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Date

Monday, Feb. 23, 2026 at 5 p.m. ET

Call participants

  • Co-Founder, Chief Executive Officer, and Chairperson of the Board — Gleb Budman
  • Chief Financial Officer — Marc Suidan
  • Investor Relations — Mimi Kong

Takeaways

  • Total revenue -- $37.8 million, in line with previously issued guidance.
  • Q4 B2 cloud storage revenue growth -- 24% year over year, up from 22% in the prior year, representing record bookings but modestly below prior guidance.
  • B2 net revenue retention (NRR) -- 111% in-quarter, declining sequentially from 116% due to variability from a single large customer.
  • RPO (remaining performance obligations) -- $66 million, up 60% year over year, materially impacted by the new eight-figure deal.
  • Largest contract to date -- Signed an eight-figure B2 Neo Cloud deal valued at over $15 million total contract value with a two-year duration; revenue contribution expected to begin in 2027.
  • Adjusted EBITDA margin -- 28%, doubling year over year, positively influenced by nonrecurring items but still exceeding guidance excluding those effects.
  • Q4 adjusted free cash flow -- $4 million or 11% margin, achieving the company’s first positive quarter as a public company.
  • Gross margin -- 62%, flat sequentially and up from 55% in the prior year; adjusted gross margin at 80%, up from 78%.
  • Full-year company revenue growth -- 14% year over year; B2 segment specifically grew 26%.
  • Large customer cohort -- Ended the year with 168 customers generating more than $50,000 in ARR each, a 35% increase, with their total ARR up 73% to $26 million.
  • 2026 revenue guidance -- Projected range of $156.5 million to $158.5 million; Q1 guidance at $37.6 million to $38.0 million.
  • B2 2026 growth outlook -- Expected year-over-year segment growth of approximately 20%, with Q2 and Q3 forecasted between 12% and 19% due to the prior year’s variable customer comparison.
  • Adjusted EBITDA margin guidance -- Anticipated 21% for 2026; Q1 guidance set at 18%-20%.
  • 2026 adjusted free cash flow -- Expected to be roughly neutral, with acknowledged quarterly variability.
  • Computer backup segment outlook -- Projected to decline 5% in 2026; Q1 forecast indicates a decline of approximately 3% building through the year.
  • Gross margin outlook -- Management anticipates "some pressure on gross margins driven by increased costs," with a mitigation initiative underway focused on pricing, packaging, and infrastructure.
  • Leadership and GTM (go-to-market) transformation -- Hires included a strategic transformation leader, head of Flamethrower program, and multiple sales and product executives; a go-to-market advisory committee was formed with external operators from notable cloud businesses.
  • Flamethrower startup program -- Launched to target high-growth startups as future large customers; already accepted applicants from Andreessen Horowitz and Y Combinator portfolios.
  • AI customer base growth -- Number of AI-focused customers grew 75%, with these customers expanding their usage about three times faster than the average customer.
  • B2 Neo launched -- Introduced as a high-performance, white-label storage solution for Neo Cloud customers; initial adoption includes several six-, seven-, and eight-figure deals.
  • Capital position -- Ended Q4 with $51 million in cash and marketable securities; management does not anticipate the need to raise additional capital under current plans.
  • CapEx financing -- Capital expenditures for 2026 expected to increase to a high-twenties percentage of revenue, primarily financed through capital leases with principal payments representing a mid-teens percentage of revenue.
  • Guidance practices -- Management is "derisking outlook by excluding large swing deals" and "anchoring guidance on opportunities with more predictable demand characteristics."
  • Compensation structure changes -- Shift toward performance-based stock units tied to defined performance objectives to further align management and shareholder incentives.

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Risks

  • Marc Suidan stated, "data center cost and equipment have gone up," leading management to anticipate gross margin will decline "by a few hundred basis points" in 2026, with a gross margin optimization initiative underway to mitigate this impact.
  • Adjusted free cash flow is projected to be neutral in 2026, as higher capital expenditures are required to support large new customer deployments, delaying further positive free cash flow contributions.
  • The computer backup business is forecast to decline 5% in 2026, with no near-term evidence that stabilization programs will reverse that trend.
  • Management noted that "larger customer wins and usage-driven workloads can introduce variability in timing and revenue recognition," creating forecast uncertainty for both B2 and consolidated results.

Summary

Backblaze (BLZE +0.40%) reported record quarterly bookings, highlighted by an eight-figure B2 Neo Cloud contract exceeding $15 million in total contract value, but management does not expect material revenue from this deal until 2027. The company achieved its first ever positive adjusted free cash flow quarter and posted improved profitability, with adjusted EBITDA margin reaching 28%. Leadership signaled a strategic shift in guidance methodology, excluding unpredictable large deals and basing projections on contractual minimums to support greater forecast reliability. Backblaze launched B2 Neo for Neo Cloud customers and introduced the Flamethrower startup program, directly targeting early-stage AI-native companies. New performance-based compensation initiatives were implemented to better align management incentives with shareholder value.

  • Management emphasized the capital-efficient business model, with a stated intent to fund ongoing growth through operating cash flows and capital leases, minimizing the need for external financing.
  • Pipeline value doubled over the past year to about $30 million, with an explicit goal to roughly double this again as go-to-market transformation efforts mature.
  • AI-focused customers not only increased by 75% but also showed expansion rates substantially above the base average, serving as a leading indicator for future net revenue retention strength.
  • For the computer backup segment, management projected a gradual decline and emphasized that recently launched stabilization programs have not yet demonstrated sufficient impact to alter the medium-term outlook.

