Backblaze Inc

NASDAQ:BLZE

Earnings Call Transcript 2024-Q1

[Operator]

Hello, and welcome to the Backblaze First Quarter 2024 Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to hand the call to Mimi Kong, Director of Investor Relations and Corporate Development. Please go ahead.

[Mimi Kong, executive]

Thank you. Good afternoon, and welcome to Backlaze's First Quarter 2024 Earnings Call. On the call with me today are Gleb Budman, Co-Founder, CEO and Chairperson of the Board; and Frank Patchel, Chief Financial Officer. Today, Backblaze will discuss the financial results that were distributed earlier this afternoon. Statements on this call include forward-looking statements about our future financial results, use of our IPO proceeds, results from new features and offerings, the impact of price changes, partnerships and sales and marketing initiatives, our ability to compete effectively and manage our growth and our strategy to acquire new customers and 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 annual report on Form 10-K 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. Reconciliation of GAAP to non-GAAP results may be found in our earnings release, which was furnished with our Form 8-K 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 and gross customer retention rate. Before I turn the call over to Gleb, I'd also like to mention that in the latter portion of our call, as in prior calls, we will be addressing questions from investors that we gather through the Say Technologies platform. Thank you for joining us. And I would now like to turn the call over to Gleb.

[Gleb Budman, executive]

Thanks, Mimi. Good afternoon, everyone, and thank you for joining us today. We had a record start across our key financial metrics. This quarter, revenue grew at 28%, 8 percentage points better than last year. We achieved an adjusted EBITDA margin of positive 6% versus negative 12% a year ago. And finally, cash usage this quarter was only $600,000, a dramatic improvement from the $13 million of cash used in the same period last year. Not only have we delivered accelerated business growth and improved efficiency, but we have also delivered product innovations that serve our mission of supporting customers and partners with the best storage cloud. Before diving into our business results, I want to speak to a customer trend that we're already benefiting from today and which we see already. A few months ago, we conducted a survey of more than 400 IT decision-makers. A majority of the respondents indicated that they prefer to choose from best-of-breed solutions when selecting vendors and yet the cloud landscape has been historically defined by Cloud 1.0, where a few diversified cloud providers aim to lock customers into their platforms and take away customer choice. You may have heard that Google Cloud, AWS and Azure recently announced free egress for their customers. They may have done this to modify regulators because the cloud 1.0 model is a walled garden by design, but this move does not at all address what customers actually want because it only applies to customers who leave those platforms completely. What customers really want is to freely use their data with multiple cloud services. These fake free egress announcements are only free exit, not free egress and underscore that cloud 1.0 just doesn't work that way. Businesses want Cloud 2.0, an open cloud ecosystem where businesses can use their data wherever and however they want to. It's better for them, better for innovation and, ultimately, better for the broader economy and Backblaze is built for cloud 2.0 First, our egress is actually free, allowing customers to use their data without fear of crippling bills or limits on who they work with. Second, we have a robust partner ecosystem, which gives customers easy access to the best-of-breed platforms they need.Third, we provide a trusted durable platform that provides strong performance. And last, we continue to deliver innovations that support customers in using the best-of-breed services they want. A great example of this last point is our newest innovation called Event Notifications. Event Notifications gives customers the ability to build automated workflows across different best-of-breed cloud providers. For example, a customer can upload a video to B2 cloud storage and event notifications will automatically trigger a compute process at another provider that prepares the file for streaming. Currently, similar offerings in the market only trigger actions within one platform or require complex and restrictive workarounds to work with other providers. We designed Event Notifications to be platform-agnostic, empowering customers to build workflows from the services they want, cutting out significant inefficiencies and costs in the process. The product launched in private preview just 3 weeks ago, and we already have over 100 organizations that have requested to join the early release. Event Notification was also recognized as product of the year for cloud computing and storage at the National Association of Broadcasters Conference, a major trade show for the media and entertainment industry. I'm very encouraged by the early reception and the potential for our services to become increasingly strategic for our customers. Including Event Notifications Backblaze has announced 4 major releases over the past 6 months from the charts-performance upgrade to enterprise control for business backup to our power buy Backblaze program. I am proud of our team for delivering features that differentiate us and strategically position us as the de facto cloud storage provider for the open cloud. In Q1, we also made significant progress in our compliance and security programs, including state ramp and the Motion Picture Association's trusted partner network. Focusing on compliance and security is another key element in our effort to make our services as easy to adopt as possible. In this case, for the state and local government and educational industries and the media and entertainment industry. At the same time, we continue to expand and enrich our partner network. Recently, Backblaze and Carahsoft, which is one of the largest privately held IT software and services companies in the world announced that we've been added to their NASPO value Point contract, which eases the procurement process in government and education. Our partners also continue to help us facilitate and win deals with larger customers. Recently, the media team of one of the world's largest retailers needed a trusted location to hold their creative work. Their preferred reseller recommended adopting Backblaze. Our performance, ease of use and affordability won the deal. In addition, our sole focus is a best-of-breed provider for cloud storage means that this retailer doesn't need to worry about any conflict of interest with a vendor like Amazon, that obviously wouldn't be the case. Additionally, a number of meaningful partners have already joined our powered-by Backblaze program, which we announced just last quarter. One of the most recent companies to join Powered-by is AXL AI. Their new AXL AI cloud leverages our cloud platform to deliver AI-powered media search tools. In the broader AI space, we're seeing a growing number of partners and customers utilizing the value of B2 cloud storage for AI workflows. Since the beginning of 2023, the number of AI companies using B2 for data storage has doubled with a wide range of use cases, such as wildfire management and monitoring, manufacturing optimization, satellite data analysis and much more. I'm very proud of what the team has achieved to not only reach our record financial results but to also deliver our platform and product innovations. I believe these put us in a strong position to deliver the transformational power of Cloud 2.0. I love seeing what businesses can do after we help to free the data from legacy platforms. Before I hand off the call, today, we announced that our CFO, Frank, is planning to retire this year. A search for his successor is already underway, and Frank intents to remain with us to help ensure a smooth transition to our new CFO. We're all hugely thankful for everything Frank has brought to the team but will save our gratitude and celebration of his many accomplishments for his departure later this year. Until we hire and onboard his replacement, Frank will continue to help us drive great results. I'll pass the call over to Frank to review our financial results. Frank?

