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Table of Contents
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, 2022
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.)
500 Ben Franklin Ct
San Mateo, CA
94401
(Address of principal executive offices)
(Zip Code)
(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 ☒ No o

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 1, 2022, 15.3 million shares of the registrant’s Class A common stock were outstanding, and 17.3 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 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, inflation, war and other hostilities and other disruptive events on our business or that of our customers, partners, and supply chain or on the global economy;
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.
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,
2022
December 31,
2021
Assets
Current assets:
Cash
$24,813 $104,843 
Accounts receivable, net
720 309 
Short-term investments52,626  
Prepaid expenses and other current assets
6,373 5,930 
Total current assets
84,532 111,082 
Restricted cash, non-current2,544  
Property and equipment, net
49,814 43,068 
Operating lease right-of-use assets4,753  
Capitalized software, net
13,648 7,637 
Other assets
1,622 1,794 
Total assets
$156,913 $163,581 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$2,718 $2,075 
Accrued expenses and other current liabilities
7,944 7,620 
Finance lease liabilities and lease financing obligations, current18,796 13,645 
Operating lease liabilities, current2,058  
Deferred revenue, current
22,705 21,722 
Total current liabilities
54,221 45,062 
Finance lease liabilities and lease financing obligations, non-current17,981 19,603 
Operating lease liabilities, non-current2,862  
Deferred revenue, non-current
2,784 3,132 
Other long-term liabilities 298 
Debt facility, non-current2,543  
Total liabilities
$80,391 $68,095 
Commitments and contingencies (Note 10)
Stockholders’ Equity
Class A common stock, $0.0001 par value; 113,000,000 shares authorized as of September 30, 2022 and December 31, 2021, respectively; 15,108,346 and 8,227,992 shares issued and outstanding as of September 30, 2022 and December, 31, 2021, respectively.
1 1 
Class B common stock, $0.0001 par value; 37,000,000 shares authorized as of September 30, 2022 and December 31, 2021, respectively; 17,328,043 and 22,156,842 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively.
2 2 
Additional paid-in capital
149,767 131,826 
Accumulated deficit
(73,248)(36,343)
Total stockholders’ equity
76,522 95,486 
Total liabilities and stockholders’ equity
$156,913 $163,581 
See accompanying notes, which are an integral part of these condensed financial statements.
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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,
2022202120222021
Revenue$22,051 $17,320 $62,229 $48,782 
Cost of revenue10,836 8,519 30,073 24,275 
Gross profit11,215 8,801 32,156 24,507 
Operating expenses:
Research and development8,152 5,338 24,493 14,314 
Sales and marketing9,727 5,025 26,125 13,149 
General and administrative5,396 3,104 16,106 8,261 
Total operating expenses23,275 13,467 66,724 35,724 
Loss from operations(12,060)(4,666)(34,568)(11,217)
Investment income 210  405  
Interest expense(950)(968)(2,811)(2,686)
Gain on extinguishment of debt   2,299 
Unrealized loss on SAFE (359) (359)
Loss before provision for income taxes(12,800)(5,993)(36,974)(11,963)
Income tax (benefit) provision  (69)136 
Net loss$(12,800)$(5,993)$(36,905)$(12,099)
Net loss per share, basic and diluted$(0.40)$(0.32)$(1.18)$(0.64)
Weighted average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted31,994,391 18,936,698 31,245,069 18,775,908 
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’ EQUITY (DEFICIT)
(in thousands, except share data)
(unaudited)

