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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 March 31, 2023
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 May 1, 2023, 21.4 million shares of the registrant’s Class A common stock were outstanding, and 13.2 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, 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 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 CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
March 31,
2023
December 31,
2022
Assets
Current assets:
Cash and cash equivalents$4,047 $6,690 
Accounts receivable, net789 856 
Short-term investments, net45,508 58,733 
Prepaid expenses and other current assets7,628 8,120 
Total current assets
57,972 74,399 
Restricted cash, non-current7,301 4,306 
Property and equipment, net50,315 49,375 
Operating lease right-of-use assets6,318 6,881 
Capitalized internal-use software, net20,424 16,704 
Other assets
595 793 
Total assets
$142,925 $152,458 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$3,352 $3,283 
Accrued expenses and other current liabilities7,014 9,418 
Finance lease liabilities and lease financing obligations, current17,446 18,531 
Operating lease liabilities, current1,763 2,130 
Deferred revenue, non-current23,793 22,912 
Total current liabilities
53,368 56,274 
Finance lease liabilities and lease financing obligations, non-current14,246 15,487 
Operating lease liabilities, non-current4,754 5,032 
Deferred revenue, non-current2,687 2,611 
Debt facility, non-current7,301 4,306 
Total liabilities
$82,356 $83,710 
Commitments and contingencies (Note 10)
Stockholders’ Equity
Class A common stock, $0.0001 par value; 113,000,000 shares authorized as of March 31, 2023 and December 31, 2022, respectively; 21,340,109 and 16,198,333 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively.
2 2 
Class B common stock, $0.0001 par value; 37,000,000 shares authorized as of March 31, 2023 and December 31, 2022, respectively; 13,177,305 and 17,195,404 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively.
2 2 
Additional paid-in capital
165,419 156,485 
Accumulated deficit
(104,854)(87,741)
Total stockholders’ equity
60,569 68,748 
Total liabilities and stockholders’ equity
$142,925 $152,458 
See accompanying notes, which are an integral part of these condensed consolidated financial statements.
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BACKBLAZE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
Three Months Ended March 31,
20232022
Revenue$23,394 $19,490 
Cost of revenue12,425 9,681 
Gross profit10,969 9,809 
Operating expenses:
Research and development10,533 7,941 
Sales and marketing10,559 8,029 
General and administrative6,677 5,528 
Total operating expenses27,769 21,498 
Loss from operations(16,800)(11,689)
Investment income 610 75 
Interest expense(923)(948)
Loss before provision for income taxes(17,113)(12,562)
Income tax provision (benefit) (32)
Net loss$(17,113)$(12,530)
Net loss per share, basic and diluted$(0.50)$(0.41)
Weighted average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted33,922,683 30,541,942 
See accompanying notes, which are an integral part of these condensed consolidated financial statements.
2

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BACKBLAZE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)