[Francis Patchel, executive]

Thank you, Gleb, and thanks, everyone, for joining us today. As Gleb mentioned, I'm planning to retire once we've identified my replacement and completed the onboarding process. There will be time for goodbyes when we get there, but until then, it will be business as usual. And I'm happy to turn to the record business results we have to share today. As a reminder, unless otherwise noted, I will be referring to non-GAAP metrics and the growth rates mentioned are year-on-year. We remain focused on 2 key metrics: revenue growth and adjusted EBITDA, which is defined in our earnings release. As Gleb mentioned, we have made significant strides in strengthening our financials from a year ago. This quarter compared to last year, we accelerated our growth rate while expanding our adjusted gross margin, significantly improving adjusted EBITDA margins and meaningfully reducing cash usage. The tremendous strides made over the year were positively impacted by the operating leverage inherent in our business. We have continued to execute and build a strong and consistent track record as a public company. Our Q1 revenue totaled $30 million, an increase of 28% year-over-year versus 20% in the same period last year. B2 Cloud storage revenue was $14.6 million, reflecting 47% growth. Computer backup revenue totaled $15.3 million, reflecting 14% growth. Turning to our net revenue retention, or NRR. Total company NRR was 112% with B2 cloud storage at 126% and computer backup at 101%, which continued to show quarter-on-quarter improvement. Working down the P&L, adjusted gross margin increased about 500 basis points year-over-year to 77%, reflecting the price increase we put in place in Q4 of last year and further operating efficiencies at our data centers. This quarter, adjusted EBITDA was a positive $1.9 million or 6% of revenue, reflecting a substantial 18 points higher than the same period last year. Over the past year, we have significantly grown revenue while carefully managing expenses and increased operating efficiencies. This quarter, we also had slower headcount additions, which was offset by an increase in payroll taxes related to the recent stock price appreciation. Turning to the balance sheet. Cash and short-term investments, including restricted cash, totaled $32.8 million at the end of Q1 2024 versus $33.4 million at the end of Q4 2023, reflecting just $600,000 in cash usage. Even after removing the benefit of options proceeds, cash usage for the quarter was about $4.9 million compared to $13.7 million in Q1 of last year and almost $9 million improvement. The reduction in cash usage benefited from the price increases we put in place last quarter and operating expense discipline. Moving on to our guidance. For the second quarter, we expect revenue to be in the range of $30.7 million to $31.1 million. We expect Q2 adjusted EBITDA margin between 6% and 8%. For the full year 2024, we are reiterating revenue guidance of $126 million to $128 million and adjusted EBITDA guidance range of 8% to 10%. For year-end 2024, we continue to project having at least $20 million in cash. So to wrap it up, we are very pleased with our Q1 performance. We had a record start to the year where we accelerated growth and continue to drive more operating leverage. I will now pass the call back to Gleb.

