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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 June 30, 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 July 31, 2023, 36.1 million shares of the registrant’s Class A 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 pandemics, 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.


Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BACKBLAZE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
June 30,
2023
December 31,
2022
Assets
Current assets:
Cash and cash equivalents$5,886 $6,690 
Accounts receivable, net826 856 
Short-term investments, net30,933 58,733 
Prepaid expenses and other current assets7,081 8,120 
Total current assets
44,726 74,399 
Restricted cash, non-current7,833 4,306 
Property and equipment, net51,581 49,375 
Operating lease right-of-use assets5,672 6,881 
Capitalized internal-use software, net24,260 16,704 
Other assets
483 793 
Total assets
$134,555 $152,458 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$2,456 $3,283 
Accrued expenses and other current liabilities5,805 9,418 
Finance lease liabilities and lease financing obligations, current18,179 18,531 
Operating lease liabilities, current1,372 2,130 
Deferred revenue, current23,230 22,912 
Total current liabilities
51,042 56,274 
Finance lease liabilities and lease financing obligations, non-current14,585 15,487 
Operating lease liabilities, non-current4,358 5,032 
Deferred revenue, non-current
2,552 2,611 
Debt facility, non-current7,833 4,306 
Total liabilities
$80,370 $83,710 
Commitments and contingencies (Note 10)
Stockholders’ Equity
Class A common stock, $0.0001 par value; 113,000,000 shares authorized as of June 30, 2023 and December 31, 2022, respectively; 22,901,289 and 16,198,333 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively.
2 2 
Class B common stock, $0.0001 par value; 37,000,000 shares authorized as of June 30, 2023 and December 31, 2022, respectively; 13,083,212 and 17,195,404 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively.
2 2 
Additional paid-in capital
173,372 156,485 
Accumulated deficit
(119,191)(87,741)
Total stockholders’ equity
54,185 68,748 
Total liabilities and stockholders’ equity
$134,555 $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 June 30,Six Months Ended June 30,
2023202220232022
Revenue$24,589 $20,688 $47,983 $40,178 
Cost of revenue12,538 9,556 24,963 19,237 
Gross profit12,051 11,132 23,020 20,941 
Operating expenses:
Research and development9,925 8,400 20,458 16,341 
Sales and marketing9,875 8,369 20,434 16,398 
General and administrative6,165 5,182 12,842 10,710 
Total operating expenses25,965 21,951 53,734 43,449 
Loss from operations(13,914)(10,819)(30,714)(22,508)
Investment income 519 120 1,129 195 
Interest expense(942)(913)(1,865)(1,861)
Loss before provision for income taxes(14,337)(11,612)(31,450)(24,174)
Income tax benefit (37) (69)
Net loss$(14,337)$(11,575)$(31,450)$(24,105)
Net loss per share, basic and diluted$(0.41)$(0.37)$(0.91)$(0.78)
Weighted average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted35,149,000 31,182,914 34,539,229 30,864,199 
See accompanying notes, which are an integral part of these condensed consolidated financial statements.
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BACKBLAZE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)

Three Months Ended June 30, 2023
Class A and Class B Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
SharesAmount
Balance as of March 31, 202334,517,414 $4 $165,419 $(104,854)$60,569 
Net loss— — — (14,337)(14,337)
Issuance of Class A common stock upon exercise of stock options687,860 — 1,215 — 1,215 
Issuance of Class A common stock under the 2021 Equity Incentive Plan (as amended and restated, "2021 Plan")430,672 — — — — 
Issuance of Class A common stock related to employee stock purchase plan ("ESPP")348,555 — 1,171 — 1,171 
Stock-based compensation— — 5,567 — 5,567 
Balance as of June 30, 202335,984,501 $4 $173,372 $(119,191)$54,185 
Three Months Ended June 30, 2022
Class A and Class B Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
SharesAmount
Balance as of March 31, 202230,814,473 $3 $136,438 $(48,873)$87,568 
Net loss— — — (11,575)(11,575)
Issuance of Class A common stock upon exercise of stock options485,890 — 1,176 — 1,176 
Issuance of Class A common stock under the 2021 Plan42,598 — (130)— (130)
Issuance of Class A common stock related to ESPP288,571 — 1,529 — 1,529 
Stock-based compensation— — 4,418 — 4,418 
Balance as of June 30, 202231,631,532 $3 $143,431 $(60,448)$82,986 