Three Months Ended March 31, 2023
Class A and Class B Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
SharesAmount
Balance as of December 31, 202233,393,737 $4 $156,485 $(87,741)$68,748 
Net loss— — — (17,113)(17,113)
Issuance of Class A and Class B common stock upon exercise of stock options496,905 — 840 — 840 
Issuance of Class A common stock under equity incentive plan338,864 — — — — 
Stock-based compensation— — 6,246 — 6,246 
Stock-based compensation related to 2022 Bonus Plan (see Note 13)287,908 — 1,848 — 1,848 
Balance as of March 31, 202334,517,414 $4 $165,419 $(104,854)$60,569 
Three Months Ended March 31, 2022
Class A and Class B Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
SharesAmount
Balance as of December 31, 202130,384,834 $3 $131,826 $(36,343)$95,486 
Net loss— — — (12,530)(12,530)
Issuance of Class A and Class B common stock upon exercise of stock options429,639 — 887 — 887 
Stock-based compensation— — 3,725 — 3,725 
Balance as of March 31, 202230,814,473 $3 $136,438 $(48,873)$87,568 
See accompanying notes, which are an integral part of these condensed consolidated financial statements.
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BACKBLAZE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended March 31,
20232022
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
$(17,113)$(12,530)
Adjustments to reconcile net loss to net cash used in operating activities:
Net accretion of discount on investment securities(540)(61)
Noncash lease expense on operating leases647 541 
Depreciation and amortization
5,733 4,863 
Stock-based compensation
5,828 3,835 
Loss (gain) on disposal of assets and other adjustments (1)
Changes in operating assets and liabilities:
Accounts receivable
67 68 
Prepaid expenses and other current assets
474 (153)
Other assets
22 91 
Accounts payable
(48)462 
Accrued expenses and other current liabilities
(565)1,633 
Deferred revenue
957 912 
Operating lease liabilities(653)(528)
Other long-term liabilities
 (32)
Net cash used in operating activities
(5,191)(900)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities(9,734)(79,782)
Maturities of marketable securities23,500  
Purchases of property and equipment, net
(3,023)(515)
Capitalized internal-use software costs
(3,434)(1,180)
Net cash provided by (used in) investing activities
7,309 (81,477)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on finance leases and lease financing obligations
(5,112)(3,405)
Payments of deferred offering costs
 (658)
Proceeds from debt facility2,996  
Principal payments on insurance premium financing(509) 
Proceeds from exercises of stock options859 887 
Net cash used in financing activities
(1,766)(3,176)
Net increase (decrease) in cash, restricted cash and restricted cash, non-current
352 (85,553)
Cash and restricted cash at beginning of period
11,165 105,012 
Cash, restricted cash and restricted cash, non-current at end of period
$11,517 $19,459 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest
$918 $948 
Cash paid for income taxes$2 $26 
Cash paid for operating lease liabilities$724 $598 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Stock-based compensation included in capitalized internal-use software
$1,008 $383 
Accrued bonus settled in restricted stock units$1,848 $ 
Accrued bonus classified as stock-based compensation$590 $493 
Equipment acquired through finance lease and lease financing obligations
$3,023 $4,451 
Accruals related to purchases of property and equipment
$886 $124 
Lease liabilities arising from right-of-use assets upon adoption of ASC 842$ $5,220 
Assets obtained in exchange for operating lease obligations$183 $ 
Receivable recorded due to stock option exercises pending settlement
$154 $ 
RECONCILIATION OF CASH AND RESTRICTED CASH
Cash$4,047 $19,290 
Restricted cash - included in prepaid expenses and other current assets$169 $169 
Restricted cash, non-current$7,301 $ 
Total cash, restricted cash and restricted cash, non-current$11,517 $19,459 
See accompanying notes, which are an integral part of these condensed consolidated financial statements.
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BACKBLAZE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Organization and Description of Business
Description of Business
Backblaze, Inc. and its subsidiaries (collectively, “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.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed consolidated 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 consolidated financial statements should be read in conjunction with the audited financial statements and notes for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 31, 2023. In management’s opinion, these unaudited condensed consolidated 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 March 31, 2023, results of operations for the three months ended March 31, 2023 and 2022, cash flows for the three months ended March 31, 2023 and 2022, and stockholders' equity for the three months ended March 31, 2023 and 2022. The results of operations for the three months ended March 31, 2023 and 2022 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, 2022, which was filed with the SEC on March 31, 2023.
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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, which include determining (i) whether projects will result in new or additional functionality, (ii) the start and end date of the application development phase of projects, and (iii) their useful life, the useful lives of other long-lived assets, impairment considerations for long-lived assets, 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 (i) stock options, and (ii) Employee Stock Purchase Plan (“ESPP”) expense, 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.
Foreign Currency
The reporting currency of the Company is the United States dollar (“USD”). The functional currency of the Company and its subsidiaries is USD. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in general and administrative on the condensed consolidated statements of operations when realized.
Concentrations
Credit risk. Financial instruments that potentially subject the Company to credit risk primarily consist of cash, cash equivalents, accounts receivable, and unbilled accounts receivable. The Company maintains its cash and cash equivalents with high-quality financial institutions with investment-grade ratings. In the event of a failure of any financial institutions where the Company maintains deposits, it may lose timely access to its funds at such institutions and incur significant losses to the extent its funds exceed the $250,000 limit insured by the Federal Deposit Insurance Corporation. 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 balance sheets. In addition, the Company uses City National Bank, a subsidiary of Royal Bank of Canada (“RBC”), for its banking needs. While the Company and its bank has not been directly affected by the recent failures of certain banks, the banking industry overall has experienced disruption and uncertainty, which could put additional pressures on the Company’s bank and other banks, and may negatively impact the availability and costs for various banking and investment offerings.

