Jason Ader

Jason Ader from William Blair asked for a detailed explanation of the projected $30 million-$50 million headwind to contribution margin and free cash flow in 2026.

Answer

Guy Melamed, CFO and COO, explained that the headwind primarily stems from the lower expected renewal rate for the non-SaaS business, which directly impacts profitability. He noted that without the end-of-life announcement, the cost of maintaining these customers would have increased exponentially, and the announcement created urgency for conversions while preventing the lower renewal rates from masking SaaS business strength.

Jason Ader from William Blair sought a clearer understanding of the $30 million-$50 million headwind projected for Varonis' contribution margin and free cash flow in 2026.

Answer

Guy Melamed, CFO and COO, explained that the headwind primarily stems from the lower expected renewal rate of the non-SaaS business, which directly impacts profitability. He noted that the end-of-life announcement created urgency for conversions and prevented the masking of SaaS business strength by lower non-SaaS renewal rates. He also stated that maintaining the on-premise subscription would have exponentially increased costs over time, affirming confidence in achieving 2027 financial targets despite the 2026 headwind.

Jason Ader asked what non-renewing on-premises customers are doing if they are not moving to Varonis SaaS, and if there's any element of compression in term contract duration.

Answer

Guy Melamed (CFO & COO) stated that most non-renewing on-prem customers 'didn't go anywhere' and are still in discussions. He noted that many were single-threaded, protecting only on-prem data with limited use cases, and that historically, these conversions were not challenging. Varonis is assessing if Q3 represents a new trend. He confirmed that there was no impact from term contract duration compression.

Jason Ader inquired about what customers are doing if they are not renewing their on-premises subscriptions and not moving to SaaS, and whether there was any compression in term contract duration.

Answer

CFO Guy Melamed explained that most non-renewing on-premise customers didn't switch to competitors, and discussions are ongoing with some. He noted many were single-threaded, not utilizing the full platform, and historically converted without issues, making Q3's behavior unusual. He confirmed that term contract duration compression was not a factor.

Jason Ader asked for an update on how frequently Varonis sees competition and for commentary on backup vendors like Rubrik and Commvault entering the DSPM market through acquisitions.

Answer

CEO Yaki Faitelson responded that Varonis rarely sees backup vendors in competitive situations and that DSPM companies acquired by larger firms are not frequently encountered. He noted competition exists in about 10% of cloud infrastructure deals, primarily from funded startups, but reiterated that Varonis's key differentiator is its use of large-scale production POCs.

Jason Ader of William Blair & Company asked about the gross margin outlook for 2025 and the medium term, and for the reason behind the wide non-GAAP operating income guidance range.

Answer

CFO and COO Guy Melamed explained that the P&L, including gross margin, will be 'messy' and not reflective of underlying performance in 2025 due to the accounting differences in the SaaS transition. He reiterated a medium-term gross margin target in the 80% range. The wide operating income range is a prudent measure to account for the significant volatility and variables involved in completing the full business model transition this year.

Jason Ader of William Blair sought to confirm that the Q4 revenue miss was purely a function of the faster-than-expected SaaS transition and also asked for clarification on the ARR headwind, given that SaaS conversions include a price uplift.

Answer

CFO and COO Guy Melamed confirmed the revenue miss was due to a faster SaaS mix (53% of ARR vs. 49% guided), which created a 7% headwind to the revenue guide due to ratable recognition. Regarding the ARR headwind, he explained that while the 25-30% uplift on conversions is strong, only about one-third of the base has converted over two years. The time and effort spent on these conversions currently detract from the faster growth seen in new business, which is why accelerating the transition is beneficial.

Jason Ader asked for early thoughts on 2025, specifically seeking guideposts for how the SaaS transition will impact metrics like revenue growth and operating margin.

Answer

CFO & COO Guy Melamed advised against focusing on traditional metrics like revenue and operating margin during the transition, calling them 'very misleading' due to the shift from upfront to ratable revenue recognition. He urged investors to focus on the three 'North Stars': ARR, free cash flow, and ARR contribution margin, which have all been progressing nicely. He stated that more specific 2025 color would be provided after Q4 results are finalized.

Jason Ader of William Blair asked if currency impacts on revenue and ARR were in line with expectations. He then pressed for an explanation regarding the net new ARR, which came in at $39 million, below the previously indicated mid-$40s expectation.

