Good afternoon and welcome to the Backblaze Third Quarter 2022 Earnings Call. All participants will be in a listen-only mode today. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded today.

I would now like to turn the conference over to James Kisner. Please go ahead sir. .

Thank you. Good afternoon, and welcome to Backblaze's third quarter of fiscal year 2022 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 the call include forward-looking statements about our future financial results; use of our IPO proceeds; results from our new products; partner announcements in sales and marketing initiatives; our ability to compete effectively; acquire new customers; and retain and expand our business with existing customers; hire and retain key personnel; and effectively manage our growth.

These statements are subject to risks and uncertainties that could cause our actual results to differ materially including those described in our risk factors that are included in our Form 10-Q for the quarter ended September 30, 2022 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 will 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.

Before I turn the call over to Gleb, I would like to mention that in the latter portion of our call as in prior calls we will be addressing questions from investors that we gather through the Say Technologies platform. I would now like to turn the call over to Gleb.

Gleb?.

Thank you, James and thanks to all of you for joining us. We delivered a strong third quarter with 27% year-on-year revenue growth. Our B2 Cloud Storage business grew 48%, twice the rate of the broader cloud infrastructure market according to Synergy Research. And B2 Cloud Storage now makes up 40% of total revenue.

Our computer backup business grew a healthy 17%. As a reminder for those on the call that may be newer to the story, Backblaze is the leading independent cloud for data storage. And our mission is to make it astonishingly easy to store, protect and use data. We have two cloud service offerings that operate on our storage cloud platform.

First, our B2 Cloud Storage service provides developers, IT, personnel and others cloud storage that is dramatically easier to use and is one-fifth the price of Amazon Web Services S3 and others. And second, our computer backup service provides unlimited cloud backup for laptops and desktops for companies and individuals.

While the computer backup business remains the larger of our two cloud service offerings at the moment, our strategy and increasing investments center around capitalizing on the approximately $100 billion total 2025 market opportunity for B2 Cloud Storage based on projections from IDC and company analysis.

I want to highlight three items on this call. First, our strategy of investing behind our B2 Cloud Storage offering is demonstrated with B2 now representing 40% of total revenue.

Second, our strategy of targeting developers as a key market is working with nine of our top-20 accounts now being developers and the data stored by developers with us growing by 80% over the course of the prior year.

And third our partnership strategy has been important and we're now also scaling a channel partnership approach with major national resellers. As we stated during our IPO roadshow both of our cloud services are an important aspect of Backblaze. However, our investment thesis is behind scaling B2 to pursue the large storage cloud market.

B2 continues to become an ever larger part of our overall business reaching 40% of overall revenue today. Since B2 has a higher growth rate in our computer backup business, as B2 becomes the majority of the business it drives the growth rate of the whole company. A brief update on developers.

We're continuing to cultivate our relationships with developers, which we define as customers that are using B2 cloud storage as the storage back end for their SaaS e-commerce or other business. We saw strong growth on B2 with developers with paid data storage up over 80% year-on-year in Q3.

Our developer evangelism team has been busy the last few months attending and presenting at a number of conferences including QCon in San Francisco, SpiceWorld in Austin, Info-Tech LIVE in Las Vegas and the Storage Developer Conference in Fremont.

On October 31, we held our Technology Day with thousands of registrants and multiple interactive sessions aimed at helping developers easily and affordably succeed in the cloud.

As another proof point of our progress, we were very pleased that just last week Backblaze was named to Inc.’s Business Media for the inaugural Power Partner list, which honors B2B organizations across the globe that have proven track records supporting entrepreneurs and helping startups grow.

There were a number of exciting developments for B2 Cloud Storage since we reported Q2. In addition to the modest re-acceleration in growth we experienced, we continue to make significant progress in expanding our partner program. Partnerships are very important to us.

And as we discussed on our last call a significant amount of B2 revenue well more than one-third has come through our partners. Given their increasing strategic importance to Backblaze, I'd like to take a moment to highlight the different types of partnerships Backblaze is building. We've talked before about how we work with our technology partners.

Now, we have started a major push to succeed with channel partners, which are resellers and distributors that sell products to end customers. Each new channel partner can be a sales force multiplier, increasing the number of salespeople promoting our cloud services to customers.

A key development was the launch of our online partner portal, a dedicated place for partners to access deal registration, discounts, support and self-service promotional resources. Several new national resellers and distributors have recently begun to sell B2 Reserve, and we have also continued to expand our partner team.