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Six Months Ended June 30, 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— — — (31,450)(31,450)
Issuance of Class A common stock upon exercise of stock options1,184,765 — 2,055 — 2,055 
Issuance of Class A common stock under the 2021 Plan769,536 — — — — 
Issuance of Class A common stock related to ESPP348,555 — 1,171 — 1,171 
Stock-based compensation— — 11,813 — 11,813 
Stock-based compensation related to the 2022 Bonus Plan (see Note 13)287,908 — 1,848 — 1,848 
Balance as of June 30, 202335,984,501 $4 $173,372 $(119,191)$54,185 
Six Months Ended June 30, 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— — — (24,105)(24,105)
Issuance of Class A common stock upon exercise of stock options915,529 — 2,063 — 2,063 
Issuance of Class A common stock under the 2021 Plan, net of taxes withheld42,598 — (130)(130)
Issuance of Class A common stock related to ESPP288,571 — 1,529 1,529 
Stock-based compensation— — 8,143 — 8,143 
Balance as of June 30, 202231,631,532 $3 $143,431 $(60,448)$82,986 
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)
Six Months Ended June 30,
20232022
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
$(31,450)$(24,105)
Adjustments to reconcile net loss to net cash used in operating activities:
Net accretion of discount on investment securities(966)(172)
Noncash lease expense on operating leases1,293 1,129 
Depreciation and amortization
11,864 9,361 
Stock-based compensation
10,712 8,181 
(Gain) loss on disposal of assets and other adjustments(1)10 
Changes in operating assets and liabilities:
Accounts receivable
30 (82)
Prepaid expenses and other current assets
941 (211)
Other assets
134 (49)
Accounts payable
(245)(757)
Accrued expenses and other current liabilities
(1,600)(858)
Deferred revenue
259 519 
Operating lease liabilities(1,399)(1,089)
Other long-term liabilities
 (69)
Net cash used in operating activities
(10,428)(8,192)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities(9,734)(92,667)
Maturities of marketable securities38,500 12,000 
Proceeds from disposal of property and equipment
78  
Purchases of property and equipment, net
(4,719)(1,501)
Capitalized internal-use software costs
(7,098)(2,838)
Net cash provided by (used in) investing activities
17,027 (85,006)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on finance leases and lease financing obligations
(9,734)(7,212)
Payments of deferred offering costs
 (658)
Proceeds from debt facility3,529  
Principal payments on insurance premium financing(1,024) 
Employee payroll taxes paid related to net settlement of equity awards (130)
Proceeds from exercises of stock options2,182 2,063 
Proceeds from ESPP1,171 1,529 
Net cash used in financing activities
(3,876)(4,408)
Net increase (decrease) in cash, restricted cash and restricted cash, non-current
2,723 (97,606)
Cash and restricted cash at beginning of period
11,165 105,012 
Cash, restricted cash and restricted cash, non-current at end of period
$13,888 $7,406 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest
$1,816 $1,888 
Cash paid for income taxes$58 $26 
Cash paid for operating lease liabilities$1,458 $1,184 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Stock-based compensation included in capitalized internal-use software
$2,030 $1,005 
Accrued bonus settled in restricted stock units$1,848 $ 
Accrued bonus classified as stock-based compensation$929 $1,043 
Equipment acquired through finance lease and lease financing obligations
$8,705 $11,595 
Accruals related to purchases of property and equipment
$224 $698 
Lease liabilities arising from right-of-use assets upon adoption of ASC 842$ $5,220 
Assets obtained in exchange for operating lease obligations$268 $ 
Receivable recorded due to stock option exercises pending settlement
$29 $ 
RECONCILIATION OF CASH AND RESTRICTED CASH
Cash$5,886 $7,237 
Restricted cash - included in prepaid expenses and other current assets$169 $ 
Restricted cash - included in other assets$— $169 
Restricted cash, non-current$7,833 $ 
Total cash, restricted cash and restricted cash, non-current$13,888 $7,406 
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 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 June 30, 2023, results of operations for the three and six months ended June 30, 2023 and 2022, cash flows for the six months ended June 30, 2023 and 2022, and stockholders' equity for the three and six months ended June 30, 2023 and 2022. The results of operations for the three and six months ended June 30, 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 in revenue arrangements, valuation of the Company’s (i) stock options, and (ii) Employee Stock Purchase Plan (“ESPP”) expense, and accounting for taxes, including estimates for indirect tax 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 monetary 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, short-term investments, and unbilled accounts receivable. The Company maintains its cash, restricted cash, and short-term investments 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 June 30,Six Months Ended June 30,
2023202220232022
Cash disbursement concentration
Number of vendors2222
Total cash disbursements represented by vendors listed above20%24%21%26%
June 30,
2023
December 31,
2022
Accounts payable concentration
Number of vendors22
Total accounts payable balance represented by vendors listed above27%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 $0.2 million and $0.3 million for the three months ended June 30, 2023 and 2022, respectively, and was $0.5 million for each of the six months ended June 30, 2023 and 2022. The amount of capitalized contract costs was $0.4 million as of both June 30, 2023 and December 31, 2022, respectively.
Deferred Revenue

