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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 10-Q
___________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-41026
___________________________________
BACKBLAZE, INC.
___________________________________
(Exact name of registrant as specified in its charter)
Delaware
20-8893125
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
94401
(Zip Code)
500 Ben Franklin Ct
San Mateo, CA 94401
(Address of principal executive offices)
(650) 352-3738
Registrant’s telephone number, including area code
___________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.0001 par value per shareBLZEThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes o No ☒*

* The registrant became subject to such requirements on November 10, 2021 and has filed all reports so required since that date.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
¨
Accelerated filer
o
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes ☐ No 
As of November 30, 2021, 7.9 million shares of the registrant’s Class A common stock were outstanding, and 22.4 million shares of registrant's Class B common stock were outstanding.


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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that are in some cases beyond our control and may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
our ability to sell our platform to new customers;
our ability to retain and expand use of our platform by our existing customers;
our ability to effectively manage our growth;
our ability to successfully obtain timely returns on our investments in initiatives relating to sales and marketing, research and development, and other areas;
our ability to maintain our competitive advantages;
our ability to maintain and expand our partner ecosystem;
our ability to maintain the security of our platform and the security and privacy of customer data;
our ability to successfully expand in our existing markets and into new markets;
the size and growth of our estimated total addressable market;
the attraction and retention of qualified employees and key personnel;
our ability to successfully defend litigation brought against us;
the impact of the COVID-19 pandemic and other disruptive events on our business or that of our customers, partners, and supply chain;
our ability to successfully remediate and prevent material weaknesses in internal controls over financial reporting; and
the increased expenses associated with being a public company.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.


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The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.


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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BACKBLAZE, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
September 30,
2021
December 31,
2020
Assets
Current assets:
Cash and cash equivalents
$4,684 $6,076 
Accounts receivable, net
115 209 
Prepaid expenses and other current assets
4,004 2,947 
Total current assets
8,803 9,232 
Property and equipment, net
40,395 38,746 
Capitalized internal-use software, net
7,719 5,682 
Other assets
3,480 809 
Total assets
$60,397 $54,469 
Liabilities, Convertible Preferred Stock and Stockholders’ Deficit
Current liabilities:
Accounts payable
$1,403 $1,710 
Accrued expenses and other current liabilities
4,089 3,596 
Accrued value-added tax (“VAT”) liability
2,275 1,533 
Capital lease liability and lease financing obligation, current
11,966 11,320 
Deferred revenue, current
21,127 17,587 
Debt, current
 628 
Total current liabilities
40,860 36,374 
Capital lease liability and lease financing obligation, non-current
17,238 17,886 
Deferred revenue, non-current
3,367 1,801 
Other long-term liabilities
698 820 
Simple agreement for future equity (“SAFE”) notes10,359  
Debt, non-current
 1,644 
Total liabilities
$72,522 $58,525 
Commitments and contingencies (Note 10)
Convertible Preferred Stock
Convertible preferred stock, $0.001 par value; 9,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 3,359,195 issued and outstanding with aggregate liquidation preference of $2,852 as of September 30, 2021 and December 31, 2020, respectively
2,784 2,784 
Stockholders’ Deficit
Common stock, $0.001 par value; 36,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 18,936,698 and 18,614,905 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
5 5 
Additional paid-in capital
11,824 7,794 
Accumulated deficit
(26,738)(14,639)
Total stockholders’ deficit
(14,909)(6,840)
Total liabilities, convertible preferred stock and stockholders’ deficit
$60,397 $54,469 
See accompanying notes, which are an integral part of these condensed financial statements.
1

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BACKBLAZE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Revenue
$17,320 $13,817 $48,782 $39,196 
Cost of revenue
8,519 7,097 24,275 18,775 
Gross profit
8,801 6,720 24,507 20,421 
Operating expenses:
Research and development
5,338 3,300 14,314 9,132 
Sales and marketing
5,025 2,956 13,149 8,379 
General and administrative
3,104 1,519 8,261 4,157 
Total operating expenses
13,467 7,775 35,724 21,668 
Loss from operations
(4,666)(1,055)(11,217)(1,247)
Interest expense
(968)(793)(2,686)(1,946)
Gain on extinguishment of debt
  2,299  
Unrealized loss on SAFE
(359) (359) 
Loss before provision for income taxes
(5,993)(1,848)(11,963)(3,193)
Income tax provision
 (12)(136)(12)
Net loss
$(5,993)$(1,860)$(12,099)$(3,205)
Net loss per share, basic and diluted
$(0.32)$(0.10)$(0.64)$(0.17)
Weighted average shares used in computing net loss per share, basic and diluted
18,936,698 18,614,869 18,775,908 18,607,705 
See accompanying notes, which are an integral part of these condensed financial statements.
2