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.

Three Months Ended March 31,
20232022
Cash disbursement concentration
Number of vendorsTwoTwo
Total cash disbursements represented by vendors listed above22%23%
March 31,
2023
December 31,
2022
Accounts payable concentration
Number of vendorsTwoTwo
Total accounts payable balance represented by vendors listed above12%26%

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.

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Restructuring
Restructuring costs are comprised of severance costs related to workforce reductions. The Company recognizes restructuring charges when the liability is incurred. For involuntary terminations, employee termination benefits are accrued at the date management has committed to a plan of termination and employees have been notified of their termination dates and expected severance payments. For voluntary terminations, the Company recognizes a liability when the termination benefit has been irrevocably accepted by the employee.
Investments

The Company holds all investments on a held-to-maturity basis, and they are reported at amortized cost with realized gains or losses reported in earnings. The Company determines the appropriate classification of its investment in debt securities at the time of purchase and re-evaluates such determination at each balance sheet date.

The Company will recognize an allowance for estimated credit losses on its held-to-maturity securities, using a forward-looking expected loss model, which reflects losses that are expected to be incurred over the life of the financial instrument. The Company uses a roll-rate method to determine the estimated credit losses using factors including historical global average default rates and expected recovery rates on similar credit quality, bond maturity and duration, along with historical experience, current conditions, and forecasts of future economic conditions, if available. The Company monitors the credit profile of its held-to-maturity securities on a periodic basis, using third party data to assess their credit ratings as well as any adverse conditions specifically related to the security.

The Company’s short-term investments include investment grade commercial paper with original maturities of 365 days or less at the date of purchase. Short-term investments are recorded at amortized cost on the balance sheet.

Accounting Pronouncements Recently Adopted
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update 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, unbilled 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. The Company adopted the guidance effective January 1, 2023 using the modified retrospective transition method with comparative periods continuing to be reported using the previous applicable guidance and determined that it did not have a material impact on its condensed consolidated financial statements.
Note 3. Revenues
Deferred Contract Costs
The Company’s amortization of deferred contract costs was $0.3 million and $0.2 million for the three months ended March 31, 2023 and 2022, respectively. The amount of capitalized contract costs was $0.4 million as of March 31, 2023 and December 31, 2022, respectively.
Deferred Revenue
Deferred revenue was $26.5 million and $25.5 million as of March 31, 2023 and December 31, 2022, respectively. Revenue recognized for the three months ended March 31, 2023 and 2022 was $9.3 million and $8.5 million, respectively, which was included in each deferred revenue balance at the beginning of each respective period. The Company’s deferred revenue as stated on its condensed consolidated balance sheets presented approximates its contract liability balance as of March 31, 2023 and December 31, 2022. The Company’s deferred revenue balance as of March 31, 2023, approximates the aggregate amount of the transaction price allocated to remaining performance obligations (“RPOs”) as of that date. Further, as of March 31, 2023, the Company’s deferred revenue, current, balance on its condensed consolidated balance sheet of $23.8 million approximates the expected amount to be recognized from its RPOs as revenue over the next 12 months.
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Disaggregation of Revenue
The following table presents the Company’s revenue disaggregated by product (in thousands):
Three Months Ended March 31,
20232022
B2 Cloud Storage
$9,977 $7,036 
Computer Backup
13,417 12,454 
Total revenue(1)
$23,394 $19,490 
________________
(1) For the periods presented, Physical Media revenue has been consolidated into B2 Cloud Storage or Computer Backup Revenue based on the underlying offering from which it originates.

