Backblaze, Inc. (BLZE) Q3 2026 Earnings Call Transcript

Operator: Hello, everyone. Thank you for joining us, and welcome to the Backblaze Third Quarter 2026 Financial Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press *1 to raise your hand. Withdraw your question, please press *1 again. I will now hand the conference over to Mimi Kong, director of investor relations and corporate development. Mimi, please go ahead.

Mimi Kong: Thank you. Good afternoon, and welcome to Backblaze's third quarter 2026 Earnings Call. On the call with me today are Gleb Budman, Co Founder, CEO and Chairperson of the Board and Marc Suidan, Chief Financial Officer. Today, Backlaze will discuss the financial results that were distributed earlier. Statements on this call include forward looking statements about our future financial results. The impact of our sales and marketing initiatives, cost saving initiatives, results from new features, the impact of price changes, supply volatility, and pricing, 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 most recent quarterly report on Form 10 Q 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-Ks 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, gross customer retention rate and adjusted free cash flows. We will be participating in the Craig Hallum Alpha Select Conference on November 17 in New York and the Needham Virtual Tech Week on November 18th and 19th. We look forward to connecting with you all. Thank you for joining us, and we would now like to turn the call over to Gleb Budman.

Gleb Budman: Thank you, Mimi, and thank you, everyone, for joining us today. We had a strong third quarter as we continue to deliver on our strategy of being the high performance capacity storage layer for AI. Revenue reached $47 million and B2 revenue growth accelerated again to 47%. Year over year. What stands out to me is also the breadth of that acceleration. ranging from our smallest self serve customers to our largest sales led customers. We added roughly 4x the number of net new B2 self-serve customers versus the same period last year. Customers over $50 thousand in ARR grew by 19 to 254, showing our upmarket momentum is repeatable. And we again closed 4 deals over $500 thousand in ARR, a sign of the value we deliver to the largest data users. All of that reflects the value of our platform, along with the progress we are making on our AI strategy and go to market execution. Now let me share what I am seeing in the market. In conversations with customers, AI founders, and infrastructure providers, I am hearing 2 consistent themes. First, data growth keeps exceeding expectations. Our early AI customer storage needs consistently outpace even their own aggressive forecasts. Training models continue to require ever larger datasets and AI applications and agents are generating more data and giving companies new reasons to retain and reuse existing datasets. And second, companies are increasingly focused on getting more efficiency and ROI from AI. They are leaning into open models using routers to select the optimal model for each task and working across multiple AI clouds to improve economics. Storage tiering is 1 of the important ways to improve that ROI also. If you have a router to select the right model, why would not you apply that same discipline to selecting the right storage location? Together, those trends create a growing opportunity for Backblaze. Customers need to collect, retain, and use more data while getting a better ROI from their infrastructure spending. Our high performance capacity tier helps them do both. As we have discussed, we serve 2 groups. AI infrastructure companies to whom we provide a capacity storage tier for their customers and AI builders who need capacity storage for themselves. Let me start with the progress we are making with our AI infrastructure customers. While we are continuing to progress in conversations with multiple leading AI infrastructure companies, we believe the best way to build on this opportunity is to deliver for the customers who have already chosen us. bring their capacity online, and give them a great experience as they scale. We have secured the necessary hardware allocations to fulfill our requirements and shipments are tracking ahead of schedule. Our team also finished development ahead of plan for the large neocloud we announced at the start of the year, and that customer began loading data several months ahead of our early 2027 expectation. Additionally, CoreWeave continues to be a great partner and has begun to ramp on our platform. Thus, both agreements are moving into execution and each carries a multi-year minimum commitment, so revenue is underpinned by contract. And the ramp follows our customers loading data into capacity we deploy. Turning to AI builders, which use Backblaze directly. We are building a repeatable, scalable way to reach these customers, help them get started, and support them as they grow. These builders work across areas like foundation models, physical AI, and generative media. Their products differ but many share the same need. A capacity tier that grows with them as they train and tune models and generate new inference data. We are seeing strong momentum here. The number of new AI builders entering our pipeline doubled in Q3 compared with Q2. This is pipeline not closed deals, but we are encouraged in driving it 3 ways. First, helping builders discover Backblaze. years of trusted original content including nearly 13 years of drive stats, have established Backblaze as an authority on storage. AI search tools draw on content like this to answer storage questions for people and agents. Giving Backblaze more opportunities to appear in those answers. This visibility resulted in visits from AI search engines growing 230% year over year. Roughly double market rate. And those visitors create a self serve account or contact sales at more than twice the rate of visitors from organic search. Which traditionally had been the gold standard. We believe this is strengthening customer acquisition across our broader business through both self serve and direct sales. Second, deeper ecosystem relationships. Through Flamethrower, we reach builders via VCs, startup communities, and events like TechCrunch and Coast to Coast StartUp Lab. Hundreds of startups now participate in the program, letting us build relationships early and support their storage needs as they develop their businesses. Third, making it easier for developers and their AI agents to build with Backblaze. We have published reference architectures for b 2 in AI workflows and expanded the tools developers use to integrate our storage. For example, our new open source b 2 MCP server lets AI agents use b 2 storage directly with governance, through customer defined permissions. This growing pipeline and engagement across the ecosystem reinforce our confidence in our product market fit for AI builders. And we are focused on turning that interest into lasting customer relationships and long term growth. Now onto the 4 agreements over $500 thousand ARR signed this quarter. We had 3 expansions with existing AI builders showing how customers often start small and grow, and 1 brand new agreement for a core workload. First, the training data provider we highlighted earlier this year that signed a nearly $1 million agreement in just 11 days. And then expanded by more than $1 million just a couple months later. This quarter, they signed a separate incremental agreement worth more than $4 million in ARR for a new workload on b 2. Second, a generative AI media company expanded as its AI training workloads and data grew. Third, an AI voice company is connecting its GPU providers compute directly to Backblaze, allowing it to store more of its data with us. Each of those 3 increased their total commitment to more than double its original level within a year. For us, in these examples, customers are bringing more workloads to Backblaze and making us a deeper part of their architecture. The fourth agreement highlights continued demand for core workloads. A market we estimate at $26 billion for 2026, a global networking technology company signed a new agreement with approximately $500 thousand in ARR for powered by Backblaze. Our white label offering replacing the varied storage setups its customers bring with 1 simpler experience and creating a new revenue stream. Our track record brought them to us. Our economics and ease of integration made the offering work. Q3 was a great quarter. More customers chose Backblaze, existing customers expanded, and large AI infrastructure customers began to ramp. Together with accelerating B2 growth that reinforces our role in AI and our ability to deliver on the opportunity ahead. As we look forward, training, checkpoints, logs, and inferencing are all part of the AI workflow that is generating data. Foundation models, generative AI, multimodal, physical AI, and many more are categories of AI organizations and use cases generating data and agents are accelerating. how all of that is being accessed and used. Net of that is companies seeing massive growth in their needs for storage, while also aiming to drive clear ROI from their investments. That makes for an exciting time for Backblaze. With that, I will turn it over to Marc Suidan. Marc Suidan.

