Backblaze Inc. (NASDAQ: BLZE) Q3 2021 earnings call dated Dec. 13, 2021
Corporate Participants:
James Kisner — Vice President of Investor Relations
Gleb Budman — Chief Executive Officer and Chairperson of the Board
Frank P. Patchel — Chief Financial Officer
Analysts:
Ittai Kidron — Oppenheimer Company — Analyst
Jason Ader — William Blair — Analyst
Simon Leopold — Raymond James — Analyst
Erik Suppiger — JMP Securities — Analyst
Eric Martinuzzi — Lake Street Capital — Analyst
Zack Cummins — B. Riley Securities — Analyst
Presentation:
Operator
Thank you for standing by and welcome to the Backblaze Q3 2021 Earnings Conference Call.
[Operator Instructions]
I would now like turn the conference of your host, Mr. James Kisner, Vice President of Investor Relations. Sir, you may begin.
James Kisner — Vice President of Investor Relations
Thank you. Good afternoon and welcome to Backblaze’s third quarter 2021 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 quarterly financial results that were distributed earlier this afternoon. Statements on this call include forward-looking statements, future financial results, our goals and expectations regarding future revenue growth, profitability, use of IPO proceeds and investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements, our ability to acquire new customers and successfully engage and expand usage of our existing customers, the cost of success of our marketing efforts, our ability to promote our brand, our reliance on key personnel and ability to identify, recruit and retain skilled personnel, our ability to effectively manage our growth, our ability to compete effectively with existing competitors and new market entrants and the growth rates of the markets in which we compete. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call. In particular, those described in our Risk Factors that will be included in our Form 10-Q for the quarter ended September 30, 2021 in our recently filed S-1 prospectus. 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. Those is 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’ll also find a slide presentation related to our comments in the webcast viewer.
Note that our IR website is currently redirected to a static page while our external vendor is working to patch for the Log4j vulnerability that is broadly affecting many companies on the global Internet. We will post a presentation on the static page as well. I would now like to turn the call over to Gleb. Gleb?
Gleb Budman — Chief Executive Officer and Chairperson of the Board
Thank you, James. And thanks to all of you for joining what is Backblaze’s first quarterly earnings call as a public company. We had a strong Q3 and we’ll delve into the details of the quarter in a moment, but since this is our first earnings call, I’d like to spend a few moments introducing our company to those who may be new to the story. Backblaze is building the leading independent cloud for data storage and I’d like to explain why that’s so critical. Today, for mid-market companies, the cloud storage offerings of the large diversified vendors are complex and expensive. Also, due to the breadth of those vendors, they attempt to lock in data to only using their services and they are increasingly in competition with their own customers and partners. Unlike those vendors, all we do is storage and we don’t compete with our customers. Customers are increasingly wanting to use their data with best-of-breed providers in a multi-cloud fashion. This is why we believe the future is being built on independent cloud platforms, and ours has been over 14 years in the making.
For each major element of the tech stack, an independent cloud platform, such as our partners Cloudflare for networking or DigitalOcean for compute has emerged and built a large business, yet no one has done that for data storage. We believe that data storage is among the most critical of all of these elements since none of them would exist without data. We believe that we are well positioned to be the independent trusted cloud platform that enables developers and businesses to use their data, how they want, with whoever they want at disruptively affordable economics. We have gotten to where we are today through the hard work and dedication of our incredible team of about 250 employees to whom we are incredibly grateful, especially during a very challenging global pandemic. We’d also like to thank our thousands of partners, our nearly 0.5 million customers and the millions of you that read our blog. Thank you also to the many investors, big and small, who put your trust in us. We expect this is only the beginning of our journey together, and we appreciate your support of our company mission to make it astonishingly easy to store, use and protect data.
As I mentioned before, we had a strong Q3, which ended September 30, 2021. Both of our cloud services performed well, led by B2 Cloud Storage, which grew revenue rapidly at 59% and Computer Backup, which continued strong double-digit growth at 13%, resulting in total company growth of 25% to $17.3 million. B2 has higher growth rate, NRR and other key metrics than our Computer Backup business. And as the mix shift continues towards B2, it drives even stronger metrics for the whole company. Importantly, nearly all of our revenues are recurring, which provides good business predictability with annual recurring revenue, or ARR, totaling $71 million as of Q3.