Answer

Chief Accounting Officer Danielle Abrahamsen confirmed currency was in line for reported revenue and clarified ARR guidance is constant currency. She explained the lower net new ARR was due to a higher mix of strong new SaaS customer acquisitions, which typically have lower average selling prices (ASPs), and longer duration term software deals. President and CEO Sanjay Mirchandani emphasized the strong quarter despite the ARR variability.

Jason Ader asked if the currency impact on reported revenue and ARR was in line with expectations. He also questioned the net new ARR of $39 million, which was below the previously discussed mid-$40 million range, seeking an explanation for the delta and the impact of the shift towards SaaS deals.

Answer

Danielle Abrahamson, Chief Accounting Officer, confirmed currency was in line for reported revenue and clarified that ARR guidance is constant currency. She attributed the net new ARR delta to a strong quarter for new SaaS customer acquisitions, which typically have lower average selling prices (ASPs) and longer duration software land deals. Sanjay Mirchandani, President and CEO, emphasized the strong quarter for SaaS and software land deals, leading to quarter-to-quarter variability.

Jason Ader inquired whether the backup modernization cycle, driven by ransomware, might be winding down and asked for comments on the recent deal between Veeam and Security AI.

Answer

Sanjay Mirchandani (CEO, Commvault) disagreed that the modernization cycle is winding down, citing no slowdown in cyber attacks or new threat vectors, especially with the emerging AI era introducing new needs. He highlighted Commvault's continuous innovation, with new capabilities to be unveiled at the upcoming Shift event. Regarding the Veeam and Security AI deal, he noted it aligns with Commvault's long-held view that data security and data protection must converge for true cyber resilience, a strategy Commvault pursued with its Satori Cyber acquisition.

Jason Ader with William Blair asked if the backup modernization cycle, driven by ransomware, is winding down and sought Commvault's perspective on the recent deal between Veeam and Security AI.

Answer

Sanjay Mirchandani, CEO, dismissed the idea of the modernization cycle winding down, citing ongoing cyber threats and the emerging "AI era" as new drivers for resilience needs. He highlighted Commvault's continuous innovation, with new capabilities planned for their Shift event. Regarding the Veeam deal, Mirchandani emphasized Commvault's long-standing view on the convergence of data security and protection, drawing parallels to their Satori Cyber acquisition for integrated identity and data protection.

Jason Ader asked for an overview of Commvault's current product bundling strategy and whether the company feels its current bundles are well-established or still a work in progress.

Answer

CEO Sanjay Mirchandani explained that Commvault offers logical bundles that customers naturally adopt, such as Clean Room with Active Directory. He indicated that as the cyber resilience platform evolves, more integrated bundles will be introduced. Mirchandani suggested that more details on the platform and its packaging would be revealed at the Commvault Shift event in November.

Jason Ader asked when the company expects to see more operating leverage and for details on the factors influencing the operating margin outlook. He also requested clarification on the revenue contribution from recent acquisitions.

Answer

CFO Jennifer DiRico explained that fiscal 2025 is an investment year to accelerate growth. She cited several factors impacting margins: the mix shift to SaaS, dilution from the Clumio acquisition, higher sales commissions from overperformance, and ongoing growth investments. She noted the company achieved a Rule of 42 in the quarter. She specified that Clumio contributed approximately $6 million in quarterly revenue, while the Appranix acquisition's impact was not yet material.

Jason Ader asked about the operating margin outlook, suggesting it seemed low for a company of Commvault's scale, and also inquired about the customer trend of consolidating backup systems.

Answer

CFO Jen DiRico stated that while they are committed to long-term margin expansion, the current 20-21% margin reflects planned investments to accelerate growth and capture market share. CEO Sanjay Mirchandani confirmed that platform consolidation is a major industry trend, positioning Commvault's 'no workload left behind' single-platform approach as the key to winning business from customers looking to simplify their environments.

Jason Ader asked why NetApp did not flow through its Q2 revenue beat to its full-year guidance, and whether Keystone (Storage as a Service) is reaching an inflection point to become a more dominant model in the storage market.

Answer

George Kurian (CEO) attributed the Q2 beat to strong large deals offsetting a significant decline in the US public sector due to the shutdown, leading to caution for the full-year guide. He described Keystone as a growing new way for customers to buy infrastructure, driven by offering maturity and cloud consumption models, expecting it to grow faster than traditional models but not switch the entire market overnight.