Three Months Ended September 30, 2022
Convertible
Preferred Stock
Class A and Class B Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
SharesAmountSharesAmount
Balance as of June 30, 2022 $ 31,631,532 $3 $143,431 $(60,448)$82,986 
Net loss— — — — — (12,800)(12,800)
Issuance of common stock upon exercise of stock options— — 694,260 — 1,376 — 1,376 
Issuance of common stock under equity incentive plan, net of taxes withheld— — 110,597 —  —  
Stock-based compensation— — — — 4,960 — 4,960 
Balance as of September 30, 2022 $ 32,436,389 $3 $149,767 $(73,248)$76,522 
Three Months Ended September 30, 2021
Convertible
Preferred Stock
Class A and Class B Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
SharesAmountSharesAmount
Balance as of June 30, 20213,359,195 $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, 20213,359,195 $2,784 18,936,698 $5 $11,824 $(26,738)$(14,909)
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Nine Months Ended September 30, 2022
Convertible
Preferred Stock
Class A and Class B Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
SharesAmountSharesAmount
Balance as of December 31, 2021 $ 30,384,834 $3 $131,826 $(36,343)$95,486 
Net loss— — — — — (36,905)(36,905)
Issuance of common stock upon exercise of stock options — — 1,609,789 — 3,439 — 3,439 
Issuance of common stock under equity incentive plan, net of taxes withheld— — 153,195 — (130)— (130)
Issuance of common stock related to ESPP— — 288,571 — 1,529 — 1,529 
Stock-based compensation— — — — 13,103 — 13,103 
Balance as of September 30, 2022 $ 32,436,389 $3 $149,767 $(73,248)$76,522 
Nine Months Ended September 30, 2021
Convertible
Preferred Stock
Class A and Class B Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
SharesAmountSharesAmount
Balance as of December 31, 20203,359,195 $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)
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,
20222021
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
$(36,905)$(12,099)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Gain on extinguishment of Paycheck Protection Program ("PPP") loan (2,299)
Net accretion of discount on investment securities(367) 
Unrealized loss on SAFE
 359 
Noncash lease expense on operating leases1,820  
Depreciation and amortization
14,689 12,041 
Stock-based compensation
13,011 3,611 
Loss (gain) on disposal of assets and other adjustments24 (17)
Changes in operating assets and liabilities:
Accounts receivable
(411)94 
Prepaid expenses and other current assets
(234)(1,406)
Other assets
56 (256)
Accounts payable
(137)(258)
Accrued expenses and other current liabilities
(901)1,186 
Deferred revenue
635 5,105 
Operating lease liabilities(1,853) 
Other long-term liabilities
(69)(97)
Net cash (used in) provided by operating activities
(10,642)5,964 
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities(113,259) 
Maturities of marketable securities61,000  
Purchases of property and equipment, net
(4,061)(6,876)
Capitalized internally-developed software costs
(5,645)(3,013)
Net cash used in investing activities
(61,965)(9,889)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on finance leases and lease financing obligations
(11,602)(8,715)
Payments of deferred offering costs
(658)(1,807)
Proceeds from debt facility2,543 3,500 
Repayment of debt facility (3,500)
Proceeds from SAFE
 10,000 
Proceeds from lease financing obligations
 2,907 
Employee payroll taxes paid related to net settlement of equity awards(130) 
Proceeds from exercises of stock options3,439 148 
Proceeds from employee stock purchase plan1,529  
Net cash (used in) provided by financing activities
(4,879)2,533 
Net decrease in cash, restricted cash and restricted cash, non-current
(77,486)(1,392)
Cash and restricted cash at beginning of period
105,012 6,076 
Cash, restricted cash and restricted cash, non-current at end of period
$27,526 $4,684 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest
$2,838 $2,578 
Cash paid for income taxes$26 $ 
Cash paid for operating lease liabilities$1,948 $ 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Stock-based compensation included in capitalized software
$1,808 $271 
Accrued bonus classified as stock-based compensation$1,716 $ 
Equipment acquired through finance lease and lease financing obligations
$15,680 $8,895 
Accruals related to purchases of property and equipment
$337 $250 
Lease liabilities arising from right-of-use assets upon adoption of ASC 842$5,220 $ 
Extinguishment of PPP loan
$ $2,299 
RECONCILIATION OF CASH AND RESTRICTED CASH
Cash$24,813 $4,684 
Restricted cash - included in prepaid expenses and other current assets$169 $ 
Restricted cash, non-current$2,544 $ 
Total cash, restricted cash and restricted cash, non-current$27,526 $4,684 
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 for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 28, 2022. In management’s opinion, these unaudited condensed financial statements have been prepared on the same basis as its 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, 2022, results of operations for the three and nine months ended September 30, 2022 and 2021, cash flows for the nine months ended September 30, 2022 and 2021, and stockholders' equity (deficit) for the three and nine months ended September 30, 2022 and 2021. The results of operations for the three and nine months ended September 30, 2022 and 2021 are not necessarily indicative of the results to be expected for the full year or any other future interim or annual period.
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.
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 Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 28, 2022.
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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, the determination of the incremental borrowing rate for lease agreements, expected lease term, lease and non-lease component allocation, estimates related to variable consideration, valuation of the Company’s common stock prior to its initial public offering in November 2021 (the “IPO”), stock options, and Employee Stock Purchase Plan (“ESPP”) 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.