Deferred revenue was $25.8 million and $25.5 million as of June 30, 2023 and December 31, 2022, respectively. Revenue recognized for the three months ended June 30, 2023 and 2022 was $9.6 million and $9.0 million, respectively, and was $15.9 million and $14.8 million for the six months ended June 30, 2023 and 2022, 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 June 30, 2023 and December 31, 2022. The Company’s deferred revenue balance as of June 30, 2023, approximates the aggregate amount of the transaction price allocated to remaining performance obligations (“RPOs”) as of that date. Further, as of June 30, 2023, the Company’s deferred revenue, current, balance on its condensed consolidated balance sheet of $23.2 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 June 30,
Six Months Ended June 30,
2023202220232022
B2 Cloud Storage
$10,799 $7,778 $20,776 $14,814 
Computer Backup
13,790 12,910 27,207 25,364 
Total revenue(1)
$24,589 $20,688 $47,983 $40,178 
________________
(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 June 30,
Six Months Ended June 30,
2023202220232022
Consumption-based arrangements
$10,688 $7,741 $20,593 $14,728 
Subscription-based arrangements
13,765 12,794 27,104 25,103 
Physical Media
136 153 286 347 
Total revenue
$24,589 $20,688 $47,983 $40,178 
Revenue by geographic area, based on the location of the Company’s customers, was as follows (in thousands):
Three Months Ended June 30,
Six Months Ended June 30,
2023202220232022
United States$17,509 $14,852 $34,225 $28,834 
United Kingdom1,321 1,137 2,571 2,221 
Canada1,193 1,041 2,411 1,996 
Other4,566 3,658 8,776 7,127 
Total revenue$24,589 $20,688 $47,983 $40,178 

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 June 30, 2023 and December 31, 2022, respectively.
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Amortized CostGross UnrealizedFair ValueNet Carrying Value
GainsLosses
As of June 30, 2023(In Thousands)
Investments
Commercial paper$30,933 $ $(46)$30,887 $30,933 
Total investments$30,933 $ $(46)$30,887 $30,933 
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 June 30, 2023 and December 31, 2022, by contractual maturity, are shown below.
As of June 30, 2023Amortized CostFair Value
(In Thousands)
Within one year$30,933 $30,887 
After one year through five years  
After 5 years through 10 years  
After 10 years  
Total investments$30,933 $30,887 
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 both June 30, 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 sheets. As of June 30, 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 June 30, 2023(Dollars In Thousands)
Investments
Commercial paper7 $30,887 $(46)7 $30,887 $(46)
Total7 $30,887 $(46)7 $30,887 $(46)
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 and six months ended June 30, 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 June 30, 2023 and December 31, 2022, respectively.
As of June 30, 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 $7.8 million and $4.3 million in restricted cash as of June 30, 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):
June 30,
2023
December 31,
2022
Unbilled accounts receivable, net$1,789 $1,637 
Prepaid expenses2,581 2,600 
Receivable from payment processor543 644 
Financed prepaid insurance691 1,545 
Other1,477 1,694 
Total prepaid expenses and other current assets
$7,081 $8,120 
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Note 7. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
June 30,
2023
December 31,
2022
Data center equipment
$34,195 $28,531 
Leased and financed data center equipment
67,014 62,300 
Machinery and equipment
15,814 11,613 
Computer equipment
2,373 2,503 
Leasehold improvements
1,072 1,268 
Construction-in-progress
987 3,636 
Total property and equipment
121,455 109,851 
Less: accumulated depreciation
(69,874)(60,476)
Total property and equipment, net
$51,581 $49,375 
Depreciation expense was $5.3 million and $4.0 million for the three months ended June 30, 2023 and 2022, respectively, and was $10.3 million and $8.3 million for the six months ended June 30, 2023 and 2022, respectively. For the Company’s equipment under finance leases and lease financing obligations, accumulated depreciation was $28.9 million and $24.5 million as of June 30, 2023 and December 31, 2022, respectively. The carrying value of the Company’s equipment under finance lease agreements and lease financing obligations was $38.1 million and $37.8 million as of June 30, 2023 and December 31, 2022, respectively.

