Backblaze Earnings Call: Profitability Milestone Amid Volatility

Backblaze, Inc. ((BLZE)) has held its Q4 earnings call. Read on for the main highlights of the call.

Backblaze, Inc. struck an upbeat but measured tone on its latest earnings call, celebrating a first quarter of positive adjusted free cash flow and sharply higher profitability while cautioning investors about near‑term volatility. Management emphasized strong momentum in its B2 cloud storage business and growing traction with larger customers, even as they flagged upcoming margin pressure and uneven growth ahead.

Q4 Revenue and Profitability Milestones

Backblaze delivered Q4 revenue of $37.8 million, landing squarely within prior guidance and underscoring steady top‑line execution. More notably, adjusted EBITDA margin doubled year over year to 28 percent and adjusted free cash flow reached $4 million, or an 11 percent margin, marking the company’s first quarter of adjusted free cash flow profitability as a public firm.

Full‑Year Growth Led by B2 Cloud Storage

For the full year, total company revenue grew 14 percent, but the real standout was B2 Cloud Storage with 26 percent growth, reinforcing it as the company’s key engine. In the fourth quarter, B2 revenue rose 24 percent year over year, accelerating modestly from 22 percent growth a year earlier and highlighting steady demand for Backblaze’s cloud storage offering.

Upmarket Progress and Expanding Customer Base

The company continued its push upmarket, with customers generating more than $50,000 of annual recurring revenue increasing 35 percent to 168 accounts. ARR from this higher‑value cohort jumped 73 percent to $26 million, while Backblaze added roughly 12,000 self‑serve customers during the year and now serves over 119,000 B2 customers overall.

Record Bookings and a Landmark Enterprise Deal

Backblaze reported record quarterly bookings and closed the largest contract in its history, an eight‑figure total contract value agreement exceeding $15 million over three years. Remaining performance obligations climbed 60 percent year over year to $66 million, signaling a healthy backlog and visibility on future revenue, even if the timing of revenue recognition remains back‑weighted.

AI‑Focused Products and GTM Investments

On the innovation front, the company launched B2 Neo, a white‑label, high‑performance storage offering aimed at neocloud providers, and introduced Flamethrower, a program targeting startups. Backblaze also bolstered its leadership bench with senior hires in engineering and product plus additional advisory and transformation talent, positioning its go‑to‑market motion to better capture AI and large‑scale workloads.

Pipeline Expansion and Rule of 40 Improvement

Management highlighted a roughly doubled sales pipeline, increasing from about $15 million in 2024 to around $30 million entering 2025, which underpins confidence in future growth. At the same time, its Rule of 40 proxy, combining B2 revenue growth with free cash flow margin, improved from 9 percent to 35 percent, signaling significantly better capital efficiency and a more balanced growth‑profitability profile.

Margin Gains Amid Rising Infrastructure Costs

Despite escalating data center expenses, Backblaze expanded its Q4 GAAP gross margin to 62 percent from 55 percent a year earlier, reflecting infrastructure efficiencies. Adjusted gross margin also improved to 80 percent from 78 percent, demonstrating that disciplined operations and scale benefits are offsetting part of the cost pressure, at least for now.

B2 Growth Shortfall and Conservative Guidance

Management acknowledged that Q4 B2 growth landed modestly below the range previously discussed with investors, underscoring some execution and timing challenges. In response, they have deliberately derisked 2026 guidance by stripping out large swing deals and assuming only contracted minimum usage, which lowers near‑term upside but aims to increase the reliability of reported outlooks.

NRR Volatility and Potential Short‑Term Softness

In‑quarter B2 net revenue retention came in at 111 percent, down from 116 percent sequentially, reflecting variability in usage‑based spend. Executives tied this dip mainly to a single, high‑usage customer and cautioned that NRR could temporarily move closer to 100 percent for one or two quarters, suggesting flatter expansion until these dynamics normalize.

Pressure from Declining Computer Backup Segment

The company’s older computer backup business remains a drag on overall momentum, with management expecting this segment to decline about 5 percent in 2026 and roughly 3 percent in the first quarter. Stabilizing or managing this legacy line will be important, as its contraction partially offsets B2’s faster growth and weighs on consolidated revenue trends.

Gross Margin Headwinds and Higher CapEx

Looking ahead, Backblaze anticipates gross margin compression of a few hundred basis points in 2026 as it absorbs higher data center costs and accelerates capital expenditures to support large customer wins. Capital spending is expected to run in the high‑20s percentage of revenue, financed via capital leases and operating cash flow, reflecting a deliberate trade‑off between near‑term margins and capacity build‑out.

Lumpy Results from Large Variable Customers

The company again flagged one large variable‑usage customer whose delayed deal signings created timing and predictability challenges in recent quarters. This has contributed to lumpy results and underpins the cautious B2 outlook for 2026, with management guiding to year‑over‑year B2 growth of 12 to 19 percent in the second and third quarters as they navigate difficult comparisons.

One‑Time Boosts to Q4 Profitability

Backblaze noted that some of the Q4 adjusted EBITDA outperformance reflected nonrecurring benefits, including variable compensation alignment and office restructuring savings. While the core profitability profile remains strong even without these items, investors were reminded that a portion of the recent margin strength should not be extrapolated as a new baseline.

Delayed Revenue from the Large Neocloud Win

The more than $15 million neocloud contract is a marquee validation of Backblaze’s upmarket strategy, but investors will need patience before it shows up meaningfully in the P&L. Management does not expect this customer to contribute substantial revenue until 2027 and has excluded material benefit from 2026 guidance, raising near‑term timing risk even as long‑term upside looks sizable.

Guidance and Outlook for 2026

For the first quarter of 2026, Backblaze guided revenue to $37.6 million to $38 million with adjusted EBITDA margins of 18 to 20 percent, signaling continued profitability albeit below Q4’s elevated levels. For the full year, the company expects revenue of $156.5 million to $158.5 million, adjusted EBITDA margins of 19 to 21 percent, roughly neutral adjusted free cash flow, about 20 percent B2 growth, and plans to fund its expansion through operating cash flow and capital leases without tapping external capital.

Backblaze’s earnings call painted a picture of a company transitioning from growth‑at‑all‑costs toward disciplined, capital‑efficient expansion, anchored by its fast‑growing B2 cloud storage business. While investors must contend with lumpier results, declining legacy backup revenue, and near‑term gross margin compression, the record bookings, expanding pipeline, and landmark enterprise wins suggest a durable long‑term opportunity for those willing to ride out the volatility.