Marc Suidan: Thanks, Gleb, and good afternoon, everyone. Q3 was another quarter of accelerating growth and improving operating leverage. Total revenue grew 26% year over year to reach a new record quarterly high of $47 million, led by B2 cloud storage, where revenue growth accelerated to 47%, up from 34% in Q2 and 28% a year ago. Adjusted EBITDA margin expanded 1 thousand basis point year over year to 33%. Both revenue and adjusted EBITDA exceeded the high end of our guidance, and we are again raising our full year guidance. Let me walk through the quarter, starting with revenues. Total revenue was $47 million up 26% year over year and $2 million above the high end of our guidance. The outperformance was broad based. Driven by strength in our B2 direct sales bookings. higher B2 self-serve customer growth, and less than expected churn. B2 revenue grew 47% year over year, our strongest growth rate in 10 quarters. The May 1 price increase contributed approximately 12 percentage points to b 2's growth. Excluding it, B2 organic revenue growth 35% compared with 26% on the same basis in Q2. B2 ARR reached $127 million, up $14 million from Q2 and 53% year over year. We also continue to move upmarket. ARR from our $50 thousand-plus customers grew 109% year over year to $50 million. As expected in these large committed contracts. CoreWeave and the other previously announced Neo Cloud deal did not contribute significantly to Q3's growth acceleration. Both have now started to ramp, and we expect meaningful contributions from both of them to growth in the coming quarters. B2 net revenue retention was 115% up from 113% in Q2. Computer backup revenue was $16 million, down 2% year over year but up sequentially as our growth and retention initiatives stabilized revenue. Moving on to gross margin. Total company gross margin was 64%, up from 62% in the prior year with the pricing update continuing to help. Operating expenses were 67% of revenue, improving from 72% a year ago as revenue grew faster than our expense base. Adjusted EBITDA margin reached 33% exceeding guidance on stronger than expected revenue results. Our GAAP net loss narrowed to $2 million as we continue to make progress towards GAAP profitability. Non GAAP net income was $6.7 million, more than 3x the $1.9 million reported a year ago. Cash flow from operations was $23 million year-to-date, compared to $14 million a year ago. Adjusted free cash flow was $2 million year-to-date, compared to negative $10 million last year. Year to date, PP&E additions, net of dispositions, totaled $33 million. We continue to expect full year PP&E capital expenditures of 55% to 65% of revenue. Based on the midpoint of our revenue guidance, this implies $65 million to $83 million in Q4 subject to delivery timing. We expect to fund most of these expenditures with cash from our convertible debt proceeds and those cash outlays will be reflected in free cash flow. Over the next 4 to 5 quarters, we expect to deploy capital to support contracted demand including the CoreWeave, the other neocloud, and AI builders commitments. We are adding capacity ahead of customer ramps which means depreciation will begin before the associated revenue temporarily reducing GAAP gross margins by 3 to 6 percentage points. As customer usage ramps, we expect cash generation to strengthen and gross margin to recover. Turning to the balance sheet. We ended Q3 with $230 million in cash, cash equivalents and marketable securities. Our zero coupon convertible financing funds this build out without the cash interest expense associated with financing the same equipment through capital leases. We also purchased cap calls to mitigate potential equity dilution. Assuming that debt principal is repaid in cash, the cap call completely offsets dilution up to $33 and $76 per share. Our earnings presentation includes a table detailing net dilution at various stock prices above that threshold. Turning to guidance. For Q4, we expect revenue of $49.8 million to $50.2 million At the midpoint, we expect B2 revenue growth to accelerate to approximately 60% year over year in Q4. This strong exit rate gives us confidence in our 40%-plus growth outlook for B2 in 2027? For adjusted EBITDA margin in Q4, we expect a margin of 32% to 34%. For the full year, we are raising revenue guidance to $177.8 million to $178.2 million a $5 million increase at the midpoint. For full year adjusted EBITDA, we are raising our 2026 fiscal year margin outlook to 30% to 31% from 27% to 29%. Consistent with our guidance philosophy, this outlook excludes potential new deals greater than $500 thousand in ARR and variable usage above contracted minimums. Q3 demonstrated continued progress against our objectives. accelerating B2 growth and translating that growth into operating leverage. We are investing against committed demand while maintaining operating discipline. Positioning the business for the next phase of growth across a diversified set of customers, With that, operator, please, open it up for questions.