Before turning the call over to Frank to discuss the details of our financial and operational results, I’d like to share a little more about who we are, what we do and our strategy for those on the call that may not be as similar. First, I’ll touch on our history and what makes us unique. Prior to Backblaze, I and the other four cofounders built and successfully sold two tech companies. We started Backblaze in 2007 and largely bootstrapped it with minimal outside funding. Today, 14 years later, we’re also working together to build and scale the company. In a world where many tech IPOs have already burned through hundreds of millions of dollars of outside investment prior to going public, we got here with less than $13 million in outside equity investment. We are excited by the opportunity to take the over $100 million in proceeds from our IPO and invest it towards our large and fast-growing market opportunity. Now let’s talk about that market. The market for data storage. It’s a great market to be in because data is growing rapidly, and no one wants to delete anything. We all experience that every day. Everyone has become a data hoarder and all of that data needs to be stored, used and protected. That has resulted in an estimated $91 billion market for public cloud storage in 2025 according to IDC. Now what is [Indecipherable] [00:07:28]. We have two storage focused cloud offerings. Our original cloud offering was computer backup which ended Q3 with $46 million of ARR. Computer backup is a cloud service that protects data on all laptops and desktops for businesses and consumers. Computer backup is a great services, it’s completely unlimited and costs only $7 per month. Wirecutter, the product review section of the New York Times consistently selected it as the best backup service for most people. Our second cloud service, B2 Cloud Storage ended Q3 with $25 million of ARR. B2 is a storage platform for businesses and developers. It is a pay-as-you-go, storage-as-a-service public cloud offering that serves a wide range of use cases, including application development, ransomware protection, backup and multi-cloud. While this market includes large diversified cloud vendors, namely Amazon Web Services, Google Cloud and Microsoft Azure, they have increasingly focused on the largest enterprises with the most complex use cases. This has left a void where the mid-market is ignored and underserved. Backblaze can scale to any size organization as demonstrated by our two exabytes of data storage under management, which is over 10 times the amount of data stored by Spotify when they went public just a few years ago. But we are optimized for the mid-market, which we define as companies with less than 1,000 employees, and which IDC has estimated to be over 60% of the market or $55 billion in revenue opportunity in 2025. Built by developers, for developers, B2 Cloud Storage is differentiated because it’s easy, affordable and trusted. We’re easy because we focus on just storage, on cutting away all the complexity and on making simple-to-use products, which delivers third-party verified savings for customers of up to 92% of operational time. This can save developers and IT administrators potentially hours from their week to do more value-added tasks. We’re affordable, charging just one-fifth of the diversified cloud platforms pricing, which we are able to do as a result of the software innovation we’ve achieved over 14 years of development on our storage cloud. And we’re trusted. And trust is critical when you were talking about your data. Unlike the diversified cloud vendors, we do not aim to compete with our customers and partners. As an independent cloud, we don’t lock-in customer data through expensive egress fees to get their data out or through other [Indecipherable]. Customers increasingly want their data to not be trapped so that they can use it with best-of-breed services and also can rest assured that it won’t be used against them competitively by their vendor. In addition to having differentiated products built on our storage cloud, we have a unique go-to-market. It starts with our content and community. We have been publishing storage-focused content on our blog for nearly 15 years and built a community of over 3 million readers and fans.
We have an entire go-to-market motion around this, including a head of publishing, publishing calendar and distribution through social and press. This content and engagement helps efficiently build brand, awareness and love for the company, bringing qualified leads to a site and making our marketing efforts more efficient. With those efforts, we have two selling motions, self-serve and sales-assisted. Over 80% of our customers come to Backblaze via self-serve, which enables prospects to show up, try to service, enter credit card and scale nearly infinitely without talking to a person. With sales assisted, we have inside salespeople helping prospects along their journey, and they are typically working with customers with storage needs that are about 20 times larger than that of our self-serve customers from a revenue perspective. Both of these motions are scaling and will further benefit from IPO proceeds. Another key aspect of our go-to-market strategy is our partnerships. We have developer partners and alliance partners. Developer partners tend to be cloud platforms with whom we work to jointly enable developers to build applications. Cloudflare is an example developer partner for us where customers moving away from Amazon Web Services build on us and our developer partner. Alliance partners are typically software that IT deploys to solve some specific use cases and through which customers select to have their data flow to Backblaze. Veeam, a data protection software company, is an example of an alliance partner, where customers run Veeam software, simply enter their Backblaze credentials and the customer’s data flows to and is protected in our cloud.
