Backblaze Earnings Call Highlights Cloud and AI Momentum

Backblaze, Inc. ((BLZE)) has held its Q1 earnings call. Read on for the main highlights of the call.

Backblaze’s latest earnings call struck an upbeat tone, with management emphasizing a strong operational quarter and mounting momentum in its cloud storage franchise. Revenue and adjusted EBITDA beat expectations, B2 growth accelerated, and AI‑driven demand helped expand ARR and margins, even as management acknowledged cash flow pressure from higher CapEx and a shrinking legacy backup business.

Revenue Beat and Cloud‑Led Growth

Backblaze reported Q1 2026 revenue of $38.7 million, up 12% year over year and above the high end of guidance. Management framed the beat as validation that the company’s pivot from legacy backup to cloud storage is working, with growth increasingly driven by newer, higher‑value workloads.

B2 Cloud Storage Momentum

The B2 cloud storage segment remained the key growth engine, with revenue jumping 24% year over year to $22.4 million. B2 ARR grew 28% year over year and total ARR rose by about $5 million sequentially to $158 million, underscoring healthy demand from both new customers and existing users expanding their footprint.

Upmarket Progress and Larger Deals

Backblaze continues to move upmarket, with average deal sizes more than doubling compared with last year. The company now counts 187 customers contributing over $50,000 in ARR, a cohort that management said grew more than 50% and delivered roughly 72% year‑on‑year growth in recurring revenue.

AI Customer Traction

AI workloads are becoming a major growth driver, with AI customers on the platform up 76% year over year and accounting for more than one‑third of new bookings in Q1. Management highlighted rapid wins, including a nearly $1 million ARR AI deal closed in just 11 days and a roughly $500,000 ARR video AI customer adopting Backblaze as a key data store.

Margin Expansion and EBITDA Leverage

Profitability metrics improved meaningfully, with gross margin rising to 61% from 56% a year ago as scale and mix benefits flowed through. Adjusted EBITDA reached $10 million for a 26% margin, up from $6 million and an 18% margin last year, signaling growing operating leverage even while the company invests for future growth.

Raised Full‑Year Outlook

Reflecting stronger fundamentals, management raised its full‑year 2026 revenue guidance to a range of $161.5 million to $163.5 million, lifting the midpoint by about $5 million. They also boosted the full‑year adjusted EBITDA margin outlook by roughly 400 basis points to 23% to 25%, reinforcing confidence that the business can grow while maintaining disciplined cost control.

Improved Retention and Expansion Signals

Customer economics showed further progress, with B2 net revenue retention under the updated in‑quarter method improving to 110% from 105% a year ago. Remaining performance obligations increased by $6 million sequentially and $31 million year over year, pointing to a growing base of contracted future revenue despite methodology changes.

Go‑to‑Market Engine Scaling Up

Backblaze’s go‑to‑market revamp appears to be gaining traction after a core systems upgrade and process overhaul. The pipeline sourced from existing customers nearly doubled year over year, the new Flamethrower startup program onboarded about 100 companies in under three months, and the hiring of a new chief revenue officer aims to accelerate execution in larger enterprise accounts.

Neocloud and Data‑Lake Opportunity

Management leaned into the “Neocloud” narrative, estimating a roughly $14 billion market opportunity by 2030 to power next‑generation cloud and AI data lakes. Backblaze is already working with most top Neocloud players and has signed deals in the six‑, seven‑ and emerging eight‑figure range for data‑lake storage tiers, positioning it as a competitive alternative to hyperscale clouds.

Balance Sheet Flexibility and Capital Strategy

The company highlighted more than $100 million of capital leasing capacity, about half of which is currently utilized, as a key lever to fund infrastructure build‑out. Management expects growth to be funded through a mix of operating cash flow and leases and suggested it does not foresee needing an equity raise, while allowing for modest buybacks and RSU management.

Pressures in Legacy Computer Backup

Not all segments are growing, with the Computer Backup business acknowledged as structurally declining and carrying sub‑100% net revenue retention. Management is modeling roughly a 5% year‑over‑year revenue decline for this segment, which they view as a funding source and funnel rather than the centerpiece of the long‑term strategy.

CapEx Pull‑Forward and Cash Flow Drag

Adjusted free cash flow was negative $1.8 million in Q1, largely due to earlier supplier payments and accelerated investment in capacity. Backblaze plans to pull a portion of 2027 CapEx into 2026, with capital spending expected in the mid‑30s percent of revenue as the company responds to growing demand and higher unit costs.

Sequential Margin Timing and Q2 Step‑Down

Despite strong year‑on‑year margin gains, profitability is expected to dip modestly in the near term as spending catches up with growth. Adjusted EBITDA margin slipped from 28% in Q4 to 26% in Q1, and management guided Q2 margins down to 21% to 23% as it front‑loads investments ahead of anticipated revenue benefits.

Metric Methodology Changes Add Noise

Backblaze updated how it calculates ARR, RPO and NRR, including shifting NRR to an in‑quarter view, which may create short‑term volatility in reported metrics. Management stressed that while year‑over‑year comparability may be noisy, the changes better align reporting with how customers actually contract and expand on the platform.

Supply Chain and Neocloud Execution Risks

Higher equipment costs and supply chain constraints are pushing per‑unit hardware prices about 30% above last year, forcing earlier purchases and raising operational complexity. At the same time, the company’s growth thesis leans heavily on AI and Neocloud deals, and management acknowledged that converting pilots into large‑scale deployments remains a key execution risk.

Guidance and Outlook

For Q2, management guided revenue to $39.8 million to $40.2 million, with B2 growth now expected closer to 20% year over year and adjusted EBITDA margin of 21% to 23%, reflecting near‑term investment timing. For the full year, they reiterated confidence in generating positive adjusted free cash flow, with improvement weighted to the second half, and noted that current guidance does not factor in potential upside from very large deals or incremental go‑to‑market wins.

Backblaze’s call painted the picture of a company successfully pivoting toward higher‑growth cloud and AI workloads while absorbing the cost and complexity of scaling its infrastructure. Investors will be watching whether robust B2 and Neocloud momentum can offset a shrinking backup segment and near‑term margin volatility, but for now, upgraded guidance and expanding AI traction suggest the growth story remains intact.