Operator: We will now begin the question and answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, please press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ittai Kidron with Oppenheimer and Co. Your line is now open.

Ittai Kidron: Thanks. Hey, guys. Congrats on good numbers here. 1 question for you. So I guess, Gleb, I will start with you. I just wanna make sure I understand your comments on the AI infrastructure customers. If I interpret that correctly, you said something to the effect of, focus on current customers and make sure that they issue and ramp them up appropriately. Am I interpreting this to mean that you are I do not know, temporarily or permanently, you tell me, are kind of slowing your chase of new neoclouds and you are more focused on ramping existing ones? This is a change of strategy. Am I interpreting that correctly?

Gleb Budman: Hey, Ittai. Thanks for the question. it is not a change in strategy. We still are going after the neo clouds. We have a team that is working on it, and we are in discussions with a number of them. it is more a statement that the ones that we have signed, you know, both CoreWeave also the other large 1 in particular that we announced at the beginning of the year, these are you know, significant scale up opportunities for us. and I want to make sure that we do a really good job. And so you know, it is a lot of organizational focus on just executing relentlessly on that. And we think that by doing that, that is going to be the best path we have to really take advantage of the overall opportunity with the broader set of neoclouds. So not a change of strategy. We still believe that there is a big opportunity for us to service the broader neocloud landscape, just a recognition that there is a lot of work to be done to make sure that we hit the full, you know, multi-exabyte deliverability that we are doing for them. And then separate from that is, obviously, the AI builders opportunity for us is also very large, and so it is just executing on both in parallel.