Industry glossary

  • B2: Backblaze's cloud storage offering that provides scalable, cost-effective infrastructure for storing and accessing data.
  • Neo Cloud: Independent AI and HPC-focused cloud providers that offer GPU-as-a-Service, representing a major emerging storage market for Backblaze.
  • B2 Neo: A high-performance, white-label storage solution designed specifically for Neo Clouds, enabling integration into their platforms.
  • Flamethrower: Backblaze's startup engagement program, providing early-stage companies with infrastructure credits and onboarding to capture future ARR growth.
  • ARR: Annual recurring revenue, a key metric for tracking contracted and subscription-based revenue streams.
  • RPO: Remaining performance obligations, indicating contracted revenue yet to be recognized.
  • Adjusted EBITDA: Earnings before interest, taxes, depreciation, and amortization, excluding one-time or non-cash adjustments.
  • NRR: Net revenue retention, measuring recurring revenue expansion or contraction from the existing customer base, after churns and upsells.
  • Adjusted free cash flow: Cash provided by operations minus capital expenditures, excluding certain adjustments as defined in the company’s financial presentation.

Full Conference Call Transcript

Operator: Please stand by.

Operator: Good day, everyone. Welcome to Backblaze, Inc. Fourth Quarter and Full Year 2025 Earnings Call. Just a reminder, this call is being recorded. I would now like to hand the call over to Mimi Kong. Please go ahead. Thank you. Good morning, and welcome to Backblaze, Inc.’s Fourth Quarter and Full Year 2025 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, Backblaze, Inc. 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 go-to-market transformation, sales and marketing initiatives, cost savings initiatives, results from new features, the impact of price changes, our ability to compete effectively and manage our growth, and our strategy to acquire new customers, 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 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. Reconciliations 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. And finally, we will be participating in the Citizens Technology Conference on March 2 in San Francisco. Thank you for joining us, and I would now like to turn the call over to Gleb.

Gleb Budman: Thank you, Mimi, and welcome everyone to the call. We finished 2025 with solid fourth quarter results. Revenue came in line with guidance, adjusted EBITDA margin reached 28%, doubling over the prior year. We also delivered adjusted free cash flow profitability for the first time as a public company. A major milestone demonstrating the inherent operating leverage in our business model. For the full year, total company revenue grew 14% year over year with B2 cloud storage growing 26%. Today, I want to focus on three things. First, the strength and durability of our core business. Second, an update on the meaningful progress of our go-to-market transformation.

And third, how we are positioning Backblaze, Inc. to take advantage of the AI opportunity.

Let me start with the core of our business. As data creation accelerates exponentially, Backblaze, Inc. addresses a large and growing market where long-term demand for scalable, cost-effective storage compounds over time. Our business compounds within that market as we add new customers and retain them for an average of nine years. B2 net revenue retention of 111% reflects consistent expansion within our installed base, reinforcing durable, long-term growth. We have proven our ability to grow in that market, delivering an annualized growth rate of 21% since IPO. Being a cash-generating business is an important financial milestone.

Year over year, we meaningfully improved profitability, demonstrating how we are building a sustainably durable company, one that can invest in growth while maintaining financial strength.

Now let me talk about our investment in growth and the progress on our go-to-market transformation. While we did not achieve our budgeted Q4 B2 growth rate, we made meaningful progress and have positioned ourselves for success. More importantly, the underlying fundamentals of the business remain stable and the investments we have made position us for durable growth going forward. Excluding the highly variable growth of the large AI customer we have previously mentioned, we stabilized on a baseline of around 20% B2 revenue growth in each of the last five quarters. Now we have shared our goal of moving upmarket. We ended the year with 168 customers generating more than $50,000 in ARR each, up 35% year on year.

The ARR of this cohort increased 73% year on year to $26 million of ARR. We are very proud of this upmarket progress.

We have also launched three key initiatives. Number one, increasing awareness. We launched Flamethrower, our startup program designed to engage high-growth companies early and establish Backblaze, Inc. as their long-term storage infrastructure partner. Number two, driving greater pipeline consistency. We are upgrading our top-of-funnel systems and scaling demand generation programs to drive higher-velocity sales motion. Number three, expanding revenue within our installed base. We are implementing processes to proactively identify and capture additional share of wallet across our more than 119,000 B2 customers.

People are the cornerstone of our success, and we continue to strengthen our leadership bench to support these initiatives. We have already hired the cofounder of an edge compute company to drive our Flamethrower program, a business systems leader for our systems work, and a head of customer success to build out that expansion effort. We will keep up-leveling our leadership and talent. For instance, we are also in the final stages of hiring a sales development leader to drive pipeline, and a revenue operations leader to drive tighter coordination and accountability across the entire go-to-market organization. Scaling into this next phase requires even greater execution discipline. To support that, Elias Mendoza joined us as strategic transformation leader.

He previously served as partner and COO at private equity firm Cerus Capital, and held leadership roles at IBM and Morgan Stanley. In these roles, he has helped companies drive strong strategy to execution. Under his leadership, we also established a go-to-market advisory committee of operators who have scaled enterprise and platform businesses to a billion in revenue and beyond at companies such as Okta, Snowflake, ZoomInfo, and Carta. Their role is to bring pattern recognition, pressure test key decisions, and provide external perspective as we scale. We have made meaningful progress in our go-to-market transformation, and I am excited about the team we are putting in place to drive it forward.

