Backblaze Third Quarter 2026 Earnings Call - BACKBLAZE INC

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 star 1 to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Mimi Kong, Director of Investor Relations and Corporate Development. Mimi, please go ahead thank you good afternoon and welcome to backblaze's third quarter 2026 earnings call on the call with me today are glove budman co-founder ceo and chairperson of the board and mark sweet and chief financial officer today backblaize 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, 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 10Q and our other financial filings. We should not rely on our forward-looking statements as predictions of future events. All forward-thinking 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-KAAP 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 8K 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 Hallam Alpha Select Conference on November 17th 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'll now like to turn the call over to Gleb. Thank you, Mimi, and thank you, everyone, for joining me. Thank you so much for joining with us today. We had a strong third quarter as we continued 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 four times the number of net new B2 self-Serve customers versus the same period last year. Customers over $50,000 in ARR grew by 19 to 254, showing our upmarket momentum is repeatable. And we again closed four deals over $500,000 an ARR, a sign of the value we delivered to the largest data users. All of that reflects the value of our platform, along with the progress we're making on our AI strategy and go-to-market execution. Now let me share what I'm seeing in the market. In conversations with customers, AI founders, and infrastructure providers, I'm hearing two consistent themes. First, data growth keeps exceeding expectations. Our early AI customers' 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 data sets. And second, companies are increasingly focused on getting more efficiency and ROI from AI. They're 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 one of the important ways to improve that ROI also. If you have a router to select the right model, why wouldn't you apply that same discipline to selecting the right storage location? Together, those trends create a growing opportunity for BackWise. 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've discussed, we serve two 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're making with our AI infrastructure customers. While we're 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've 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 customer we announced at the start of the year and that customer began loading data several months ahead of our early 2027 expectation additionally where we've 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're 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 the train and tune models and generate new inference data we're 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're encouraged in driving it three ways. First, helping builders discover Backblaze. Years of trusted original content, including nearly 13 years of drive stats, have established Backblaz 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 percent year-over-year roughly double the 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 have 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 tech crunch 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've published reference architectures for B2 in AI workflows and expanded the tools developers use to integrate our storage. For example, our new open-source B2 MCP server lets AI agents use B2 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're focused on turning that interest into lasting customer relationships and long-term growth. Now on to the four agreements over 500k ARR signed this quarter. We had three expansions with existing AI builders showing how customers often start small and grow and one 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 billion 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 B2. Second, a generative AI media company expanded as its AI training workloads and data grew. Third, an AI voice company is connecting its GPU provider's compute directly to Backblaze, allowing it to store more of its data with us. Each of those three increased their total commitment to more than double its original level within a year. For us, 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 worth approximately $500,000 in ARR for Powered by Backblaz, our white label offering, replacing the varied storage setups its customers bring with one 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's 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 that is being accessed and used the 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 back boys with that i'll turn it over to mark mark Thanks, Gleb, and good afternoon, everyone. Q3 was another quarter of accelerating growth and improving operating leverage. Total revenue grew 26% the 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 1,000 basis points year-over-year to 33%. Both revenue and adjusted EBITTA 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-ever-year, and $2 million above the high-end of our guidelines. The outperformance was broad-based, driven by strength in our B2 direct sales bookings. Higher B2 self-serve customer growth, in 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 B2's growth. Excluding it, B2 Organic revenue grew 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 continued to move upmarket. ARR from our $50,000-plus customers grew 109% year over year to $50 million, As expected in their large committed contracts, CoreWeave and the other previously announced Neocloud 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 grow 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 three times 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 netted dispositions total $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 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 four to five quarters, we expect to deploy capital to support contracted demand, including the CoreWeave, other NeoClouds, and AI Builder's commitments. We are adding capacity ahead of customer ramps, which means depreciation will begin before the associated revenue, temporarily reducing GAAP gross margins by three to six 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 the debt principal is repaid in cash the