Ittai Kidron: Okay. Very good. And then, Marc, I just wanna make sure I understand the numbers in your guide for the next quarter. Just to clarify, it does not sound like, CoreWeave contributed much, if any, to the third quarter. Your guidance to the fourth quarter. If you take into account the beat that you had in the quarter now, I would have to think that CoreWeave needs to and should contribute more in 4Q. So is it fair to say that there is just a step up there has not been a substantial 1 relative to the beat and how you roll numbers? So I. Am I interpreting that to mean that, you are being conservative here still on CoreWeave itself, or is CoreWeave more of a 27 ramp? Help me think about the timing here around this.

Marc Suidan: Yeah. Hi, Ittai. CoreWeave ramps all the way through the middle of next year. They are on track for that. You are correct that in Q3, it was not-- it was not that meaningful to the 47% growth. That was more broad based across everything else. As it relates to the 60% B2 growth, we guided for Q4, there is definitely a bit of CoreWeave there, and there is also the overperformance of Q3 as it relates to you know, the 4 large deals greater than $500 thousand we announced in there. And then, you know, CoreWeave and the other neocloud really start kicking in, in higher gear in Q1, and then Q2 of next year and then full ramp Q3 of next year.

Ittai Kidron: Appreciate it. Thank you. Good luck.

Operator: Your next question comes from the line of Jason Ader with William Blair. Your line is now open.

Jason Ader: Yeah. Good afternoon. Thanks. I guess, Marc, just on the fourth quarter, gross margin. So you did not give specific guidance for that.

Marc Suidan: You talked about kind of a 3 to 6 point impact. From all the CapEx depreciation. But is it right to think that it will not be that big an impact in Q4 just because the CapEx is coming online in the quarter and therefore it is more of a next year Q1 event.

Jason Ader: Yeah.

Marc Suidan: that is that is correct, Damon. You know, a lot of it starts arriving in Q4. right? Because we signed our big deal in June. We started placing all our orders. If it comes at the tail end of Q4, there is a bit of an impact on depreciation in Q4, thus gross margin, but it really picks up more in Q1 and Q2 of next year.

Jason Ader: And then thereafter, it starts recovering for the 4 quarters after that. Gotcha. Okay. And just to be clear, you are so comfortable with the time line on the CoreWeave ramp, even though you know, there is a lot of concern in the market right now?

Gleb Budman: Hey, Jason. This is Gleb. So the short answer is yes. they have, you know, always been a great partner We are working closely with them. We do not see any signs that. of any risk or any concern. it is a committed contract with committed minimum ramps. We are building toward that. it is obviously on us to make sure that we execute well on delivering everything that we need to deliver to them. And, you know, I think that there is there is clearly a lot of demand for cloud storage out in the market. And you know, when I there is nothing that we see that would jeopardize that at this point.

Marc Suidan: Yeah. And Jason, this is Marc again. What I would add to that is we are very well capitalized. I mean, between the convertible debt offering we did, the cash balance we had, and the capital lease lines. We have access to over $400 million of cash to be able to fund whatever we need. We are not gonna spend $400 million, but we have access to it. So we are we are we are well capitalized to continue down this route. Both for CoreWeave as well as, you know, the broad based demand we are getting and the additional signals we are seeing.

Gleb Budman: Let me ask you this final question then. If, for some reason, something went wrong with CoreWeave, How confident are you that you could, you know, find the demand for that additional capacity that you are bringing online. I think, Jason, you know, kind of just broadly you know, kind of as I was saying in the prepared remarks, I think we are seeing overperformance across all of our segments. you know, everything from flamethrower, which hit a record month in new sign ups. We had over 100 companies sign up for Flamethrower this month alone. You know, that is. which is down at the very beginnings at the start up side of the market. To the, you know, full self serve customers to the over $50 thousand ARR customers. You know, and then the over $500 thousand ones. So I think we are seeing, you know, broad-based successful demand across the whole business. So if there is you know, hiccups and bumps in demand from some parts, the overall demand that we are seeing is very strong. And it is actually it is actually allowing us to be more judicious with the customers that we are bringing onto the platform at this point, which has been nice. it is allowed us to, you know, be somewhat picky a little bit on quality of customers and revenue that we accept onto the platform.