Jason Ader with William Blair asked why the Q2 revenue beat was not flowed through to the full-year guidance, and whether the Keystone Storage-as-a-Service model is experiencing an inflection point or is expected to be a more gradual growth trend.

Answer

CEO George Kurian attributed the Q2 beat to strong execution and large deals offsetting a steep decline in the U.S. public sector due to a longer-than-anticipated shutdown, leading to a cautious full-year outlook. Regarding Keystone, he believes it's a new way for customers to buy infrastructure, driven by cloud consumption models, and expects it to grow faster than other enterprise infrastructure buying models, though not an overnight market switch.

Jason Ader of William Blair & Company inquired about the potential upside for cloud gross margins from the current 79% level. He also asked about any observed impacts from Broadcom's acquisition of VMware.

Answer

CFO Wissam Jabre stated that while a new target range isn't ready, he expects gradual quarterly improvement in cloud gross margins from the current high end of the 75-80% range. CEO George Kurian identified three impacts from the VMware deal: increased customer caution around hyper-converged infrastructure, NetApp's expansion of support for alternative hypervisors, and some customers choosing to replatform onto NetApp storage.

Jason Ader from William Blair & Company inquired about the potential upside for cloud gross margins, which are now at 79%. He also asked about any observable positive or negative impacts from the disruption caused by Broadcom's acquisition of VMware.

Answer

CFO Wissam Jabre stated that while cloud gross margin is at the high end of the 75-80% target range, he anticipates gradual improvement in fiscal 2026 but is not ready to issue a new target. CEO George Kurian noted the VMware situation has created opportunities, including increased caution around HCI, customer interest in alternative hypervisors supported by NetApp, and some replatforming wins for NetApp's block storage.

Jason Ader from William Blair & Company, L.L.C. asked about the potential upside for cloud gross margins from the current 79% level. He also inquired about any positive or negative impacts seen from the disruption caused by Broadcom's acquisition of VMware.

Answer

CFO Wissam Jabre stated that while the company is not ready to set a new target range, he anticipates gradual quarterly improvement in cloud gross margins from the current level, which is already at the high end of the 75-80% long-term target. CEO George Kurian noted the VMware situation has led to caution around hyper-converged infrastructure, customer replatforming exercises that benefit NetApp's block storage, and good growth for NetApp's own VMware services in the public cloud.

Jason Ader asked for the annualized revenue impact from the Spot by NetApp divestiture to help adjust financial models for fiscal 2026, and also inquired about the company's total U.S. Federal government revenue exposure.

Answer

CFO Michael Berry stated that the divested Spot business generated approximately $94 million in revenue over the trailing 12 months and the transaction is expected to be neutral to EPS. Executive Kris Newton added that the U.S. public sector, which includes federal, state, and local government, typically accounts for 10% to 13% of total company revenue.

Jason Ader asked about potential ripple effects from the Broadcom-VMware acquisition and sought clarification on how Keystone revenue is reported.

Answer

CEO George Kurian noted that while no material impact has been seen yet, NetApp is well-positioned to assist customers exploring alternatives, including optimizing their VMware estate, moving to new hypervisors, or migrating to the public cloud. CFO Mike Berry confirmed that Keystone revenue is reported within the professional services line and is a primary driver of its growth.

Jason Ader questioned why the revenue push-out issue is more pronounced now, given Nutanix's experience with migrations, and whether it's influenced by budget or macro factors. He also asked if Nutanix should be more aggressive on upfront pricing for VMware migrations, considering the comparison to Broadcom renewals and the impact of hardware refresh costs and NAND pricing.

Answer

CEO Rajiv Ramaswami explained that while flexibility for large deals isn't new, the growing number of Broadcom migrations has made the issue more pronounced, particularly late in Q1. He stated it's not a budget or macro issue. Regarding pricing, Mr. Ramaswami noted Nutanix aims to be very competitive on software, especially for new customers. He highlighted efforts to reduce hardware outlay for customers by supporting existing hardware and external storage, and emphasized the significant TCO benefit of moving from three-tier storage to HCI when customers are ready for a hardware refresh.