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BACKBLAZE, INC.
CONDENSED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
(in thousands, except share data)
(unaudited)
Three Months Ended September 30, 2021
Convertible
Preferred Stock
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Total
SharesAmountSharesAmount
Balance as of June 30, 2021
3,359,195 $2,784 18,936,698 $5 $10,219 $(20,745)$(10,521)
Net loss
— — — — — (5,993)(5,993)
Stock-based compensation
— — — — 1,605 — 1,605 
Balance as of September 30, 2021
3,359,195 $2,784 18,936,698 $5 $11,824 $(26,738)$(14,909)
Three Months Ended September 30, 2020
Convertible
Preferred Stock
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
SharesAmountSharesAmount
Balance as of June 30, 2020
3,359,195 $2,784 18,614,869 $5 $6,552 $(9,361)$(2,804)
Net loss— — — — — (1,860)(1,860)
Stock-based compensation— — — — 524 — 524 
Balance as of September 30, 2020
3,359,195 $2,784 18,614,869 $5 $7,076 $(11,221)$(4,140)
Nine Months Ended September 30, 2021
Convertible
Preferred Stock
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
SharesAmountSharesAmount
Balance as of December 31, 2020
3,359,195 $2,784 18,614,905 $5 $7,794 $(14,639)$(6,840)
Net loss
— — — — — (12,099)(12,099)
Issuance of common stock upon exercise of stock options
— — 321,793 — 148 — 148 
Stock-based compensation
— — — — 3,882 — 3,882 
Balance as of September 30, 20213,359,195 $2,784 18,936,698 $5 $11,824 $(26,738)$(14,909)
Nine Months Ended September 30, 2020
Convertible
Preferred Stock
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Total
SharesAmountSharesAmount
Balance as of December 31, 2019
3,359,195 $2,784 18,596,772 $5 $5,684 $(8,283)$(2,594)
Net loss
— — — — — (3,205)(3,205)
Adoption of new accounting standard (Topic 606)
— — — — — 267 267 
Issuance of common stock upon exercise of stock options
— — 18,097 — 19 — 19 
Stock-based compensation
— — — — 1,373 — 1,373 
Balance as of September 30, 2020
3,359,195 $2,784 18,614,869 $5 $7,076 $(11,221)$(4,140)
See accompanying notes, which are an integral part of these condensed financial statements.
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BACKBLAZE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended September 30,
20212020
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
$(12,099)$(3,205)
Adjustments to reconcile net loss to net cash provided by operating activities:
Gain on extinguishment of Paycheck Protection Program (“PPP”) loan
(2,299) 
Unrealized loss on SAFE
359  
Depreciation and amortization
12,041 9,111 
Stock-based compensation
3,611 1,214 
Amortization of deferred contract costs
579 489 
(Gain) loss on disposal of assets and other
(17)12 
Changes in operating assets and liabilities:
Accounts receivable
94 (11)
Prepaid expenses and other current assets
(1,985)(1,546)
Other assets
(256)272 
Accounts payable
(258)(449)
Accrued expenses and other current liabilities
444 1,297 
Accrued VAT liability
742 43 
Deferred revenue
5,105 1,743 
Other long-term liabilities
(97)596 
Net cash provided by operating activities
5,964 9,566 
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of property and equipment
17  
Purchases of property and equipment, net
(6,893)(1,776)
Capitalized internal-use software costs
(3,013)(2,163)
Net cash used in investing activities
(9,889)(3,939)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on capital lease and lease financing obligations
(8,715)(7,701)
Payments of deferred offering costs
(1,807) 
Proceeds from PPP
 2,272 
Proceeds from SAFE
10,000  
Proceeds from lease financing
2,907  
Proceeds from exercises of stock options148 19 
Net cash provided by (used in) financing activities
2,533 (5,410)
Net (decrease) increase in cash and cash equivalents
(1,392)217 
Cash and cash equivalents at beginning of period
6,076 6,978 
Cash and cash equivalents at end of period
$4,684 $7,195 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest
$2,578 $1,955 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Stock-based compensation capitalized internal-use software
$271 $159 
Equipment acquired through capital lease obligations
$8,895 $20,538 
Accruals related to purchases of property and equipment
$250 $4 
Extinguishment of PPP loan
$2,299 $ 
See accompanying notes, which are an integral part of these condensed financial statements.
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BACKBLAZE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1. Organization and Description of Business
Description of Business
Backblaze, Inc. (“Backblaze” or the “Company”) is a storage cloud platform, providing businesses and consumers with solutions to store and use their data. Backblaze provides these cloud services through purpose-built, web-scale software built on commodity hardware. Backblaze was incorporated in the state of Delaware on April 20, 2007 and is headquartered in San Mateo, California.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all disclosures normally required in annual financial statements prepared in accordance with GAAP. Therefore, these unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes included in the Company’s final prospectus dated November 10, 2021 and filed with the SEC pursuant to Rule 424(b)(4) on November 12, 2021 (“Final Prospectus”). In management’s opinion, these unaudited condensed financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position as of September 30, 2021, results of operations for the three and nine months ended September 30, 2021 and 2020, cash flows for the nine months ended September 30, 2021 and 2020, and stockholders' deficit for the three and nine months ended September 30, 2021 and 2020. The results of operations for the three and nine months ended September 30, 2021 and 2020 are not necessarily indicative of the results to be expected for the full year or any other future interim or annual period.
Stock Split
During October 1, 2021, the Company effected a 3.6-for-1 stock split of its outstanding common stock and convertible preferred stock. Upon the effectiveness of the stock split, all issued and outstanding shares of common stock and convertible preferred stock and related per share amounts contained in the accompanying financial statements were retroactively revised to reflect this stock split for all periods presented. The par value of the authorized stock was not adjusted as a result of the stock split.
Emerging Growth Company

The Company is an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, EGCs can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an EGC or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. The Company expects to use the extended transition period for any other new or revised accounting standards during the period in which it remains an EGC.
Segment Information

The Company has a single operating and reportable segment. In reaching this conclusion, management considers the definition of the chief operating decision maker (“CODM”), how the business is defined by the CODM, the nature of the information provided to the CODM and how that information is used to make operating decisions, allocate resources and assess performance. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on an aggregated basis for purposes of making operating decisions, assessing financial performance and allocating resources.
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Significant accounting policies
The Company’s significant accounting policies are disclosed in the Company’s audited financial statements and related notes thereto included in the Final Prospectus. There have been no changes to these accounting policies.
Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Such estimates and assumptions include the costs to be capitalized as internal-use software and their useful life, the useful lives of other long-lived assets, impairment considerations for long-lived assets, expected lease term for capital leases, calculation of the refund liability, estimates related to variable consideration, valuation of the Company’s common stock and stock options and accounting for taxes, including estimates for sales tax and VAT liability, deferred tax assets, valuation allowance and uncertain tax positions. The Company bases its estimates on historical experience and on assumptions that management considers reasonable. Future actual results could differ materially from these estimates.
Risks and Uncertainties
COVID-19
The worldwide spread of coronavirus and its variants including delta and omicron (“COVID-19”) have created significant uncertainty in the global economy. There have been no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and as a result, the ultimate impact of COVID-19 and the extent to which COVID-19 continues to impact Backblaze’s business will depend on future developments, which are highly uncertain and difficult to predict.
While the full impact of the pandemic to the business remains unknown and Backblaze does not believe that its results of operations and financial condition have been materially adversely impacted as of the date of these financial statements, Backblaze also believes that the pandemic has had some impact on its business. The Company’s potential customers, customers, supply chain or partners may have experienced, or in the future could experience, downturns or uncertainty in their own business operations due to COVID-19, which may have affected or could affect purchasing and operating decisions. For example, although Backblaze believes its ability to retain customers has not been materially impacted by the pandemic, Backblaze also believes that the pandemic may have caused some customers to reduce their use of cloud storage with Backblaze or to delay increasing their use of Backblaze’s cloud storage offerings. In addition, the pandemic may have caused potential customers to delay their purchasing decisions or to store less data with Backblaze. The Company may experience customer losses due to customer bankruptcy or cessation of operations, or other factors. In addition, the Company’s supply chain may be disrupted, or it may be unable to obtain infrastructure and related equipment essential to its business on favorable terms or at all. The Company does not yet know the full extent of potential impacts on its business or operations or on the global economy as a whole, particularly if the COVID-19 pandemic continues and persists for an extended period of time. As of the date of these financial statements, the Company is not aware of any specific event or circumstance that would require it to update its estimates, judgments or the carrying value of its assets or liabilities.