Jason Ader: And so, you know, obviously,, CoreWeave was a really great partner. We are working closely with them. We expect to work well with them in delivering for them. They are a big deal for us, and, you know, we would you know, we do have a lot of demand coming from a lot of other parts across the spectrum. Alright. Thanks. Good luck. Mhmm. Thank you.

Operator: Next question comes from the line of Michael Cikos with Needham. Mike, your line is now open.

Michael Cikos: Hey. Thank you for taking the questions. team, and congratulations on a successful quarter. For Gleb or Marc, I just wanted to see, and I do not want to-- I am trying to get a sense of the individual factors here when I am thinking about the increased guide for 4Q, which is great to see. right? We are talking about the strength of the B2 self-serve customers. We are talking about these 4 large agreements. We are talking about CoreWeave, which I think you would said actually started loading their data several months ahead of what was expected. And really, the question is could you help us tease apart those various factors if we are trying to figure out what is the 3Q. The core 3Q outperformance that is benefiting 4Q here versus maybe some of these larger like a CoreWeave or that other neocloud scaling faster than anticipated?

Gleb Budman: Hey, Mike. This is Gleb. So first, just to clarify, it was not CoreWeave that started a few months before their plan. It was the other neocloud that we announced at the beginning of the year where we had development work that we talked about that we needed to do in order for them to start being able to utilize the platform. We finished that development work early which is a great testament to our team and the way that the team has been able to execute on an engineering and operations side. And then that customer has started loading data earlier a few months. We had originally said we expected it to start at the beginning of 27. So that is on that piece of it. I will let Marc maybe touch on more of the individual components for the guide.

Marc Suidan: Yeah. Mike, good to be talking to you. When you think about the you know, we have announced 11 deals so far this year. Of greater than $500 thousand ARR. That all fits into why this guide is getting to 60% year over year growth. And, of course, there is CoreWeave and the other neocloud in there, but the acceleration that is been happening this year is really strong. And a lot of these customers as Gleb noted, they are, you know, I would say they are what we consider AI builders, companies with about 500 million to a billion dollars in market value So pretty mid to late stage, Startups growing well. Already. I mean, typically, we see ARR in them of 100 to 200 million. So all that seems to be running well. So we feel pretty comfortable with what we are seeing. Pretty well diversified and a very healthy business models.

Michael Cikos: Okay. And I know that you had commented as well on CapEx for Q4 and potential impact and headwinds on gross margin until the revenue ramps behind it. Are we at a point where you can help us think about CapEx next year? Just given the market's interest or appetite for data points surrounding capital efficiency and returns on those capital requirements?

Marc Suidan: Yeah. So know, we previously shared at the investor day that we got about a 2-year payback to recover our CapEx spend. right? So if you are to think about where ARR ended at the end of 25 and where it could potentially end at the end of 27. Let's hypothetically say, that is about $150 million. That would require $300 million of CapEx. right? And for the lifetime of that CapEx, that would generate a billion dollars in revenue in aggregate. Not per year. So that is the that is the economics there. So you are seeing the CapEx ramp now really accelerated Any CapEx acceleration from our side is predominantly tied to you know, revenue growth Because for every dollar of ARR, we are adding, we need to fund $2 of CapEx.

Michael Cikos: And so that is where you are seeing that pickup in Q4. Like we said at the investor day also, we will probably pay for most of those in Q4 in cash. So you will see that in the free cash flows. And then afterwards, you know, we will we will step back and see how much we wanna reblend in the capital lease model back into that. So we are we are continuously evaluating those options. Does that address your question, Mike? Very much, team. It does. Thank you so much, Marc.

Operator: Your next question comes from the line of Erik Suppiger with B. Riley Securities. Your line is now open.

Erik Suppiger: Thanks for taking the question. Congrats on a good quarter. Can you talk a little bit about how you would compare the market opportunity as you see it today between the AI builders and the AI infrastructure providers. It sounds like maybe with interest rates going higher, you are placing your bet more broadly on the AI builders. Is that a reasonable assumption? And then secondly, just on CoreWeave, can you describe the trajectory of how that business is going to ramp between now and third quarter of next year? Is it is it going to be, you know, is it going to ramp up right as you get into the middle of the year? Or how should we think of that trajectory?