Concentrations
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 an aggregate 25% of total cash disbursements during the three months ended September 30, 2022, while two vendors represented an aggregate 23% of total cash disbursements during the three months ended September 30, 2021. Two vendors represented an aggregate 26% of total cash disbursements during the nine months ended September 30, 2022, while two vendors represented an aggregate 25% of total cash disbursements during the nine months ended September 30, 2021. Two vendors represented an aggregate 29% of the accounts payable balance as of September 30, 2022, while three vendors represented 40% of the accounts payable balance as of December 31, 2021.

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 Recently Adopted
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), or (“ASC 842”), and since that date, has issued several ASUs to further clarify certain aspects of ASU 2016-02 and provide entities with practical expedients that may be elected upon adoption. The Company adopted the new standard beginning January 1, 2022 using the modified retrospective approach, electing the optional transition approach of not adjusting the comparative period financial statements for the impact of adoption. The Company elected the package of practical expedients permitted under the transition guidance, which allows the Company to carryforward its historical lease classification, its assessment on whether a contract is or contains a lease, and its initial direct costs for any leases that existed prior to adoption of the new standard.
In accordance with ASC 842, the Company determines if an arrangement is a lease at its inception. Right-of-use (“ROU”) assets, and corresponding lease liabilities, are recognized at the commencement date based on the present value of remaining lease payments over the lease term, which, for the Company, include primarily fixed payments. As a majority of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available as of the commencement date. For leases existing at adoption, the Company elected to use the remaining lease term and remaining minimum lease payments in calculating the incremental borrowing rate for all existing leases. The discount rate used is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. The Company has elected the short-term lease practical expedient for all asset classes, which allows the lessee to not apply the recognition requirements of ASC 842 to short-term leases (leases with original terms of 12 months or less and that do not include a purchase option that the lessee is reasonably certain to exercise).

The Company has elected the practical expedient to combine lease and non-lease components for all of its leases, with the exception of its colocation lease agreement asset class.

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The adoption of the new standard on January 1, 2022 resulted in the recognition of approximately $5.2 million and $5.6 million of operating lease ROU assets and operating lease liabilities on the Company's condensed balance sheets, respectively, with the ROU asset on an existing lease being offset by an existing ASC 420 obligation of approximately $0.4 million. The Company noted no material impact on its condensed financial statements with respect to its finance leases as a result of its ASC 842 adoption. See Note 10 to these condensed financial statements.
Accounting Pronouncements Not Yet Adopted
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 an 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.
Note 3. Revenues
Deferred Contract Costs
The Company’s amortization of deferred contract costs was $0.2 million and $0.2 million for the three months ended September 30, 2022 and 2021, respectively, and was $0.7 million and $0.6 million for the nine months ended September 30, 2022 and 2021, respectively. The amount of capitalized contract costs was $0.4 million as of September 30, 2022 and December 31, 2021, respectively.
Deferred Revenue
Deferred revenue was $25.5 million and $24.9 million as of September 30, 2022 and December 31, 2021, respectively. Revenue recognized for the three months ended September 30, 2022 and 2021 was $9.2 million and $7.6 million, respectively, and was $19.3 million and $15.6 million for the nine months ended September 30, 2022 and 2021, 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 its approximate contract liability balance as of September 30, 2022 and December 31, 2021. The Company’s deferred revenue balance as of September 30, 2022, approximates the aggregate amount of the transaction price allocated to remaining performance obligations (“RPOs”) as of that date. Further, as of September 30, 2022, the Company’s deferred revenue, current, balance on its condensed balance sheet of $22.7 million approximates the expected amount to be recognized from its RPOs as revenue over the next 12 months.
Disaggregation of Revenue
The following table presents the Company’s revenue disaggregated by timing of revenue recognition (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2022202120222021
Consumption-based arrangements (B2 Cloud Storage)
$8,825 $5,977 $23,553 $16,026 
Subscription-based arrangements (Computer Backup)
13,065 11,163 38,168 32,219 
Physical Media
161 180 508 537 
Total revenue
$22,051 $17,320 $62,229 $48,782 
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Revenue by geographic area, based on the location of the Company’s customers, was as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2022202120222021
United States$15,802 $12,435 $44,636 $35,083 
Other6,249 4,885 17,593 13,699 
Total$22,051 $17,320 $62,229 $48,782 