[Gleb Budman, executive]

Thanks, Frank. I'm proud of our record financial results and technology innovation. Thank you to our employees, customers, partners and investors for joining us on this journey as we help lead the industry shift to Cloud 2.0. I'm excited to see many of you at the Oppenheimer Conference tomorrow and the Needham and Craig-Hallum investor conferences later this month. And with that, I'd like to open it up for questions. Operator?

[Operator]

[Operator Instructions]. Today's first question comes from Simon Leopold with Raymond James.

[W. Chiu, analyst]

This is Victor Chiu in for Simon. I wanted to follow up on the egress fee comment that you guys made. Acknowledging that Google and AWS free egress has a number of strings attached. Do these move at least slightly alleviate concerns from customers whose primary concern was vendor lock-in and maybe close the gap slightly versus back ways when considering egress.

[Gleb Budman, executive]

This is Gleb. So the short answer is no. So what they've really done is free exit, not free egress. And the thing about it is that in the past, before these customers could exit the clouds and some of us as open cloud vendors would actually cover the cost of having them leave those traditional cloud providers. But what customers really want is to be able to actually use their data. So the barriers that they have put in place for what they're doing is you have to fully 100% stop using their platforms. That's not what these customers are trying to do. They're trying to actually use their data. And so an example I think I've shared in the prior earnings call was a customer that had previously been entirely on AWS had some outages and wanted to use multiple cloud services to improve durability. They actually added Backblaze made us the primary, made AWS the secondary and decreased their cost in half overall because of the -- because our partnership with one of the cloud CDNs enabled them to transfer data for free, and therefore, they could double their durability, decrease their overall cost in half and improve the overall infrastructure. So that's the kind of thing that the customers want. These free exit moves don't help with that at all for customers.

[W. Chiu, analyst]

Okay. Got it. So the full -- the kind of migration away was never really an issue anyways is kind of what you're saying?

[W. Chiu, analyst]

Exactly. That because... Okay. And just Francis, can you give us an update? I don't know if you spoke about this in your prerecorded comments around the AI-focused solutions that you mentioned last quarter that you guys are working on in developing. Can you give us an update around that and kind of your progress around that.

[Gleb Budman, executive]

Sorry, Victor, I'm not sure about an AI solution we talked about developing. But what I'll tell you is that we were focused on helping customers with their AI use cases. And we shared some of the examples like the wildfire example and the satellite navigation example that I mentioned on the call, just to give maybe a little more color on those. So as customers are building their AI workflows, they need a place where the data itself lives, the foundational data platform for all that information and more and more customers are coming to Backblaze to have be that foundational data platform. So I gave a couple of examples of that on the prior earnings call. In the case of our customer that does wildfire analysis, what they're trying to do is take camera footage, look at all the potential wildfires out there and then triage them using AI. And the data for all that underlying analysis is on Backblaze. What the satellite navigation company is trying to do is help create better global navigation and they're using AI to make the models better, especially in places where tall buildings and other things get in the way of creating those models. They're using AI to make those models better. And they're using Backblaze foundational data platform for their AI workflows. So that's what we're doing. We're providing that really high-performance, highly durable, highly available platform, which supports them in building these workflows because of the -- our support for the open quality ecosystem.