As of June 30, 2023, the Company had long-lived assets of $57.3 million, comprising of property and equipment, net and operating lease right-of-use assets, with $52.3 million located in the United States and $5.0 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):
June 30,
2023
December 31,
2022
Developed software
$32,906 $23,777 
General and administrative software
144 144 
Total capitalized internal-use software
33,050 23,921 
Less: accumulated amortization
(8,790)(7,217)
Total capitalized internal-use software, net
$24,260 $16,704 
Amortization expense of capitalized internal-use software was $0.9 million and $0.5 million for the three months ended June 30, 2023 and 2022, respectively, and was $1.6 million and $1.0 million for the six months ended June 30, 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 June 30, 2023, future amortization expense is expected to be as follows (in thousands):
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Year Ending December 31,
Remainder of 2023$2,451 
20245,709 
20255,254 
20264,801 
20274,076 
Thereafter
1,969 
Total
$24,260 
Note 9. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
June 30,
2023
December 31,
2022
Accrued compensation$2,329 $2,728 
ESPP withholding402 415 
Accrued expenses1,091 2,881 
Accrued value-added tax ("VAT") liability980 1,220 
Financed insurance premiums (see Note 11)521 1,545 
Other
482 629 
Accrued expenses and other current liabilities
$5,805 $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 June 30, 2023, the weighted average remaining lease term for finance lease and lease financing obligation agreements was approximately 1.8 years and the weighted average discount rate for finance leases was approximately 10.2%.

For the Company’s assets acquired through finance lease and lease financing obligation agreements, which are related to sale-leaseback agreements, depreciation expense was $3.7 million and $3.2 million for the three months ended June 30, 2023 and 2022, respectively, and was $7.2 million and $6.2 million for the six months ended June 30, 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 condensed consolidated statements of operations. There have been no material changes to the Company’s finance lease and lease financing obligation commitments during the six months ended June 30, 2023.

During the three months ended June 30, 2023, total finance lease costs were $4.1 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 June 30, 2022, total finance lease costs were $3.8 million, of which interest expense was approximately $0.8 million, and total lease financing obligation costs were $0.3 million, of which interest expense was approximately $0.1 million.

During the six months ended June 30, 2023, total finance lease costs were $8.2 million, of which interest expense was approximately $1.5 million, and total lease financing obligation costs were $0.7 million, of which interest expense was approximately $0.2 million. During the six months ended June 30, 2022, the total finance lease costs were $7.3 million, of
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which interest expense was approximately $1.7 million, and total lease financing obligation costs were $0.7 million, of which interest expense was approximately $0.2 million. The cash paid for interest on interest on finance lease and lease financing obligations was $1.6 million and $1.9 million for the six months ended June 30, 2023 and 2022, respectively.
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 June 30, 2023.
As of June 30, 2023, the weighted average remaining lease term for operating leases was approximately 5.9 years and the weighted average discount rate for operating leases was approximately 6.1%.

The future minimum commitments for these operating leases as of June 30, 2023 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,
Remaining of 2023$912 
20241,273 
2025847 
2026867 
2027892 
Thereafter2,076 
Total future minimum operating lease commitments6,867 
Less imputed interest(1,137)
Total liability$5,730 

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.

The future minimum commitments for the Company’s non-cancellable contractual obligations as of June 30, 2023 for non-lease components were as follows (in thousands):

Year Ending December 31,
Remaining of 2023$2,593 
20244,164 
20252,569 
20262,536 
20272,611 
Thereafter6,179 
Total future minimum commitments$20,652 
Rental expense related to the Company’s operating leases for both lease and non-lease components was $1.7 million and $1.4 million for the three months ended June 30, 2023 and 2022, of which $1.4 million and $1.1 million is included in cost of revenue in its condensed consolidated statement of operations, respectively. Rental expense related to lease components was $0.7 million and $0.6 million for the three months ended June 30, 2023 and 2022, respectively. Total operating lease
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cost was $2.6 million and $1.8 million for the three months ended June 30, 2023 and 2022, respectively, which does not include costs related to services.