Note 4. Investments
The Company holds all investments on a held-to-maturity basis and evaluates each position quarterly for impairment. The Company recognizes an impairment on a security through the statement of operations if (i) the Company intends to sell the impaired security; or (ii) it is more likely than not the Company will be required to sell the impaired security prior to recovery of its amortized cost basis. If a sale is intended or likely to be required, the amortized cost basis of the security will be written down to fair value and the full amount of the impairment will be recognized through the statement of operations as a net realized investment loss.
Fair Values and Gross Unrealized Gains and Losses on Investments
The following table summarizes adjusted cost, gross unrealized losses, and fair value by significant investment category. The Company’s commercial paper investments are classified as held-to-maturity on its condensed balance sheet as of September 30, 2022. The Company did not have an investments balance as of December 31, 2021.
Amortized CostGross UnrealizedFair ValueNet Carrying Value
GainsLosses
As of September 30, 2022(In Thousands)
Investments
Commercial paper$52,626 $ $(198)$52,428 $52,626 
Total investments$52,626 $ $(198)$52,428 $52,626 
Scheduled Maturities
The amortized cost and fair value of held-to-maturity securities as of September 30, 2022 by contractual maturity are shown below.

As of September 30, 2022Amortized CostFair Value
(In Thousands)
Within one year$52,626 $52,428 
After one year through five years  
After 5 years through 10 years  
After 10 years  
Total investments$52,626 $52,428 
Aging of Unrealized Losses
As of September 30, 2022, the Company’s investments had an aggregate gross unrealized loss of $0.2 million, all of which had been in an unrealized loss position of less than twelve months and are recorded at amortized cost on the Company’s condensed balance sheet. As of September 30, 2022, the investment portfolio did not have any securities that had been in an unrealized loss position for a period of twelve months or longer. The Company did not have held-to-maturity investments as of December 31, 2021.

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For those securities in an unrealized loss position, the length of time the securities were in such a position is as follows:

Less than 12 MonthsTotal
# of SecuritiesFair ValueUnrealized Losses# of SecuritiesFair ValueUnrealized Losses
As of September 30, 2022(Dollars In Thousands)
Investments
Commercial paper9 $52,428 $(198)9 $52,428 $(198)
Total9 $52,428 $(198)9 $52,428 $(198)
Note 5. Fair Value Measurements
The Company measures financial assets and liabilities at fair value at each reporting date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are reported under a three-level valuation hierarchy. The classification of the Company’s financial assets within the hierarchy is as follows:
Level 1 — Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities. The Company’s Level 1 assets include money market funds.
Level 2 — Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 — Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
The Company classifies its investments, which are comprised of investment grade commercial paper, within Level 2 of the fair value hierarchy because the fair value of these securities are priced by using inputs based on non-binding market consensus that are primarily corroborated by observable market data or quoted market prices for similar instruments.
There were no transfers between levels of the fair value hierarchy for the nine months ended September 30, 2022 and the year ended December 31, 2021, respectively. The Company had no Level 1 and 3 instruments held as of September 30, 2022 and no Level 1, 2 and 3 instruments held as of December 31, 2021.
As of September 30, 2022 and December 31, 2021, the Company had $169 thousand in restricted cash related to the letter of credit established according to requirements under a lease agreement, reported as a component of other current assets on the condensed balance sheets. Additionally, as of September 30, 2022, the Company had $2.5 million in restricted cash related to the line of credit agreement with City National Bank. See Note 11 for further details.
Note 6. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
September 30,
2022
December 31,
2021
Unbilled accounts receivable$1,473 $1,220 
Prepaid expenses1,365 2,403 
Prepaid subscriptions1,255 730 
Prepaid Physical Media hardware274 378 
Capitalized commissions353 345 
Receivable from payment processor516 289 
Other1,137 565 
Total prepaid expenses and other current assets
$6,373 $5,930 
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Note 7. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
September 30,
2022
December 31,
2021
Data center equipment
$26,639 $25,338 
Leased and financed data center equipment
64,204 50,419 
Machinery and equipment
10,947 7,803 
Computer equipment
2,454 1,631 
Leasehold improvements
966 956 
Construction-in-progress
526  
Total property and equipment
105,736 86,147 
Less: accumulated depreciation
(55,922)(43,079)
Total property and equipment, net
$49,814 $43,068 
Depreciation expense was $4.8 million and $3.6 million for the three months ended September 30, 2022 and 2021, respectively, and was $13.1 million and $10.8 million for the nine months ended September 30, 2022 and 2021, respectively. For the Company’s equipment under finance leases and collateralized financing obligations, accumulated depreciation was $22.3 million and $13.5 million as of September 30, 2022 and December 31, 2021, respectively. The carrying value of the Company’s equipment under finance lease agreements and lease financing obligations was $41.9 million and $36.9 million as of September 30, 2022 and December 31, 2021, respectively.

The Company recorded a loss of less than $0.1 million for the three and nine months ended September 30, 2022 respectively, as a result of disposing of certain hard drives. During the three and nine months ended September 30, 2021, no material gain or loss was realized related to the disposal of long-lived assets. These disposals occurred in the ordinary course of business, as the Company continuously evaluates its requirements for operating its data centers. The loss and gains are recorded as general and administrative expenses in the Company’s condensed statements of operations.
As of September 30, 2022 and December 31, 2021, substantially all of the Company’s assets were held in the United States.
Note 8. Capitalized Software, Net
Capitalized software, net consisted of the following (in thousands):
September 30,
2022
December 31,
2021
Developed software
$20,133 $12,535 
General and administrative software
144 144 
Total capitalized internal-use software
20,277 12,679 
Less: accumulated amortization
(6,629)(5,042)
Total capitalized internal-use software, net
$13,648 $7,637 
In accordance with the adoption of ASU 2018-15, during 2021 the Company aligned its capitalization of implementation costs for cloud computing arrangements with its accounting for the underlying software license included in such arrangements. Accordingly, the Company reclassified these implementation costs on its balance sheet to prepaid expenses and other current assets and other assets as of December 31, 2021, on a prospective basis.
Amortization expense of capitalized internal-use software was $0.6 million and $0.4 million for the three months ended September 30, 2022 and 2021, respectively, and was $1.6 million and $1.2 million for the nine months ended September 30, 2022 and 2021, 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, 2022, future amortization expense is expected to be as follows (in thousands):
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Year Ending December 31,
Remainder of 2022$658 
20233,389 
20243,155 
20252,700 
20262,247 
Thereafter
1,499 
Total
$13,648 
Note 9. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
September 30,
2022
December 31,
2021
Accrued compensation
$2,872 $1,159 
ESPP Withholding1,271 489 
Accrued expenses
1,842 1,646 
Accrued sales tax
412 1,209 
Accrued value-added tax ("VAT") liability1,262 2,511 
Other
285 606 
Accrued expenses and other current liabilities
$7,944 $7,620 
Note 10. Commitments and Contingencies
Finance Leases and Lease Financing Obligations
The Company enters into finance 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 to extend the term of the lease generally at a fixed price. Contingent rental payments are generally not included in the Company’s finance lease agreements. Finance leases are generally secured by the underlying leased equipment. The Company's finance leases have original lease periods expiring between 2022 and 2025. Finance leases are included in property and equipment, net on the Company’s condensed balance sheet.
As of September 30, 2022, the weighted average remaining lease term for finance lease and lease financing obligation agreements were approximately 1.99 years and the weighted average discount rate for finance leases was approximately 10.4%.