Now let us talk about how we are positioning Backblaze, Inc. to take advantage of the massive AI opportunity ahead. We all understand there is a lot happening in AI today, but sometimes the scale is still hard to fully comprehend. I saw a report recently that capital spending on AI as a percent of GDP by just the hyperscalers in 2026 is forecast to be five times larger than the entire spend to create the U.S. interstate system, 10 times larger than the Apollo space program. AI CapEx spending accounted for 92% of all U.S. GDP growth. It is hard to hyperbolize AI. With AI, a big focus is who is disrupting and who is getting disrupted.

We believe Backblaze, Inc. is one of the disruptors, participating in this infrastructure replatforming as a storage backbone for the next wave of cloud infrastructure. So while, like any major new innovation, there will be market volatility, we are firm believers in the long-term growth opportunity and are leaning into it.

We are doing that with two growth vectors. Number one, on the supply side of AI. Neo Clouds and other AI tooling companies are building the platforms for AI workflows. Our opportunity is to be the storage backbone of those platforms. And number two, on the demand side of AI, companies are using AI to build everything from anomaly detection to zonal forecasting. These companies are using and generating large datasets. Our opportunity is to be the storage of choice for their developers and use cases. And we are uniquely positioned to be the glue between these, creating a virtuous cycle.

Developing a platform that can deliver massive performance with large-scale datasets while providing that cost efficiently is a significant technical challenge. Backblaze, Inc. has done that, and AI is driving an increasing need for this technology.

On the supply side, roughly 200 have sprung up, and industry estimates project that market to reach $237 billion within the next five years. These companies provide GPUs as a service, and most will need cloud storage to fully service their customers. We have already signed multiple of these multibillion-dollar Neo Clouds with not only six- and seven-figure deals, but our company’s first eight-figure TCV deal—an over $15 million deal—and we believe all of these have material upside potential, and we are in discussions with more than half a dozen others. By our estimates, Neo Cloud storage for our solution alone represents a $14 billion opportunity by 2030.

To further pursue our Neo Cloud opportunity, this morning, we launched B2 Neo, a high-performance, white-label storage offering specifically designed for Neo Clouds. Developed in collaboration with our Neo Cloud customers, B2 Neo allows Neo Clouds to offer a top-tier storage solution without the massive capital cost or years of engineering required to build a storage backend from scratch.

On the demand side, the growth in AI developers is exponential. GitHub disclosed they were adding on average a new developer every second. Hundreds of AI companies and countless individual AI developers already use B2. For example, one of our customers uses AI to generate audio. They just launched a year ago and already have multiple petabytes with us, signing a six-figure annual deal with us. As they add new users, and those users generate more audio, that data grows exponentially. Our self-serve platform, where we added 12,000 customers this year alone, is a great enabler for this class of AI developers who just want to get going.

We launched our startup program called Flamethrower, a developer relations initiative to ensure developers are building with Backblaze, Inc. To drive our roadmap forward for the AI opportunity ahead, we strengthened our product and engineering leadership. Dan Spraggins joined as SVP of Engineering and Rhett Dillingham as SVP of Product, bringing deep experience in AI and high-performance cloud infrastructure. We also added Rust Arts, cofounder and former head of R&D at Computer Associates, as an adviser. Together, this team strengthens our ability to scale the platform for larger, more complex, AI-driven deployments.

We enter 2026 with a strong and growing business, a rapidly improving go-to-market motion, and a tremendous AI opportunity with a targeted B2 Neo offering and a strong product team. AI is reshaping how data is created and scaled, and storage sits at the center of that transformation. Across Neo Cloud platforms and AI-native developers, we are building the foundation for the next generation of data infrastructure. Durable growth and massive AI potential are the hallmarks of our opportunity. I will now turn the call over to Marc for the financial results. Marc?

Marc Suidan: Thank you, Gleb, and good afternoon, everyone. We grew revenue while achieving adjusted free cash flow profitability in Q4. This is a significant milestone and an important step forward in our profitability journey. This progress was not driven by short-term cost actions, but by the inherent leverage in our operating model as revenue scales. For the quarter, total revenue was in line with guidance, at $37.8 million, and adjusted EBITDA exceeded the high end of our guidance by approximately 600 basis points.

In the fourth quarter, B2 revenue grew 24% year over year, up from 22% in the prior year. This is modestly below the range that we outlined last quarter. We delivered record bookings this quarter. As Gleb noted, we closed our largest contract in the company’s history with over $15 million in total contract value. We are excited about this eight-figure deal. This deal validates the product-market fit at scale. We do not expect to see meaningful revenue in 2026, as we complete certain development work. In 2027, we expect this customer to contribute over 300 basis points to B2 revenue growth. This customer helped drive our RPO up 60% year over year to $66 million.

In-quarter B2 NRR was 111% compared to 116% in the prior quarter. The sequential decline reflects variability from the large customer that we mentioned in our past two earnings calls. Factoring out that one customer, the underlying retention and expansion trends remain stable.

Moving to the income statement. Q4 gross margin was 62%, flat sequentially and up from 55% in the same period last year. Adjusted gross margin was 80%, compared to 78% last year. Margins remained stable despite higher data center costs, reflecting continued efficiency in our infrastructure and disciplined management of our operating model. Looking ahead, we anticipate some pressure on gross margins driven by increased costs. In response, we are proactively launching a gross margin optimization initiative focused on structural improvements across pricing, packaging, and infrastructure. Our Q4 adjusted EBITDA margin was 28%, doubling year over year. The adjusted EBITDA outperformance was primarily driven by nonrecurring items, including variable compensation alignment and office restructuring savings.