Channel partners have shown enthusiasm for our new platform offering B2 Reserve, which is our predictable capacity-based pricing program for B2. B2 Reserve also includes premium support and use of our recently launched universal data migration program, which makes it easy and free for eligible customers to move data from, a wide variety of sources.

While only in its first full quarter of availability and still relatively small, we are pleased to see B2 Reserve show a nice initial ramp in demand with revenue increasing each month of Q3. In other partner news, we announced MSP360 customers can now protect their backup data with Backblaze B2 Object Lock.

This delivers a new level of ransomware protection, for one of our oldest and most significant alliance partners MSP360. For those not familiar, ransomware refers to when hackers take control of individual or business data and demand a ransom to release the data.

Object Lock ensures data cannot be deleted, over a specified period of time by bad actors or inadvertently by theft. Extending this functionality, enables MSP360 to help solve a major need for customers, thus resulting in more data protected with B2. Additionally, we integrated B2 with Elements, a cloud-based media asset management provider.

Media and entertainment remains, a vertical that we focus on given their high level of data storage needs. We also recently attended NAB, New York in October and we're pleased to see continued growth in mind share and interest from companies in this industry.

We believe continued success with media and entertainment customers, will help drive future B2 growth. I'd like to share a couple of new customers that highlight, how B2 has helped customers succeed. First, a developer customer in the information security space.

Every day, web threat analysis service urlscan.io runs 700,000-plus website scans seeking out malicious content, capturing over 3.5 million files in artifacts in the process. With the commitment to keep the results of website scans in perpetuity, the company needed capacity and performance that would scale with growth.

Unfortunately, their original solution couldn't keep up. When it came time to upgrade, the urlscan.io team evaluated a few solutions including Backblaze and AWS. Storage pricing was not an immediate concern, but it was the unknown transfer costs and other hidden fees with AWS that were a concern for the business.

urlscan.io chose Backblaze B2 Cloud Storage for its speed and consistent response times, but the ease of integration sealed the deal. The Backblaze S3-compatible API, made integrating their workflow with Backblaze B2 incredibly simple, enabling tens of thousands of daily users to simultaneously access files without needing a CDN.

Now urlscan.io easily manages retrieving and permanently storing billions of files, on a lean stack that scales effortlessly with their daily data growth. Budgeting is simple and performance is right where urlscan.io wants it, with customers reporting a great user experience.

Backblaze gives the team absolute peace of mind and the freedom to focus on their mission protecting businesses and individuals from malicious websites. Now, I'd like to highlight a B2 Reserve customer.

Digital fitness company Fiture had an ambitious production schedule and huge quantities of raw footage coming in constantly and was rapidly running out of room on their Synology network-attached storage device. To free up space locally and streamline production workflows, they set out to find a solution.

Fiture's system integrator recommended a single solution, Backblaze B2 Reserve our capacity-based cloud storage solution, which includes free transaction calls, no delete penalties and free data migration. In addition to being cost-effective, Backblaze B2 Reserve offered predictable billing and freed Fiture from worrying about future storage growth.

Fiture's adoption of Backblaze has already paid off. Now they're archiving new footage directly to Backblaze B2. freeing up local storage space and keeping costs low. The Fiture team can access all the files in B2 Cloud Storage from anywhere. and with the peace of mind that their content is safely stored in the cloud.

Before I turn the call over to Frank. I'd like to welcome Robert Fitt to Backblaze as our first Chief Human Resources Officer. Robert has over 20 years of experience in human resources. Backblaze has received numerous awards for the strength of its culture, diversity and leadership.

We believe this strength is a source of competitive advantage that allows us to hire, develop and retain some of the best talent in the world. We're excited to have Robert, on board, to help us maintain and evolve that culture, as we continue to scale the business.

I would also like to congratulate Brian Beach, on being promoted to Chief Technical Officer, CTO replacing Brian Wilson, who will be continuing with Backblaze in a senior engineering role in advisory capacity to the CTO. Dr.

Beach has over 40 years of engineering experience, including playing a key part in the development of the DVR at TiVo and holding senior engineering roles at Silicon Graphics and Hewlett-Packard, and he has played a key role in the Backblaze technology platform for nearly a decade.

I'll now turn the call over to Frank Patchel, who can review the financial results of the quarter in more detail.