For the Company’s assets acquired through finance lease and lease financing obligation agreements, which are related to sale-leaseback agreements, depreciation expense was $3.5 million and $3.0 million for the three months ended September 30, 2022 and 2021, respectively, and was $9.7 million and $8.9 million for the nine months ended September 30, 2022 and 2021, respectively. Depreciation expense on assets acquired through the Company’s finance leases and lease financing obligations is included in cost of revenue in its statements of operations. There have been no material changes to the Company’s finance lease obligation and lease financing commitments during the nine months ended September 30, 2022.

During the three months ended September 30, 2022, total finance lease costs were $4.1 million, of which interest expense was approximately $0.9 million, and total lease financing obligation costs were $0.3 million, of which interest expense was approximately $0.1 million. During the nine months ended September 30, 2022, total finance lease costs were $11.4 million, of which interest expense was approximately $2.5 million, and total lease financing obligation costs were $1.0 million, of which interest expense was approximately $0.3 million. The cash paid on interest on finance lease and lease financing obligations was $2.8 million for the nine months ended September 30, 2022.

During 2021, the Company entered into four sale-leaseback arrangements with vendors to provide approximately $4.3 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
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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. The failed sale-leaseback transactions will continue to be accounted for as a failed sale-leaseback upon adoption of ASC 842 because the leaseback is classified as financing.

The future minimum commitments for these finance leases and lease financing obligations as of September 30, 2022 were as follows (in thousands):
Year Ending December 31,
Finance leasesLease financing obligationsTotal
Remainder of 2022$5,174 $346 $5,520 
202318,394 1,385 19,779 
202411,038 1,240 12,278 
20252,841 521 3,362 
2026   
Thereafter   
Total future minimum lease and financing commitments37,447 3,492 40,939 
Less imputed interest(3,734)(428)(4,162)
Total liability$33,713 $3,064 $36,777 
Prior to the ASC 842 adoption, the future minimum commitments for these finance leases and lease financing obligations as of December 31, 2021 were as follows (in thousands):
Year Ending December 31,
2022$16,765 
202314,123 
20246,707 
2025617 
2026 
Thereafter
 
Total future minimum lease and financing commitments
38,212 
Less imputed interest
(4,964)
Total liability
$33,248 
Prior to the ASC 842 adoption, as of December 31, 2021, the future minimum payments related to the lease financing obligations consisted of the following (in thousands):
Year Ending December 31,
2022$1,385 
20231,385 
20241,240 
2025387 
2026— 
Thereafter
 
Total future minimum financing payments
$4,397 
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 renewal options to extend the lease term at a price to be determined upon exercise. These options are not reasonably certain to be exercised and therefore are not factored into the determination of
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lease payments. Contingent rental payments are generally not included in the Company’s lease agreements. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company's leases have original lease periods expiring between 2022 and 2031. The Company does not have a material amount of short-term leases as of September 30, 2022.
As of September 30, 2022, the weighted average remaining lease term for operating leases was approximately 4.6 years and the weighted average discount rate for operating leases was approximately 4.7%.
The future minimum commitments for these operating leases as of September 30, 2022 were as follows (in thousands), which excludes amounts allocated to services under operating lease agreements that are considered non-lease components:
Year Ending December 31,
Remainder of 2022$618 
20231,901 
2024833 
2025379 
2026352 
Thereafter1,465 
Total future minimum operating lease commitments5,548 
Less imputed interest(628)
Total liability$4,920 
Non-lease components included in the Company’s colocation lease agreements are related to non-tangible utilities and services used in its data center operations. The Company used judgement and third-party data in determining the stand-alone price for allocating consideration to lease and non-lease components under these colocation lease agreements, such as, the price of utilities as compared to its tangible data center footprint within each colocation facility.