Excluding those one-time items, adjusted EBITDA would still have been above the 22% high end of our guidance.

Adjusted free cash flow was positive $4 million in the quarter, representing a margin of 11%, exceeding our outlook of being adjusted free cash flow neutral. We ended the quarter with $51 million in cash and marketable securities. Based on our current operating plan, we expect to fund our growth through operating cash flows and capital leases. We do not anticipate a need to raise additional capital. We will continue to evaluate opportunities to optimize capital structure over time in a disciplined manner. To improve accountability and further align management incentives with shareholders, we are shifting part of the compensation to performance-based stock units. These awards are tied to clearly defined performance objectives.

Turning to our guidance for the year. Our objective is to provide a clear and credible baseline that reflects the most predictable portions of our business. While pipeline activity remains healthy, larger customer wins and usage-driven workloads can introduce variability in timing and revenue recognition. To maintain forecast discipline, we have derisked our outlook by excluding large swing deals and anchoring guidance on opportunities with more predictable demand characteristics. For customers with high variable usage patterns, our assumptions reflect contractual minimum commitments rather than potential upside consumption. Our outlook is therefore based on continued expansion within our existing customer base and steady adoption of B2 across core use cases consistent with recent operating trends.

We believe this approach provides a prudent and reliable foundation for the year while preserving upside as deployment timing and usage visibility improve.

For the Q1 2026, we expect revenue to be in the range of $37.6 million to $38.0 million with adjusted EBITDA margins in the range of 18% to 20%. For the full year, we expect revenue to be in the range of $156.5 million to $158.5 million. Full-year adjusted EBITDA margins are expected to be 21%. We expect adjusted free cash flows to be roughly neutral for the year with normal quarterly variability. Due to the difficult comp from last year’s large variable customer, we expect B2 year-over-year growth in Q2 and Q3 to be in the range of 12% to 19%, and approximately 20% for the full year.

To wrap up, over the past year, we made meaningful progress towards becoming a Rule of 40 company, with our combined B2 revenue growth and free cash flow margin improving from 9 to 35. As we look toward 2027 and beyond, we believe Backblaze, Inc. is well positioned to grow efficiently. Our platform is already built, our infrastructure scales with discipline, and incremental revenue increasingly translates into profitability and cash generation. This capital-efficient model allows us to pursue the massive AI-driven opportunity ahead while maintaining financial discipline, expanding margins over time, and building a durable self-funding business. With that, operator, let us open it up for questions.

Operator: Thank you, sir. And, everyone, if you would like to ask a question, please press star one. Again, that is star one if you have a question today. We will take the first question from Ittai Kidron from Oppenheimer. Hey guys.

Ittai Kidron: Solid numbers, and thank you very much for derisking the outlook for the year. It is hopefully a very smart move. Gleb, I wanted to dig, of course, into the Neo Clouds and the large deal. First of all, just from a big picture standpoint, are demand patterns any different? Can you explain how your B2 Neo Cloud solution, how is it different than B2? In what way are the demands different, the pricing different, the margin different, and if you could elaborate also why this deal is going to take a year before we start seeing revenue, I would appreciate that.

Gleb Budman: Yeah. Thanks, Ittai. All good questions. So one thing I will say first of all is our pursuit of the Neo Clouds is one part of the business pursuit. There are about 200 of these Neo Clouds. We do think it is a large and important opportunity for us. Right? Just our part of the Neo Cloud opportunity, we view as about $14 billion, so it is important. And we are really well suited for it. The hyperscalers are not the key competitors here because they are competing with the Neo Clouds as opposed to being vendors for them, the way that we are. So it is a good opportunity which we are well positioned for.

In terms of what B2 Neo is, it is a white-label offering. So B2 is generally sold directly to the end customer. B2 Neo is a white-label offering that they can build directly into their service. It provides a lot of the same functionality that B2 provides. It is high performance, it is low cost, it is durable, it is scalable. But it also provides them the ability to manage that storage on behalf of their customers through APIs, with API integration, single sign-on, etc.

So it is really leveraging all of the technology that we have built over the last seventeen or so years for the company and then layering on top of that technology to make it simpler for them to integrate natively and make it easy for them to manage and offer that storage offering. So that is what B2 Neo is. Now in terms of why it is going to take a year for this one Neo Cloud provider to start seeing the benefits of it, it is a combination of work we need to do and work they need to do.

So they have an existing storage offering that they are going to be switching to use B2 Neo instead, and so we have some work to do to make it so that it is even easier and more robust to automate and natively integrate for them. One thing I would like to make clear is the work that we are doing for them is useful for other Neo Cloud providers and also other companies, but not required for most. So we have multiple Neo Clouds that have already signed up that do not need this work, and we think that there is a large number of them that will not need any of this work.

But the work that we are doing is broadly useful for others as well.

Ittai Kidron: Okay. Appreciate it. And then I guess, first of all, the TCV $15 million, that is great, but can you tell us the duration of the contract? And is the margin profile of this business, as you ramp up the Neo Clouds, Gleb, is there a potential upfront cost hit to you as they ramp before margin normalizes on these businesses?