Jason Ader questioned why the issue of push-outs on license start dates, related to VMware migration complexity, is becoming more pronounced now, asking if it's linked to budget constraints, macro factors, or other reasons. Ader also asked if Nutanix should be more aggressive with upfront pricing to win business, considering the comparison between Broadcom renewals and Nutanix's full hardware refresh costs, especially with rising NAND pricing.

Answer

Rajiv Ramaswami, Nutanix's CEO, explained that while push-outs aren't entirely new, the issue is more pronounced now due to a growing number of Broadcom migrations requiring greater flexibility in license start dates, rather than budget or macro issues. He stated that Nutanix aims to be very competitive on software pricing, especially for new customers. Ramaswami highlighted efforts to reduce hardware outlay for customers by supporting more existing hardware and external storage options, noting that moving from three-tier storage to HCI with new hardware still offers significant TCO benefits.

Jason Ader of William Blair & Company asked for clarification on the delta between ARR and revenue growth rates and inquired about Nutanix's progress with tier-two cloud service providers (CSPs) and MSPs.

Answer

CFO Rukmini Sivaraman explained that revenue growth outpaced ARR growth due to factors like contract duration and the timing of revenue recognition from large deals, making quarterly revenue lumpy. President and CEO Rajiv Ramaswami stated that the CSP and MSP market is a significant opportunity that Nutanix is now focusing on with specific programs and resources, though the business is still in its early stages.

Jason Ader of William Blair asked if sales cycles were shortening due to urgency to leave VMware, if pressure on partner margins from competitors was benefiting Nutanix, and about the outlook for operating margin expansion into fiscal 2026.

Answer

CEO Rajiv Ramaswami stated that shortening sales cycles are anecdotal and confirmed that Nutanix's partner-centric model and incentives are helping win channel engagement. CFO Rukmini Sivaraman declined to provide FY26 guidance but reiterated the company's commitment to a sustainable 'Rule of 40 plus' framework, balancing growth and profitability, while noting H2 margins will be lower than H1 due to planned investments.

Jason Ader of William Blair questioned the full-year operating margin guidance, noting that a strong Q1 and Q2 forecast implies a margin decline in the second half. He asked for specifics on where the planned ramp-up in spending would be allocated.

Answer

CFO Rukmini Sivaraman confirmed that operating expenses are expected to grow through the year, similar to the prior fiscal year, leading to lower operating margins in the second half. She specified that R&D investments are focused on areas like AHV stand-alone support, cloud-native offerings, and generative AI. Sales and marketing investments include hiring product specialists and expanding channel programs.

Jason Ader asked about the revenue recognition schedule for the large 8-figure deal from Q3 and questioned if there was a go-to-market misalignment, given the VMware opportunity seems focused on the low-end while Nutanix is moving upmarket.

Answer

CFO Rukmini Sivaraman clarified that while cash for the 8-figure deal was collected, significant license revenue recognition begins in fiscal 2025. President and CEO Rajiv Ramaswami refuted any go-to-market misalignment, stating that while the mid-market is a core strength, the largest dollar opportunity is upmarket, and pursuing it is essential for growth. He noted recent large wins were indeed influenced by the Broadcom situation.

Jason Ader asked how much of the improved cloud consumption trends in Q3 were attributable to better sales execution versus broader macro tailwinds, including AI. He also inquired whether the Q4 outlook, particularly for Confluent Platform, incorporated conservatism due to the U.S. Federal shutdown.

Answer

CEO Jay Kreps acknowledged the difficulty in isolating factors but emphasized that structural improvements and new products like Flink, Connectors, and Stream Governance are mechanically contributing to results. CFO Rohan Sivaram stated that Q3 federal performance was in line with expectations, and federal revenue is a low single-digit percentage of total revenue, with Q4 guidance appropriately baking in a couple of federal deals.

Jason Ader asked what proportion of Confluent's Q3 performance was attributable to better sales execution versus broader macro tailwinds, including AI. He also inquired about the impact of the U.S. Federal shutdown on the Q4 outlook, particularly for Confluent Platform, and any conservatism in the guidance.

Answer

CEO Jay Kreps acknowledged the difficulty in separating internal improvements from macro factors but highlighted structural improvements and new products as clear contributors. CFO Rohan Sivaram stated that Q3 federal performance was in line with expectations, and while federal revenue is a low single-digit percentage of total revenue, Q4 guidance appropriately bakes in a couple of federal deals.