The following table presents the Company’s revenue disaggregated by timing of revenue recognition (in thousands):
Three Months Ended March 31,
20232022
Consumption-based arrangements
$9,905 $6,987 
Subscription-based arrangements
13,339 12,309 
Physical Media
150 194 
Total revenue
$23,394 $19,490 
Revenue by geographic area, based on the location of the Company’s customers, was as follows (in thousands):
Three Months Ended March 31,
20232022
United States$16,716 $13,982 
United Kingdom1,250 1,084 
Canada1,218 955 
Other4,210 3,469 
Total revenue$23,394 $19,490 

Note 4. Investments
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 balance sheets as of March 31, 2023 and December 31, 2022, respectively.
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Amortized CostGross UnrealizedFair ValueNet Carrying Value
GainsLosses
As of March 31, 2023(In Thousands)
Investments
Commercial paper$45,508 $ $(80)$45,428 $45,508 
Total investments$45,508 $ $(80)$45,428 $45,508 
Amortized CostGross UnrealizedFair ValueNet Carrying Value
GainsLosses
As of December 31, 2022(In Thousands)
Investments
Commercial Paper$58,733 $ $(144)$58,589 $58,733 
Total investments$58,733 $ $(144)$58,589 $58,733 
Scheduled Maturities
The amortized cost and fair value of held-to-maturity securities as of March 31, 2023 and December 31, 2022, by contractual maturity, are shown below.

As of March 31, 2023Amortized CostFair Value
(In Thousands)
Within one year$45,508 $45,428 
After one year through five years  
After 5 years through 10 years  
After 10 years  
Total investments$45,508 $45,428 
As of December 31, 2022Amortized CostFair Value
(In Thousands)
Within one year$58,733 $58,589 
After one year through five years  
After 5 years through 10 years  
After 10 years  
Total investments$58,733 $58,589 
Aging of Unrealized Losses
The Company’s investments had an aggregate gross unrealized loss of $0.1 million as of March 31, 2023 and December 31, 2022, respectively, 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 consolidated balance sheet. As of March 31, 2023 and December 31, 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.
For those securities in an unrealized loss position, the length of time the securities were in such a position is as follows:

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Less than 12 MonthsTotal
# of SecuritiesFair ValueUnrealized Losses# of SecuritiesFair ValueUnrealized Losses
As of March 31, 2023(Dollars In Thousands)
Investments
Commercial paper10 $45,428 $(80)10 $45,428 $(80)
Total10 $45,428 $(80)10 $45,428 $(80)
Less than 12 MonthsTotal
# of SecuritiesFair ValueUnrealized Losses# of SecuritiesFair ValueUnrealized Losses
As of December 31, 2022(Dollars In Thousands)
Investments
Commercial paper11 $58,589 $(144)11 $58,589 $(144)
Total11 $58,589 $(144)11 $58,589 $(144)
Note 5. Fair Value Measurements
The Company classifies its held-to-maturity 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 three months ended March 31, 2023 and the year ended December 31, 2022 respectively. The Company held no assets or liabilities that were measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022, respectively.
As of March 31, 2023 and December 31, 2022, 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 consolidated balance sheets. Additionally, the Company had $7.3 million and $4.3 million in restricted cash as of March 31, 2023 and December 31, 2022, respectively, 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):
March 31,
2023
December 31,
2022
Unbilled accounts receivable, net$1,751 $1,637 
Prepaid expenses1,147 1,288 
Prepaid subscriptions1,606 1,312 
Prepaid Physical Media hardware228 246 
Capitalized commissions383 365 
Receivable from payment processor369 644 
Financed prepaid insurance1,209 1,545 
Other935 1,083 
Total prepaid expenses and other current assets
$7,628 $8,120 
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Note 7. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
March 31,
2023
December 31,
2022
Data center equipment
$32,205 $28,531 
Leased and financed data center equipment
62,972 62,300 
Machinery and equipment
14,416 11,613 
Computer equipment
2,503 2,503 
Leasehold improvements
1,122 1,268 
Construction-in-progress
2,386 3,636 
Total property and equipment
115,604 109,851 
Less: accumulated depreciation
(65,289)(60,476)
Total property and equipment, net
$50,315 $49,375 
Depreciation expense was $5.0 million and $4.4 million for the three months ended March 31, 2023 and 2022, respectively. For the Company’s equipment under finance leases and lease financing obligations, accumulated depreciation was $26.7 million and $24.5 million as of March 31, 2023 and December 31, 2022, respectively. The carrying value of the Company’s equipment under finance lease agreements and lease financing obligations was $36.3 million and $37.8 million as of March 31, 2023 and December 31, 2022, respectively.
As of March 31, 2023, the Company had long-lived assets of $56.6 million, comprising of property and equipment, net and operating lease right-of-use assets, with $51.1 million located in the United States and $5.5 million located in the Netherlands.