Concentrations
Credit risk. Financial instruments that potentially subject the Company to credit risk primarily consist of cash, cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents with high-quality financial institutions with investment-grade ratings. Deposits with these financial institutions may exceed the amount of insurance provided on such deposits. For accounts receivable, the Company is exposed to credit risk in the event of nonpayment by customers to the extent of the amount recorded on the condensed balance sheets.
Vendors. The Company acquires infrastructure equipment from third-party vendors. Vendors may have limited sources of equipment and supplies which may expose the Company to potential supply and service disruptions that could harm the Company’s business. Two vendors represented in aggregate 31% of total cash disbursements during the year ended December 31, 2020, while three vendors represented 20% of the accounts payable balance as of December 31, 2020. Two vendors represented an aggregate 25% of total cash disbursements during the nine months ended September 30, 2021, while three vendors represented an aggregate 45% of the accounts payable balance as of September 30, 2021.
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Revenue. The Company derives substantially all of its revenue from the services operating on its Backblaze Storage Cloud platform: its Backblaze B2 Cloud Storage (“Backblaze B2”) and Backblaze Computer Backup (“Computer Backup”) offerings. The potential for severe impact to the Company’s business could result if the Company was unable to operate its platform or serve customers through its platform for an extended period of time.
Accounting Pronouncements Not Yet Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which requires the recognition of lease assets and lease liabilities arising from operating leases on the balance sheet. Subsequently, the FASB also issued a series of amendments to this new lease standard that address the transition methods available and clarify the guidance for lessor costs and other aspects of the new lease standard. The Company will adopt the standard effective January 1, 2022 and expects to adopt using the modified retrospective transition method without restating comparative periods. The Company is currently evaluating the impact of the adoption of this guidance on its financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected, with further clarifications made more recently. For trade receivables, loans and other financial instruments, the Company will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. Credit losses relating to available-for-sale debt securities are required to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. This guidance is effective for the Company for its fiscal year beginning January 1, 2023 and interim periods within that fiscal year. The Company is currently evaluating the impact of the adoption of this guidance on its financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by this new guidance. This new guidance is effective for the Company for its fiscal year beginning January 1, 2021 and interim periods within its fiscal year beginning January 1, 2022. Early adoption is permitted. The Company plans to adopt this guidance prospectively and does not expect the adoption of this guidance will have a material impact on its financial statements for the fiscal year ended December 31, 2021.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by eliminating some exceptions to the general approach in ASC 740, Income Taxes, in order to reduce cost and complexity of its application. This new guidance is effective for the Company for its fiscal year beginning January 1, 2022 and interim periods within its fiscal year beginning January 1, 2023. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this guidance on its financial statements.
Note 3. Revenues
Deferred Contract Costs
The Company’s amortization of deferred contract costs was $0.2 million and $0.6 million for the three and nine months ended September 30, 2021, respectively, and was $0.2 million and $0.5 million during the three and nine months ended September 30, 2020, respectively. The amount of capitalized contract costs was $0.4 million as of September 30, 2021 and December 31, 2020.
Deferred Revenue
Deferred revenue was $24.5 million and $19.4 million as of September 30, 2021 and December 31, 2020, respectively. Revenue recognized during the three months ended September 30, 2021 and 2020 was approximately $7.6 million and $6.8 million, respectively, and approximately $15.6 million and $13.8 million during the nine months ended September 30, 2021 and 2020, respectively, which was included in each deferred revenue balance at the beginning of each respective period. The Company’s deferred revenue as stated on the condensed balance sheets presented approximate its contract liability balance as of September 30, 2021 and December 31, 2020.
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Disaggregation of Revenues
The following table presents the Company’s revenues disaggregated by timing of revenue recognition (in thousands):
For the Three Months Ended September 30,
For the Nine Months Ended September 30,
2021202020212020
Consumption-based arrangements (B2 Cloud Storage)
$5,977 $3,757 $16,026 $10,018 
Subscription-based arrangements (Computer Backup)
11,163 9,894 32,219 28,696 
Physical Media
180 166 537 482 
Total revenue
$17,320 $13,817 $48,782 $39,196 
The Company’s consumption-based arrangements are from its Backblaze B2 offering, and its subscription-based arrangements are from its Computer Backup offering. The Company’s management and CODM reviews revenue on the basis presented above.
Revenue by geographic area, based on the location of the Company’s customers, was as follows (in thousands):
For the Three Months Ended September 30,
For the Nine Months Ended September 30,
2021202020212020
United States$12,435 $9,960 $35,083 $28,469 
Other4,885 3,857 13,699 10,727 
Total$17,320 $13,817 $48,782 $39,196 
Note 4. Cash Equivalents
The Company’s cash equivalents on its condensed balance sheets included money market funds with an amortized cost and estimated fair value of less than $0.1 million and $2.7 million as of September 30, 2021 and December 31, 2020, respectively. The Company had no debt or equity investment securities during the nine months ended September 30, 2021 and 2020.
Note 5. Fair Value Measurements
The following table presents the fair value hierarchy for the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 and as of December 31, 2020 (in thousands):
Level 1Level 2Level 3
September 30,
2021
December 31,
2020
September 30,
2021
December 31,
2020
September 30,
2021
December 31,
2020
Assets
Cash equivalents:
Money market funds
$44 $2,651 $ $ $ $ 
Total
$44 $2,651 $ $ $ $ 
Liabilities
SAFE notes
$ $ $ $ $10,359 $ 
Total
$ $ $ $ $10,359 $ 