Rental expense related to the Company’s operating leases for both lease and non-lease components was $3.5 million and $2.8 million for the six months ended June 30, 2023 and 2022, of which $2.6 million and $2.1 million is included in cost of revenue in its condensed consolidated statement of operations, respectively. Rental expense related to lease components was $1.5 million and $1.2 million for the six months ended June 30, 2023 and 2022, respectively. Total operating lease cost was $5.3 million and $3.5 million, for the six months ended June 30, 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 June 30, 2023, the Company had non-cancelable purchase commitments of $4.5 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 June 30, 2023 and 2022, respectively, and $0.9 million and $0.7 million for the six months ended June 30, 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.
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 June 30, 2023 and December 31, 2022, respectively.
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 June 30,
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2023, the Company had an outstanding balance of $7.8 million and the total amount available to the Company to be borrowed was $22.2 million.

Under the RCA, the outstanding balance of $7.8 million as of June 30, 2023 was collateralized by an equal amount of cash held by the Company. As such, the Company held $7.8 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 June 30, 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 June 30, 2023, the interest rate associated with the outstanding balance under the RCA was 7.1%, 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 and $0.2 million for the three and six months ended June 30, 2023, respectively. The Company recorded no interest expense related to the RCA during the three and six months ended June 30, 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.
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 on February 10, 2023. As of June 30, 2023, the unpaid balance is approximately $0.5 million, reported as a component of accrued expenses and other current liabilities on the condensed consolidated balance sheets.
Note 12. Stockholders’ Equity
Common Stock. As of June 30, 2023, the Company had 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. In July 2023, the holders of shares of the Company’s Class B common stock approved the conversion of all outstanding shares of Class B common stock into the same number of shares of the Company’s Class A common stock. See Note 17, Subsequent Events for further details.
The Company had reserved shares of common stock for future issuance as follows:
 June 30,
2023
December 31,
2022
2011 Equity Incentive Plan (“2011 Plan”)
Options outstanding
9,569,367 10,862,094 
Shares available for future grants  
2021 Plan
Options outstanding1,400,955 1,509,187 
Restricted stock units outstanding3,742,337 3,716,061 
Shares available for future grants
10,071,114 1,836,566 
2021 Employee Stock Purchase Plan
Shares available for future purchases1,309,451 990,132 
Total
26,093,224 18,914,040 
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Note 13. Stock-Based Compensation
Equity Incentive Plan
Share Reserve. On June 5, 2023, shareholders approved an amendment and restatement of the 2021 Plan that increased the number of shares under the 2021 Plan. As of June 30, 2023, the number of shares of common stock available for issuance under the 2021 Plan equaled the sum of 14,662,500 shares (pursuant to the shareholder approved increase from 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. In addition, 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 Class A 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 411,399 shares of Class A common stock during January 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.
RSU activity for the six months ended June 30, 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
1,249,027$5.59 
Vested
(1,057,444)$6.80 
Forfeited
(165,307)$5.25 
Unvested balance as of June 30, 2023
3,742,337$6.27 
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 six months ended June 30, 2022. No stock options were granted during the six months ended June 30, 2023 and the three months ended June 30, 2022, respectively.
Six Months Ended June 30, 2022
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
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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):
 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 authorized9,102,074 
Options granted   
Options exercised (1,184,765)1.73 
Options cancelled216,194 (216,194)14.54 
RSU award activity(1,083,720)— 
Balance as of June 30, 2023
10,071,114 10,970,322 $6.00 5.81$13,245 
Vested and exercisable as of June 30, 2023
8,467,027 $4.51 5.19$12,633 
The weighted-average grant-date fair value of options granted during the six months ended June 30, 2022 was $6.26. The intrinsic value of options exercised for the six months ended June 30, 2023 and 2022 was $3.9 million and $6.1 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 $4.6 million and $4.3 million during the six months ended June 30, 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. At its inception, the ESPP reserved and authorized the issuance of up to a total of 956,800 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 January 2023 and 2022, respectively.
During the six months ended June 30, 2023, 348,555 shares of Class A common stock have been purchased under the ESPP. 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 $0.9 million and $0.7 million for the three months ended June 30, 2023 and 2022, respectively, of which the Company capitalized $0.2 million and $0.1 million, respectively, of stock-based compensation expense under this plan for the development of internal-use software. The Company recorded stock-based compensation expense under this plan of $1.9 million and $1.5 million for the six months
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ended June 30, 2023 and 2022, respectively, of which the Company capitalized $0.4 million and $0.2 million, respectively, of stock-based compensation expense under this plan for the development of internal-use software.
As of June 30, 2023, the total unrecognized stock-based compensation expense related to the ESPP was $2.8 million and is expected to be recognized over a weighted average period of one year. As of June 30, 2023, $0.4 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 and six months ended June 30, 2023 and 2022, respectively.
Three Months Ended June 30,Six months ended June 30,
2023202220232022
Expected term (in years)
0.5 - 2.0
0.5 - 2.0
0.5 - 2.0
0.5 - 2.0
Expected volatility
45% - 68%
45% - 68%
45% - 68%
45% - 68%
Risk-free interest rate
0.10% - 5.43%
0.10% - 2.60%
0.10% - 5.43%
0.10% - 2.60%
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 June 30,
Six Months Ended June 30,
2023202220232022
Cost of revenue
$387 $348 $803 $624 
Research and development
1,788 1,683 3,921 3,238 
Sales and marketing
1,717 1,233 3,869 2,367 
General and administrative
992 1,082 2,119 1,952 
Total stock-based compensation expense
$4,884 $4,346 $10,712 $8,181 
During the six months ended June 30, 2023 and 2022, the Company capitalized $2.0 million and $1.0 million, respectively, of stock-based compensation for the development of internal-use software. As of June 30, 2023, total compensation cost related to stock options and RSUs not yet vested was $15.5 million and $21.6 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 $0.6 million and $1.0 million in stock-based compensation during the three and six months ended June 30, 2022, respectively.
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 $0.3 million and $0.9 million in stock-based compensation during the three and six months ended June 30, 2023, respectively, based on progress made towards these performance targets.
Note 14. Net Loss per Share Attributable to Common Stockholders
The Company computes net loss per share using the two-class method required for multiple classes of common stock and participating securities. The rights of the holders of the Class A common stock and Class B common stock are identical, except with respect to voting and conversion. Accordingly, the Class A common stock and Class B common stock share equally in the Company’s net losses.
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Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. The diluted net loss per share attributable to common stockholders is computed by giving effect to all potentially dilutive common stock equivalents during the period. For purposes of this calculation, the Company’s stock options, share purchase rights pursuant to the Company’s ESPP, and unvested restricted stock are considered to be potential common stock equivalents, but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive.
The following table presents the calculation of basic and diluted net loss per share (in thousands, except share and per share data):
Three Months Ended June 30,
Six Months Ended June 30,
2023202220232022
Class AClass BClass AClass BClass AClass BClass AClass B
Numerator:
Net loss attributable to common stockholders$(8,981)$(5,356)$(4,751)$(6,824)$(18,428)$(13,022)(8,328)$(15,777)
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 diluted22,016,69313,132,30712,799,28918,383,62520,237,80514,301,42410,662,84220,201,357
Net loss per share attributable to common stockholders – basic and diluted$(0.41)$(0.41)$(0.37)$(0.37)$(0.91)$(0.91)$(0.78)$(0.78)
Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential common shares outstanding would have been antidilutive. The potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented are as follows:
June 30,
20232022
RSUs3,742,337 1,205,401 
Stock options10,970,322 13,803,643 
Shares issuable pursuant to the ESPP123,593 101,790 
Total
14,836,252 15,110,834 
Note 15. Restructuring
In January 2023, the Company initiated measures to reduce headcount to pursue greater cost efficiency and align strategic initiatives. These measures were substantially completed during the six months ended June 30, 2023, and the total cost was $3.6 million. During the six months ended June 30, 2023, approximately 1% and 4% of the Company’s workforce terminated employment, which were voluntary and involuntary terminations, respectively. As a result, the Company incurred employee termination expenses and other associated costs.