As of
December 31, 2022, the Company had long-lived assets of $56.3 million, comprising of property and equipment, net and operating lease right-of-use assets, with $50.2 million located in the United States and $6.1 million located in the Netherlands.
Note 8. Capitalized Internal-Use Software, Net
Capitalized internal-use software, net consisted of the following (in thousands):
March 31,
2023
December 31,
2022
Developed software
$28,220 $23,777 
General and administrative software
144 144 
Total capitalized internal-use software
28,364 23,921 
Less: accumulated amortization
(7,940)(7,217)
Total capitalized internal-use software, net
$20,424 $16,704 
Amortization expense of capitalized internal-use software was $0.7 million and $0.5 million for the three months ended March 31, 2023 and 2022, 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 condensed consolidated statements of operations.
As of March 31, 2023, future amortization expense is expected to be as follows (in thousands):
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Year Ending December 31,
Remainder of 2023$2,846 
20244,772 
20254,317 
20263,864 
20273,138 
Thereafter
1,487 
Total
$20,424 
Note 9. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
March 31,
2023
December 31,
2022
Accrued compensation$1,561 $2,728 
ESPP withholding1,182 415 
Accrued expenses1,693 2,881 
Accrued sales taxes226 208 
Accrued value-added tax ("VAT") liability1,020 1,220 
Financed insurance premiums (see Note 11)1,036 1,545 
Other
296 421 
Accrued expenses and other current liabilities
$7,014 $9,418 
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 2023 and 2026. Finance leases are included in property and equipment, net on the Company’s condensed consolidated balance sheet.
As of March 31, 2023, the weighted average remaining lease term for finance lease and lease financing obligation agreements was approximately 1.74 years and the weighted average discount rate for finance leases was approximately 9.9%.

For the Company’s assets acquired through finance lease and lease financing obligation agreements, which are related to sale-leaseback agreements, depreciation expense was $3.6 million and $2.9 million for the three months ended March 31, 2023 and 2022, 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 three months ended March 31, 2023.

During the three months ended March 31, 2023, total finance lease costs were $4.0 million, of which interest expense was approximately $0.7 million, and total lease financing obligation costs were $0.3 million, of which interest expense was approximately $0.1 million. During the three months ended March 31, 2022, total finance lease costs were $3.5 million, of which interest expense was approximately $0.8 million, and total lease financing obligation costs were $0.4 million, of which interest expense was approximately $0.1 million. The cash paid on interest on finance lease and lease financing obligations was $0.8 million and $0.9 million for the three months ended March 31, 2023 and 2022, respectively.
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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 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 2023 and 2031. The Company did not have a material amount of short-term leases as of March 31, 2023.
As of March 31, 2023, the weighted average remaining lease term for operating leases was approximately 5.7 years and the weighted average discount rate for operating leases was approximately 6.0%. There have been no material changes to the Company’s operating lease commitments, which excludes amounts allocated to services under operating lease agreements that are considered non-lease components during the three months ended March 31, 2023.