[W. Chiu, analyst]

But didn't you mention some specific focus -- I'm sorry, kind of like investment... Let me... Yes, last quarter, you said the head of sales, a teri focus to our AI initiatives, which are aimed to help support customers in a okay. So that's what you're -- it wasn't a specific... Okay. Got it.

[Gleb Budman, executive]

Right. So as we bring on a new head of sales, our current Head of Sales we will be stepping into the role focused on our AI initiatives by AI initiatives, what I don't mean as product launches, what I mean is the opportunities in the AI space that we have to help customers because we do think that there are plentiful opportunities that we can help. There are many customers who are already doing it, and we would like him to take on the role of really understanding how we can further help more customers with it.

[W. Chiu, analyst]

I see. So it's like a marketing initiative to help customers understand Backblaze role in being able to accomplish those things. That's more of what you're referring to.

[Gleb Budman, executive]

It's a two-sided yes, it's both inbound and outbound. So it's both going out and helping educate more customers and also understanding what their use cases and needs are and bring more of that insight into the organization so we can evolve with their needs.

[Operator]

The next question is from Zach Cummins with B. Riley Securities.

[Unknown Analyst]

This is [indiscernible] going in for Zach Cummins. To start could you maybe speak a little bit to the different levers that you can possibly pull to sustain your strong growth in the B2 close storage area?

[Gleb Budman, executive]

Sure. Happy I touch on some of those. So the first one is just go to market. We -- when we went public, we talked about that 80% of all of our revenue was self-serve. So customers show up to the website prospects show up to the website, they enter and you want a password, they enter a credit card and they sign up and go. They don't ever talk to a human. And 20% was with our sales-assisted motion. And those customers were about 20x bigger. And so at IPO, we said we wanted to lean into that sales motion in addition to continuing to optimize our really efficient self-serve motion. So we've added resources and investment to the self-serve side. We've done things like optimizing the way the website works, and we continue to do that to drive more self-serve business. And we've seen year-on-year growth quarter-on-quarter with the number of paying customers on the self-serve side. We believe we continue to have opportunity for that. We also have built up the sales motion. And we've done that with sales people. We've brought on some additional salespeople this quarter for some of the upmarket motion and the channel side. So we've -- last year, we kicked off an initiative to build out our channel efforts. And so we've been starting to lean more into that. So the go-to-market motion overall is one way to drive growth. And then the other is the innovation side. So I highlighted on the call, [indiscernible] enterprise control powered by now Event Notifications, those are all innovations which help us expand into new markets, expand our opportunity with existing market and also upsell to our existing customer base.

[Unknown Analyst]

That's really helpful. And then, can you speak to maybe if there's been any uptick or downtick in churn?

[Francis Patchel, executive]

This is Frank. I can speak to that. We're really pleased about the churn statistics that we've seen. We think of it as customer retention. Our customer retention has remained at 91% overall. And that considers the fact that we did do a price increase in quarter 4. So it's been very, very strong. We also look at it at our renewal rates. Our computer backup customers are continuing to renew at very strong rates, actually a little stronger than we thought. So it's actually kicking up our deferred revenue nicely, and the customer retention there is quite strong as well.

[Operator]

The next question comes from Jason Ader with William Blair.

[Jason Ader, analyst]

Just a few questions. First, just maybe some commentary on the macro environment and how it might have changed or not since last quarter? And then just some questions for you, Frank, just on the numbers. So 14% growth in computer backup, what is driving that? Is that just the price increase, but it's definitely a better growth rate than what we've seen over the last 4 quarters. And then on the B2 growth rate, it's a little bit worse than what we saw last quarter and then also last year ago quarter, 49% and 47% in this quarter it was 43%. So just what's going on there? How come we've seen some deceleration on cloud and why we've seen some acceleration on computer backup.