Frank?.

Thank you, Gleb. And thanks everyone for joining us today. Turning to our Q3 financial results. Unless otherwise noted, I will be referring to non-GAAP metrics and the growth rates mentioned are year-on-year. We remain focused on two key metrics, revenue growth and adjusted EBITDA.

Adjusted EBITDA is defined as earnings before interest taxes, depreciation, amortization, stock-based compensation expense and other expenses or benefits that are non-cash or that we deem non-recurring. Our Q3 revenue totaled $22.1 million, an increase of 27% year-on-year.

Backblaze B2 contributed sales of $8.8 million, reflecting 48% growth year-on-year. Computer Backup revenue totaled $13.1 million, reflecting 17% growth year-on-year. In Q3, B2 Cloud Storage represented 40% of total revenue, continuing its upward trend. Computer Backup continued to benefit from the price increase we implemented in Q3 2021.

Recall, since most backup customers are on an annual or two-year subscriptions, this increase, which was from roughly $6 per month to $7 per month will continue to phase in as they renew across the next two years at the higher price. But at this point, the vast majority of Computer Backup subscriptions have transitioned to the new pricing.

The amount of growth on the Computer Backup business driven by pricing began to wane in quarter 3, since we are past the one-year anniversary of the increase. By year-end, we expect approximately 10% of currently active computer backup subscriptions to be on pre-increased pricing. Turning to retention metrics.

Recall, we track two key metrics, net revenue retention or NRR, and gross customer retention. These metrics are defined in more detail in our earnings release and filings. But basically, NRR is the growth of the recurring revenue for an initial set of customers, while gross customer retention measures retention of customers.

Both metrics are trailing four quarter averages. Total company NRR was 114%, an increase of four point year-over-year, with B2 Cloud Storage at 123% and Computer Backup at 108%. Gross customer retention was 91% overall consistent with the prior year with 90% for B2 Cloud Storage and 90% for Computer Backup.

Working down the P&L, adjusted gross margin which excludes non-cash expenses of depreciation, amortization, and stock-based compensation was 76%, up versus 74% in Q3 2021, chiefly due to lower credit card fee, but also leverage on data center fixed costs.

We do not guide gross margin explicitly, but we continue to see gross margin in the mid-70s in the near term. Adjusted EBITDA was a loss of $1.9 million or negative 8% of revenue, down from a positive $800,000 or 5% in quarter three of 2021.

Year-over-year this reflects planned expenses from higher investments in both sales and marketing and R&D as we continue to increase investments to pursue the large market potential for B2 Cloud Storage, as well as increased G&A expenses chiefly related to public company cost.

As for the favorability versus our guidance, this primarily reflects higher revenue in Q3 and moderately lower sales and marketing investments than planned. Turning to the balance sheet.

Cash short-term investment, including restricted cash totaled $80 million, as of September 30 2022 versus $88 million as of the end of Q2, reflecting a slower rate of cash usage than the June quarter. Now, I'd like to provide our outlook for quarter four. For the fourth quarter, we expect revenue to be in the range of $22.5 million to $22.9 million.

We expect Q4 adjusted EBITDA margin of minus 14% to minus 10%. We expect the Q4 2022 basic share count of approximately $32.5 million to $34.5 million. This implies full year 2022 revenue guidance of $84.7 million, to $85.1 million and an adjusted EBITDA margin of minus 12% to minus 11%.

Our prior guidance called for 2022 revenue of $83 million to $86 million and an adjusted EBITDA margin of minus 17% to minus 13%. While we're still early in the planning process for 2023, and we won't be providing guidance for next year until we report Q4 2022 results in February 2023, we'd like to provide some color about what we're seeing.

As you've all undoubtedly heard from other companies, who've reported there are some challenges in the macro environment and we're not completely immune to those. Though, our results year-to-date have been strong, we're not for example seeing as much benefit to-date, as we expected from our growth initiatives.

Additionally, as I mentioned a moment ago, we're also seeing a decreasing benefit from our price increase in Computer Backup from earlier this year. When considering these factors we believe the top line revenue forecast of approximately $100 million for 2023 is appropriate.

We also currently expect to adjust operating expense growth to reflect our anticipated revenue growth and the impact of the macroeconomic environment. I will now pass the call back to Gleb for closing comments.

Gleb?.