We also do joint go-to-market activities with these partners. And as they get more customers, as those customers have more data and as more of those customers choose to use cloud, all of these stack to drive more revenue for us. This unique content and community with our self-serve and sales-assisted motions and powerful partnerships is shared among both cloud services and it’s how we drive efficiency and scale in our go-to-market. Now let me highlight a few of our B2 customers and how they use our service. One such customer is a developer of a popular music app competitor, Spotify in Japan that came to us from Google Cloud and now stores over 0.5 petabyte in B2. We’ve become a critical part of this developer’s technology stack. We also have many customers choosing Backblaze for their off-site backups to protect against ransomware. One notable customer was a school system in Illinois. They’ve been using a legacy on-premise storage system for years, and it was at the end of its life. They have to decide whether to spend tens of thousands of dollars paying to upgrade a technology that debuted in the 1970s or move to cloud storage. They decided to move to Backblaze B2 because it was easy and affordable. Another example, a university in the Midwest was told that they could receive a discount on their cybersecurity insurance premiums if they instituted an off-site immutable backup of their servers. They chose Backblaze because it was the easiest and most affordable service to get them that insurance premium discount. These are just three examples of the wide variety of use cases and opportunities that we have to help customers store, use and protect their data. If you’d like more examples, we share many more on the customer stories section of our website and periodically on our blog.
I now want to highlight three important topics, our IPO, partnership efforts and developer focus. First, our IPO. In November, we completed our initial public offering, which was a tremendous success. For a company that was effectively bootstrapped, it was an especially important financial event, raising over $100 million in net proceeds, which we plan to use to accelerate our growth. It was also a significant awareness generating and branding event. Finally, as part of our commitment to our community, we executed one of the largest directed share programs in the history of US capital markets by inviting hundreds of thousands of US-based Backblaze customers to participate in our IPO. Second, our partnerships. In September, we announced a new developer partnership with one of the largest privately held cloud vendors. The Backblaze Vultr partnership means more developers can build the flexible tech stacks they want. Organizations now no longer have to tolerate vendor lock-in, complexities and costs that have traditionally come with legacy options. And third, our developer focus. B2 is a storage platform for developers, and we continue to empower developers to be successful. We already have thousands of developers on our platform, partnerships with other leading cloud platforms to enable developers to build and our recent partnership with Vultr is yet another step in supporting developers. This October, we also held our inaugural Developer Day, which was a great event that helped developers connect with Backblaze and learn how to further leverage the advantage of our cloud storage solution.
I’ll now pass the call to Frank, who will review the financial details for the quarter. Frank?
Frank P. Patchel — Chief Financial Officer
Thank you, Gleb, and thanks, everyone, for joining us today. I’ll start by providing a brief overview of our financial model and then review our third quarter results, concluding with our guidance for the fourth quarter. We provide cloud-based storage solutions using our proprietary global software platform. Our products, B2 Cloud Storage and Computer Backup utilize our shared storage cloud technology platform. They also share the same go-to-market motions with nearly 80% of our revenue generated from the self-serve motion. Our revenue is nearly 100% recurring, primarily paid via credit card. Computer Backup clients have monthly one and two year subscriptions with the one and two years build in advance and recognized ratably over the subscription period. Our B2 customers are built monthly in arrears based upon the actual storage used. B2 customers tend to have ever larger invoices since data storage is cumulative and seldom purged.
Before I discuss the financial highlights, I want to comment on the impact of the COVID pandemic on our business. Over the long term, we believe that pandemic can serve as an accelerator for the adoption of public cloud solutions like ours. But over the short term, the impact can cause some variability in the amount of the new data created and stored in B2 as well as the number of new subscriptions needed for Computer Backup customers. We remain fortunate that today these impacts have been limited. Turning to our Q3 financial results. Unless otherwise noted, I will be referring to non-GAAP metrics and the growth rates mentioned are year-on-year.
We remain focused on two key metrics, revenue growth and adjusted EBITDA. Adjusted EBITDA is defined as earnings before interest, depreciation, amortization, noncash charges, such as stock-based compensation expense and other expenses or benefits we deem nonrecurring. Our Q3 revenue totaled $17.3 million, an increase of 25%. B2 contributed sales of $6 million, reflecting growth of 59% and Computer Backup revenue totaled $11.2 million, reflecting 13% growth. In Q3, B2 represented 34.5% of total revenue, continuing its upward trend. The primary driver of growth for both products is new customers and secondarily, growth in spend by existing customers. Computer Backup also benefited from the start of its price increase effective for about half of the quarter. And since most Backup customers are on annual or two-year subscriptions, this increase will continue to phase in as they renew across the next two years at the higher price.