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 judgment 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. There have been no material changes to the Company’s non-cancellable contractual obligations for non-lease components during the three months ended March 31, 2023.
Rental expense related to the Company’s operating leases was $2.0 million and $1.4 million for the three months ended March 31, 2023 and 2022, of which $1.5 million and $1.1 million is included in cost of revenue in its statement of operations, respectively. Total operating lease cost was $2.7 million and $1.7 million for the three months ended March 31, 2023 and 2022, respectively, which does not include costs related to services.
Other Contractual Commitments
Other non-cancellable commitments relate mainly to service agreements used to facilitate the Company’s infrastructure operations. As of March 31, 2023, the Company had non-cancelable purchase commitments of $7.5 million and $0.5 million payable during the years ending December 31, 2023 and 2024, 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 $0.5 million and $0.4 million to the 401(k) plan during the three months ended March 31, 2023 and 2022, 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 none of its current legal proceedings 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 litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.

On July 15, 2022, the Company received a demand letter from the investors that entered into the Simple Agreement for Future Equity (“SAFE”) agreements with the Company in August 2021, which related to a contractual dispute in connection with the SAFE transaction. In February 2023, the Company settled with the SAFE holders for a full release of all claims related to the SAFE transaction for a one-time payment in the amount of $1.5 million in aggregate.

One of the SAFE holders, TMT Investments PLC, a beneficial owner of more than 5% of the Company’s capital stock, was a party to the settlement and received a pro-rata payment of $0.3 million as part of the SAFE settlement.
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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 $0.2 million as of March 31, 2023 and December 31, 2022, 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 $1.0 million and $1.2 million as of March 31, 2023 and December 31, 2022, 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 consolidated statements of operations in connection with the indemnification provisions.
Note 11. Debt
Credit Facility
During April 2022, the Company entered into a second amendment to its revolving credit agreement (as amended, the “RCA”) with City National Bank (“Lender”). Under this amendment, the amount available to be borrowed was increased to $30.0 million from $9.5 million. During January 2023, the Company entered into a third amendment to the RCA. Under this amendment, 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 2.00%, or (b) the base rate, as originally defined in the RCA. There were no other material changes to the agreement as a result of the amendment. As of March 31, 2023, the Company had an outstanding balance of $7.3 million and the total amount available to the Company to be borrowed was $22.7 million.

Under the RCA, the outstanding balance of $7.3 million as of March 31, 2023 was collateralized by an equal amount of cash held by the Company. As such, the Company held $7.3 million in cash that it deemed to be restricted and is included in restricted cash, non-current on the Company’s condensed consolidated balance sheet as of March 31, 2023. With prior written notice to the Lender, the Company has the right, at any time prior to the maturity date, to terminate the RCA. In the event of such termination, the aggregate principal of the then outstanding amounts, including any accrued interest to date, shall be repaid and the restrictions on the associated collateralized cash would be released.

As of March 31, 2023, the interest rate associated with the outstanding balance under the RCA was 6.6%, which is a per annum rate. Interest payments on outstanding borrowing are due on the last day of each monthly interest period and payments for the commitment fee are due at the end of each calendar quarter. Total interest expense related to the RCA was $0.1 million for the three months ended March 31, 2023. The Company recorded no interest expense related to the RCA during the three months ended March 31, 2022.