[Gleb Budman, executive]

Jason, I'll start with the first peers, and then I'll let Frank answer the questions you addresed them to him directly. So on the macro side of things, we aren't seeing anything massively different. What I will say is that I think we've all seen the Fed has kept interest rates where they are. The bulk of our focus in terms of our customer base is the small to mid-market customers who are certainly sensitive to the macroeconomic environment. And so we're being cautious about where that's headed, but we haven't seen anything too significant one way or the other with customers. We continue to sign up customers. Obviously, we had a strong quarter overall, and that's driven by customers continuing to stay with us and continuing to sign up.

[Francis Patchel, executive]

I talk about the growth rates of the product side. So actually, we're pleased with our growth rates. The first one is that in computer backup, it is 14% this quarter, which is very strong. That is due to the price increase, but it's also due to what I was referring to before, which is very high renewal rates because remember, every month, we have more and more customers renewing off of their 1-year and 2-year contracts. So those renewal rates have been particularly high. For the full year, we did see 10%. We said that, and we're remaining at that amount. So we do -- are still thinking in that double digits. One of the things that's starting to contribute to the revenue side is VIE, which is our enterprise version. That is an upsell version for existing accounts, and we're seeing some uptake there already, even though it's just been introduced. And also, we have some new customers coming in on B1 as well, and we're very excited about that. And that enterprise is really aimed at larger companies as we move up market. So good things there. On computer backup, it's -- I mean, excuse me, on B2, the growth there at 47% this quarter in revenue was a bit higher than we thought that's why we were at the top of our range. We are pleased with that. It is due to the combination of the price increase and the new business. But you're right, as we move through the year, we're saying that our total growth for the entire year will be about 40%. And the reason for that is in quarter 4, we'll be lapping our price increase. So there's a little bit less less growth there in that quarter. But overall, we do like what we see.

[Jason Ader, analyst]

Yes. Sorry, I misspoke. I meant the B2 Cloud ARR growth was lower than last quarter. It was 43%, I believe, 49% last quarter and then 47% a year ago. So that's what I [indiscernible].

[Francis Patchel, executive]

I see. So ARR, it's not rate. It's not a perfect predictor for our business because of the ups and downs in the calculation of wobbles a bit. We calculated off of the last month of the quarter. So when you have a higher month because you have so much pay-as-you-go revenue that every day is important. So it wobbles a little bit based on the calculation methodology, but we still think that our growth rates there are well above the market or the growth rates of the market. So we're -- we do feel good about it.

[Operator]

The next question comes from Bruce Goldfarb with Lake Street Capital Markets.

[Bruce Goldfarb, analyst]

Gleb Frank, congratulations on the great results. In terms of the market segments, can you compare midsized company demand with SMB demand? What you're saying go ahead.

[Gleb Budman, executive]

Yes. It's an interesting question, Bruce, and thanks for the question. What I'll say is that we've been doing the smaller size of the mid-market for a while, and we have volume there, right? We have about 100,000 customers overall using B2. So we have volume there. On the larger end of the mid-market, it's an upmarket momentum that we've been doing more recently. And so I think it's harder to gauge the kind of statistical significance of the number of deals in that part of the market to be a strong indicator of overall market demand. I think what we are seeing is that customers in the upper market are interested in the value proposition we provide, which is part of why we decided to put more focus there. The platform provides a lot of value for a larger customer because if they have more data, they have more needs around that data, and they have the opportunity to optimize their platform further by using Backblaze. So I think that while it's hard to address statistical significance from what we're seeing to the broader market trends, I think we're pleased with the interest and engagement that we're seeing in the upper mid-market. And just to make sure it's clear, when we talk about moving submarket, this is not Fortune 500 in the federal government. These are companies that are up to about 1,000 employees.

[Bruce Goldfarb, analyst]

That the...

[Francis Patchel, executive]

Yes, that does. That does.

[Bruce Goldfarb, analyst]

And then in terms of competition, have you seen competitors? Have they kept their rates stable? Or have they also rolled out price increases?

[Gleb Budman, executive]

So I would say that some of the competitors have rolled out price increases. A number of them have kept their rates the same. But when we talk about the same, the traditional 1.0 providers like Amazon, Google and Microsoft, their default rates are 3x, 4x, 5x our rate for storage. And on top of that, they charge a lot more transaction fees. And then on top of that, they charge egregious egress fees. So while they may not have raised rates, their rates are much, much higher than ours.