Our retention metrics remain strong. Recall, we track two key metrics, net revenue retention (NRR), and gross customer retention. These metrics are defined more completely in our earnings releases and filings. But basically, NRR is the growth of the recurring revenue for an initial set of customers, while gross customer retention measures retention of customers. Both metrics are trailing four quarter averages. Total company NRR was 110% with B2 at 129% and Computer Backup at 103%. Gross customer retention was 91% overall, 92% for B2 Cloud Storage and 91% for Computer Backup. All of these NRR and gross customer retention metrics were within 1 point of the values for quarter 2 2021. Adjusted gross margin, which excludes noncash expenses of depreciation, amortization and stock-based compensation was 74%, improving from 72% last year and in line with our expectations. The increase is due to slower headcount growth in our data center and support teams. Adjusted EBITDA totaled $0.8 million or 5%, down from $2.8 million or 20% last year. This reduction reflects expenses for pre-IPO professional services and higher investments in both sales and marketing and R&D as we continue to increase investments, pursuing the large market potential. Near-term investments were funded in part by our $10 million safe financing or a simple agreement for equity, which we closed in quarter three, and we used some of the proceeds to pay off short-term debt. This instrument converted to equity at the IPO. In addition, the IPO added $103 million of cash after fees and expenses in quarter four.
Now I’d like to provide our quarter four outlook. For the fourth quarter, we expect revenue to be in the range of $17.7 million to $18.2 million. This guidance implies full year 2021 revenue between $66.5 million to $67 million, representing 24% to 25% full year growth. We expect quarter four adjusted EBITDA margin to be in the range of minus 10% to minus 6%, reflecting new public company expenses and our increase in investments to drive future growth. We will also provide the Q1 and full year 2022 outlook when we report Q4 earnings in early 2022.
In closing, we believe we are well positioned to take advantage of our large market opportunity. And we remain focused on accelerating key growth investments from our recent IPO proceeds to drive shareholder value. I will now turn the call back to Gleb for closing comments before Q&A. Gleb?
Gleb Budman — Chief Executive Officer and Chairperson of the Board
Thanks, Frank. We’re very excited about the opportunity to be the leading independent cloud for data storage. Our strong Q3 financial results and other accomplishments highlight our building momentum, and we’re thrilled to be at this inflection point. Operator, we’re now ready to take questions.
Questions and Answers:
Operator
[Operator Instructions]
Our first question comes from Ittai Kidron of Oppenheimer Company. Your line is open.
Ittai Kidron — Oppenheimer Company — Analyst
Thanks guys and congrats on the first quarter out of the gate, well done. Gleb, I wanted to spend some — a little bit of time on your go-to-market motion, especially on B2 and your investment in the direct sales force. Maybe you can talk about hiring over there, in what pace are you moving and perhaps more importantly, what if you’ve seen as far as productivity gains and the adjustment to this new model, how would you characterize progress overall here and how that’s driving perhaps more visibility from a pipeline standpoint for your B2 business?
Gleb Budman — Chief Executive Officer and Chairperson of the Board
Good to hear from you. Thanks for the questions. So we have the two different go-to-market motions. It is the self-serve motion and sales-assisted motion. On the sales-assisted motion, we are — we had started in the beginning of 2021, we started the outbound sales effort that’s an insight team reaching out using e-mail and phone calls to reach out to prospective customers. And we also started our customer success management team toward the beginning of 2021. We’ve been scaling those through 2021, and there are definitely areas that we are scaling faster with proceeds. So we are actively doing that now. We also have our partnership team, which we started a couple of years ago and is another area of investment with proceeds. So we have both of those components of the sales assisted model are ones which we’re excited about the opportunity to grow faster with the proceeds that we’ve just closed.
Ittai Kidron — Oppenheimer Company — Analyst
Can you perhaps elaborate on the investments you’ve made before the proceeds? And how have you seen productivity improve through this time frame? Is it developing to your expectations?