Advances under the RCA are due in full in September 2024. As the RCA is a multi-year revolving credit agreement, the Company classifies the facility as long-term debt on its condensed consolidated balance sheet as it has the intent and ability to maintain the facility outstanding for longer than 12 months.
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Insurance Premium Financing Agreement
Effective November 2022, the Company entered into an insurance policy with annual premiums totaling $2.1 million. The Company has executed a Finance Agreement with AFCO Premium Credit LLC over a term of twelve months, with an annual interest rate of 4.5%, that finances the payment of the total premiums owed. The agreement requires a $0.5 million down payment, with the remaining $1.5 million plus interest paid over three quarterly installments. These quarterly payments started February 10, 2023. As of March 31, 2023, the unpaid balance is approximately $1.0 million, reported as a component of accrued expenses and other current liabilities on the condensed consolidated balance sheets.
Note 12. Stockholders’ Equity
Common Stock. The Company has two classes of common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except for voting, transfer, and conversion rights. Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to ten votes and is convertible at any time into one share of Class A common stock.
The Company had reserved shares of common stock for future issuance as follows:
 March 31,
2023
December 31,
2022
2011 Equity Incentive Plan
Options outstanding
10,299,897 10,862,094 
Shares available for future grants  
2021 Equity Incentive Plan
Options outstanding1,464,030 1,509,187 
Restricted stock units outstanding3,986,997 3,716,061 
Shares available for future grants
1,859,223 1,836,566 
2021 Employee Stock Purchase Plan
Shares available for future purchases1,658,006 990,132 
Total
19,268,153 18,914,040 
Note 13. Stock-Based Compensation
Equity Incentive Plan
Share Reserve. The number of shares of common stock available for issuance under the 2021 Equity Incentive Plan (“2021 Plan”) equals the sum of 5,262,500 shares plus up to approximately 13,719,000 shares subject to awards granted under the 2011 Plan that expire, forfeit or are repurchased following the effective date of the 2021 Plan. The number of shares reserved for issuance under the 2021 Plan will be increased automatically on the first business day of each of the Company’s fiscal years, commencing in 2022 and ending in 2031, by a number equal to the lowest of (i) 4,784,100 shares, (ii) 5% of the shares of common stock outstanding on the last business day of the prior fiscal year; or (iii) the number of shares determined by the Board of Directors. Pursuant to this evergreen provision, the Company increased the number of shares reserved under the 2021 Plan by 809,916 and 1,519,241 during the three months ended March 31, 2023 and 2022, respectively.
In general, to the extent that any awards under the 2021 Plan are forfeited, terminate, expire or lapse without the issuance of shares, or if the Company reacquires the shares subject to awards granted under the 2021 Plan, those shares will again become available for issuance under the 2021 Plan, as will shares applied to pay the exercise or purchase price of an award or to satisfy tax withholding obligations related to any award.
Restricted Stock Units (“RSUs”)
RSUs granted under the 2021 Equity Incentive Plan generally vest based on continued service over a three to four year period for employees, and over a one year period for non-employee directors. RSU’s granted pursuant to the Company’s bonus plan have immediate vesting, see the section titled Bonus Plan below.
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RSU activity for the three months ended March 31, 2023 was as follows:

SharesWeighted-average grant date fair value per share
Unvested balance as of December 31, 2022
3,716,061$6.60 
Granted
989,283$5.97 
Vested
(626,772)$6.87 
Forfeited
(91,575)$5.61 
Unvested balance as of March 31, 2023
3,986,997$6.42 
Stock Options
Stock Options. Stock options granted under the Company’s equity plans generally vest based on continued service over four years and expire ten years from the date of grant.
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 March 31, 2022. No stock options were granted during the three months ended March 31, 2023.
Three Months Ended March 31,
20232022
Expected term (in years)
-6.0
Expected volatility
 %49.0 %
Risk-free interest rate
 %1.20 %
Expected dividend yield % %
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.