[Bruce Goldfarb, analyst]

And then do you still anticipate cash generation by mid-25%?

[Francis Patchel, executive]

Yes, that's right. At the end of 2024, we said that we have at least $20 million and that we will have total cash flow breakeven or approaching that by mid-2025.

[Bruce Goldfarb, analyst]

Great. Congrats again on the results.

[Operator]

I would now like to turn the call over to Mimi for some questions scattered off the line. Mimi?

[Mimi Kong, executive]

Thank you, Ajay. First question is for Frank. This investor would like to know. I would really like to see dividends. Are there any in the future?

[Francis Patchel, executive]

We're not planning dividends for the foreseeable future. And the reason is that we are in a $50 billion market that's underserved and small and midsized companies. So we really are investing in our growth, and we think that's best for our investors.

[Mimi Kong, executive]

And the next question is for Gleb. Does Backblaze have a plan to attract younger clients like university or secondary school students granting them a special fee thus then Backblaze would happen for years to come?

[Gleb Budman, executive]

So as far as keeping customers for years to come, I think it's a good point because of the high retention, Frank talked about 91% of gross customer retention, which means customers stay with us for something like a decade. Certainly, having customers join the platform is great as they stay on for a very long time. In terms of university and secondary schools, our products and platform work really well for them by default. In part that's because on the computer backup side, it's unlimited. So it's just easy and they don't have to worry about it. On the B2 side, we actually provide a free tier, so they can start with a limited amount of data and just use it for free, and it's very, very inexpensive to use it at their scale typically. So it's actually a great set of services specifically for their use cases as it stands.

[Mimi Kong, executive]

Next question is also for you, Gleb. Will there be any plans this year to pioneer any revolutionary strategies that will put Backblaze ahead of its competitors?

[Gleb Budman, executive]

So I think in terms of revolutionary strategies, I think one of the things we talked about is this trend to cloud 2.0 and how we facilitate that. So I think most of the traditional competitors are still aiming for that walled garden approach. And the reality that we see is that more and more customers want to use an open cloud with best-of-breed providers and get all the best that that entails. And so that strategy and the things that we're doing to support that, and they talked about Event Notifications, which enables customers to create automatic workflows between these different providers is a great way of helping to lead that shift. So I think that's probably the one I would mostly highlight.Other than that, I think the strategies that we're pursuing are enabling us to already grow faster than the market and take market share. So I think between the go-to-market motions that we're doing and the product innovations that we're coming out with, I think we're well positioned to do that.

[Mimi Kong, executive]

And again, what are the most important goals for the next 12 months?

[Gleb Budman, executive]

So in terms of goals, I guess first was financial. So financial goals, we want to continue driving revenue growth. It's like what Frank said, it's a $50 billion market. We believe there's a lot of opportunities in driving revenue growth is key. The second part is continuing to drive efficiency, and that's reflected in our positive EBITDA growth. And the third financial one is driving towards that total cash flow positive stature, so that the business is just running on its own steam. So that's on the financial side. On the business side, we continue to drive that upmarket growth. So with the new sales executives that we've hired in Q1 with a new head of sales that were in the process of hiring right now, driving that upmarket growth. The second is continuing to drive the overall go-to-market motion and the channel motion. And then the last one is really taking those innovations that we shipped and getting them into the hands of more and more customers. I think those are probably the main ones that I would like to highlight.

[Mimi Kong, executive]

The next question we have is a follow-up from last quarter. Last quarter, my question received an incorrect answer. Backblaze cannot back up files synced by OneDrive due to BP's point flags as signed by Microsoft. Will Backblaze develop a solution such as a B2 integration to back up OneDrive cloud to cloud? Or are we left with the safe versus sync files?

[Gleb Budman, executive]

So that's probably a nuanced question for an investor call, but I very much appreciate both the first half of the question being a customer. That's key for us and for Digging in as well. So what I'll say is we don't have on our road map a plan to develop one cloud drive integration directly. We do have partners that do that, and we would love for -- to use one of our partner products along with B2. It's part of the whole open cloud approach that we're working toward is supporting a broad ecosystem of partners with our B2 cloud storage. The computer backup service itself, which sounds like the one that you're primarily using the computer backup service is really designed to back up all of the data on the laptops and desktops that customers are using, so people can just sleep peacefully at night that those machines and the data on them are protected. B2, with our partner ecosystem supports all of the potential other use cases.