Gleb Budman — Chief Executive Officer and Chairperson of the Board
Yes. When we started the outbound sales effort at the beginning of the year, we started carefully. We hired one person at the very beginning of the year, just to run that experiment. We saw that — we thought it might take a few months. We actually saw that the pipeline was being built quicker. And so we ended up hiring two additional people. And as we saw additional pipeline being built with those two, we hired another two people. And so we’ve been excited by the — what we call opportunity potential that, that team is scaling up, and it’s actually been, we believe, quite successful in doing that. That group, the sales-assisted group overall drives customers that are about 20 times the size of our self-serve customers. And so we’re excited by the fact that as the sales assist motion scales, it brings more of the larger customers onto the platform. And the sales-assisted motion in particular with our outbound efforts and our customer success efforts are ones where more directly, we can put dollars behind people to generate output.
Ittai Kidron — Oppenheimer Company — Analyst
Very good. I’ll jump back in line, thanks.
Operator
Thanks. Our next question comes from Jason Ader of William Blair. Your line is open.
Jason Ader — William Blair — Analyst
Hi guys, good afternoon. Thanks for the questions. I wanted to talk about AWS and in particular, I saw at Reinvent, they announced a kind of new lower-cost incident retrieval storage class. I think it’s kind of S3 Glacier, but with faster retrieval times. I’m just wondering, first, what’s your reaction to that? Is that — do you see that as competitive with your sort of with the B2 service? And then what’s the risk over time that AWS could continue to kind of chip away at the price gap [Phonetic] that you have and also introduce — I guess, they also introduced the — they cut some of the egress fees, correct. So those are kind of the two areas where it seems like there’s a big gap between what you offer. And what’s the risk that they could narrow that gap over time?
Gleb Budman — Chief Executive Officer and Chairperson of the Board
Good insights, Jason. Thank you. So I think there were two separate parts of the question, and I’ll hit on each of them separately. On the product announcements, AWS has hundreds of different services, and they’ve had many different offerings on the storage side as well. The — when we look at it, the complexity around the pricing for that offering, the footnote alone to explain the pricing for that one sub product, for one [Technical Issues] between us and the other diversified cloud platforms. And I think this new announcement is just another example of that, where they’ve added yet another layer with yet another bit of complexity for customers to try and figure out, which is potentially fine and maybe even useful for the largest enterprises, but is just additional complexity for mid-market companies where with Backblaze, it’s one simple offering at one simple price point. They just use the service and all of their data is instantly available. On the egress side, the Amazon made one small step forward in reducing the cost of egress fees. We look at that as a positive. A lot of the data today is stored and locked inside of Amazon. If they continue to make further steps in that path, it will free more customers to use other best of breed services like ours. So we are excited about that one little motion. We believe in multi-cloud. We believe customers should be able to use their data with who they want, how they want. And that’s part of why we were pushing for reduced egress fees and part of why we were a founding member with Cloudflare of the bandwidth lens. And so this is — they made 1 very, very small step in that direction, but we view that as a positive step for us and for the customers.
Jason Ader — William Blair — Analyst
Great. And then one quick follow-up. Have you guys done any performance benchmarking and for your B2 service relative to S3 and other — some of the other cloud storage services. I’m just wondering how your performance compares to kind of the standard S3 and some of the other cloud storage services out there.
Gleb Budman — Chief Executive Officer and Chairperson of the Board
So performance is something that customers need in — for their different offerings. And if you look at all the different ways that customers use our service, our performance supports them in all their different needs. I think one of the key things with object storage is that you can architect your service to use as many threads as needed. And so customers can get any kind of performance they want out of our system by using additional threads with our service. So we have hundreds and hundreds of gigabits of bandwidth available for them, and they can simply use more threads from their service to get additional performance out of the system.
Jason Ader — William Blair — Analyst
Great, thank you.
Operator
Thank you. Our next question comes from Simon Leopold of Raymond James. Your line is open.
Simon Leopold — Raymond James — Analyst
Thanks for taking the question. I wanted to ask about really two things. One is you talked about the trend of the — basically revenue per customer on an annualized basis is trending higher. Could you help us understand how to think about that metric of where are you? And where do you expect to be in, say, a year, just trying to get a better handle on that. The second thing is maybe a follow-on. You talked a little bit about the sales assist and the hiring. I’d just like to hear about what you’re doing in terms of maybe the branding and the marketing efforts around promoting the Backblaze brand and raising your profile? Thank you.
