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Form 10-Q Backblaze, Inc. For: Jun 30

August 12, 2022 4:40 PM EDT

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 10-Q
___________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-41026
___________________________________
BACKBLAZE, INC.
___________________________________
(Exact name of registrant as specified in its charter)
Delaware
20-8893125
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
500 Ben Franklin Ct
San Mateo, CA
94401
(Address of principal executive offices)
(Zip Code)
(650) 352-3738
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.0001 par value per shareBLZEThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
¨
Accelerated filer
o
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes ☐ No 
As of August 1, 2022, 14.4 million shares of the registrant’s Class A common stock were outstanding, and 17.3 million shares of registrant's Class B common stock were outstanding.


Table of Contents
Page





SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that are in some cases beyond our control and may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
our ability to sell our platform to new customers;
our ability to retain and expand use of our platform by our existing customers;
our ability to effectively manage our growth;
our ability to successfully obtain timely returns on our investments in initiatives relating to sales and marketing, research and development, and other areas;
our ability to maintain our competitive advantages;
our ability to maintain and expand our partner ecosystem;
our ability to maintain the security of our platform and the security and privacy of customer data;
our ability to successfully expand in our existing markets and into new markets;
the attraction and retention of qualified employees and key personnel;
our ability to successfully defend litigation brought against us;
the impact of the COVID-19 pandemic, inflation, war and other hostilities and other disruptive events on our business or that of our customers, partners, and supply chain or on the global economy;
our ability to successfully remediate and prevent material weaknesses in internal controls over financial reporting; and
the increased expenses associated with being a public company.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BACKBLAZE, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
June 30,
2022
December 31,
2021
Assets
Current assets:
Cash
$7,237 $104,843 
Accounts receivable, net
391 309 
Short-term investments80,839  
Prepaid expenses and other current assets
6,138 5,930 
Total current assets
94,605 111,082 
Property and equipment, net
48,303 43,068 
Operating lease right-of-use assets5,085  
Capitalized software, net
10,550 7,637 
Other assets
1,934 1,794 
Total assets
$160,477 $163,581 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$1,969 $2,075 
Accrued expenses and other current liabilities
7,384 7,620 
Finance lease liabilities and lease financing obligations, current17,643 13,645 
Operating lease liabilities, current2,616  
Deferred revenue, current
22,398 21,722 
Total current liabilities
52,010 45,062 
Finance lease liabilities and lease financing obligations, non-current19,570 19,603 
Operating lease liabilities, non-current2,936  
Deferred revenue, non-current
2,975 3,132 
Other long-term liabilities
 298 
Total liabilities
$77,491 $68,095 
Commitments and contingencies (Note 10)
Stockholders’ Equity
Class A common stock, $0.0001 par value; 113,000,000 shares authorized as of June 30, 2022 and December 31, 2021, respectively; 14,113,696 and 8,227,992 shares issued and outstanding as of June 30, 2022 and December, 31, 2021, respectively.
1 1 
Class B common stock, $0.0001 par value; 37,000,000 shares authorized as of June 30, 2022 and December 31, 2021, respectively; 17,517,836 and 22,156,842 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively.
2 2 
Additional paid-in capital
143,431 131,826 
Accumulated deficit
(60,448)(36,343)
Total stockholders’ equity
82,986 95,486 
Total liabilities and stockholders’ equity
$160,477 $163,581 
See accompanying notes, which are an integral part of these condensed financial statements.
1

BACKBLAZE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Revenue$20,688 $16,150 $40,178 $31,462 
Cost of revenue9,556 7,926 19,237 15,756 
Gross profit11,132 8,224 20,941 15,706 
Operating expenses:
Research and development8,400 4,707 16,341 8,976 
Sales and marketing8,369 4,347 16,398 8,124 
General and administrative5,182 2,904 10,710 5,157 
Total operating expenses21,951 11,958 43,449 22,257 
Loss from operations(10,819)(3,734)(22,508)(6,551)
Interest income120  195  
Interest expense(913)(847)(1,861)(1,718)
Gain on extinguishment of debt 2,299  2,299 
Loss before provision for income taxes(11,612)(2,282)(24,174)(5,970)
Income tax (benefit) provision(37)136 (69)136 
Net loss$(11,575)$(2,418)$(24,105)$(6,106)
Net loss per share, basic and diluted$(0.37)$(0.13)$(0.78)$(0.33)
Weighted average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted31,182,914 18,707,302 30,864,199 18,691,938 
See accompanying notes, which are an integral part of these condensed financial statements.
2

BACKBLAZE, INC.
CONDENSED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share data)
(unaudited)