Gleb Budman: Erik, this is Gleb. Thanks for the question. So first of all, on the AI infra, versus the AI builders, So 1 of the things we had talked about before is that AI infra companies, there is a couple hundred of those companies out there. And, you know, there are different stages of their maturity curve. And so what we found is that ones that are just at the earlier stages, all that they are focused on is building up their-- well, it is not-- somebody's typing hard. So Mhmm. Yep. You know, the AI infra companies, you know, like the ones that are that are earlier in their maturity curve, they are very focused on just being able to stand up data center power and GPUs ones that are further along in that maturity curve, they are actually thinking about the broader workflows and helping them solve those. The 1. What. Those that are further along are the ones that are starting to lean into the realization that they need to provide storage as a part of their services. And as they do that, they realize that capacity tier of storage is critical to serving the actual required workflows of their customers. So, you know, in part, it is you know, some of these a couple hundred are further along. Many of them are still on the earlier stage. So we think that over the next couple years, many of these AI infra companies are going to get to this place where they come to that step their journey where they really are serving the broader workflows, and they. they are going to need Backblaze as a core piece of that. In the meantime, we are working closely with a number of them to, you know, to start further down that path. On the AI builder side, the reason that we are talking about that side is that there is so many of these companies out there. They have large storage needs and they have them today. So, you know, I was looking at some of our companies that are AI builders on our platform. We have a Frontier lab that is focused on the radiology space. We have a frontier lab focused on biotech research. We have a frontier lab focused on quantitative modeling, for financial services firms. We have an AI data provider that is focused on providing a variety of datasets for enterprises. We have surveillance platform company that is, focused on leveraging AI to enable all of their surveillance functionality. We have we have a company that is doing AI applications delivery for enterprises. So these are all you know, a variety of AI builders, and there is 33 thousand venture-funded startups that are in this in this kind of grouping. And that is just the AI startups, not including the, you know, the midsize scale ups and know, and other enterprises that are doing-- doing building in the AI space. So it is an area where we see a lot of opportunity to have scalability, repeatability, and the ability to service them today while we work on these individual larger opportunities on the AI infra.

Marc Suidan: Yeah. And Erik, I can dive to the other part of your question and then I will start off with a data point we previously shared. right? The Neo Cloud capacity storage market is expected to be 14 billion by 2031. So whether it is CoreWeave or other players, I mean, that is them selling to these similar AI builders and AI startups. So in that market, right, when they. When these companies raise money, unlike their predecessor startups, pre-AI, right, they have a P and L line item. Data storage. right? got a report that says 15% of their spend is on data storage. that is obviously varying types of data storage. So it is suddenly a much bigger part of what a startup is today. What it was before because it is a key asset for them. Now you asked about the, you know, the CoreWeave ramp. So if you remember the CoreWeave contract is $135 million over 5 years. About 70% of that is them operating in our data centers on our CapEx and about 30% of that is, using our platform, but they fund the CapEx in their data centers. So that 30% is the managed storage part it is obviously a much higher gross margin That kicks in a bit later. For the first part, the 70%, that is the ramp now that you are seeing. And there is a 2 way minimum commitment. right? We have got to deliver a certain capacity ramps up every month all the way through July 2027 next year. And that is their commitment to us as that ramps up. as well. So it is a 2 way commitment. So once we get to July 2027, that 70% of the contract reaches its minimum run rate for the remainder of the contract. Does that provide you what you are looking for on the ramp side, Erik?

Erik Suppiger: Yeah. Very helpful. Thank you very much.

Operator: Your next question comes from the line of Eric Martinuzzi with Lake Street Capital Markets. Your line is now open.

Eric Martinuzzi: Yeah. Shifting over to the computer backup side of the business. Those numbers in Q3 outperformed certainly versus what I was modeling. I am curious to know, I think you had talked last quarter about kind of a down mid single digits range or maybe it was low to mid single digits. But what is implied in the 2026 for the CPU?

Marc Suidan: So for Q4, we are still implying you know, that low single digit decline year over year. that is what is in the guide. And what you saw in Q3 was the initiatives we have taken to retain or grow customer acquisitions has stabilized the revenues. So that is why sequentially, there was a slight increase. But as it relates to guide, we are we are still guiding the same way we did in the previous quarter until we see that pattern solidify.

Eric Martinuzzi: Got it. Thank you.