cap call completely offsets dilution up to $33.76 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 expected 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 EBIDDA, we are rising our 2026 fiscal year margin outlook to 30 to 31 percent from 27 to 29 percent consistent with our guidance philosophy this outlook excludes potential new deals greater than 500 000 in arr in 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 we will now begin the question and answer session please limit yourself to one question and one follow-up if you would like to ask a question please press star 1 to raise your hand to withdraw your question press star one 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 etai kidron with oppenheimer and co your line is now open uh thanks hey guys uh congrats some good numbers here. One question for you, I guess, Gleb, I'll start with you. I just want to make sure I understand your comments on PAI infrastructure customers. If I interpret that correctly, you said something to the effect of focus on current customers and make sure that you ship and ramp with them appropriately. Am I interpreting this to mean that you're, are, I don't know, temporarily or permanently, you tell me, are kind of slowing your chase of new neoclouds and you're more focused on ramping existing ones? Is this a change in strategy? Am I interpreting that correctly? Hey, Tei, thanks for the question. It's not a change in strategy. We still are going after the neoclouds. We have a team that's working on it and we're in discussions with a number of them it's more a statement that the ones that we have signed you know both core weave but also the other large one in particular that we announced at the beginning of the year these are you know significant scale-up opportunities for us and we want to make sure that we do a really good job and so you know it's a lot of organizational focus on just executing relentlessly on that. And we think that by doing that, that's 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 in strategy. We still believe that there's a big opportunity for us to service the broader neoclub landscape, just a recognition that there is a lot of work to be to make sure that we hit the full you know multi-exabyte uh deliverability that we're doing for them um and then separate from that is obviously the ai builders opportunity for us is also very large and and so it's just executing on both in parallel okay very good and then mark um i just want to make certain to send the numbers in your guide for the next quarter again just to clarify it doesn't sound like core we've contributed much if any to the third quarter So your guidance to the fourth quarter, you know, if you take into account the beat that you had in the quarter now, I would have to think that Corweave needs to and should contribute more in four Qs. So is it fair to say that just the step up there hasn't been a substantial one relative to the beat and how you roll numbers? So am I interpreting that to mean that you're being extra conservative here still on CoreWeave itself or is CoreWeav more of a 27 ramp? Help me think the timing here around this. Yeah. Hi, Itai. CoreWev ramps all the way through middle of next year. They're on track for that. You are correct that in Q3, 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's definitely a bit of core weave there. And there's also the overperformance of Q3 as it relates the four large deals greater than half a million we announced in there. And then core weave and the other new cloud really started kicking in in higher gear in Q1 and then Q2 of next year and then full-ramp Q3 of next year. Appreciate it. Thank you. Good luck. Your next question comes from the line of Jason Ader with William Blair. Your line is now open. Yeah, good afternoon. Thanks. I guess, Mark, just on the fourth quarter gross margin, so you didn't give specific guidance for that. You talked about kind of a three to six point impact from all the CapEx depreciation. But is it right to think that it won't be that big an impact in Q4 just because the CapX is coming online in the quarter and therefore it's more of a next year Q1 event? Yeah, that's correct, Jason. 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's a bit of an impact on depreciation in Q5 thus gross margin, but it really picks up more in Q1 and Q2 of next year. And then thereafter it starts recovering for the four quarters after that. Gotcha. Okay. And just to be clear, you're still comfortable with the timeline on the core weave ramp, even though there's a lot of concern in the market right now? Hey, Jason. This is Gleb. So the short answer is yes. We've always been a great partner. We're working closely with them. We don't see any signs of any risk or any concern. committed contract with committed minimum ramps we're building toward that it's 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's there's clearly a lot of demand for cloud storage out in the market and you know when i there's nothing that we see uh that would jeopardize that at this point yeah jason this is mark again what i would add to that is we're very well capitalized uh 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 uh to be able to fund whatever we need we're not going to spend 400 million but we have acces to it so we're we're well capitalised to uh to continue down this route uh both for core weave as well as you know the broad-based uh demand uh we're getting and the additional signals we're seeing let me ask you this final question then um if for some reason something went wrong with uh core weave um how confident are you that you could um you'll find the demand for that additional capacity that you're bringing online I think, Jason, just broadly, as I was saying in the prepared remarks, we're seeing overperformance across all of our segments, everything from Flamethrower, which hit a record month in new signups. We had over 100 companies sign up for Flamethrower this month alone, which was down at the very beginning, at the startup side of the market, to the full self-serve customers, to over 50,000 AR customers, and then the over $500,000 ones. So I think we're seeing broad, successful demand across the whole business. So if there's hiccups and bumps in demand from some parts, the overall demand that we're seeing is very strong. And it's actually allowing us to be more judicious with the customers that we bring onto the platform at this point, which has been nice. It's allowed us to, you know, be somewhat picky a little bit on quality of