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A summary of the restructuring charges as reported on the condensed consolidated statements of operations for the three and six months ended June 30, 2023, of which $0.7 million were related to involuntary terminations, is as follows (in thousands):
Severance and other Personnel Costs
Three Months Ended June 30, 2023Six Months Ended
June 30, 2023
Research and development$1,147 $2,299 
Sales and marketing 1,025 
General and administrative 280 
Total$1,147 $3,604 

The following table is a summary of the charges in the severance and other personnel liabilities, included within accrued expenses and other current liabilities on the condensed consolidated balance sheets, related to the workforce reduction (in thousands):

Balance as of January 1, 2023$ 
Severance and other personnel costs$3,604 
Cash payments during the period$(2,994)
Balance as of June 30, 2023(1)
$610 
(1) The company expects the remaining severance and termination related liabilities to be substantially paid out in cash during the third quarter of 2023.
Note 16. Income Taxes
The Company is subject to U.S. federal and state income taxes as a corporation. The Company’s tax provision and the resulting effective tax rate for interim periods is determined based upon its estimated annual effective tax rate adjusted for the effect of discrete items arising in that quarter.
The effective tax rate for each of the three and six months ended June 30, 2023 and 2022 was zero as the Company has incurred continuous operating losses. The Company recorded no income tax provision or benefit during the six months ended June 30, 2023. The Company recorded an income tax benefit of less than $0.1 million during each of the three and six months ended June 30, 2022.