Operator: Your next question comes from the line of Jeff Van Rhee with Craig Hallum Capital Group. Your line is now open.

Jeff Van Rhee: Hey, Gleb, Marc. This is Dan on for Jeff. Congrats on the quarter, great quarter. In terms of maybe you could walk us through a little bit we have talked about the build out that is going to be happening for CoreWeave starting in Q4 here. Maybe when we look to the rest of the business, you could just walk us through some of the key items you are looking at, hurdles, long lead items, you know, sort of what are the things you need to get in place, how responsive is the build-out. If you see a surge in demand, how long does it take to build out to meet that? And I know any other thoughts in terms of build-out need as the rest of the b 2 business has been accelerating. Hey, Jeff.

Gleb Budman: Thanks. This is Gleb. Appreciate the comments. So the, you know, the short of it is we are. it is a huge step up. right? We are we are basically increasing, you know, the CapEx by something like a factor of 10. Over you know, over the course of the next year ish. So it is it is definitely a large increase across all of all the aspects of the business. You know, the good news I would say, and Marc can touch more on this, but, you know, the supply is something that we have allocated for. from the vendors. We work closely with them And you know, they. We do not. You know, allocated does not mean that we have them in our possession and we. And we have paid for them. It means that we have the allocation and we pay for them once we actually get them. But it does allow us to have confidence in being able to deliver on our commitments for our partners.

Marc Suidan: Yeah. And there is you know, you there is 2 aspects. 1 is the hardware I mean, we used to plan. To be conservative, we plan on 9 month to fulfill from order to fulfillment. it is it is coming in closer, I would say, between 4 and 5 months. So we are we are doing well there. Things are on schedule as it relates to the hardware side. The data center, I mean, no secret. It is a tough logistics issue. We are you know, we actively monitor that to make sure we are expanding at the right rate because at the rate of growth, we are growing. We have had quite a few expansions, and we are actively making sure we have enough capacity there to sustain our growth. Those are the 2 aspects we have got to look into because as you noted, Jeff, right? The-- you have got the CoreWeave commitment. You have got the other neocloud commitment. You got these 11 deals greater than $500 thousand. you have got the self-serve sign ups of more than quadrupled. And, you know, there is been 1 consistent trend since b 2 launch in 2016, which is every year. The data from the existing customer grows, and that is before even AI hit the scene. And now with AI, we are just seeing the velocity of growth of that data really accelerate. So with that, those are the elements we look for it is the data center and the hardware. The power comes with the data center. So they go hand in hand in the hardware. We are predominantly on high capacity drives from the main vendors. there is also some a bit of compute and networking that fits into there as well.

Jeff Van Rhee: And then just in regards to computer backup and, you know, multiple exabytes that you have on a more traditional business, is there potential over time for some of that capacity to potentially shift or be allocated to B2 as you see more opportunities there?

Gleb Budman: Yeah. it is an interesting question, Jeff. I mean, I think that the short of it is that the computer backup business itself is you know, kind of roughly a flattish business. So it becomes a smaller and smaller percentage of the overall infrastructure. We do look continuously at ways to optimize that business. Some of the optimizations are churn reduction and growth, which is you know, optimizing on stabilizing the revenue like we did this quarter, which was you know, an exciting moment. And some of it is about optimizing the data footprint. And so we do have initiatives underway to look at how to how to do that further to the extent that we do that, that space can be repurposed for some of the b 2 use cases. it is not it is not the, I would say, the core focus for the way we do it, but it is an opportunity for it.

Jeff Van Rhee: Thanks, Gleb. Thanks, Marc.

Gleb Budman: Mhmm.

Operator: Thank you. We have reached the end of the Q&A session. I will now turn the call back to Gleb Budman for closing remarks.

Gleb Budman: Great. And thank you, everybody, for joining us. This was a great quarter. We showed broad based momentum across our business, 53% year-over-year growth in b 2 ARR, we see AI being a years-long tailwind for our business as we provide the capacity tier that AI desperately needs. Our mission is to make customers unstoppable by solving their toughest storage challenges. And the pace of AI innovation is making those challenges dramatically more urgent and greater. I want to thank our customers for trusting us to support your businesses and innovation. Our partners and investors, and our team for doing all the hard work to make all of this happen. Thank you for joining us. We look forward to talking with you again next time. Operator, you can have the call.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.