customers and revenue that we accept onto the platform. and so you know obviously before we was a really great partner we were working closely with them we expect to work well with them in delivering uh for them um they're a big deal you know for for us and you know we would you know but we do have a lot of demand coming from a lot of uh parts across the spectrum all right thanks good luck thank you your next question comes from the line of Mike Sikos with Needham. Mike, your line is now open. Hey, thank you for taking the questions, team, and congratulations on a successful quarter. For Gleb Wormark, I just wanted to see, and I don't want to, I'm trying to get a sense of the individual factors here when I'm thinking about the increased guide for 4Q, which is great to see. We're talking about the strength of the B2 self-serve customers. We're talk about these four large agreements. We're talking about CoreWeave, which I think you had 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're trying to figure out what is the core 3Q outperformance that is benefiting 4Q here versus maybe some of these larger, like a CoreWeav or that other NeoCloud, scaling faster than anticipated? Hey, Mike, this is Bob. So first of all, just to clarify, it wasn't CoreWeave that started a few months before their plan. It was the other Neocloud that we announced at the beginning of the year that 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 by a few months. We had originally said we expected it to start at the beginning of 2027. So that's on that piece of it. I'll let Mark maybe touch on more of the individual components for the guide. yeah mike good to good to be talking to you when you think about the you know we've announced 11 deals so far this year of greater than half a million dollar arr that all fits into why this guide is getting to 60 percent uh year-over-year growth and of course there's core weave and the other neo cloud in there but the uh the acceleration that's been happening this year is really strong and a lot of these customers as gleb noted they're you know i would say they're what we consider ai builders companies with about half a billion to a billion dollars in market value so pretty mid to late stage startups growing well would 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 which are what we're seeing pretty well diversified and kind of very healthy business models okay and it 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 uh interest or appetite for data points surrounding uh capital efficiency and returns on those capital requirements Yeah. So we previously shared at the Investor Day that we got about a two-year payback to recover our CapEx spend. So if you're to think about where AR ended at the end of 25 and where it could potentially end at the end of 27, let's hypothetically say that's about $150 million. That would require $300 million of CapEx. And for the lifetime of that CapEx, that would generate a billion dollars of revenue in aggregate, not per year. So that's the economics there. So you're seeing the CapEx ramp now really accelerated. Any CapEx acceleration from our side is predominantly tied to revenue growth, because for every dollar of ARR we're adding, we need to fund $2 of CapEx And so that's where you're seeing that pick up in Q4. Like we said at the investor day also, we will probably pay for most of those in Q5 in cash. So you'll see that in the free cash flows. And then afterwards, you know, we'll step back and see how much we want to re-blend in the capital lease model back into that. So we're continuously evaluating those options. Does that address your question, Mike? Thank you very much, Tim. It does. It does, thank you. much more. Your next question comes from the line of Eric Seppager with B. Reilly Securities. Your line is now open. 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're 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 going to be, you know, is it going ramp up right as you get into the middle of the year? Or how should we think of that trajectory. Eric, thanks for the question. So first of all, on the AI infra versus the AI builders. So one of the things we had talked about before is that AI infra companies, there's a couple of hundred of those companies out there, and there are different stages of their maturity curve. And so what we found is that ones that are just kind of at the earlier stages, all that they're focused on is building up their it's building up so somebody's typing hard so um yeah the ai and for companies that are like the ones that are that are earlier in their maturity curve they're very focused on just being able to stand up data center power and gpus the ones that are further along in that maturity curve they were actually thinking about the broader customer workflows and and helping them solve those the one those that are further along are the ones that are starting 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 that a capacity tier of storage is critical to serving the actual required workflows of their customers so um you know in part it's 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 of years, many of these AI inferred companies are going to get to this place where they come to that step in their journey, where they really are serving the broader workflows, and they're going to need Backblaze as a core piece of that. In the meantime, we're working closely with a number of them to start further down that path. On the AI builder side, part of the reason that we're talking about that side is there's so many of these companies out there they have large storage needs and they have them today um so you know i was i was looking at some of our companies that that are ai builders on our platform we have a frontier lab that's focused on the radiology uh space we have frontier lab focused on biotech research we have frontier lab on quantitative modeling for financial services firms. We have an AI data provider that's focused on providing with a variety of data sets for enterprises. We have a surveillance platform company that's focussed on leveraging AI to enable all their surveillance functionality. We have, we have a company that's doing AI applications delivery for enterprises so these are all, you know, a variety of ai builders and there's 33 000 venture-funded startups um that are in this in this kind of grouping and that's just the ai startups not including the you know the mid-size scale-ups and you know and other enterprises that are uh doing you know doing building in the ai space