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Fair values determined by Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets. Level 3 instruments are characterized by unobservable inputs that are supported by little or no market activity, which require management judgment or estimation. The fair value of the SAFE notes was determined as of September 30, 2021 using unobservable inputs. In valuing the SAFE notes, the Company used a Monte Carlo simulation to forecast a range of probability-weighted settlement paths in combination with income, market, and cost-based valuation approaches. The settlement paths used probabilities ranging from 5% to 65%. The Company used a discount rate of approximately 30% to adjust the probability-weighted settlement paths to their present value. An increase in the discount rate would decrease the fair value of the instrument, and an increase in probabilities of certain settlement paths would increase the fair value of the instrument.
The following table summarizes the total carrying value of the Company’s Level 3 instruments held as of September 30, 2021 including cumulative unrealized gains and losses recognized during the nine months ended September 30, 2021 (in thousands):

Nine Months Ended September 30, 2021
Beginning balance as of December 31, 2020$ 
Sale of SAFE notes10,000 
Total unrealized loss359
Ending balance as of September 30, 2021$10,359 

Note 6. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
September 30,
2021
December 31,
2020
Unbilled accounts receivable
$1,150 $841 
Prepaid expenses
633 643 
Prepaid subscriptions
547 276 
Capitalized commissions
343 315 
Receivable from payment processor
468 268 
Prepaid flash drives347  
Prepaid data migration fees
103 71 
Deposits
179 19 
Other
234 514 
Total prepaid expenses and other current assets
$4,004 $2,947 
Note 7. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
September 30,
2021
December 31,
2020
Data center equipment
$11,053 $10,538 
Leased data center equipment
58,826 51,852 
Machinery and equipment
7,055 4,369 
Computer equipment
1,496 1,176 
Leasehold improvements
900 876 
Construction-in-process
167 2,358 
Total property and equipment
79,497 71,169 
Less: accumulated depreciation
(39,102)(32,423)
Total property and equipment, net
$40,395 $38,746 
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Depreciation expense was $3.6 million and $10.8 million for the three and nine months ended September 30, 2021, respectively, and $3.0 million and $8.2 million for three and nine months ended September 30, 2020, respectively.
Note 8. Capitalized Internal-use Software, Net
Capitalized internal-use software, net consisted of the following (in thousands):
September 30,
2021
December 31,
2020
Developed software
$11,476 $8,593 
Software purchased for internal-use
870 466 
Total capitalized internal-use software
12,346 9,059 
Less: accumulated amortization
(4,627)(3,377)
Total capitalized internal-use software, net
$7,719 $5,682 

Amortization expense of capitalized internal-use software was $0.4 million and $1.2 million for the three and nine months ended September 30, 2021, respectively, and was $0.3 million and $0.9 million for the three and nine months ended September 30, 2020, respectively. Amortization of developed software and software purchased for internal use are included in cost of revenue and general and administrative expense, respectively, in the Company’s statements of operations. As of September 30, 2021, future amortization expense is expected to be as follows (in thousands):
Year Ending December 31,
Remainder of 2021$500 
20221,998 
20231,833 
20241,569 
20251,102 
Thereafter
717 
Total
$7,719 
Note 9. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
September 30,
2021
December 31,
2020
Accrued compensation
$1,125 $1,295 
Accrued expenses
1,488 1,284 
Accrued sales tax
977 598 
Accrued income tax
141 5 
Other
358 414 
Accrued expenses and other current liabilities
$4,089 $3,596 
Note 10. Commitments and Contingencies
Capital Leases
The Company enters into capital lease arrangements to obtain hard drives and related equipment for its data center operations. The term of these agreements primarily range from three to four years and certain of these arrangements have optional renewals. Contingent rental payments are generally not included in the Company’s lease agreements. The leases are generally secured by the underlying leased equipment.
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For the Company’s assets acquired through capital lease agreements, depreciation expense was $3.0 million and $8.9 million for the three and nine months ended September 30, 2021, respectively, and was $2.1 million and $6.4 million for the three and nine months ended September 30, 2020, respectively. Depreciation expense on the Company’s capital leases is included in cost of revenue in its statements of operations. There have been no material changes to the Company’s capital lease commitments during the nine months ended September 30, 2021.
During the nine months ended September 30, 2021, the Company entered into two sale-leaseback arrangements with vendors to provide approximately $2.9 million in cash proceeds for previously purchased hard drives and related equipment. The Company concluded the related lease arrangements would be classified as lease financing obligations as it has the option to repurchase the assets at their fair value at a future date. Therefore, the transaction was deemed a failed sale-leaseback and was accounted for as a financing arrangement. The assets continue to be depreciated over their useful lives, and payments are allocated between interest expense and repayment of the financing liability. As of September 30, 2021, the future minimum payments related to the lease agreements consisted of the following (in thousands):
Year Ending December 31,
Remainder of 2021
$212 
2022
848
2023
848
2024
840
2025
387
Thereafter
 
