AI agents to interact directly with storage systems.IaaS: Infrastructure-as-a-Service, a form of cloud computing that provides virtualized computing resources over the internet.SaaS: Software-as-a-Service, a software licensing and delivery model in which software is licensed on a subscription basis.

Full Conference Call Transcript Operator: Hello, everyone.

Thank you for joining us, and welcome to the Backblaze Third Quarter 2026 Financial Earnings Call.

After today's prepared remarks, we will host a question and answer session.

If you would like to ask a question, please press *1 to raise your hand.

Withdraw your question, please press *1 again.

I will now hand the conference over to Mimi Kong, director of investor relations and corporate development.

Mimi, please go ahead.

Mimi Kong: Thank you.

Good afternoon, and welcome to Backblaze's third quarter 2026 Earnings Call.

On the call with me today are Gleb Budman, Co Founder, CEO and Chairperson of the Board and Marc Suidan, Chief Financial Officer.

Today, Backlaze will discuss the financial results that were distributed earlier.

Statements on this call include forward looking statements about our future financial results.

The impact of our sales and marketing initiatives, cost saving initiatives, results from new features, the impact of price changes, supply volatility, and pricing, our ability to compete effectively and 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 most recent quarterly report on Form 10 Q and our other financial filings.

You should not rely on our forward looking statements as predictions of future events.

All forward looking statements that we make on this call are based on assumptions and beliefs as of today, and we undertake no obligation to update them except as required by law.

Our discussion today will include non GAAP financial measures.

These non GAAP measures should be considered in addition to and not as a substitute for our GAAP results.

Reconciliation of GAAP to non GAAP results may be found in our earnings release which was furnished with our Form 8-Ks filed today with the SEC.

You can also find a slide presentation related to our comments in the webcast which will also be posted to our Investor Relations page after the call.

Please also see our press release or presentation for definitions of additional metrics such as NRR, gross customer retention rate and adjusted free cash flows.

We will be participating in the Craig Hallum Alpha Select Conference on November 17 in New York and the Needham Virtual Tech Week on November 18th and 19th.

We look forward to connecting with you all.

Thank you for joining us, and we would now like to turn the call over to Gleb Budman.

Gleb Budman: Thank you, Mimi, and thank you, everyone, for joining us today.

We had a strong third quarter as we continue to deliver on our strategy of being the high performance capacity storage layer for AI.

Revenue reached $47 million and B2 revenue growth accelerated again to 47%.

Year over year.

What stands out to me is also the breadth of that acceleration.

ranging from our smallest self serve customers to our largest sales led customers.

We added roughly 4x the number of net new B2 self-serve customers versus the same period last year.

Customers over $50 thousand in ARR grew by 19 to 254, showing our upmarket momentum is repeatable.

And we again closed 4 deals over $500 thousand in ARR, a sign of the value we deliver to the largest data users.

All of that reflects the value of our platform, along with the progress we are making on our AI strategy and go to market execution.

Now let me share what I am seeing in the market.

In conversations with customers, AI founders, and infrastructure providers, I am hearing 2 consistent themes.

First, data growth keeps exceeding expectations.

Our early AI customer storage needs consistently outpace even their own aggressive forecasts.

Training models continue to require ever larger datasets and AI applications and agents are generating more data and giving companies new reasons to retain and reuse existing datasets.

And second, companies are increasingly focused on getting more efficiency and ROI from AI.

They are leaning into open models using routers to select the optimal model for each task and working across multiple AI clouds to improve economics.

Storage tiering is 1 of the important ways to improve that ROI also.

If you have a router to select the right model, why would not you apply that same discipline to selecting the right storage location? Together, those trends create a growing opportunity for Backblaze.

Customers need to collect, retain, and use more data while getting a better ROI from their infrastructure spending.

Our high performance capacity tier helps them do both.

As we have discussed, we serve 2 groups.

AI infrastructure companies to whom we provide a capacity storage tier for their customers and AI builders who need capacity storage for themselves.

Let me start with the progress we are making with our AI infrastructure customers.

While we are continuing to progress in conversations with multiple leading AI infrastructure companies, we believe the best way to build on this opportunity is to deliver for the customers who have already chosen us.

bring their capacity online, and give them a great experience as they scale.

We have secured the necessary hardware allocations to fulfill our requirements and shipments are tracking ahead of schedule.

Our team also finished development ahead of plan for the large neocloud we announced at the start of the year, and that customer began loading data several months ahead of our early 2027 expectation.

Additionally, CoreWeave continues to be a great partner and has begun to ramp on our platform.