Marc Suidan: Yeah. I mean, hi, Ittai. Hi. This is Marc. I could take that question. We do have to accelerate some capital expenditures that would impact that, and other things happening in the market would impact our gross margin by a few hundred basis points. Help us prepare for this because it is obviously a large deal. We need to have the capacity in place.

Ittai Kidron: Okay. And then lastly, on Computer Backup, Marc, can you comment on the expectation? I mean, this business is, you know, the number of customers is now declining here. I guess help me think about a framework for this business for 2026. How should I think about the quarterly cadence and the annual cadence of this business? Is there a different long-term outlook for this?

Marc Suidan: Yeah. I mean, I will start off by the coming year, Ittai. We see this business declining 5% year over year. Currently, in Q1, that is more like a minus 3% that builds up throughout the year and averages out for the end of the year at a minus 5%.

Ittai Kidron: Okay. And longer term, should we just continue to expect this business to slowly decline?

Gleb Budman: What I would say, Ittai, on that one is we have programs that we have put in place and are putting in place to stabilize the business. We would like to get it to a place where it is flat and possibly even slowly growing. We do not think this is a fast growth business, as you know, but it would be good for it to not be a declining business. But it is a little too early for us to have confidence in those programs getting to that place. So at this point, we are estimating it at that shrinking rate, but we are putting effort into getting that to be flat to slightly growing.

Ittai Kidron: Appreciate it. Thank you.

Operator: The next question will come from Jeff Van Rhee from Craig-Hallum Capital Group.

Jeff Van Rhee: Great. Thanks for taking the questions, and congrats on the free cash flow. Great to see it. A couple for me. Maybe if you could just start in terms of B2, coming into Q4 came in a bit below expectations. Just expand a bit more on what missed there. And then, as you are looking at the annual number, I did not catch what you had guided for in Q1. So if you could just fill in the gap, I think we can back into it, but maybe you could just share it. So what happened in Q4, and what do you think in Q1?

Marc Suidan: Yeah. Hi. Hi, Jeff. Good to hear from you. This is Marc. So on Q4 2025, we were expecting, when we set our guide, a few deals to close in November. They came in very late in the quarter, so they did not benefit Q4. That is why we have adjusted our guidance philosophy going forward where we said going forward we are going to factor out the swing deals because they are less predictable in timing of closing. So that feeds into the guide going forward. And we said for B2 year over year, it will be 20% in 2026.

The ranges that we provided of 12% to 19%, a lot of that has to do with the comps of that high variable customer in 2025. So Q2 would be the low end of that range, and Q3 would be about the higher end of that range. And, overall, the year would average up to 20%. Does that answer your question?

Jeff Van Rhee: Yeah. I think it does. And so the growth is, I do the quick math, maybe in Q1 looks like it is 9% year over year if I have it right, and you are decelerating to 8% for the overall year. So it actually looks like maybe you are assuming some deceleration in the year. I am sure there is a little bit of lumpiness from the large customer, but generally speaking, you had some pretty good momentum in sort of phase one of the sales build and build out. And it sounded like you felt like you had some early good signs on phase two, but the numbers are painting a picture of deceleration.

So just help me reconcile the two.

Marc Suidan: Yeah. I mean, the deceleration that you are seeing is largely driven by that one monthly customer. If you go to slide 21 of our earnings deck, and you factor out that one customer, you could see that it pretty much we have been stable around the low twenties. So if you recall, factoring on a price increase, B2 growth rate has always been growing but decelerating for five years. We have managed to stabilize it in the low twenties. So now with this new guidance philosophy, we are seeing 20% year over year, and that includes, you know, the lumpiness that I mentioned in Q2 and Q3.

But then with all the phase two changes we are doing, Gleb could elaborate on that. That will then afterwards come drive benefits. I think also, Jeff, I think you were talking about the whole company, not just B2. Right? And so part of what is driving that is that Computer Backup was growing in part due to the price increase before, and it is, as Marc said, we expect it to shrink about 3%. So it is putting some downward pressure on the overall company in Q1.

But on the GTM transformation, I think some of the things that we look at is, you know, in terms of progress, there is progress that we are making in terms of actions, things like we have hired the VP of Revenue Operations. We have made material progress in moving the systems forward and expect that work to be largely completed at the end of this quarter. We have gotten, you know, pretty far down the path with some sales development leaders to bring in. You know, we have made a number of kind of improvements, and then you can also see some of the outcomes like the 73% growth in ARR from customers over $50,000 and this eight-figure deal.

So I think we have made progress on the GTM side. Obviously, we all want more work to be done there.

Jeff Van Rhee: Mhmm. Great. Maybe just one last one if I could. On the large Neo Cloud win, can you just expand a bit on what the competitive landscape looked like there? Maybe the finalists, the kind of the two or three that it came down to at the end of the day, and if there were specific features, capabilities that were the deciding factors for your win there?

Gleb Budman: Yeah. It is actually interesting because this Neo Cloud, they have their own storage. They started realizing from their customers that the storage that they had was not going to provide what they needed for this next phase of evolution. And so they started thinking about how to handle that. A number of their internal engineering and business leaders were actually familiar with Backblaze, Inc. from prior roles in other places, and they knew that Backblaze, Inc. had a really strong reputation for providing a great storage platform, that it was trusted. Basically, we built a moat around this idea of high performance but predictable economics and low-cost storage.