Total
$3,135 
Operating Leases
The Company leases its facilities for data centers and office space under non-cancelable operating leases with various expiration dates. Certain lease agreements include options to renew or terminate the lease, which are not reasonably certain to be exercised and therefore are not factored into the determination of lease payments. Contingent rental payments are generally not included in the Company’s lease agreements.
There have been no material changes to the Company’s operating lease commitments during the nine months ended September 30, 2021.
Rental expense related to the Company’s operating leases was approximately $1.9 million and $5.1 million for the three and nine months ended September 30, 2021, respectively, and was $1.5 million and $3.9 million during the three and nine months ended September 30, 2020, respectively. Rental expense related to the Company’s operating leases is primarily included in cost of revenue in its condensed statements of operations.
Other Contractual Commitments
Other non-cancellable commitments relate mainly to infrastructure agreements used to facilitate the Company’s operations. As of September 30, 2021, the Company had non-cancelable purchase commitments of $0.6 million and $0.3 million payable during the years ending December 31, 2021 and 2022, respectively.
401(k) Plan
The Company sponsors a 401(k) defined contribution plan covering all eligible U.S. employees. Contributions to the 401(k) plan are discretionary. The Company expensed $0.3 million and $0.8 million during the three and nine months ended September 30, 2021, respectively, and $0.2 million and $0.5 million during the three and nine months ended September 30, 2020, respectively, related to its 401(k) plan contributions.
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Legal Matters
The Company is involved from time to time in various claims and legal actions arising in the ordinary course of business. While it is not feasible to predict or determine the ultimate outcome of these matters, the Company believes that none of its current legal proceedings will have a material adverse effect on its financial position, results of operations or cash flows. However, the results of legal proceedings are inherently unpredictable and if an unfavorable ruling were to occur in any of the current legal proceedings, there exists the possibility of a material adverse effect on the Company’s financial position, results of operations and cash flows.
Sales Tax
The Company undertook an analysis of its sales tax exposure based on the South Dakota vs. Wayfair case whereby the U.S. Supreme Court determined that physical presence was not required to determine the potential exposure a company has for sales tax purposes. Based on the Company’s analysis, its total accrual for sales tax payable was $1.0 million and $0.6 million as of September 30, 2021 and December 31, 2020, respectively, which includes estimated amounts for penalties and interest.
Accrued VAT Liability
The Company has calculated a liability for uncollected and unpaid VAT, which is generally assessed by various taxing authorities on services the Company provides to its customers. The Company accrues an amount that it considers probable to be collected and can be reasonably estimated. Based on the Company’s analysis, its total accrual for VAT tax payable was $2.3 million and $1.5 million as of September 30, 2021 and December 31, 2020, respectively, which includes estimated amounts for penalties and interest.
Indemnification
The Company enters into indemnification provisions under agreements with other parties from time to time in the ordinary course of business. The Company has agreed in certain circumstances to indemnify and defend the indemnified party for claims and related losses suffered or incurred by the indemnified party from third-party claims due to the Company’s activities or non-compliance with certain representations and warranties made by the Company. It is not possible to determine the maximum potential loss under these indemnification provisions due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision. No losses have been recorded in the condensed statements of operations in connection with the indemnification provisions.
Note 11. Debt
Credit Facility
On October 11, 2017, the Company entered into a $15.0 million revolving credit agreement with HomeStreet Bank. Under this agreement, amounts available to be borrowed are based on the lesser of $15.0 million or the Company’s trailing four month’s monthly recurring revenue multiplied by a retention rate as defined in the agreement. Advances on the line of credit bear interest payable monthly at the Wall Street Journal prime rate plus 0.25%. Borrowings are secured by substantially all of the Company’s assets, with limited exceptions. As of December 31, 2020, the Company was in compliance with covenants under the agreement.
During April 2021, the Company amended its revolving credit agreement. Under this amendment, among other things, (i) amounts available to be borrowed are based on the lesser of $10.0 million or the Company’s trailing four months monthly recurring revenue multiplied by a retention rate set forth in the amendment and (ii) advances on the line of credit bear interest payable monthly at the Wall Street Journal prime rate plus 1.00%. The revolving credit agreement, as amended, matures on June 1, 2022. As of September 30, 2021, no amounts were outstanding and the Company was in compliance with covenants under the agreement. During October 2021, in connection with entering into a revolving credit agreement with City National Bank, the Company subsequently terminated its agreement with HomeStreet Bank. See Note 16 Subsequent Events.
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Paycheck Protection Program
On April 22, 2020, the Company received approximately $2.3 million in funding through the U.S. Small Business Administration’s Paycheck Protection Program that was part of the CARES Act that was signed into law in March 2020. The interest rate on the loan was 1.00% per year and matured on April 2022. The note was payable in monthly installments of principal and interest, beginning in August 2021. The note was able to be repaid at any time with no payment penalty. The application for these funds required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company.
An application to forgive the entire amount was submitted with the lender in July 2020. Any request for forgiveness is subject to review and approval by the lender and the SBA. Further, the SBA has stated that all PPP loans in excess of $2.0 million, and other PPP loans as appropriate, will be subject to review by the SBA for compliance with program requirements. If the SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request or the subsequent use of loan proceeds, the SBA will seek repayment of the PPP loan, including interest and potential penalties.
The Company recognized the entire loan amount as a financial liability, with interest accrued and expensed over the term of the loan.
In June 2021, the Company received notification from the SBA that the Company’s forgiveness application of the PPP loan and accrued interest, totaling $2.3 million, was approved in full, and the Company has no further obligations related to the PPP loan. Accordingly, the Company recorded the forgiveness of the PPP loan as gain on extinguishment of debt on its statement of operations. While the Company believes its loan was properly obtained and forgiven, there can be no assurance regarding the outcome of an SBA review. The Company has not been informed that a review will occur and has not accrued any liability associated with the risk of an adverse SBA review.
Convertible notes and related party transactions
During August 2021, the Company issued investors convertible notes (the “Security”) in the amount of $10.0 million. The Security is classified as a Simple Agreement for Future Equity agreement (“SAFE”). The convertible notes are automatically convertible into shares of the Company’s Class A common stock upon the completion of an initial public offering (or other liquidity event if sooner) at a discounted price to the value of its common stock at the time of such event. The discount shall initially be equal to 10% and shall increase by an additional 10% annually following the effective date, subject to a maximum discount of 50%. The discount shall be adjusted pro-rata on a monthly basis, increasing on the monthly anniversary of the effective date of the agreement. Interest shall accrue at the simple rate of 5% per annum of the outstanding amount commencing upon the effective date of the agreement and continuing until the outstanding principal amount has been paid in full or converted. The accrued interest shall be added to the purchased amount upon conversion into equity. If there is a change of control event, these SAFEs will automatically convert into the securities offered in connection with such change of control event.