Gleb Budman — Chief Executive Officer and Chairperson of the Board
Thanks, Simon. Let me touch on each of those and then maybe Frank will want to add color as well. On the revenue per customer, the — as you saw in the release, our revenue per customer on both our cloud services has been increasing quarter-over-quarter consistently and the revenue per customer of B2 is roughly 3 times that of Computer Backup. And so as we continue to have the individual cloud services grow their younger customer and as B2 becomes a more dominant part of the overall company, both of those things drive the revenue per customer for the overall company. And some of the things that drive that increased revenue per customer are the following. We have customers that are larger, that are joining us, partially as just our continued efforts of acquiring new customers that — and the sales of assisted motions behind that. Partially, it’s a result of customers using additional services through cross-sell and upsell. So for example, on a Computer Backup, the extended version history adoption, also the cross-sell of Computer Backup to B2 customers and the B2 cross-sell to Computer Backup customers. And then currently, the price increase on Computer Backup is going to be driving that just mechanically as over time as more of the customer base moves on to that price increase. And finally, the new features and functionality. So we mentioned that we are shipping cloud application, expecting to ship that in the first half of 2022, and that is an upsell feature. So all those things drive revenue per customer. The other question was how do we — what are we doing on the marketing side. So we have — we are investing in the efforts that we have been doing. So scaling up the content and content engagement side. But we’re also investing now in paid advertising. So we created a campaign around the time of the IPO. It was the Blaze-On campaign, and we’re investing in getting that spread and viewed by more people. So leveraging the IPO itself and then leveraging paid methods to build the brand awareness as we continue to establish us as the independent cloud for data storage.
Frank P. Patchel — Chief Financial Officer
I would just say that we — on that hiring front, which we didn’t really touch on, and this is more anecdotal. But the — we are more well-known right away. We have seen that. We did invest in more recruiting so that we could find the best and brightest and attract them to Backblaze. So as we’re opening all these positions that we’re talking about in using our proceeds to accelerate growth, we are better known. But the big thing for us is still finding the right people and getting them on board.
Simon Leopold — Raymond James — Analyst
Thank you very much.
Operator
Our next question comes from Erik Suppiger of JMP Securities. Your line is open.
Erik Suppiger — JMP Securities — Analyst
Thanks for taking the question. I want to follow up on the response on AWS. I think in your blog, you had noted that a customer might save up to $9 per month on egress fees. And that seems to be a pretty nominal amount, would suggest that they really made more of a symbolic price reduction and really a meaningful reduction. And I’m curious, what is your perspective in terms of their objective with making that change? And do you think that there might be more reductions not too far down the line.
Gleb Budman — Chief Executive Officer and Chairperson of the Board
Good question, Erik. Good to hear from you as well. The — I would say, I obviously don’t sit inside of the boardroom at AWS. So I don’t know exactly what their specific thinking was. But I will say that there’s certainly pressure in the marketplace to have the egregious egress fees that they charge be dropped or removed. So I don’t know exactly what ended up causing it, but I will say that customers are starting to realize that paying the equivalent of 20 months worth of Backblaze B2 Storage, just to be allowed to get your own data out doesn’t feel fair. And as companies want to use more of the best-of-breed services and want to have access to their data to use the way they want, they can do that with Backblaze today and they are locked inside of AWS. So I think that there’s certainly pressure for them to reduce those fees. But as you said, the actual move that they made is very nominal in helping their customers.
Erik Suppiger — JMP Securities — Analyst
Okay. And then the NRR of 110%. I’m curious, where do you anticipate that to go? It’s trailed off some over the course of the last year. And I’m curious — and I think even from last quarter down 1%. Curious, where do you anticipate that will be going as we look ahead over the next, say, 12 months?
Frank P. Patchel — Chief Financial Officer
Well, NRR is an important metric for us. And we do think of ourselves, especially with that 129% in B2 as best-in-class. So we don’t project it into the future, but we do understand that it can move a little bit upward and downward and that the COVID pandemic and the amount of data that individual customers are adding can have a near-term impact. But overall, we expect customers to be adding data because that’s been the history and that drives the NRR for us. Also remember that we do have an upcoming product called Cloud Replication within B2, and that is projected to come online for us midyear, and that will also add a lot of NRR for us.
Gleb Budman — Chief Executive Officer and Chairperson of the Board
The one other thing just to mention is also in addition to the cloud application, which is a functionality that Frank mentioned for B2, on the Computer Backup side, the price increase that we did do this quarter is going to flow through the customer base over the course of approximately 2 years. And so there will be some assistance from that as well.
Erik Suppiger — JMP Securities — Analyst
Great. Thank you.