And so we were at the top of their list for consideration. Now when they went and evaluated, you know, they wanted to make sure because they were going to be basically placing their brand on the line for saying, you know, they are going to use us for this underlying platform for all of their customers. They wanted to make sure it absolutely worked. They did pretty detailed technical due diligence and then chose us. So, you know, the why, I think, came in part because we had established a lot of credibility over many years that we are a great storage platform, and then we met their technical requirements for both performance, scale, affordability, and openness.

Operator: Your next question today comes from Michael Cikos from Needham. Hey, great. Thanks for taking the questions here, guys.

Michael Cikos: If I could just come back to the gross margin comment and this expected headwind that we are up against, I guess it is a bit of a two-parter here, but when I think about the headwind we are facing this year, is that really tied to customer success initiatives or deployment in advance of recognizing revenue from this large Neo Cloud agreement that we are talking to today, or is there potentially an ongoing presence or multiyear factor we need to consider when evaluating corporate gross margins on a go-forward basis?

Marc Suidan: Yeah. Hey, Mike. It is Marc. There are a few factors in there. Right? First of all, data center cost and equipment have gone up. That combined with us needing to accelerate some CapEx does reduce our gross margin this coming year by a few hundred basis points. That is why we said we are doing that gross margin optimization initiative to look for opportunities to offset that. Now in terms of business model, when you go after a white-label large-scale solution like that, generally speaking, the gross margin will be a bit lower, and the OpEx will be lower as well because you have to spend less on sales and marketing.

So it is net-net the same economic model for us, but that is the P&L benefit, if that makes sense.

Michael Cikos: It does. It does. Thank you for that. And I just wanted to come back again to this derisk guide that we are talking to here. And appreciate the commentary in the prepared remarks. But just to better understand these swing factor deals or the idea that we are only going to underwrite minimum contract commitments from customers. But is that really tied to the Neo Clouds when thinking about those swing factor deals, or is it maybe the move upmarket? Anything else you can provide that is creating that dynamic? And then secondly, yeah. Go ahead. Go ahead, Marc. I just have a follow-up.

Marc Suidan: Okay. I will answer this one, and then you could ask your next question if you want. So moving upmarket, I mean, there are different sides of upmarket, but when you look at the average deal size of those 168 customers, it has grown quite a bit. But I think the even larger ones—and let us call larger ones $500,000 in ARR and greater—they do take longer to close. So there is less predictability for us to factor that into our guide. So that is why we factored them out. It does not mean they will not happen. It is just harder for us to guide on them. So I think it is less around the Neo Cloud.

I mean, the Neo Clouds are big deals too, and they have similar attributes, right, where you have to take longer to do the technical feasibility and make sure you win over the POCs. That is what is driving that side of it.

Michael Cikos: And then, I guess, the final follow-up on my side. But for those let us say, a million-plus deals that you are signing, can we start bifurcating the extent to which those sales cycles are longer versus your more typical run-rate business? And then, final piece, but for this calendar ’26 guide, is there any way you can give us some pointers as far as the NRR that you are thinking about when we look at this calendar ’26 guide? And that is all on my side. Thank you so much.

Gleb Budman: Hey, Mike. This is Gleb. In terms of bifurcating the size of the deals and the length of time, you know, when we look at those, they certainly are longer sales cycle ones, but it is interesting because they are not dramatically longer. So some deals, like the eight-figure deal that we talked about, that did take the better part of a year in part because they had to look through their own systems. They had to understand what it would take to switch out to a different system, what integration that would require, etc. A number of the other Neo Clouds did not take anywhere near that long.

And many of the other larger customers, especially ones that are $50,000, $100,000, up $200,000, actually moved quite quickly. But, certainly, some of the largest of those deals did take, you know, call it, some of them took six months or so to close, whereas we have seen a lot of the deals close in sub-90 days.

Marc Suidan: Yeah. And then I could jump in and discuss the NRR outlook. You know, due to the lumpiness of that large customer in 2025, we have factored out any usage above their minimum commitment level in our guide for 2026. So assuming that is what materializes, the NRR, just like the revenue growth rate for B2 and just like the overall growth rate of the company, will be lower in Q2 and Q3. And NRR could go down to closer to 100% for one or two quarters.

Michael Cikos: But our overall growth rate of 20%, which is where—

Marc Suidan: —we should be finishing the year over year overall, should equate to an NRR that is closer to 110%. So pretty much where we are now, plus or minus 300 basis points. Mike, one thing actually I will mention also on NRR that I think I find quite exciting, you know, we have a broad base of customers, but we are leaning in heavier to the overall AI customer type, not just the Neo Clouds. And we have hundreds of those customers that are using us for AI workflows specifically. We have seen a growth rate of 75% in the number of those AI customers.

But one of the things that I find even more exciting is that the growth rate of those customers is about three times faster than the growth rate of our average customer. So as we sign up more of these AI customers, we see the opportunity for NRR to go up over time as well because they are generating data at a faster rate than your average customer.

Michael Cikos: Thank you again.

Operator: Thanks, Mike. Up next, we will go to Jason Ader from William Blair.

Jason Ader: Thanks. Good afternoon, guys. Wanted to first ask about your comment, Gleb, that most Neo Clouds do not have storage. I think that is what you said. I just wanted to understand why that might be and then also your comment that the eight-figure win was with the Neo Cloud that did have storage, but the storage was not going to handle what they needed. Maybe just if you could elaborate on why it would not be able to handle what their customers needed.

