Backblaze outlines 25%-28% B2 growth target for Q4 2025 as AI demand reshapes go-to-market strategy

Earnings Call Insights: Backblaze (BLZE) Q3 2025

MANAGEMENT VIEW

* CEO Gleb Budman stated the company "delivered strong results this quarter," with both revenue and adjusted EBITDA margin above the high end of guidance and reaffirmed that Backblaze remains "on track to be adjusted free cash flow positive in Q4." Budman emphasized that overall company revenue grew 14% year-over-year and B2 Cloud Storage grew 28%, calling out AI as a central driver: "AI is becoming central to both our customers and our opportunity ahead."
* Budman highlighted recent customer wins, including a new 6-figure deal with an AI start-up, a 7-figure TCV deal in the surveillance space, and another 6-figure white label win with a media app developer. He stressed: "the reasons customers choose Backblaze are consistent, performance that rivals the biggest clouds, predictable and fair pricing, and people who make it easy to get things done."
* Budman announced the launch of Phase 2 of the go-to-market transformation focused on accelerating both self-serve and direct sales, including a push to scale self-serve for data-heavy AI use cases and investments in sales operations talent and systems.
* CFO Marc Suidan said, "We delivered a strong third quarter with results coming in above the high end of our guidance for both revenue and adjusted EBITDA. We have solidified our balance sheet, improved our path to be free cash flow positive, and accelerated revenue growth."

OUTLOOK

* For Q4, management expects revenue in the range of $37.3 million to $37.9 million and B2 growth between 25% and 28% year-over-year.
* Budman acknowledged, "this is below the 30% target we set for ourselves at the beginning of the year," and Suidan commented, "We're slightly widening this range to account for the variability we see in certain large customers."
* Management stated that they remain focused on "driving operating leverage and remain on track to be adjusted free cash flow positive in Q4."

FINANCIAL RESULTS

* Total revenue for Q3 was $37.2 million, representing 14% year-over-year growth. B2 revenue grew 28% year-over-year, with an acceleration of about 900 basis points compared to the same period last year.
* Suidan reported gross margin of 62%, up from 55% a year ago, and adjusted gross margin at 79%. Operating expenses were 71% of revenue, down from 92% last year.
* GAAP net loss was $3.8 million, a 70% improvement from a loss of $12.8 million in the prior year. Non-GAAP net income was $1.9 million compared to a loss of $4.1 million last year.
* Adjusted EBITDA margin reached 23%, almost double the 12% from a year ago. Adjusted free cash flow was negative $3.5 million, improving by roughly $0.5 million year-over-year. The company ended the quarter with $50 million in cash and marketable securities.

Q&A

* Jeff Van Rhee, Craig-Hallum Capital Group: Asked about the evolution of sales in Phase 2 and whether existing reps were ramping as expected. Budman responded that "most of the reps were hired at the beginning of the year or earlier. So they are largely through their ramps as part of their onboarding." Van Rhee questioned the miss on the 30% B2 growth target, to which Budman explained, "the variability in part is driven by this same large customer trimming more than we expected. The other thing that drove that is just the larger deals as we move upmarket, a number of them have taken longer to execute."
* Eric Martinuzzi, Lake Street Capital: Inquired about expectations for B2 and Computer Backup growth rates into 2026 and the recent restructuring. Suidan replied, "2025, right, for B2 is on track to be in that mid-20s year-over-year growth rate. 2026, we don't want to give guidance yet, but we feel pretty comfortable it's going to be in that range."
* Simon Leopold, Raymond James: Asked about investment levels for Phase 2 initiatives. Suidan stated, "The percentage of revenue for sales and marketing should stay stable as a percentage of revenue. The funding is going twofold. The restructuring allows us to fund the one-time cost that's not in that percentage of revenue."
* Zach Cummins, B. Riley Securities: Queried about the pipeline of larger deals and improvements in self-serve motion. Suidan said, "there wasn't any pattern in them. They were kind of random reasons...In these larger deals, it's just more complex where you have a buying committee..."

SENTIMENT ANALYSIS

* Analysts demonstrated a neutral to slightly positive tone, focusing their questions on sustainability of growth, sales execution, and operational improvements, with persistent curiosity about B2 growth consistency and sales pipeline.
* Management maintained a confident yet measured tone in both prepared remarks and Q&A, emphasizing progress, learning from variable AI customer demand, and readiness to adjust strategy. Budman asserted, "We're reinforcing our sales and marketing engine and remain confident in our ability to deliver consistent, durable growth over time."
* Compared to the previous quarter, analyst tone remained focused on AI-driven growth and operational execution, while management shifted from highlighting rapid upmarket momentum to addressing the need for greater predictability and velocity in deal execution.

QUARTER-OVER-QUARTER COMPARISON

* The current quarter saw a deceleration in B2 growth expectations (25%-28% for Q4 vs. a stated 28%-30% in the prior quarter), attributed to large deal variability and longer sales cycles.
* The company introduced Phase 2 of the go-to-market transformation, marking a shift in strategic focus from simply moving upmarket to increasing execution speed and deal flow predictability.
* Operating efficiency continued to improve, with adjusted EBITDA margin advancing to 23% from 18% the previous quarter and GAAP net loss narrowing significantly.
* Analysts continued to probe for details on deal pipeline, AI customer variability, and the impact of restructuring, while management's tone reflected a more cautious optimism than the previous quarter.

RISKS AND CONCERNS

* Management cited the impact of variable demand from large AI customers, with Budman noting, "the variability in part is driven by this same large customer trimming more than we expected."
* The shift upmarket has resulted in longer deal cycles and less predictable revenue timing, as highlighted in the discussions with analysts.
* Suidan acknowledged "data center costs are generally rising," but stated these are being offset by efficiency gains.
* Analyst questions reflected concerns about sustaining growth rates, the complexity of larger deals, and achieving consistent execution in the sales funnel.

FINAL TAKEAWAY

Backblaze management conveyed that Q3 2025 delivered strong financial results, driven by continued momentum in B2 Cloud Storage and the growing influence of AI workloads. The company remains on track to achieve adjusted free cash flow positivity in Q4 and is actively addressing sales execution challenges through Phase 2 of its go-to-market strategy. Although B2 growth is projected slightly below its original target, management is focused on operational efficiency, sales velocity, and supporting a diversified customer base, especially as AI-related demand continues to shape future opportunities.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/blze/earnings/transcripts]

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