Operator
Our next question come from Eric Martinuzzi of Lake Street Capital.
Eric Martinuzzi — Lake Street Capital — Analyst
Congrats on the good Q3 and the healthy guide. My question has to do with where you’re investing in the business. I first wanted to figure out the 250-person headcount, Gleb, that you mentioned. Was that a September 30? Or was that a November 30 number?
Frank P. Patchel — Chief Financial Officer
In — it’s really October. So September 30, we had a little over — we were in the 240s. So we’re just approximating it at 250.
Eric Martinuzzi — Lake Street Capital — Analyst
Okay. And then I know based on the S-1 you were at 228 back in June. So roughly a 10% increase sequentially in the headcount. I would imagine you’re definitely putting your shoulder into the go-to-market, I’d imagine it’s probably easier to get the sales assist side as opposed to the partnership side. But I wanted to drill down more on the partnership headcount investment. How is the hiring going there?
Gleb Budman — Chief Executive Officer and Chairperson of the Board
Yes. It’s actually — it’s an interesting question, and I appreciate the detailed follow-up. So on the partnership side, we’ve actually had good success in bringing the team members onto that team. In fact, we had a number of them out at the IPO event in New York, and we’re able to actually meet in person which was great. The types of people that we’re hiring for that are ones who are both looking to bring on new partners into the fold, as well as ones that are working to do activities with those partners, the joint marketing types of activities. That team doesn’t need to scale at the same rate as the outbound team because of the nature of just how that works. There’s more leverage with the individuals, but we have actually been able to scale up that team already.
Frank P. Patchel — Chief Financial Officer
And you are correct that it’s easier to find sales executives who want to join great companies with big futures. So we do see more candidates on the regular sales [Technical Issues]
Eric Martinuzzi — Lake Street Capital — Analyst
Understand. Thanks for taking my question.
Operator
Our next question comes from Zack Cummins of B. Riley Securities. Your line is open.
Zack Cummins — B. Riley Securities — Analyst
Hi, good afternoon, thanks for taking my questions. I mean congrats on the solid first quarter [Indecipherable] Just really following up on a lot of the similar questions that have been asked. I mean, Gleb, how should we think about the growth potential for B2 just given the expected investments from the IPO. It sounds like much of the growth thus far has been driven by new customer growth. But how should we think about that balance between new customer growth and expansion with that existing base going forward?
Gleb Budman — Chief Executive Officer and Chairperson of the Board
Yes, Zack, it’s a good question. And I think the first part of it is we expect to continue driving new customer growth. And we expect that new customer growth continues to be the dominant part of where the revenue and the growth comes from. At the same time, having a net revenue retention rate of around 130% obviously is material and it drives a lot of upside for us. We continue to invest in both areas. So on the net revenue retention side, the customer success management team that I mentioned that we started in the earlier part of 2021 on the sales-assist side as well as the customer journey management, which is more on the self-serve side, but serves a similar type of function of increasing opportunity with existing customers as well as the cloud replication that’s coming in the first half are all things which help drive net revenue retention for that base. But we do believe that the dominant part continues to come from new customer acquisition.
Zack Cummins — B. Riley Securities — Analyst
Understood. And just a final question, on the Computer Backup side, with the recent price increase, I mean I know it’s still very early on, just a few months in, but have you seen any notable uptick in attrition with that recent price increase?
Gleb Budman — Chief Executive Officer and Chairperson of the Board
We haven’t actually — we’ve seen very consistent gross customer retention. And that’s consistent with what we saw when we did a price increase back in 2019. So I think it really speaks to the value that our customers see from the services that we don’t see. We haven’t seen an impact from the price increase.
Zack Cummins — B. Riley Securities — Analyst
Understood. Thanks for taking my questions and congrats again on the solid results.
Gleb Budman — Chief Executive Officer and Chairperson of the Board
Thank you.
Operator
Thank you. I’m showing no further questions at this time. I’d like to turn the call back over to Gleb Budman for any closing remarks.
Gleb Budman — Chief Executive Officer and Chairperson of the Board
Thank you, Operator. Just want to say thank you, everybody, for taking the time to engage with us on our first earnings call as a public company. We’re very excited to be taking this next step and wishing you happy holidays, and we look forward to talking to you in a couple of months. Thank you.
Frank P. Patchel — Chief Financial Officer
Thank you.
Operator
[Operator Closing Remarks]