A summary of equity award activity under the Company’s equity plans and related information is as follows (in thousands, except share, price and year data):
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 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, 2022
1,836,566 12,371,281 $5.74 6.07$32,385 
Shares authorized809,916 
Options granted   
Options exercised (496,905)1.69 
Options cancelled110,449 (110,449)12.90 
RSU award activity(897,708)— 
Balance as of March 31, 2023
1,859,223 11,763,927 $5.84 5.85$20,684 
Vested and exercisable as of March 31, 2023
8,755,570 $4.15 5.08$19,219 
No stock options were granted during the three months ended March 31, 2023. The weighted-average grant-date fair value of options granted was $13.29 during the three months ended March 31, 2022. The intrinsic value of options exercised for the three months ended March 31, 2023 and 2022 was $2.1 million and $4.1 million, 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 at the time of exercise. The aggregate grant-date fair value of options vested was $2.3 million and $1.8 million during the three months ended March 31, 2023 and 2022, respectively.
ESPP
In October 2021, the Company’s Board of Directors adopted the 2021 Employee Stock Purchase Plan (“ESPP”), which became effective on the date of the IPO. As of December 31, 2022, the ESPP reserved and authorized the issuance of up to a total of 1,564,496 shares of Class A common stock to participating employees. Pursuant to its evergreen provision, the Company increased the number of shares reserved under the ESPP by 667,874 and 607,696 during the three months ended March 31, 2023 and 2022, respectively.
There were no shares purchased during the three months ended March 31, 2023, as the first purchase date in 2023 will occur in May 2023. The fair value of the purchase rights under the ESPP was estimated using the Black-Scholes option pricing model with a similar methodology for determining inputs as the Company’s stock options, as described above. The Company recorded stock-based compensation expense under this plan of $1.0 million and $0.8 million for the three months ended March 31, 2023 and 2022, respectively, of which the Company capitalized $0.2 million and less than $0.1 million, respectively, of stock-based compensation expense under this plan for the development of internal-use software. As of March 31, 2023, the total unrecognized stock-based compensation expense related to the ESPP was $3.7 million and is
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expected to be recognized over a weighted average period of one year. As of March 31, 2023, $1.2 million had been withheld on behalf of employees, respectively.
The following table summarizes the Black-Scholes option pricing model assumptions used in estimating the fair value of the stock purchase rights under the ESPP during the three months ended March 31, 2023 and 2022, respectively.
Three Months Ended March 31,
20232022
Expected term (in years)
0.5 - 2.0
0.5 - 2.0
Expected volatility
45% - 68%
45% - 57%
Risk-free interest rate
0.10% - 4.75%
0.10% - 0.51%
Expected dividend yield % %

Stock-Based Compensation Expense

Stock-based compensation expense included in the condensed consolidated statements of operations was as follows (in thousands):
Three Months Ended March 31,
20232022
Cost of revenue
$416 $276 
Research and development
2,133 1,555 
Sales and marketing
2,152 1,134 
General and administrative
1,127 870 
Total stock-based compensation expense
$5,828 $3,835 
During the three months ended March 31, 2023 and 2022, the Company capitalized $1.0 million and $0.4 million, respectively, of stock-based compensation for the development of internal-use software. As of March 31, 2023, total compensation cost related to stock options and RSUs not yet vested was $18.2 million and $23.4 million, respectively, which will be recognized over a weighted-average period of two and three years for stock options and RSUs, respectively.
Bonus Plan
During March 2022, the Company’s Compensation Committee approved a new bonus structure (“Bonus Plan”) for its employees. The Bonus Plan is contingent upon the achievement of 2022 corporate performance targets. Pursuant to the Bonus Plan, during February 2023 the Company’s Compensation Committee approved the issuance of approximately 288,000 RSUs that immediately vested. The Company recognized $0.5 million in respective stock-based compensation during the three months ended March 31, 2022.
During February 2023, the Company’s Board of Directors approved 2023 corporate performance targets under its Bonus Plan for its employees. If these performance targets are met during 2023, employees will be paid out under the plan in RSUs in 2024. As a result, the Company recognized $0.6 million in stock-based compensation during the three months ended March 31, 2023 based on progress made towards these performance targets.
Note 14. Net Loss per Share Attributable to Common Stockholders
The Company computes net loss per share using the two-class method required for multiple classes of common stock and participating securities. The rights of the holders of the Class A common stock and Class B common stock are identical, except with respect to voting and conversion. Accordingly, the Class A common stock and Class B common stock share equally in the Company’s net losses.
Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. The diluted net loss per share attributable to common stockholders is computed by giving effect to all potentially dilutive common stock equivalents during the period. For purposes of this calculation, the Company’s stock options, share purchase rights
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pursuant to the Company’s ESPP, and unvested restricted stock are considered to be potential common stock equivalents, but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive.
The following table presents the calculation of basic and diluted net loss per share (in thousands, except share and per share data):
Three Months Ended March 31,
20232022
Class AClass BClass AClass B
Numerator:
Net loss attributable to common stockholders$(9,302)$(7,811)$(3,488)$(9,042)
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 diluted18,439,15215,483,5318,502,657