Thus, both agreements are moving into execution and each carries a multi-year minimum commitment, so revenue is underpinned by contract.

And the ramp follows our customers loading data into capacity we deploy.

Turning to AI builders, which use Backblaze directly.

We are building a repeatable, scalable way to reach these customers, help them get started, and support them as they grow.

These builders work across areas like foundation models, physical AI, and generative media.

Their products differ but many share the same need.

A capacity tier that grows with them as they train and tune models and generate new inference data.

We are seeing strong momentum here.

The number of new AI builders entering our pipeline doubled in Q3 compared with Q2.

This is pipeline not closed deals, but we are encouraged in driving it 3 ways.

First, helping builders discover Backblaze.

years of trusted original content including nearly 13 years of drive stats, have established Backblaze as an authority on storage.

AI search tools draw on content like this to answer storage questions for people and agents.

Giving Backblaze more opportunities to appear in those answers.

This visibility resulted in visits from AI search engines growing 230% year over year.

Roughly double market rate.

And those visitors create a self serve account or contact sales at more than twice the rate of visitors from organic search.

Which traditionally had been the gold standard.

We believe this is strengthening customer acquisition across our broader business through both self serve and direct sales.

Second, deeper ecosystem relationships.

Through Flamethrower, we reach builders via VCs, startup communities, and events like TechCrunch and Coast to Coast StartUp Lab.

Hundreds of startups now participate in the program, letting us build relationships early and support their storage needs as they develop their businesses.

Third, making it easier for developers and their AI agents to build with Backblaze.

We have published reference architectures for b 2 in AI workflows and expanded the tools developers use to integrate our storage.

For example, our new open source b 2 MCP server lets AI agents use b 2 storage directly with governance, through customer defined permissions.

This growing pipeline and engagement across the ecosystem reinforce our confidence in our product market fit for AI builders.

And we are focused on turning that interest into lasting customer relationships and long term growth.

Now onto the 4 agreements over $500 thousand ARR signed this quarter.

We had 3 expansions with existing AI builders showing how customers often start small and grow, and 1 brand new agreement for a core workload.

First, the training data provider we highlighted earlier this year that signed a nearly $1 million agreement in just 11 days.

And then expanded by more than $1 million just a couple months later.

This quarter, they signed a separate incremental agreement worth more than $4 million in ARR for a new workload on b 2.

Second, a generative AI media company expanded as its AI training workloads and data grew.

Third, an AI voice company is connecting its GPU providers compute directly to Backblaze, allowing it to store more of its data with us.

Each of those 3 increased their total commitment to more than double its original level within a year.

For us, in these examples, customers are bringing more workloads to Backblaze and making us a deeper part of their architecture.

The fourth agreement highlights continued demand for core workloads.

A market we estimate at $26 billion for 2026, a global networking technology company signed a new agreement with approximately $500 thousand in ARR for powered by Backblaze.

Our white label offering replacing the varied storage setups its customers bring with 1 simpler experience and creating a new revenue stream.

Our track record brought them to us.

Our economics and ease of integration made the offering work.

Q3 was a great quarter.

More customers chose Backblaze, existing customers expanded, and large AI infrastructure customers began to ramp.

Together with accelerating B2 growth that reinforces our role in AI and our ability to deliver on the opportunity ahead.

As we look forward, training, checkpoints, logs, and inferencing are all part of the AI workflow that is generating data.

Foundation models, generative AI, multimodal, physical AI, and many more are categories of AI organizations and use cases generating data and agents are accelerating.

how all of that is being accessed and used.

Net of that is companies seeing massive growth in their needs for storage, while also aiming to drive clear ROI from their investments.

That makes for an exciting time for Backblaze.

With that, I will turn it over to Marc Suidan.

Marc Suidan.

Marc Suidan: Thanks, Gleb, and good afternoon, everyone.

Q3 was another quarter of accelerating growth and improving operating leverage.

Total revenue grew 26% year over year to reach a new record quarterly high of $47 million, led by B2 cloud storage, where revenue growth accelerated to 47%, up from 34% in Q2 and 28% a year ago.

Adjusted EBITDA margin expanded 1 thousand basis point year over year to 33%.

Both revenue and adjusted EBITDA exceeded the high end of our guidance, and we are again raising our full year guidance.

Let me walk through the quarter, starting with revenues.

Total revenue was $47 million up 26% year over year and $2 million above the high end of our guidance.

The outperformance was broad based.