The Company determined that the SAFE notes should be classified as a liability based on evaluating the characteristics of the instrument, which contained both debt and equity-like features. As such, the Company has recorded the carrying value of the SAFE notes and the associated accrued interest as a current liability on its balance sheet as of September 30, 2021. As the SAFE notes were deemed to be a liability, the Company conducted a valuation of the SAFE notes liability as of September 30, 2021, which resulted in an unrealized loss of $0.4 million that the Company recorded in its condensed statement of operations.
Furthermore, $2 million of the SAFE notes were purchased by TMT Investments PLC, a beneficial holder of more than 5% of the Company’s capital stock, and were deemed to be a related party transaction.
Note 12. Stockholders’ Deficit
Common Stock. The Company has one class of common stock. The common stock is entitled to one vote per share. Holders of common stock are entitled to receive any dividends as may be declared from time to time by the Board of Directors. Common stock is subordinate to the convertible preferred stock with respect to dividend rights and rights upon certain deemed liquidation events.
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The Company had reserved shares of common stock for future issuance as follows:
 September 30,
2021
December 31,
2020
Convertible preferred stock
3,359,195 3,359,195 
2011 Equity Incentive Plan
Options outstanding
13,818,295 11,409,736 
Shares available for future grants
114,987 865,339 
Total
17,292,477 15,634,270 
Equity Incentive Plan. In 2011, the Company’s Board approved the adoption of the 2011 Stock Plan (the “Plan”). The Plan provides for the grant of stock-based awards to employees, non-employee directors and other service providers of the Company. During May 2019, the Company’s Board approved an increase to the number of authorized shares under the Plan by 1,800,000. Following the increase, the Plan had 9,720,000 shares authorized as of December 31, 2019. During April 2020, the Company’s Board approved an increase to the number of authorized shares under the Plan by 2,700,000. Following the increase, the Plan had 12,420,000 shares authorized as of December 31, 2020. During March 2021, the Company’s Board approved an increase to the number of authorized shares under the Plan by 1,800,000. Following the increase, the Plan had 14,220,000 shares authorized. During August 2021, the Company’s Board approved an increase to the number of authorized shares under the 2011 Stock Plan by 180,000. Following the increase, the 2011 Stock Plan had 14,400,000 shares authorized as of September 30, 2021.
Stock Options. Stock options granted under the Plan generally vest based on continued service over four years and expire ten years from the date of grant.
A summary of stock option activity under the Plan and related information is as follows (in thousands, except share, price and year data):
 Shares
available for
grant
Outstanding
Stock
Options
Weighted-
average
exercise
Price
Weighted-
average
remaining
contractual
life (years)
Aggregate
intrinsic
value
Balance as of December 31, 2020
865,339 11,409,736 $2.27 6.52$36,889 
Shares authorized1,980,000 
Granted(2,994,120)2,994,120 7.16 
Exercised (321,793)0.61 
Cancelled263,768 (263,768)3.54 
Balance as of September 30, 2021
114,987 13,818,295 $3.35 6.69$169,042 
Vested and exercisable as of September 30, 2021
8,110,364 $2.05 4.97$109,769 
The weighted-average grant-date fair value of options granted was $5.39 and $1.84 during the nine months ended September 30, 2021 and 2020, respectively. The intrinsic value of options exercised for the nine months ended September 30, 2021 and 2020 was $4.8 million and less than $0.1 million, respectively. The aggregate grant-date fair value of options vested was $2.5 million and $1.1 million during the nine months ended September 30, 2021 and 2020, respectively. Aggregate intrinsic value represents the difference between the exercise price of the options and the estimated fair value of the Company’s common stock.
In June 2021, the Company issued full-recourse promissory notes to four employees of the Company for an aggregate principal amount of $48 thousand with an interest rate of 0.13% per annum. All of the principal was used to exercise options for 234,526 shares of the Company’s common stock. As of September 30, 2021, the Company has accounted for the notes as a deduction from stockholders’ deficit. Following the Company’s initial public offering (“IPO”), these notes matured in November 2021, in connection with the sale of the underlying shares by these employees.
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Note 13. Stock-Based Compensation
The following table summarizes the Black-Scholes option pricing model weighted-average assumptions used in estimating the fair value of stock options granted to employees during the three months ended September 30, 2021, and during the nine months ended September 30, 2021 and 2020. No options grants were made during the three months ended September 30, 2020.
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Expected term (in years)
6.06.06.0
Expected volatility
48.8 % %49.1 %48.5 %
Risk-free interest rate
0.93 % %1.05 %0.41 %
Expected term. For stock options considered to be “plain vanilla” options, the Company estimates the expected term based on the simplified method, which is essentially the weighted average of the vesting period and contractual term, as the Company’s historical share option exercise experience does not provide a reasonable basis upon which to estimate the expected term.
Expected volatility. The Company performed an analysis using the average volatility of a peer group of representative public companies with sufficient trading history over the expected term to develop an expected volatility assumption.
Risk-free interest rate. Based upon quoted market yields for the United States Treasury debt securities for a term consistent with the expected life of the awards in effect at the time of grant.
Expected dividend yield. Because the Company has never paid and has no intention to pay cash dividends on common stock, the expected dividend yield is zero.
Fair value of underlying common stock. As of September 30, 2021, the Company’s common stock is not yet publicly traded, therefore, the Company must estimate the fair value of common stock. The Board considers numerous objective and subjective factors to determine the fair value of the Company’s common stock at each meeting in which awards are approved. The factors considered include, but are not limited to: (i) the results of contemporaneous independent third-party valuations of the Company’s common stock; (ii) the prices, rights, preferences, and privileges of the Company’s convertible preferred stock relative to those of its common stock; (iii) the lack of marketability of the Company’s common stock; (iv) actual operating and financial results; (v) current business conditions and projections; (vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company, given prevailing market conditions; and (vii) precedent transactions involving the Company’s shares.
Stock-based compensation expense included in the condensed statements of operations was as follows (in thousands):
For the Three Months Ended September 30,
For the Nine Months Ended September 30,
2021202020212020
Cost of revenue
$139 $34 $333 $57 
Research and development
466 195 1,377 536 
Sales and marketing
489 137 1,057 386 
General and administrative
354 105 844 235 
Total stock-based compensation expense
$1,448 $471 $3,611 $1,214 
During the nine months ended September 30, 2021 and 2020, the Company capitalized $0.3 million and $0.2 million, respectively, of stock-based compensation for the development of internal-use software. As of September 30, 2021, total compensation cost related to stock options not yet vested was approximately $20.0 million, which will be recognized over a weighted-average period of approximately 3.0 years.