Thank you, Frank. To add to Frank's comments, while we're mindful that the post-pandemic inflation we're experiencing is unprecedented and our clients' budgets are fluid, the good news is that data grows every day. And our low-cost solutions can thrive in every economic cycle.

I'll close our prepared remarks by just reminding everyone that, Backblaze has been in business for 15 years. And we've grown through multiple economic cycles. As we've already seen in Q4, there are great opportunities to grow to optimize and to invest in the future success of the business.

And we're still early in our life, as a Public Company with funds to pursue our $100 billion market opportunity. To all our stakeholders, employees, suppliers, partners, customers and investors thank you for your continued trust. Operator, we're now ready to take questions from the analysts..

We will now begin the question-and-answer session. [Operator Instructions] And our first question here will come from Ittai Kidron with Oppenheimer. Please go ahead..

Thanks. Hi guys, nice quarter. I guess it's good to see the growth customer retention especially considering the macro environment. But perhaps Frank, you can talk about the, net dollar retention rate? And how do we think about that going forward.

On a blended basis, it's been going up, but that's more a reflection of the higher mix of B2 from quarter-to-quarter. Individually, the net dollar retention rate of B2's been declining, for the last three quarters.

So how do we think about the blended NRR going forward for the company?.

Thank you, Ittai. What I would say first is that, our NRR number for B2 for example, is still very strong. And we're pleased that, the overall NRR for the company has been increasing. It's up four points from the prior year. And it is by the price increase, but it's from other items as well. We don't forecast going forward what our NRR is going to be.

But we did talk earlier in the year about some of the headwinds from the slower data growth and that's reflected in the NRR. And remember that, NRR the way it's calculated is for a cohort from a year ago compared to now. So, all of the new programs that have added new customers and revenue isn't really in this number at this time..

Okay.

So how do I think about, the contribution of cloud replication and data migration program all of those for your top line next year? How do I think about their impact there?.

They will impact us. They will impact us positively. It's adding to the net revenue retention. And so, we're -- that's definitely coming..

Okay. And then, from a strategic standpoint, Gleb maybe this one is for you, a $100 million framework that Frank provide us for 2023 is a bit short relative to where expectations are now even though you seem to be delivering, while either are not delivering. So help me understand your underlying assumptions there.

And with that as your target or preliminary target, how do I think about your investment in OpEx? Are you right now rather have one point of margin over one point of growth, or where's your preference here right now?.

Yeah. That's a good question, Ittai. So I'll say a couple things. I mean, we're still -- as Frank said, we're still early in the 2023 planning process, right? So I want to be a little careful about getting too far ahead of our skis.

So we wanted to provide some sense of what we were seeing and what we were seeing for 2023, but our plan for the year is not done.

In terms of the investments, we're actively going through a process that is evaluating, what investments do we want to accelerate, what investments do we want to decelerate, so that we are actively going through that process.

In terms of the strategic approach between a point-of-growth and a point-of-margin, I would say that, we're still viewing ourselves as a growth company, pursuing this $100 billion opportunity. So if it was a pure 100% one-for-one trade, I would take the point-of-growth versus the point-of-margin.

As you know obviously, in businesses, it's not quite that linear to each other. But we're still focusing on growth.

Having said that, we're cognizant of the macro environment where -- and as we said from the very beginning when we were going down the IPO path we still want to be a growth at a reasonable price model overall so we're not trying to turn the whole company upside down.

So we continue to focus on EBITDA as an important metric, but taking growth over EBITDA as a choice.

Frank, anyway do you want to add?.

Yeah, I agree, with that Gleb. And Ittai the only thing I would say is that, we look at all of our investments individually and we have accelerated some of those investments and we've moderated others because we are looking at what is that return overall.

And even in those that we've moderated we're still evaluating and we might continue to accelerate those later. So remember, at the point in January when we started to invest from our IPO proceeds we stood up a lot of programs simultaneously and so we're kind of monitoring them all. And some of them we're very pleased with.

And some of them we need to give it more time or rethink them..

Very good. All right. Good luck guys. Thanks..

Thank you, Ittai..

Our next question will come from Erik Suppiger with JMP Securities. Please go ahead..

Yeah. Thanks for taking my question. First off, can you give us a sense of the hiring plans how they -- at the beginning of the year, I think you were looking to add 180? You dialed that back some.

Can you give us any sense of where you would expect headcount to come out as we exit the year?.