so it's an area where we see a lot of opportunity to have uh scalability repeatability and and the ability to service them today um while we you know work on these individual larger opportunities on the ai infra yeah and eric i could dive to the other part of your question and then i'll start off with a data point we previously shared right the neo cloud uh capacity storage market is expected to be 14 billion by 2031. so whether it's core wave or other players i mean that's them selling to these similar uh ai builders and ai startups so So in that market, when these companies raise money, unlike their predecessor startups, pre-AI, they have a P&L line item, data storage. We got a report that says 15% of their spend is on data storage, and that's obviously varying types of data storage so it's suddenly a much bigger part of what a startup is today than what it was before because it's a key asset for them. Now, you asked about the Coreweave RAM. So if you remember, the CoreWeave contract is $335 million over five 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's obviously a much higher gross margin. That kicks in a bit later. For the first part, the 70%, that's the ramp now that you're seeing. And there's a two-way minimum commitment, right? We got to deliver a certain capacity, ramps up every month all the way through July of 2027 next year. And that's their commitment to us as that ramps off as well. So it's a three-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 with what you're looking for on the ramp side, Eric? Yeah, very helpful. Thank you very much. Your next question comes from the line of Eric Martinuzzi with Lake Street Capital Markets. Your line is now open. Yeah. Shifting over to the computer backup side of the business, those numbers in Q3 outperformed, certainly versus what I was modeling. I'm 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-simple digits, but what's implied in the 2026 for CBU? so for for q4 we're still implying uh you know that low uh single digit decline year over year that's what's in the guide and what you saw in q3 was the initiatives we've taken uh to retain or grow customer acquisitions um have stabilized their revenues uh so that's why sequentially uh there was a slight increase so but as it relates to the guide we're still guiding the same way we did in the previous quarter until we see that pattern uh solidify got it thank you your next question comes from the line of jeff van rie with craig hallam capital group Your line is now open. Hey, glad, Mark. This is Daniel on for Jeff. Congrats on the quarter, great quarter. In terms of maybe you can walk us through a little bit, you know, we've talked about the build out that's 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're looking at, hurdles, long lead items, you know, sort of what are the things you need to get in place? How responsive is the buildout? If you see a surge in demand, how long does it take to build out to meet that? And I don't know if there's any other thoughts in terms of the need, as obviously the rest of the B2 business has been accelerating. Hey, Daniel, thanks. This is Cleb. Appreciate the comments. So the short of it is, it's a huge step up, right? We're basically increasing the capex by something like a factor of 10 over the course of the next year-ish. So it's definitely a large increase across all the aspects of the business. The good news, I would say, and Mark can touch more on this, but the supply is something that we have allocated from the vendors. We work closely with them. And allocated does not mean that we Have them in our possession and we've paid for them. It means that we've had 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. Yeah, and there's two aspects. One is the hardware. I mean, we used to plan, to be conservative, we planned on nine months to fulfill from order to fulfillment. It's coming in closer, I'd say, between four and five months. So we're doing well there. Things are on schedule as it relates to the hardware side. The data center, I mean, no secret, it is a top election issue. We're, you know, we actively monitor that to make sure we're expanding at the right rate because at the rate of growth, we are growing. We've had quite a few expansions and we're actively making sure we have enough capacity there to sustain our growth. Those are the two aspects we got to look into because, as you noted, Daniel, right, you've got the CoreWeave commitment. you've got the other neocloud commitment you got these 11 deals greater than half a million you've got the self-serve signups have more than for drupal and you know there's been one consistent trend since b2 launch in 2016 which is every year the data from the existing customer grows and that's before even ai hit the scene and now with ai we're just seeing the velocity of growth of that data really accelerate so with that those those are the elements we look for it's 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's also some a bit of compute and networking that fits into there as well and then just in regards to computer backup and you know multiple exabytes that you have on the more traditional business is there potential over time for some of that capacity to potentially shift or be allocated toward b2 as you see more opportunities there yeah it's it's an interesting question i mean i think that the the short of it is that the computer backup business itself is you know kind of roughly a flat-ish business um 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 uh you you know, optimizing on stabilizing the revenue like we did this quarter, which was an exciting moment. And some of it is about optimizing the data footprint. And so we do have initiatives underway to to look at how to how to do that further to the extent that we do do that, that that space can be repurposed for some some of the B2 use cases. It's not it's not the I would say the war focus for the way we do it, but it is an opportunity for it. We have reached the end of the Q&A session. I will now turn the call back to Gleb Budman for closing remarks. Great, and thank you, everybody, for joining us. This was a great quarter. We showed broad-based momentum across our business, 53% year-on-year growth in B2 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, partners and investors and our team for doing all the hard work to make all this happen. Thank you for joining us and we'll look forward to talking with you again next time. This concludes today's call. Thank you you for attending. You may now disconnect.