Jason Ader of William Blair expressed that despite product and sales refinements, the business seems to be 'back to square one' and asked why investors should believe this time is different. He also asked for an outlook on the Net Retention Rate (NRR).

Answer

CEO Jay Kreps acknowledged the frustration but argued that positive forces like Flink growth, AI use cases, and increased RPO commitments are gaining traction and will eventually predominate over the optimization headwinds from large customers. CFO Rohan Sivaram addressed the NRR outlook, stating that given the cloud consumption trends, they expect near-term pressure on the metric. However, he noted that go-to-market initiatives and other 'green shoots' should serve as tailwinds for NRR in the longer term.

Jason Ader asked for the reasons behind the strong new customer additions in Q1 and whether macro uncertainty could delay enterprise AI deployments.

Answer

CEO Jay Kreps attributed the strong customer adds to two factors: improvements in the product-led growth motion for top-of-funnel adds, and the natural progression of existing customers into the $1M+ ARR cohort. Regarding AI, he acknowledged that while no project delays have been observed yet, customer uncertainty about the macro environment is a reason for Confluent's conservative guidance.

Jason Ader questioned why the Q4 revenue guidance implies a lower sequential growth rate than typical seasonality and asked about performance in the federal vertical.

Answer

CFO Rohan Sivaram attributed the Q4 guidance to the potential lumpiness of the Confluent Platform business and a tougher sequential comparison due to a one-time cloud revenue benefit in Q3. CEO Jay Kreps described the federal business as 'reasonable' but noted its impact is currently limited as it's primarily a Confluent Platform market pending FedRAMP certification for Cloud.

Jason Ader from William Blair inquired about the significance of the new partnership with Nutanix, asking about customer feedback and interest in using it as a hypervisor alternative with Pure Storage arrays.

Answer

CEO Charles Giancarlo described the partnership as highly significant, noting strong customer interest in virtualization alternatives. He highlighted that this is Nutanix's first integration with external storage, which will be connected via Pure's Fusion platform, enabling greater scalability. He mentioned that demand for early field trials is oversubscribed and general availability is targeted for the end of the year.

Jason Ader of William Blair inquired about the revenue recognition model and expected contribution from the one to two exabyte deal with Meta scheduled for the second half of the year.

Answer

CFO Kevan Krysler stated that there will be a 'de minimis' revenue contribution from the deal in the second half, which has already been factored into the company's annual guidance. He clarified that the revenue would be recognized based on a licensing fee model, not the full gross value of the hardware.

Jason Ader of William Blair & Company followed up on the hyperscaler opportunity, asking about the expected gross and operating margin profile and when the company might provide more specific revenue guidance.

Answer

CEO Charles Giancarlo stated they could provide more specific revenue guidance 3-6 months prior to the actual rollout, once plans are firmer. CFO Kevan Krysler reiterated that the financial profile is consistent with last quarter's discussion, with hardware-like gross margins and expected operating margin expansion over time.

Jason Ader inquired about the competitive environment, specifically the impact of competitors' QLC-based arrays, and asked for an update on the NAND pricing environment.

Answer

CEO Charles Giancarlo stated that Pure's lead in QLC technology remains strong, as shown by the success of its E family products, and that overall competitive intensity is high because Pure is seen as the 'alpha competitor.' CFO Kevan Krysler noted that NAND pricing volatility highlights the advantages of Pure's software and DirectFlash technology.

Jason Ader asked for commentary on recent industry developments, including Databricks' Lake Base and Amazon's move of DocumentDB to the Linux Foundation, and how MongoDB differentiates. He also questioned why Postgres is frequently adopted by AI startups despite its noted limitations.

Answer

President & CEO Dev Ittycheria positioned OLTP as the strategic high ground for AI, suggesting competitors' acquisitions signal the difficulty of building a robust OLTP platform. Regarding Postgres, he explained that many startup founders initially choose what they know but encounter scaling and performance issues with JSONB, leading them to migrate to MongoDB. He emphasized MongoDB's architectural advantages and plans for increased developer education in the startup community.

Jason Ader of William Blair questioned whether the rising popularity of Postgres challenges MongoDB's narrative about displacing relational databases and asked if the market is evolving into a two-horse race between Mongo and Postgres.