Yeah and this was asked in the prior quarter also and it hasn't changed. Our hiring plans right now are between 70% and 80% of our original hiring plans. It's due partially -- it's due to two things.

One is the calibration of some of our investments where we decided that hey we should see that they have a better return than we -- than just adding at this point. Some of them were due to difficulties in the market of finding the best people. So that always calibrates us a little bit.

And some of it is from efficiencies that we've garnered where we didn't need as many people as we originally thought to execute some programs..

Okay.

And then can you discuss channel partners that you're working with? Maybe how many partners you're working with now or how many you're planning to have partnerships with by the end of the year?.

Yes. Thanks Erik, this is Gleb. So, as you know we have a number of different types of partners. We have technology partners. And within the technology partners, we have alliance partners and developer partners. We also have MSPs and affiliates. What we're really standing up now and kind of announcing is the channel partner side of that.

The core focus has recently been on getting these large national resellers and distributors stood up and several of them are now stood up and selling Backblaze B2 Reserve, which we're very excited about. There's a follow-on program to get more of the smaller channel partners and those obviously we would need more of.

But the first step for us was getting these major national ones stood up. So, we're excited by that because each one of those have obviously many salespeople and it's a force multiplier for our sales team as they go out and talk to all of their customers. .

Very good. Thank you..

Our next question will come from Bruce Goldfarb with Lake Street Capital Markets. Please go ahead..

Hey Gelb, Frank, congratulations on the great results and thanks for taking my call -- taking my questions. Any change or any timeline or goal for reaching adjusted EBITDA breakeven? Has that changed, or is that….

Well, we haven't set a specific goal for that. But I know you took note of the fact that our adjusted EBITDA has improved greatly. And it's our minus 8% in this quarter was the best that we've had since the early days of going public.

So we're on a good trend for that and we are calibrating our spend and our OpEx and so on and looking at the different investments so that we don't as Gleb said get ahead of our skis in our investment. So, we're still doing that. I think we've been good stewards of it. You've seen us go from a minus 15% this year in quarter one to a minus 8%.

So, I think we've been making good progress there..

Okay.

And then it sounds like you're tempering some of your spend just because are you actually seeing the weakness in the installed base in either for small or midsized companies, or are you just kind of anticipating lower demand?.

So, just to comment a little bit. The data growth in our B2 customers has been good so it's not due to something like that. What we're saying is that in some of our investments, they haven't done as well as we had hoped. So that has calibrated us to spend less in those programs.

We are spending more in other programs just not one for one on the dollars because those other programs are doing well. So, that's really what we're trying to say. And overall, it's causing an expense -- the rate of expense growth is moderating. .

And Bruce I appreciate the question. And maybe just to add one tiny bit of color too is that some of what you've heard us talk about in terms of B2 Reserve and the partner program and acquiring investments and accelerating some of those efforts are because we're excited about those opportunities and seeing those. Same with the developer efforts.

So, like Frank said some of the programs are performing very well. Some of them we need more time where we need to optimize them better. There's some tradeoff there. But we are -- some of the reason we highlight B2 Reserve and the partner program and the developer efforts are because we're excited about those..

Great. Thank you. That’s all my questions and congratulations on great results..

Thank you..

Thank you..

Our next question will come from Zach Cummins with B. Riley Securities. Please go ahead..

Hi good afternoon. Thanks for taking my questions and congrats on the solid results. I guess just building upon some of your initiatives that have had success.

I mean can you talk about the ways that you can try to further accelerate some of the momentum that you've seen with your developer customer base?.

Sure. Thanks for the question Zach, so I think last quarter we talked about Big Cartel as an example customer case study which -- where they started off in Amazon. Then they added Backblaze B2.

They kept Amazon as a backup but they made us the primary and that enabled them to double their durability and availability and then decrease their bill by half.

In a market where customers are increasingly being concerned about the macroeconomic environment, there are more companies looking for ways to continue to maintain high quality of their offerings while reducing costs. So, we believe that that is an opportunity for us.

We've stood up a developer evangelism team and that team has been very active as we mentioned a little bit in the script, but they've also been publishing blog posts. There are many interesting ways in which developers can leverage Backblaze B2 that they're highlighting and demonstrating on our blog.

And so they're -- from a ground-up perspective they're building up the awareness base amongst developers of the offering and giving them additional tools to enable them to use Backblaze B2. We've also stood up a technical documentation team, so making the API documents for developers more robust.

