What Backblaze (BLZE) Said on Its Q3 Earnings Call

Key Points

• Backblaze reported strong Q3 growth: Revenue rose 26% year over year to $47 million, while B2 Cloud Storage revenue increased 47% and B2 annual recurring revenue climbed 53% to $127 million. Adjusted EBITDA margin expanded to 33%.
• AI-driven demand is accelerating: Growth broadened across self-serve and larger customers, with B2 net revenue retention improving to 115%. CoreWeave and another major neocloud customer have begun ramping, though management expects their larger contributions in 2027.
• The company raised its outlook while increasing capacity spending: Full-year revenue guidance rose to $177.8 million-$178.2 million and adjusted EBITDA margin guidance to 30%-31%. Backblaze plans significant infrastructure investment, which is expected to temporarily pressure gross margins as new capacity comes online.

Backblaze NASDAQ: BLZE reported third-quarter revenue of $47 million, up 26% from a year earlier, as growth in its B2 Cloud Storage business accelerated and the company continued to build capacity for AI-related customer demand.

Chief Executive Officer Gleb Budman said Backblaze is positioning B2 as a “high-performance capacity storage layer for AI,” serving both AI infrastructure providers and companies building AI applications. B2 revenue rose 47% year over year, while B2 annual recurring revenue reached $127 million, up $14 million from the prior quarter and 53% from a year earlier.

Chief Financial Officer Marc Suidan said the company exceeded the high end of its revenue and adjusted EBITDA guidance during the quarter. Backblaze also raised its full-year outlook, citing broad-based demand, stronger-than-expected B2 bookings, growth in self-serve customers and lower-than-expected churn.

B2 Growth Broadens Across Customer Segments

Budman said B2 growth extended from smaller self-serve customers to larger sales-led accounts. The company added roughly four times as many net new B2 self-serve customers as it did in the same period last year, while the number of customers generating more than $50,000 in ARR rose 19% to 254.

ARR from customers above the $50,000 threshold increased 109% year over year to $50 million, according to Suidan. B2 net revenue retention improved to 115%, from 113% in the second quarter.

The company signed four agreements worth more than $500,000 in ARR during the quarter. Three were expansions with existing AI-builder customers, while the fourth was a new Powered by Backblaze white-label agreement with a global networking technology company.

Budman said one training-data provider that had previously signed a nearly $1 million agreement and later expanded by more than $1 million added a separate contract worth more than $4 million in ARR for another B2 workload. Other expansions came from a generative AI media company and an AI voice company connecting its GPU provider’s compute directly to Backblaze.

Backblaze also said its pipeline of new AI builders doubled in the third quarter compared with the second quarter. Budman noted that the measure represents pipeline rather than closed contracts. The company is seeking to reach those customers through search visibility, its Flamethrower startup program, ecosystem relationships and developer tools.

Visits from AI search engines increased 230% year over year, Budman said, and those visitors created self-serve accounts or contacted sales at more than twice the rate of visitors from traditional organic search.

Neocloud Customers Begin to Ramp

Backblaze said CoreWeave and another previously announced large neocloud customer have begun ramping on its platform. Budman said development work for the other neocloud customer was completed ahead of plan, enabling the customer to begin loading data several months before the company’s prior expectation of early 2027.

Suidan said neither CoreWeave nor the other large neocloud customer contributed significantly to the third-quarter acceleration in B2 growth. He said both are expected to make more meaningful contributions over coming quarters, with CoreWeave and the other customer moving into a higher gear during the first and second quarters of 2027.

Management said it remains focused on pursuing additional AI infrastructure providers while ensuring it can execute on the commitments already signed. Budman told analysts that this emphasis does not represent a change in strategy, but rather reflects the scale of the existing deployment opportunities.

CoreWeave’s contract totals $335 million over five years, Suidan said. About 70% relates to operations in Backblaze data centers using Backblaze-funded capital expenditures, while about 30% involves use of the company’s platform in CoreWeave data centers, where CoreWeave funds the capital expenditures. The company said the initial portion is ramping now, with minimum commitments increasing monthly through July 2027.

Margins, Cash Position and Capacity Investment

Total company gross margin was 64%, compared with 62% a year earlier. Operating expenses were 67% of revenue, down from 72% in the prior-year period, while adjusted EBITDA margin expanded 1,000 basis points year over year to 33%.

GAAP net loss narrowed to $2 million. Non-GAAP net income was $6.7 million, compared with $1.9 million a year earlier. Cash flow from operations totaled $23 million year to date, versus $14 million in the prior-year period, and adjusted free cash flow was $2 million, improving from negative $10 million.

Backblaze ended the quarter with $230 million in cash equivalents and marketable securities. The company is expanding infrastructure to support contracted demand, including commitments from CoreWeave, other neocloud customers and AI builders.

Suidan said year-to-date net property, plant and equipment additions were $33 million. The company expects full-year PP&E capital expenditures of 55% to 65% of revenue, implying $65 million to $83 million of spending in the fourth quarter based on the midpoint of revenue guidance, subject to delivery timing.

The company expects much of the equipment to arrive in the fourth quarter. As capacity is installed ahead of customer usage, depreciation is expected to temporarily reduce GAAP gross margin by 3 to 6 percentage points. Management expects the impact to become more pronounced in the first and second quarters of 2027 before margins recover as customer ramps progress.

Outlook Raised

For the fourth quarter, Backblaze forecast revenue of $49.8 million to $50.2 million. At the midpoint, the company expects B2 revenue growth of about 60% year over year and adjusted EBITDA margin of 32% to 34%.

For the full year, Backblaze raised revenue guidance to $177.8 million to $178.2 million, representing a $5 million increase at the midpoint. It also raised its full-year adjusted EBITDA margin outlook to 30% to 31%, from a previous range of 27% to 29%.

The guidance excludes potential new agreements exceeding $500,000 in ARR and variable usage above contracted minimums. Management said the anticipated fourth-quarter exit rate supports its outlook for B2 growth above 40% in 2027.

Meanwhile, Computer Backup revenue was $16 million, down 2% year over year but up sequentially. Suidan said customer acquisition and retention initiatives helped stabilize that business, although the company continues to guide for a low-single-digit year-over-year decline in the fourth quarter.

About Backblaze (NASDAQ:BLZE)

Backblaze, Inc provides cloud storage and data backup services for businesses, developers and individual users. The company's offerings are designed to help customers protect, store, manage and access data without maintaining their own extensive storage infrastructure.

Its primary products include Backblaze Computer Backup, a subscription service that automatically backs up data from computers, and Backblaze B2 Cloud Storage, an object-storage platform used for applications such as backup, archiving, content storage and media workflows.

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