Answer

CEO Dev Ittycheria responded that the market is large enough for multiple winners and positioned Postgres's rise as a consolidation of the legacy SQL market. He emphasized MongoDB's architectural advantages for modern apps and its value as an integrated data platform, which includes search and vector capabilities, making it a more comprehensive solution than Postgres alone.

Jason Ader asked if the strength in the EA business indicates a broader enterprise reassessment of on-prem versus cloud workloads and requested more detail on the specific investments being made in strategic enterprise sales.

Answer

CEO Dev Ittycheria agreed that enterprises are now more judicious about workload placement due to factors like existing investments and regulations, validating MongoDB's 'run anywhere' strategy. He clarified that strategic sales investments include a mix of resources beyond quota-carriers, such as technical, services, and developer education teams, to drive deeper adoption in key accounts.

Jason Ader questioned the implied Q4 revenue guide, noting its sequential growth appears well below historical patterns. He also asked for color on Atlas gross margins and the future impact of cloud prepayments and IPv4 purchases.

Answer

CFO Michael Gordon attributed the soft implied Q4 sequential growth to tough year-over-year compares, the compounding effect of a slow Q1, and an assumed weaker seasonal rebound in Q3. He did not break out Atlas gross margin but stated the prepayments and IPv4 purchases will benefit margins more significantly in fiscal 2026 than in the current year.

Jason Ader asked about the impact of AI coding tools on the DevOps toolchain and JFrog's business, and whether security would become a material part of the business in 2025.

Answer

CEO Shlomi Ben Haim explained that AI coding tools increase the volume of binaries and introduce new security threats, making JFrog's platform more relevant. He confirmed it is already benefiting the business. CFO Ed Grabscheid reiterated that the company plans to provide detailed metrics on security attach rates at the end of 2025.

Jason Ader questioned the math behind the Q4 outlook, seeking to reconcile the self-managed growth rate with the full-year cloud growth target of around 40%. He also asked about the stability and future drivers of the net retention rate.

Answer

CFO Ed Grabscheid and CEO Shlomi Haim reiterated the full-year cloud growth guidance of 'around 40%' and stated self-managed growth would be similar to recent quarters. Regarding net retention, CFO Ed Grabscheid confirmed it is expected to stabilize in the mid-teens in Q4. CEO Shlomi Haim identified security add-ons and cloud migrations as the primary future drivers for increasing the rate.

Jason Ader from William Blair asked for an update on the MSP business growth, clarification on the $100 million ARR milestone, and which products are driving the strong net retention rate (NRR) momentum through cross-selling.

Answer

CEO Tianyi Jiang clarified that the SMB segment, which includes the fast-growing MSP business, is 19% of recurring revenue. He specified the $100 million ARR milestone was for the mid-market segment. Jiang attributed the NRR momentum to the platform play, with the Control Suite being the fastest-growing offering, driven by customer needs for governance, security, and data protection, especially agentic AI governance.

Jason Ader asked for more detail on the momentum in AvePoint's MSP business, including what is driving its success, the strategy for the Elements platform, and if the company could size the business and its growth rate.

Answer

CEO Tianyi Jiang expressed continued bullishness on the MSP segment, which uses AvePoint's platform to scale their own managed services. He highlighted the recent launch of the Elements platform, which is tailored for partners with multi-tenant management and monthly contracts. He stated that MSP ARR was 14% of total ARR at the end of 2024, with a 60% average CAGR from 2020-2024, and noted the recent Ydentic acquisition adds important IP. He also mentioned the Elements platform is finding use cases in large enterprises.

Jason Ader inquired about AvePoint's U.S. federal business exposure amid potential government staff reductions and questioned the widening gap between its ARR and revenue growth guidance for 2025.

Answer

CEO Tianyi Jiang clarified that the direct exposure to impacted federal agencies is minimal, at approximately 2% of total ARR, and noted that the fundamental need for digital transformation persists. CFO James Caci explained the ARR-to-revenue growth gap is primarily due to foreign exchange headwinds and the continued decline in services revenue as a percentage of the total mix.

Jason Ader inquired about the relative growth rates across AvePoint's different product suites and the primary factors driving the strong net new ARR performance.