And then -- and that's on the kind of the bottoms-up side of it from developers and then there's a top-down side of it, reaching out to the CEO, the VPs, the CTOs, who also often bring in Backblaze B2 based on the affordability impacts for those companies.

And so we have programs that the sales team and the marketing teams are working on those as well..

Understood. That's helpful. And then just one final question from me. Just curious with the current environment and many of these companies are looking for ways to extract savings. Have you seen any pickup in inbound interest for companies that are looking for lower-cost data storage? Just curious, if any of those dynamics have changed..

Yes. I mean, we continue to see that as an important consideration, both in terms of the low costs and also the predictability of those costs.

And the two examples that I highlighted for customers on -- in the prepared remarks, they chose Backblaze B2 for a number of reasons, including performance and compatibility with their offerings and the ability to access it from a cloud as opposed to having it be on-prem et cetera.

But certainly affordability played into those conversations and those perspectives and the predictability of the pricing also did as well..

Got it. Well, thanks for taking my questions, and best of luck with the rest of the year..

Thank you..

Great. Thanks for all those great questions from the sell-side analyst community. I would now like to read questions that come from investors that were submitted on the Say platform.

I want to thank those investors that submitted questions and while a handful look like they have already been answered, we want to address some of the more popular ones right now. The first one is for Gleb.

Are there any current large contracts in the works or expected future customers that would be a boost to long-term profitability?.

Thanks Jim. And first I wanted to thank you to the investors, many of whom I know are customers and so many of the questions I imagine as in the past have been for people who are very familiar with the content we publish on our blog or the products that we offer.

And so thank you for staying actively engaged with this and for asking those questions and looking forward to talking through those. So as far as current large contracts. So, we typically don't comment on specific customers or pipeline in part, because we're focused on the broad base of the midmarket customers.

As we highlighted during the IPO, we have been investing in scaling up our sales efforts, in part that's to support our strategy of pursuing those larger-sized companies in the midmarket. A statistic that we mentioned previously is that our sales-assisted deals have historically been 20 times larger than our self-serve ones.

With that, we're actively pursuing larger contracts and moving up within the midmarket and we're increasingly looking to sign longer-term agreements with larger purchase orders. B2 Reserve, which I've certainly highlighted a few times, is an example of one way that we're doing that as all B2 Reserve contracts are effectively committed contracts..

Another one is for Gleb.

What is the short-term two to three-year plan and long-term four to eight-year plan to increase revenue?.

So, our short- and long-term plan is similar and our company and revenue continues to grow nicely. So our plan is to continue to execute that path we set out during our IPO which is to pursue our mission of making it astonishingly easy for customers to store, protect and use data.

And we believe that we can become a much larger company by addressing the very large $100 billion Storage-as-a-Service market, while focusing on middle-market companies, who seek that easier, more affordable solution from trusted suppliers..

The next one is for Frank.

When are you going to start paying dividends?.

Thank you, Jim. Given our significant growth opportunities in our core markets, we believe the best use of our cash is to invest in that growth. So therefore, we have no near-term intentions of paying dividends..

This one is for Gleb.

Where's the company headed?.

Thanks for the question and I guess it's a little bit similar to the question just above about the two to three-year and four to eight-year plan. But I'll say that, we continue to be focused on that midmarket. And as is clear from the growth of the company over time, we continue to serve those customers well.

We intend to continue adding midmarket customers. We intend to continue expanding our Storage Cloud platform and the cloud services for those customers and we continue to focus on pursuing that $100 billion Storage-as-a-Service market..

Over to Gleb.

What percentage of new B2 customers are switched from other service providers like AWS, instead of adopting cloud backup for the first time? Do you expect that percentage to change drastically in the next two years?.

It's an interesting question, and we don't have statistics that I can share with you today. We'll ponder whether there's a way to share that in the future. What I will say is that, if you look at the two example customers that I mentioned in our prepared remarks earlier on the call, one of those, urlscan.io was an existing cloud storage user.

And the other Fiture was an existing on-premise company. The -- in both cases, they considered options. And one switched from another competing cloud storage vendor to Backblaze B2 and the other one added Backblaze B2 to their on-premise to provide a cloud storage offering.

So, we don't have a reason to say that we expect a drastic change in the percentage split. What we do know is that, those have been and continue to be a large opportunity for us.