Gleb Budman: Yeah. Thanks, Jason. Both good questions. So with these 200 Neo Clouds that have come up, they almost all started with GPUs. Right? So the need that happened was for these AI use cases, they needed the GPUs first. The second thing then that they need is they need a place to keep the data to feed these GPUs. So, initially, they stood up data centers. A lot of them stood up data centers that were more specifically designed for GPUs, which are very power hungry. Oftentimes, they want liquid-cooled environments. They do not need nearly the square footage in the data centers that they need. They need more power in the space, etc.

So they built these providers focused on the GPU opportunity. What they realized then is customers who want to use the GPUs need a place to keep the data—needed the place to keep their data to build the models, and then they need the place to keep the data when they are doing inferencing for the outputs. And so what some of them have done—many of them have not done anything on that front yet. They have just stood up the GPU side of things.

But what some of them have done is said, okay, well, we can do something, and some of them have used open-source projects to stand up their own infrastructure, or some of them have set up a storage infrastructure using flash systems. The problem is what they found is the flash systems are incredibly expensive to operate. And so for a large-scale dataset, that becomes very quickly unaffordable. The open-source tooling is difficult to manage. You have to have experts ongoingly working to tune and operate it, etc., and they are really not designed to scale to exabyte scale. Most of those open-source projects were designed for potentially handling a single enterprise’s scale.

And so once they start seeing some movements and success, they start reaching the limitations of those projects. So the opportunity for us is that there are these 200 providers. They have built out the GPUs. They are starting to realize that they need storage. They are not going to get that from the hyperscalers for the most part because those are their direct competitors. And the solutions that they have are either really expensive, really complicated, or do not scale.

Jason Ader: Gotcha. Okay. And then the Neo Cloud that you announced, or the one you talked about, the eight-figure one, can you say if that is a publicly traded company?

Gleb Budman: They are a publicly traded company. Yeah.

Jason Ader: Okay. Great. And then last one for me. What is your confidence level that you could win additional deals like the one that you announced on the call tonight?

Gleb Budman: I mean, I am very confident that we can do additional deals. The timing is obviously always uncertain, but this is not like this Neo Cloud is the only Neo Cloud that we have won. We have got others that are six figures and seven figures already. Those that we have already signed at six- and seven-figure deals, I think they themselves have the opportunity to become eight-figure deals because as they roll this out to more of their customers and more scale, they are big enough that they could become eight-figure deals for us themselves.

And we are currently in discussions with a half a dozen other Neo Cloud providers that are somewhere in this same scale of size of organizational opportunity. So timing is obviously a question for us. But our ability to be a good fit for these kind of customers and the discussions we are in give me a lot of confidence.

Jason Ader: And I may have missed it, but did you say what the duration of that eight-figure win was?

Gleb Budman: That was a two-year deal.

Jason Ader: Three-year deal. Okay. Thanks very much. Good luck, guys.

Gleb Budman: Mhmm. Thank you.

Operator: Eric Martinuzzi from Lake Street Capital Partners has the next question.

Eric Martinuzzi: Yes. You mentioned the revenue impact from the transaction really does not start to hit until 2027. Is that based on your answer about the three-year duration and over $15 million? Is that to say then that we are, you know, small amount maybe in 2026 and the bulk of it split between 2027 and 2028?

Gleb Budman: Yeah. That is correct, Eric. And for now, honestly, we are not factoring anything into 2026 for that.

Eric Martinuzzi: Yeah. By the way, Eric, you said—I just want to make sure that—it sounds like you said $15 million. It is $15-plus million, $15 million-plus?

Gleb Budman: Gotcha. Thanks for clarifying that. Hey. So I will look forward to a $50 million deal in the future, but we are not there just yet.

Eric Martinuzzi: The other thing I wanted to ask about was your comment regarding the adjusted free cash flow. You talked about it being neutral for the year. I am just wondering, given the investments you are making to have the infrastructure in place here, it seems like it is sort of front-half loaded. Is that to suggest then that the adjusted free cash flow positive—we are Q4 for sure and potentially Q3? Is that the right way to think about it quarter by quarter?

Marc Suidan: Yes, Eric. I mean, generally speaking, the first half of the year is—

Eric Martinuzzi: —our cost base increases. It starts kicking into Q1. And our OpEx lines, honestly, should not be really increasing that much other than maybe around 500 basis points—not as a percent of revenue, just off the dollar baseline from last year on a non-GAAP basis—as it relates to just basic inflation, salary raises, and so on.

Marc Suidan: Other than that, we are keeping our OpEx model pretty tight. I spoke about the gross margin being set back by a few hundred basis points. So when you combine all those factors and accelerating some of the expenditures to prepare for these customers, that is why we are free cash flow neutral for 2026.

Eric Martinuzzi: It is lumpy during the year. Usually, Q2 is also where we have the least of our Computer Backup renewals.

Marc Suidan: So Q2 is usually the worst set, and the second half of the year is in better shape. That would be, you know, a nice improvement from the minus $5 million for 2025 as a year and the minus $20 million in 2024. So I think we are pretty well set on exiting the phase of cash burn, and our aim is to stay here and get better.

Eric Martinuzzi: Got it. Thank you.

Operator: And everyone, just a reminder, it is star one if you have a question today. Up next is Zach Cummins from B. Riley Securities.

Ethan Widell: Hi there. Ethan Widell calling in for Zach Cummins. Thanks for my questions. I guess to start with Neo Cloud and with there being a high portion of leverage there to AI and HPC, how would you define, I guess, the incremental revenue opportunity or overlap, whether it be, you know, like base or function or revenue opportunity versus B2 Overdrive?