On August 16, 2022, the Inflation Reduction Act was enacted in the U.S. and introduced a 15% alternative minimum tax based on the financial statement income of certain large corporations (“CAMT”), effective January 1, 2023. There was no impact on the Company’s provision for income taxes from the CAMT for the three and six months ended June 30, 2023.
Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities using statutory rates. A valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized. Due to the uncertainty surrounding the realization of the favorable tax attributes in future tax returns, the Company has recorded a full valuation allowance against its otherwise recognizable net deferred tax assets.
Note 17. Subsequent Events

In July 2023, the holders of shares of the Company’s Class B common stock held a special meeting (the “Special Meeting”). At the Special Meeting, the holders of a majority of the Company’s outstanding shares of Class B common stock approved the conversion of all outstanding shares of Class B common stock into the same number of shares of the Company’s Class A common stock effective July 6, 2023, as permitted pursuant to the terms of the Company’s Restated Certificate of Incorporation.

In July 2023, the Company entered into an operating lease agreement for the purpose of consolidating two offices down to one. The Company’s future minimum commitment under this agreement totals approximately $8.3 million and extends through 2029.

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In July 2023, the Company’s Compensation Committee approved the issuance of approximately 3.0 million RSUs with service-based vesting periods that are satisfied over two and four years. The Company expects to recognize approximately $14.3 million in stock-based compensation on a straight-line basis over the vesting period of these awards.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and the related notes and the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the year ended December 31, 2022 included in the Annual Report on Form 10-K for the year ended December 31, 2022. This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading "Special Note About Forward-Looking Statements" in this Quarterly Report on Form 10-Q. You should review the disclosure under the heading "Risk Factors" in this Quarterly Report on Form 10-Q for a discussion of important factors that could cause our actual results to differ materially from those described or implied in these forward-looking statements. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Unless the context otherwise requires, all references in this report to "Backblaze," the “Company”, "we," "our," "us," or similar terms refer to Backblaze, Inc. and its consolidated subsidiaries.
Overview
We are a leading specialized storage cloud platform, providing businesses and consumers cloud services to store, use, and protect their data in an easy and affordable manner. We provide these cloud services through a purpose-built, web-scale software infrastructure built on commodity hardware. We believe that by substantially reducing the complexity and frustration of storing, using, and protecting data, we can empower customers to focus on their core business operations. Through our blog and culture of transparency, we have built a community of millions of readers and brand advocates. Referrals from our community of brand advocates, combined with our highly efficient and primarily self-serve customer acquisition model and an ecosystem of thousands of partners, have allowed us to attract more than 500,000 customers as of December 31, 2022. These customers use our Storage Cloud platform across more than 175 countries to grow and protect their business data on our over 3 exabytes, or 3 trillion megabytes, of data storage under management.
Our Backblaze Storage Cloud provides a platform that is the foundation for our B2 Cloud Storage Infrastructure-as-a-Service (IaaS) offering and our Backblaze Computer Backup Software-as-a-Service (SaaS) offering. B2 Cloud Storage enables customers to store data, developers to build applications, and partners to expand their use cases. The amount of data stored in this cloud service can scale up and down as needed primarily on a pay-as-you-go basis or can be paid for on a capacity basis for greater predictability, which we refer to as our B2 Reserve offering. Backblaze Computer Backup automatically backs up data from laptops and desktops for businesses and individuals. This cloud backup service offers easily understood primarily flat-rate pricing to continuously back up a virtually unlimited amount of data.
We believe that focusing on storage use cases and promoting an open ecosystem allows us to integrate well with a broad range of partners. We have consistently invested in our technology platform and highly efficient content-driven and primarily self-serve go-to-market strategy, allowing us to achieve customer, community, and product milestones.

Restructuring
In January 2023, we initiated measures to reduce headcount to pursue greater cost efficiency and align strategic initiatives. These measures were substantially completed during the six months ended June 30, 2023. During the six months ended June 30, 2023, 5% of our workforce terminated employment, which included voluntary and involuntary terminations. As a result, we incurred employee termination expenses and other associated costs.