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Note 14. Net Loss per Share Attributable to Common Stockholders
Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. The Company considers its convertible preferred stock to be participating securities. Under the two-class method, the net loss attributable to common stockholders is not allocated to the convertible preferred stock as the holders of these participating securities do not have a contractual obligation to share in the losses of the Company.
Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. The diluted net loss per share attributable to common stockholders is computed by giving effect to all potentially dilutive common stock equivalents during the period. For purposes of this calculation, the Company’s convertible preferred stock and stock options are considered to be potential common stock equivalents, but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive.
The following table presents the calculation of basic and diluted net loss per share (in thousands, except share and per share data):
For the Three Months Ended September 30,
For the Nine Months Ended September 30,
2021202020212020
Numerator:
Net loss attributable to common stockholders
$(5,993)$(1,860)$(12,099)$(3,205)
Denominator for basic and diluted net loss per share:
Weighted-average shares used in computing net loss per share attributable to common stockholders – basic and diluted
18,936,69818,614,86918,775,90818,607,705
Net loss per share attributable to common stockholders – basic and diluted
$(0.32)$(0.10)$(0.64)$(0.17)
Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential common shares outstanding would have been antidilutive. The potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been antidilutive are as follows:
September 30,
20212020
Convertible preferred stock
3,359,195 3,359,195 
Stock options
13,818,295 9,931,942 
Total
17,177,490 13,291,137 
Note 15. Income Taxes
The Company is subject to U.S. federal and state income taxes as a corporation. The Company’s tax provision and the resulting effective tax rate for interim periods is determined based upon its estimated annual effective tax rate adjusted for the effect of discrete items arising in that quarter.
The effective tax rate for the three and nine months ended September 30, 2021 and 2020 was zero as the Company has incurred continuous operating losses. The Company recorded a $0.1 million provision for income taxes during the nine months ended September 30, 2021, which includes an immaterial out of period correction of $0.2 million relating to the limitation of the net operating loss (“NOLs”) as of December 31, 2020. The charge represents the limitation on post-2017 federal NOLs which are limited to 80% beginning in years after December 31, 2020.
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Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities using statutory rates. A valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized. Due to the uncertainty surrounding the realization of the favorable tax attributes in future tax returns, we have recorded a full valuation allowance against our otherwise recognizable net deferred tax assets
Note 16. Subsequent Events
Since September 30, 2021, the Company has entered into various capital lease agreements for acquiring infrastructure equipment to operate its core business. The Company’s future minimum commitment under these agreements total approximately $4.9 million and extend through 2024.
During October 2021, the Company entered into a revolving credit agreement with City National Bank. Under this agreement, among other things, (i) amounts available to be borrowed are $9.5 million and (ii) advances on the line of credit bear interest payable monthly at the average Secured Overnight Financing Rate (“SOFR”) rate plus 2.75%. The revolving credit agreement matures in September 2024. In connection with this agreement, the Company fully repaid and subsequently terminated its 2017 revolving credit agreement with HomeStreet Bank.
On November 15, 2021, the Company had its first closing for its IPO, in which the Company issued and sold 6,250,000 shares of its Class A common stock at a public offering price of $16.00 per share. On November 17, 2021, the Company had its second closing for its initial public offering, in which the Company issued and sold 937,500 shares at the same per-share price pursuant to the exercise by the underwriters of their option to purchase such shares from the Company for the purpose of covering over-allotments. Together, these two closings resulted in net proceeds of approximately $103 million after deducting the underwriting discounts and commissions and offering expenses. In connection with the IPO and with the filing of the Company’s Amended and Restated Certificate of Incorporation in Delaware and the adoption of its Amended and Restated Bylaws, the following occurred: (i) the reclassification of all outstanding shares of the Company’s common stock into an equivalent number of shares of its Class B common stock, (ii) all shares of the convertible preferred stock then outstanding automatically converted into 3,359,195 shares of Class B common stock and (iii) all outstanding shares of the Company’s common stock converted into an equivalent number of shares of its Class B common stock and (iv) the SAFE notes automatically converted into approximately 725,000 shares of Class A common stock. Further, this new dual class structure of the Company’s common stock has the effect of concentrating voting control with those stockholders who held capital stock prior to the completion of this IPO, as Class B common stock has 10 votes per share, and Class A common stock has one vote per share.
Prior to the IPO, deferred offering costs, which consist of direct incremental legal, accounting and consulting fees relating to the IPO, were capitalized. Upon the consummation of the IPO, the deferred offering costs were reclassified into stockholders’ equity as an offset against IPO proceeds. As of September 30, 2021, deferred offering costs capitalized were approximately $2.4 million, and are included in other assets on the Company’s condensed balance sheets.
During December 2021, the Company issued approximately 1,450,000 stock options with service-based vesting conditions to certain employees. The service-based vesting condition for these awards is satisfied over four years with a cliff vesting period of one year and continued vesting thereafter. The Company expects to recognize approximately $14 million in stock-based compensation on a straight-line basis over the vesting period of these awards.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and the related notes and the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the fiscal year ended December 31, 2020 included in the Final Prospectus for our initial public offering (IPO) dated as of November 10, 2021 and filed with the Securities and Exchange Commission (SEC), pursuant to Rule 424(b)(4) on November 12, 2021 (Prospectus). This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading "Special Note About Forward-Looking Statements" in this Quarterly Report on Form 10-Q. You should review the disclosure under the heading "Risk Factors" in this Quarterly Report on Form 10-Q for a discussion of important factors that could cause our actual results to differ materially from those described or implied in these forward-looking statements. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Unless the context otherwise requires, all references in this report to "Backblaze," the “Company”, "we," "our," "us," or similar terms refer to Backblaze, Inc.
Overview
We are a leading storage cloud platform, providing businesses and consumers cloud services to store, use, and protect their data in an easy and affordable manner. We provide these cloud services through a purpose-built, web-scale software infrastructure built on commodity hardware. Our customers use our Storage Cloud platform across more than 175 countries to grow and protect their business data on our approximately 2 exabytes, or 2 trillion megabytes, of data storage under management.
Through our purpose-built software, our Backblaze Storage Cloud provides a platform that is durable, scalable, performant, and secure. This platform is the foundation for our Backblaze B2 Cloud Storage Infrastructure-as-a-Service (IaaS) consumption-based offering and our Backblaze Computer Backup Software-as-a-Service (SaaS) subscription-based offering. Backblaze B2 enables customers to store data, developers to build applications, and partners to expand their use cases. The amount of data stored in this cloud service can scale up and down as needed on a pay-as-you-go basis. Backblaze Computer Backup automatically backs up data from laptops and desktops for businesses and individuals. This cloud backup service offers easily understood flat-rate pricing to continuously back up a virtually unlimited amount of data.
We have maintained our per-gigabyte B2 Cloud Storage pricing for five years, and we announced price increases to our unlimited subscription Computer Backup pricing in February 2019 and July 2021 with no material impact on customer retention.
Substantially all of our revenue is recurring in nature. We employ a land-and-expand model that drives additional revenue from existing customers. As customers generate, store, and back up more data, their use of our platform increases, creating natural opportunities for revenue expansion. We are able to further expand our relationships with our customers when they adopt new features and use cases that lead to increased usage of our platform.