Prior to the ASC 842 adoption, the future minimum commitments for these operating leases as of December 31, 2021 were as follows (in thousands), which also include minimum payments for services under operating lease agreements:
Year Ending December 31,
2022$4,896 
20234,351 
20243,098 
20251,327 
20261,363 
Thereafter
5,977 
Total
$21,012 
Rental expense related to the Company’s operating leases was $1.9 million for the three months ended September 30, 2022, of which $1.4 million is included in cost of revenue in its statement of operations. During the three months ended September 30, 2022, total operating lease cost was $2.3 million, which does not include costs related to services. Rental expense related to the Company’s operating leases was $0.9 million for the three months ended September 30, 2021.
Rental expense related to the Company’s operating leases was $4.7 million for the nine months ended September 30, 2022, of which $3.6 million is included in cost of revenue in its statement of operations. During the nine months ended September 30, 2022, total operating lease cost was $5.8 million, which does not include costs related to services. Rental expense related to the Company’s operating leases was $2.8 million for the nine months ended September 30, 2021.
As of September 30, 2022, the Company had additional operating leases that had not yet commenced with lease obligations of $12.7 million. The operating leases are expected to commence in 2022 with non-cancellable lease terms of approximately 7 years.
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Other Contractual Commitments
Other non-cancellable commitments relate mainly to service agreements used to facilitate the Company’s infrastructure operations. As of September 30, 2022, the Company had non-cancelable purchase commitments of $4.3 million and $1.9 million payable during the years ending December 31, 2022 and 2023, 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 contributed $0.4 million and $0.3 million to the 401(k) plan during the three months ended September 30, 2022 and 2021, respectively, and $1.2 million and $0.8 million for the nine months ended September 30, 2022 and 2021, respectively.
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 there are no current legal proceedings that are likely to 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 such legal proceeding, there exists the possibility of a material adverse effect on the Company’s financial position, results of operations and cash flows.

On July 15, 2022, the Company received a demand letter from the investors that participated in the Simple Agreement for Future Equity (“SAFE”) agreement in August 2021. The investors demanded a refund of their original investment of $10.0 million. To the Company's knowledge, no court action was filed in connection with this matter. On August 2, 2022, the Company responded to the investors’ demand letter, advising the investors that their demand was without factual or legal basis. On August 11, 2022, the investors withdrew their demand letter without prejudice. Accordingly, a loss cannot be estimated at this time.
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 $0.4 million and $1.2 million as of September 30, 2022 and December 31, 2021, 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 $1.3 million and $2.5 million as of September 30, 2022 and December 31, 2021, 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.
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Note 11. Debt
Credit Facility
During October 2021, the Company entered into a revolving credit agreement (“RCA”) with City National Bank (“Lender”). Under this agreement, among other things, (i) amounts available to be borrowed are $9.5 million and (ii) advances on the line of credit will bear monthly interest at a variable rate equal to, at the Company’s discretion, (a) the average Secured Overnight Financing Rate (“SOFR”) plus 2.75%, or (b) the base rate. The base rate under the RCA is a rate equal to the greater of (i) 3.00% or (ii) the prime rate most recently announced by the Lender. 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.

During December 2021, the Company entered into its first amendment to the revolving credit agreement with City National Bank. The amendment removed the financial covenants under the agreement and added a requirement for cash collateral to be posted prior to any advance. During April 2022, the Company entered into a second amendment to its revolving credit agreement with City National Bank. Under this amendment, the amount available to be borrowed was increased to $30.0 million from $9.5 million. There were no other material changes to the agreement as a result of the amendment.

The Company began borrowing under the RCA during the three months ended September 30, 2022. As of September 30, 2022, the Company had an outstanding balance of $2.5 million and the total amount available to the Company to be bor