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A summary of the restructuring charges as reported on the condensed consolidated statements of operations for the three and six months ended June 30, 2023 is as follows (in thousands):
Severance and other Personnel Costs
Three Months Ended June 30, 2023Six Months Ended
June 30, 2023
Research and development$1,147 $2,299 
Sales and marketing— 1,025 
General and administrative— 280 
Total$1,147 $3,604 
See Note 15 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information regarding restructuring charges.
Automatic Conversion of our Class B Common Stock

In July 2023, the holders of shares of our Class B common stock held a special meeting (the Special Meeting). At the Special Meeting, the holders of a majority of the Company’s outstanding shares of Class B common stock approved the conversion of all outstanding shares of Class B common stock into the same number of shares of our Class A common stock effective July 6, 2023, as permitted pursuant to the terms of the Restated Certificate of Incorporation. As a result, our dual class structure was eliminated, all holders of our outstanding common stock are entitled to one vote per share that they hold and no further shares of Class B common stock will be issued.
Factors Affecting Our Performance
We believe that the future growth and performance of our business will depend on several factors, including the following:
Scale Self Service Customer Acquisition
Our business depends, in part, on our ability to add new customers. We believe there is a significant opportunity to further grow our customer base by continuing to make investments in sales and marketing. We plan to continue investing in our customer acquisition and inbound demand generation activities, which is driven predominantly by our blog content, our case studies, social sharing, earned media, and our self-serve sign up model. We intend to leverage this model as an efficient approach to attract new customers, turning them into brand advocates, partners, and more referrals. Furthermore, we plan to continue to leverage our paid lead generation and outbound sales motion to increasingly grow in the mid-market.
We also plan to continue to build our ecosystem of partners. We believe that delivering our Storage Cloud solutions through our alliance, developer, and MSP partnerships is an area of opportunity for us. By adding more partners and deepening our relationships with them, we expand our use cases and drive new customer acquisition.
Scale Sales-Assisted Efforts
We believe an increasingly important complement to our self-serve customer acquisition model is our targeted inside Sales team that is focused on a low-touch “sales-assisted” model that supports our larger customers if the need arises. This team focuses on inbound inquiries, outbound prospecting targeting specific use cases, and volume expansion of our self-serve customers.
Expansion Within Existing Customers
Our future success will depend, in part, on our ability to increase usage and adoption of our solutions with existing customers. We intend to increase revenue from existing customer relationships through the development of additional features and use cases, expanding our Customer Success initiatives, and natural customer data growth. We have developed add-on services, such as Extended Version History and multi-region selection, which customers pay for on top of existing offerings. Examples of expanding use cases include utilizing Backblaze for additional purposes such as media storage, hybrid cloud support, analytics repositories, and others. We also plan to grow our Customer Success initiatives to ensure customers avail themselves of the full benefits of our platform, thus resulting in increased adoption. As these
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customers continue to generate, store, and back up data, their use of our platform increases, creating natural opportunities for revenue expansion.
Continued Platform Investment and New Product Launches
We are committed to delivering market-leading products that continue to make cloud storage and backup easy. We believe we must maintain our product quality and strength of our brand in order to retain the current customer base as well as drive further revenue growth in our business. We intend to continue investing in our research and development activities to build upon our strong position in the technology community. We also plan to launch new products that are adjacent to our current offerings, which will provide us with the ability to further cross-sell and upsell.
Investments for Continued Scaling
We are focused on our long-term revenue potential and building out our infrastructure to sustain that growth. On a routine basis, we plan to focus resources on optimizing the efficiency of our data storage. In some scenarios, we may choose to pass on potential cost savings to the customer, but in other scenarios we may choose to reinvest cost savings back into infrastructure and design.
International Expansion

While our sales and marketing investments have primarily focused on the United States, our existing customer base spans more than 175 countries, with 28% of our total revenue originating outside of the United States for the year ended December 31, 2022. We believe international expansion may represent a meaningful opportunity to generate further demand for our solutions in international geographies. We may invest in our operations internationally to reach new customers by expanding in targeted key geographies where we believe there are opportunities for significant return on investment.
Key Business Metrics
We monitor the key business metrics set forth below to help us evaluate our business and growth trends, establish budgets, measure the effectiveness of our sales and marketing investments, and assess operational efficiencies. The calculation of the key metrics discussed below may differ from other similarly titled metrics used by other companies, securities analysts or investors.
June 30,
20232022
B2 Cloud Storage
Net revenue retention rate (NRR)121 %127 %
Gross customer retention rate90 %90 %
Annual recurring revenue (in millions)$43.5$31.3
Computer Backup
Net revenue retention rate (NRR)103 %107 %
Gross customer retention rate91 %91 %
Annual recurring revenue (in millions)$53.8$51.4
Total Company