Answer

CFO Jim Caci noted that while suite-specific growth rates are an annual disclosure, performance is expected to be similar to last year with an increased customer focus on the Control suite. CEO Tianyi Jiang attributed the record net new ARR to strong performance in the enterprise segment and accelerated growth in the SMB segment, driven by the managed service provider channel. Dr. Jiang emphasized that the platform's strength in combining governance (Control suite) and security (Resilience suite) is a key market differentiator.

Jason Ader from William Blair asked about the overall health of the SMB IT market, trends on the device management side, and the financial contribution from the AdLumen acquisition.

Answer

CEO John Pagliuca described the SMB IT spending environment as healthy, with strong demand for security and data protection. He noted that while physical device counts are flattish, there is growth in managing other digital assets like M365 users and VMs. He reiterated that AdLumen is expected to add about one point to the exit 2025 ARR growth rate and that its acquisition ARR was in the low $20 million range.

Jason Ader sought clarification on the Q1 revenue beat relative to FX and ASC 606 impacts, and asked about customer expansion initiatives like bundling and the key metrics to monitor their success.

Answer

EVP and CFO Tim O'Brien clarified the Q1 revenue beat included some FX upside and a positive, non-recurring impact from ASC 606. President and CEO John Pagliuca explained that customer expansion is driven by platform bundling, which significantly increases average contract value (ACV), especially with Adlumin. He advised watching for ARR acceleration and an NRR uptick as proof points.

Jason Ader asked for details on the business mix between on-premise and SaaS revenue, the distinction between them, and why a higher mix of new SaaS customers was affecting revenue. He also questioned if this was a separate issue from the previously discussed estate optimization.

Answer

EVP and CFO Tim O'Brien stated that on-premise revenue is about 15% of the business and that the estate optimization headwind is a separate issue that negatively impacts net retention. CEO John Pagliuca explained that all revenue is subscription-based, but long-term on-premise contracts trigger accelerated revenue recognition under ASC 606. He positioned the customer shift to SaaS as a positive indicator that the company's platform modernization is resonating in the market.

Jason Ader inquired about the drivers behind the B2 Net Revenue Retention (NRR) trend and its outlook, and asked for an explanation of Backblaze's competitive advantage in AI storage without offering its own compute or GPUs.

Answer

CFO Marc Suidan attributed the recent NRR decline to the lapping of a price increase, stating the underlying metric is stable and should improve as customer success initiatives mature. CEO Gleb Budman argued that not having compute is an advantage, as Backblaze can act as a neutral storage layer for all five stages of the AI data pipeline, allowing customers to use any GPU provider without being locked into a hyperscaler's ecosystem.

Jason Ader asked for clarification on slower customer decision-making, management's confidence in the 30%+ B2 exit growth rate, demand trends in April, and how the competitive landscape has evolved since the IPO.

Answer

CEO Gleb Budman confirmed observing some slower decisions but expressed confidence in the 30%+ B2 exit growth rate, citing strong self-serve momentum and a doubling of sales bookings. CFO Marc Suidan added that April demand was consistent with Q1. Budman described the competitive landscape as largely unchanged, with significant opportunity to win deals from hyperscalers and onboard new-to-cloud customers, driven by an improving go-to-market motion.

Jason Ader questioned if the market trend of cyber-resilience was benefiting B2 Cloud as a backup target and asked for an update on the competitive landscape since the company's IPO.

Answer

CEO Gleb Budman confirmed that IT backup and cyber-resilience is one of their four core sales plays and a significant growth area for the B2 business. Regarding competition, Budman noted that while hyperscalers remain, the key evolution is the broader realization that storing data outside their walled gardens is beneficial, creating opportunity for a best-of-breed provider like Backblaze.

Jason Ader of William Blair asked for a ballpark percentage of revenue from the AI business and sought to confirm if the core cloud business grew at a similar low-double-digit rate in Q2 as in Q1.

Answer

CFO Matt Steinfort confirmed that AI revenue is in the 5-10% ballpark and is becoming an increasingly material part of the business, though core cloud remains the majority. He affirmed that the core cloud business continues to see momentum and is improving, growing in the low double digits. He clarified that the quarter's upside was primarily driven by strong new customer acquisition and AI growth, which offset the slightly lower NDR.

Jason Ader inquired about the general availability timeline for DigitalOcean's GenAI platform and asked for details on the company's strategic differentiation within the competitive AI landscape.