Gleb Budman: Yeah. Thanks, Ethan. It is a good question. So B2 Overdrive was initially actually developed because we heard from customers saying they wanted to use high-performance storage, high-throughput storage that would enable them to send their data to the Neo Clouds when they needed them, or to other hyperscalers, for example. So B2 Overdrive is not a white-label offering. It is designed for end customers to actually use themselves. B2 Neo is specifically designed as a white-label offering for the Neo Clouds to themselves offer storage to customers. So they are largely serving different sides of the market, but both serving the needs of AI and HPC-type use cases.

Ethan Widell: Understood. That is helpful. And then the large TCV deal, can you clarify whether that was from an existing customer? And, generally, is the revenue upside from existing customers there based on increasing usage.

Gleb Budman: So the $15 million-plus TCV deal is a new customer. Completely new to us. However, what I would say is if you look across the million-dollar-plus deals that we have had over the last year-ish, it is roughly half-half. Half of them are net new customers to us that came in, evaluated, considered, tested, and then signed a seven-figure deal with us. And the other half are customers that started off small. Some of them started off self-serve. Some of them came in as just smaller sales deals. Got familiar with the platform, liked the platform, and then expanded into some bigger deals.

Marc Suidan: Yeah. And, Ethan, this is Marc. What I would add, if you look at slide 17 of the earnings deck, it breaks down the new versus expansion from the existing, and it starts at half and half. So it is pretty well distributed because the self-serve product-led growth is about half of that as well. And then the larger direct sales customers are half, and each one kind of breaks out into a half by itself of what is expansion versus new logo. So it is basically—that is why if you look at the stacked bar, it is like four quarters. It is pretty well diversified in terms of how it comes through.

Ethan Widell: Got it. Well, I appreciate the color.

Gleb Budman: Yeah. Maybe one other piece of color just to add. One of the things we look at as a forward leading indicator is pipeline. And in 2024, we generated about $15 million of pipeline, and in 2025, we roughly doubled pipeline to about $30 million. Our aim with our continued GTM transformation is to get to a run rate of about double that. So, you know, with our industry-leading win rates, pipeline transfers into ARR quite efficiently. And so, you know, we are not there yet, but we made meaningful progress in 2025, and aim to make more meaningful progress on that in 2026.

Ethan Widell: Understood. That is very helpful. Thank you.

Operator: The next question is from Rustam Kanga from Citizens. Good afternoon, Marc and Gleb. Go ahead.

Rustam Kanga: Congrats on the RPO acceleration. Just building on another question that you answered, Marc, Gleb, where you kind of mentioned that B2 Overdrive versus B2 Neo are serving two different sides of the market. And, you know, as we sort of think about the build out of the pipeline for B2 Neo, is it fair to say that these opportunities are going to be anchored towards larger deals, albeit maybe not as large as this one that you have just put up in the quarter? But is it fair to say that this is kind of the larger opportunity? And is that likely to sort of lead to higher ASP engagement as you look towards this opportunity?

Gleb Budman: Yeah. It is a good question, Rustam. So one of the ways I would look at it is the market for the Neo Clouds, if you take just the hard drive-based storage opportunity inside of those 200 providers, that market is estimated at about $14 billion in the next five years. So with 200 players representing $14 billion of opportunity, every single one of those deals on average is going to be a large deal. So the short answer to your question is yes. The B2 Neo deals we see as large opportunity deals. The ones that we have signed so far are six and seven and now eight-figure opportunities.

Some of those, I imagine, may start smaller just as they start getting familiar with it, but I think all of them have the opportunity to get quite large.

Rustam Kanga: Great. That is helpful. And then just kind of thinking about the investment cycle for next year, is there any sort of relative color that you can share with us in terms of the level of CapEx investment that you guys are thinking about for 2026?

Marc Suidan: Yeah, Rustam. This is Marc. Good to hear from you. Our CapEx will be higher next year. As a percent of revenue, when you look at our PP&E at the end of the year, it should be in that high-twenties percentage of revenue. We typically finance our CapEx through capital leases, and we are fully set up to do that. And that would be the principal lease payments on a statement of cash flows, which is around mid-teens of revenue. Right? Because you are buying today but financing over five years over a growing revenue base. That mid-teens, over the past few years, has actually improved from our side as we continue to optimize our cost of capital.

Rustam Kanga: Great. Appreciate the color. Thanks, guys.

Operator: And everyone, at this time, there are no further questions. I would like to hand the conference back to Gleb for any additional or closing remarks.

Gleb Budman: Thank you. We have a strong and durable core business, made meaningful progress in our go-to-market transformation, and have a tremendous opportunity in AI. We drove growth while becoming adjusted free cash flow positive. We launched B2 Neo and signed multiple Neo Clouds, including this $15 million-plus deal. We also launched Flamethrower, our program for high-performance startups. In just the last few days since the launch, it has exceeded expectations, growing faster than the kickoffs that a leader for that has driven, which had about a dozen startups that have applied, been evaluated, accepted, and given credits, including ones from Andreessen Horowitz and Y Combinator. And we bolstered our team overall to take advantage of this tremendous opportunity.

I am really excited about the year that we have upcoming together. I want to thank our employees, our customers, and our investors for taking this journey with us. We look forward to chatting with you next quarter. Thank you.

Operator: Once again, everyone, that does conclude today’s conference. I would like to thank you all for your participation today. You may now disconnect.