[Mimi Kong, executive]

Next question for Gleb. The ongoing developments in AI present any opportunities for Backblaze?

[Gleb Budman, executive]

So I think I touched on that a little bit earlier. But yes, the short answer is I think that AI is a multiyear, possibly multi-decade opportunity for Backblaze. When you're working with AI use cases, you're working with a lot of data and analysis and use of that data, you need somewhere to put that data where it is durable, where it's available, where it's performing and where you can afford to do that. And then you want to use that data with all of the myriad other best-of-breed services being developed for AI, and there's a variety of them constantly coming out every single day. And so by being a leader in the open cloud movement and providing a great storage platform, I think we have a great opportunity to do that. I'll mention also another company that I talked with recently, they're in the process of coming out with a service to -- that's going to create AI videos at scale. They're talking to us about leveraging the Backbblaze platform because it provides efficiency, connectivity with the CDN providers that it would distribute that video to talk about another customer with one of our folks this morning that they do web scale data analysis for an AI company, and they're leveraging Backblaze as the underlying foundational platform for all of that data that they're capturing. So I think that the number of use cases and opportunities here are just endless.

[Mimi Kong, executive]

Next question is, what is the decision threshold to compete for larger clients, meaning companies above 1,000 employees.

[Gleb Budman, executive]

So we absolutely have customers that are above 1,000 employees. Our target that we focus on is customers below that in large part because we think it's the most underserved part of the market where we can have a good velocity of solving and addressing many of their -- many of those customers' needs. Having said that, we do help customers larger than that, particularly ones that have a lot of data and use cases that are well suited to an easy-to-use affordable storage platform where we don't actively try to compete for the Fortune 500 companies or the federal government because of the complexity of the features and functionalities that they need, which are not those same features and functionality that the mass market of mid-market companies need. So we believe we're really well suited for customers below us. We are well suited for many of the customers above 1,000, and we will work to address -- to solve those customers' needs when it's a good fit.

[Mimi Kong, executive]

And at what point is the risk of hiring more sales and customer relations staff worth the reward?

[Gleb Budman, executive]

So I mentioned that in Q1, we actually hired a number of new account executives on the sales team, specifically because we see the opportunity of closing more upmarket deals with additional people. So we're confidently evaluating our go-to-market motions and determining what's working and what can be approved. The -- in general, that evaluation is what drives when we invest further in those areas.

[Mimi Kong, executive]

And this is our final question. As a software engineer, Backblaze B2 API was much more difficult to integrate than I would expect from a company that boasts the simplicity of its developer experience, what our Backlaze's plans to improve developer experience and may be to adoption by the average developer easy?

[Gleb Budman, executive]

So first of all, I'll say it again, thank you for being a customer and thank you for integrating with our platform. I love it. I am surprised that you found that the experience was more difficult than you expected. We have -- it sounds like you may have been using the prior B2 API. We have since also introduced an S3 compatible API so that it is a drop in replacement for any service that is compatible with Amazon's S3 offering. We've also created a whole new docs section on our website that we launched mid last year, which has been very popular, provide examples and samples and code snippets and more. And what I'll say is that we also would love feedback. So if you have feedback on what that experience was what you would like to see different e-mail product feedback at backblaze.com, and we would love to hear it.

[Mimi Kong, executive]

And that's the final question, I'm going to hand the call back to MJ. Mj?

[Operator]

Thank you, Mimi. At this time, we don't have any more questions in our queue, and this will conclude our question-and-answer session. So I'd like to turn the call back over to Gleb Budman for closing remarks.

[Gleb Budman, executive]

I want to say thank you to everybody for joining the call. Thank you for hearing about our quarter and the innovations that we had there, and we will look forward to seeing some of you at the conference tomorrow and next month and the rest of you on this call next quarter. Thank you so much.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.