Answer

CEO Padmanabhan Srinivasan stated the GenAI platform is expected to be generally available by the end of Q2 or early Q3 2025, noting strong beta adoption with over 5,000 customers. He detailed a three-layer differentiation strategy: an infrastructure layer optimized for full-stack AI inferencing, a platform layer focused on democratizing GenAI access for developers, and an application layer featuring tools like the cloud-based co-pilot.

Jason Ader of William Blair asked about the biggest risk of disruption to the DevOps toolchain from new AI coding assistants like Cursor and Windsurf, and whether GitLab would consider partnering with them.

Answer

CEO Bill Staples positioned these AI assistants as complementary rather than disruptive. He explained that they generate code, which then needs GitLab's platform for the rest of the DevSecOps lifecycle (testing, security, deployment). He emphasized that these tools already work well with GitLab and that GitLab believes in an open, interoperable platform, while also developing its own strong, full-lifecycle AI capabilities.

Jason Ader of William Blair questioned the market share dynamics with GitHub, given its faster growth, and asked for an outlook on the dollar-based net retention rate (DBNRR), questioning if it has bottomed out.

Answer

CEO Sid Sijbrandij acknowledged that both GitLab and GitHub are benefiting from customers migrating to platforms, noting GitHub's head start in AI code creation but emphasizing GitLab's competitive strengths in model-agnosticism and superior context from its broad platform. CFO Brian Robins expressed no concern over the DBNRR trend, stating that all historical cohorts continue to expand and that the rate is influenced by factors like a large deal from the prior year, not a change in developer hiring trends.

Jason Ader from William Blair asked for an update on seat growth trends, including any down-selling, and questioned what factors would be necessary to drive an inflection in seat expansion, given that pricing seems to be the primary growth driver.

Answer

CFO Dylan Smith confirmed that pricing increases, particularly from Enterprise Advanced upgrades, are the main driver of customer expansion, with net seat growth being a minor contributor. He noted that seat growth is more sensitive to the economic environment. CEO Aaron Levie added that the focus on Enterprise Advanced drives both price-per-seat increases and expanded use cases, which could eventually lead to broader seat adoption.

Jason Ader asked about the company's growth algorithm to return to double-digit growth and whether management would consider sacrificing operating margin to boost the top line. He also inquired about any revenue or EPS impact from the recent acquisitions of Alphamoon and Cruise.

Answer

CFO Dylan Smith outlined that the path to double-digit growth relies on improving the net retention rate through a balance of seat growth and pricing, alongside international expansion. While confident in continued bottom-line expansion, he noted the mix between growth and profitability could shift as investments pay off. He clarified that the recent acquisitions have no revenue impact and their costs are already incorporated into the provided guidance.

Jason Ader asked what is required for Couchbase to accelerate its top-line growth into the 20% range and for observations on the IBM acquisition of DataStax.

Answer

CEO Matthew Cain asserted that accelerating growth hinges on execution, emphasizing the company's differentiated AI-native platform and refined go-to-market strategy. CFO Gregory Henry added that after achieving 23% and 25% ARR growth in prior years, he is confident in returning to 20%+ growth as the renewal base improves. Regarding industry consolidation, Cain viewed the IBM-DataStax deal as validation of Couchbase's strategy, reinforcing the market's need for unified operational and analytical data platforms.

Jason Ader asked about the possibility of reaching non-GAAP operating breakeven by the end of next year and questioned the decision to maintain full-year ARR guidance, suggesting it did not seem de-risked.

Answer

CFO Gregory Henry reiterated the commitment to be free cash flow positive in fiscal 2026 but stated the target for non-GAAP operating income breakeven remains fiscal 2027. CEO Matthew Cain defended the ARR guidance, citing confidence from their predictable enterprise model, the strong Capella growth, and a material amount of already-contracted ARR scheduled to begin in Q4, which provides significant visibility.

Inquired about customer caution on renewals due to under-consumed entitlements, the incentive structure for commitment versus true-ups, and the potential for a future renewal 'bump' from delayed expansions.

Answer

Customer caution on renewals is abating as the company is now lapping prior periods of rightsizing, though some of this dynamic remains. The incentive for customers to commit to higher usage is to secure better volume-based discounts, as under-committing results in less favorable pricing. True-ups for over-consumption typically happen at the time of contract renewal. A potential future 'bump' from this is plausible but not explicitly forecasted for FY26.