So much of the world's data is still on-premises and so many of the customers that are inside of AWS and others are also realizing that the expense, the complexity and the lock-in from being able to use their data outside of those providers is limiting their businesses.

So we see both movement from on-premise to cloud and movement from other cloud providers as good opportunities for us..

Gleb, what influencers are you working with over the next year to grow the service?.

So as far as influencers, we have an evangelism team dedicated to promoting our services amongst developers. We're also aggressively pursuing the channel partner program opportunities that I mentioned, which is a form of influencer for us to increase the reach of our sales force.

The other big path for influencers that we view is our overall customer base and our blog reader community. With over 0.5 million customers and over three million blog readers they in many ways are the key influencers that help spread the message of how Backblaze can provide other customers with value and help them succeed.

And so we continue to aim to provide them a great experience, so that they continue to share that message..

There's a few more in print.

How is Backblaze preparing for these next Fed rate hikes?.

What we do is we pre-negotiate our leases and line of credit term for our equipment financing. And then on our investment side, we keep our investments short-term so that we can take advantage of higher yields..

Gleb, do you plan on establishing another data center location in the Midwest Central or Eastern US?.

So we're not going to preannounce new locations. But certainly data center footprint expansion is something we continually evaluate. And one thing I will say is that you should stay tuned for a pretty near-term announcement in this space..

Just a couple more.

Frank, how are you handling the current business environment? And are you making adjustments or staying the course?.

We've talked about this a little bit, but the overall message here is we still see the opportunity in front of us as being enormous. And we also remain an excellent value for many, many companies to reduce their spend in storage and we are a trusted service provider so they can rely on us.

And then the other one that we've talked about a little bit is we are metering those investments based on the returns that we expect matching to the anticipated revenue growth and looking at that overall economic environment..

Okay. One more. Are there any plans to bring back the Backblaze storage pod breakdown/builds? In the early days those seemed to attract attention from the DevOps engineers and ultimately market Backblaze in their enterprises..

So this is definitely from someone who's been a longtime reader of our blog and I appreciate the question. So for those not played us more, our blog has about three million readers and it's something that is an important part of building community and building awareness for Backblaze.

And one of the ways that we have done that and the reason we have such a strong leadership is we've published a lot of interesting valuable technical content in the storage space.

One of the first things that we did on that blog, almost 15 years ago was we published how we designed and built our own storage server called the Backblaze Storage Pod and we shared the intricate details behind the breakdown of that server design. And we continue to periodically update on our blog information about that.

The -- on that specific one, we've published it multiple times different versions of a different breakdown piece et cetera and we recently published a detailed announcement about our strategy that -- of moving away from that core storage server to our new storage platform using third-party components, third-party servers.

And that strategy is actually something that we had outlined years and years ago when we originally open-sourced our first storage pod hoping that us open-sourcing the storage pod would enable the industry to provide hardware that was easy to use and inexpensive for software companies like us to leverage.

And that has materialized and we've been able to take advantage of that in our go-forward hardware. So we don't have new storage pod breakdowns to share on the blog so much beyond that, because we don't design and build those anymore.

But we do continue to invest in and share a lot of interesting content on our blog including hard-drive reliability statistics and many other detailed components. So we certainly continue to invest in that.

We certainly continue to share a lot of interesting content and we've had a significant growth in some of the leadership of some of those more recent blog posts. So do read the blog. Do stay tuned. There's more interesting content there coming soon..

Thanks, Gleb, and thanks both of you for those answers. Before handing back to Gleb, I'd just like to mention that we'll be attending the Investor Summit Conference virtually on November 15th and we will also be attending the Raymond James Conference in New York City on December 7th.

In addition I'd like to also mention a couple of elements on the Investor Relations front. In late February we launched the stock purchase program to reward our shareholders with branded products and discounts. We are pleased to see that we had a strong participation in the program with hundreds of shareholders redeeming awards.

Last week we also launched our video blog called Stocks & Storage to provide an educational resource for each of our investors on financial and technology topics. Each video is just a few minutes. It's very lighthearted and we're looking forward to all of your feedback and content recommendations.

You can find our first episode on the Backblaze YouTube channel. I'll now turn the call back to Gleb for closing comments.

Thanks Jim and thank you all for your interest and for listening in to our update. We look forward to talking with you again in February. Operator, we're now ready to end the call..

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