Driven by strength in our B2 direct sales bookings.

higher B2 self-serve customer growth, and less than expected churn.

B2 revenue grew 47% year over year, our strongest growth rate in 10 quarters.

The May 1 price increase contributed approximately 12 percentage points to b 2's growth.

Excluding it, B2 organic revenue growth 35% compared with 26% on the same basis in Q2.

B2 ARR reached $127 million, up $14 million from Q2 and 53% year over year.

We also continue to move upmarket.

ARR from our $50 thousand-plus customers grew 109% year over year to $50 million.

As expected in these large committed contracts.

CoreWeave and the other previously announced Neo Cloud deal did not contribute significantly to Q3's growth acceleration.

Both have now started to ramp, and we expect meaningful contributions from both of them to growth in the coming quarters.

B2 net revenue retention was 115% up from 113% in Q2.

Computer backup revenue was $16 million, down 2% year over year but up sequentially as our growth and retention initiatives stabilized revenue.

Moving on to gross margin.

Total company gross margin was 64%, up from 62% in the prior year with the pricing update continuing to help.

Operating expenses were 67% of revenue, improving from 72% a year ago as revenue grew faster than our expense base.

Adjusted EBITDA margin reached 33% exceeding guidance on stronger than expected revenue results.

Our GAAP net loss narrowed to $2 million as we continue to make progress towards GAAP profitability.

Non GAAP net income was $6.7 million, more than 3x the $1.9 million reported a year ago.

Cash flow from operations was $23 million year-to-date, compared to $14 million a year ago.

Adjusted free cash flow was $2 million year-to-date, compared to negative $10 million last year.

Year to date, PP&E additions, net of dispositions, totaled $33 million.

We continue to expect full year PP&E capital expenditures of 55% to 65% of revenue.

Based on the midpoint of our revenue guidance, this implies $65 million to $83 million in Q4 subject to delivery timing.

We expect to fund most of these expenditures with cash from our convertible debt proceeds and those cash outlays will be reflected in free cash flow.

Over the next 4 to 5 quarters, we expect to deploy capital to support contracted demand including the CoreWeave, the other neocloud, and AI builders commitments.

We are adding capacity ahead of customer ramps which means depreciation will begin before the associated revenue temporarily reducing GAAP gross margins by 3 to 6 percentage points.

As customer usage ramps, we expect cash generation to strengthen and gross margin to recover.

Turning to the balance sheet.

We ended Q3 with $230 million in cash, cash equivalents and marketable securities.

Our zero coupon convertible financing funds this build out without the cash interest expense associated with financing the same equipment through capital leases.

We also purchased cap calls to mitigate potential equity dilution.

Assuming that debt principal is repaid in cash, the cap call completely offsets dilution up to $33 and $76 per share.

Our earnings presentation includes a table detailing net dilution at various stock prices above that threshold.

Turning to guidance.

For Q4, we expect revenue of $49.8 million to $50.2 million At the midpoint, we expect B2 revenue growth to accelerate to approximately 60% year over year in Q4.

This strong exit rate gives us confidence in our 40%-plus growth outlook for B2 in 2027? For adjusted EBITDA margin in Q4, we expect a margin of 32% to 34%.

For the full year, we are raising revenue guidance to $177.8 million to $178.2 million a $5 million increase at the midpoint.

For full year adjusted EBITDA, we are raising our 2026 fiscal year margin outlook to 30% to 31% from 27% to 29%.

Consistent with our guidance philosophy, this outlook excludes potential new deals greater than $500 thousand in ARR and variable usage above contracted minimums.

Q3 demonstrated continued progress against our objectives.

accelerating B2 growth and translating that growth into operating leverage.

We are investing against committed demand while maintaining operating discipline.

Positioning the business for the next phase of growth across a diversified set of customers, With that, operator, please, open it up for questions.

Operator: We will now begin the question and answer session.

Please limit yourself to 1 question and 1 follow-up.

If you would like to ask a question, please press *1 to raise your hand.

To withdraw your question, please press *1 again.

We ask that you pick up your handset when asking a question to allow for optimum sound quality.

If you are muted locally, please remember to unmute your device.

Please stand by while we compile the Q&A roster.

Your first question comes from the line of Ittai Kidron with Oppenheimer and Co.

Your line is now open.

Ittai Kidron: Thanks.

Congrats on good numbers here.

1 question for you.

So I guess, Gleb, I will start with you.

I just wanna make sure I understand your comments on the AI infrastructure customers.

If I interpret that correctly, you said something to the effect of, focus on current customers and make sure that they issue and....