Initial Public Offering
On November 15, 2021, our IPO had its first closing, in which we issued and sold 6,250,000 shares of our Class A common stock at a public offering price of $16.00 per share. On November 17, 2021, our IPO had its second closing, in which we issued and sold 937,500 additional shares at the same per-share price pursuant to the exercise by the underwriters of their option to purchase such shares from us for the purpose of covering over-allotments. Together, these two closings resulted in net proceeds of approximately $103 million after deducting the underwriting discounts and commissions and offering expenses. In connection with the IPO and with the filing of our Amended and Restated Certificate of Incorporation in Delaware and the adoption of our Amended and Restated Bylaws, the following occurred, (i) the reclassification of all outstanding shares of our common stock into an equivalent number of shares of our Class B common stock, (ii) all shares of the convertible preferred stock then outstanding automatically converted into 3,359,195 shares of Class B common stock and (iii) all outstanding shares of our common stock into an equivalent number of shares of our Class B common stock and (iv) the SAFE notes automatically converted into approximately 725,000 shares of Class A common stock.
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Factors Affecting Our Performance
We believe that the future growth and performance of our business will depend on several factors, including the following:
Scale Self Service Customer Acquisition
Our business depends, in part, on our ability to add new customers. We believe there is a significant opportunity to further grow our customer base by continuing to make investments in sales and marketing. We will continue investing in our customer acquisition and inbound demand generation activities, which is driven predominantly by our blog content, our case studies, social sharing, earned media, and our self-serve sign up model. We intend to leverage this model as an efficient approach to attract new customers, turning them into brand advocates, partners, and more referrals. Furthermore, we plan to continue to build and scale our paid lead generation and outbound sales motion to increasingly grow in the mid-market.
We also plan to continue to build our ecosystem of partners. We believe that delivering our Storage Cloud solutions through our alliance, developer, and MSP partnerships is an area of opportunity for us. By adding more partners and deepening our relationships with them, we expand our use cases and drive new customer acquisition.
Scale Sales-Assisted Efforts
We believe an increasingly important complement to our self-serve customer acquisition model is our targeted inside Sales team that is focused on a low-touch “sales-assisted” model that supports our larger customers if the need arises. This team focuses on inbound inquiries, outbound prospecting targeting specific use cases, and volume expansion of our self-serve customers.
Expansion Within Existing Customers
Our future success will depend, in part, on our ability to increase usage and adoption of our solutions with existing customers. We intend to increase revenue from existing customer relationships through the development of additional features and use cases, expanding our Customer Success initiatives, and natural customer data growth. We have developed add-on services, such as Extended Version History and multi-region selection, which customers pay for on top of existing offerings. Examples of expanding use cases include utilizing Backblaze for additional purposes such as media storage, hybrid cloud support, analytics repositories, and others. We also plan to grow our Customer Success initiatives to ensure customers avail themselves of the full benefits of our platform, thus resulting in increased adoption. As these customers continue to generate, store, and back up data, their use of our platform increases, creating natural opportunities for revenue expansion.
Continued Platform Investment and New Product Launches
We are committed to delivering market-leading products that continue to make cloud storage and backup easy. We believe we must maintain our product quality and strength of our brand in order to retain the current customer base as well as drive further revenue growth in our business. We intend to continue investing in our research and development activities to build upon our strong position in the technology community. We have a history of introducing successful new features and capabilities for our products, and we intend to continue investing heavily to grow our business to take advantage of our expansive market opportunity. We also expect to launch new products that are adjacent to our current offerings, which will provide us with the ability to further cross-sell and upsell.
Investments for Continued Scaling
We are focused on our long-term revenue potential and building out our infrastructure to sustain that growth. On a routine basis, we will focus resources on optimizing the efficiency of our data storage. In some scenarios, we will choose to pass on potential cost savings to the customer, but in other scenarios we will choose to reinvest cost savings back into infrastructure and design.
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International Expansion
While our sales and marketing efforts have primarily focused on the United States, our existing customer base spans more than 175 countries, with 28% of our revenue originating outside of the United States for the year ended December 31, 2020. We believe international expansion represents a meaningful opportunity to generate further demand for our solutions in international geographies. We plan to invest in our operations internationally to reach new customers by expanding in targeted key geographies where we believe there are opportunities for significant return on investment.
Key Business Metrics
We monitor the key business metrics set forth below to help us evaluate our business and growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies. The calculation of the key metrics discussed below may differ from other similarly titled metrics used by other companies, securities analysts, or investors.
As of September 30,