Three Months Ended June 30, 2022
Convertible
Preferred Stock
Class A and Class B Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
SharesAmountSharesAmount
Balance as of March 31, 2022— $— 30,814,473 $3 $136,438 $(48,873)$87,568 
Net loss— — — — — (11,575)(11,575)
Issuance of common stock upon exercise of stock options— — 485,890 — 1,176 — 1,176 
Issuance of common stock under equity incentive plan, net of taxes withheld— — 42,598 — (130)— (130)
Issuance of common stock related to employee stock purchase plan ("ESPP")— — 288,571 — 1,529 — 1,529 
Stock-based compensation— — — — 4,418 — 4,418 
Balance as of June 30, 2022— $— 31,631,532 $3 $143,431 $(60,448)$82,986 
Three Months Ended June 30, 2021
Convertible
Preferred Stock
Class A and Class B Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
SharesAmountSharesAmount
Balance as of March 31, 20213,359,195 $2,784 18,702,131 $5 $8,902 $(18,327)$(9,420)
Net loss— — — — — (2,418)(2,418)
Issuance of common stock upon exercise of stock options— — 234,567 — — —  
Stock-based compensation— — — — 1,317 — 1,317 
Balance as of June 30, 20213,359,195 $2,784 18,936,698 $5 $10,219 $(20,745)$(10,521)
3

Six Months Ended June 30, 2022
Convertible
Preferred Stock
Class A and Class B Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
SharesAmountSharesAmount
Balance as of December 31, 2021 $ 30,384,834 $3 $131,826 $(36,343)$95,486 
Net loss— — — — — (24,105)(24,105)
Issuance of common stock upon exercise of stock options — — 915,529 — 2,063 — 2,063 
Issuance of common stock under equity incentive plan, net of taxes withheld— — 42,598 — (130)— (130)
Issuance of common stock related to ESPP— — 288,571 — 1,529 — 1,529 
Stock-based compensation— — — — 8,143 — 8,143 
Balance as of June 30, 2022 $ 31,631,532 $3 $143,431 $(60,448)$82,986 
Six Months Ended June 30, 2021
Convertible
Preferred Stock
Class A and Class B Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
SharesAmountSharesAmount
Balance as of December 31, 20203,359,195 $2,784 18,614,905 $5 $7,794 $(14,639)$(6,840)
Net loss— — — — — (6,106)(6,106)
Issuance of common stock upon exercise of stock options— — 321,793 — 148 — 148 
Stock-based compensation— — — — 2,277 — 2,277 
Balance as of June 30, 20213,359,195 $2,784 18,936,698 $5 $10,219 $(20,745)$(10,521)
See accompanying notes, which are an integral part of these condensed financial statements.
4

BACKBLAZE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended June 30,
20222021
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
$(24,105)$(6,106)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Gain on extinguishment of Paycheck Protection Program ("PPP") loan (2,299)
Net accretion of discount on investment securities(172) 
Noncash lease expense on operating leases1,129  
Depreciation and amortization
9,361 7,982 
Stock-based compensation
8,181 2,163 
(Gain) loss on disposal of assets and other adjustments10 (12)
Changes in operating assets and liabilities:
Accounts receivable
(82)101 
Prepaid expenses and other current assets
(211)(805)
Other assets
(49)(186)
Accounts payable
(757)441 
Accrued expenses and other current liabilities
(858)536 
Deferred revenue
519 862 
Operating lease liabilities(1,089) 
Other long-term liabilities
(69)(94)
Net cash (used in) provided by operating activities
(8,192)2,583 
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities(92,667) 
Maturities of marketable securities12,000  
Purchases of property and equipment, net
(1,501)(4,457)
Capitalized internally-developed software costs
(2,838)(1,949)
Net cash used in investing activities
(85,006)(6,406)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on finance leases and lease financing obligations
(7,212)(5,722)
Payments of deferred offering costs
(658)(1,780)
Proceeds from debt facility 3,500 
Proceeds from lease financing obligations
 2,907 
Employee payroll taxes paid related to net settlement of equity awards(130) 
Proceeds from exercises of stock options2,063 148 
Proceeds from employee stock purchase plan1,529  
Net cash used in financing activities
(4,408)(947)
Net decrease in cash and restricted cash
(97,606)(4,770)
Cash and restricted cash at beginning of period
105,012 6,076 
Cash and restricted cash at end of period
$7,406 $1,306 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest
$1,888 $1,693 
Cash paid for income taxes$26 $ 
Cash paid for operating lease liabilities$1,184 $ 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Stock-based compensation included in capitalized software
$1,005 $114 
Accrued bonus classified as stock-based compensation$1,043 $ 
Equipment acquired through finance lease obligations
$11,595 $4,252 
Accruals related to purchases of property and equipment
$698 $449 
Lease liabilities arising from right-of-use assets upon adoption of ASC 842$5,220 $ 
Extinguishment of PPP loan
$ $2,299 
RECONCILIATION OF CASH AND RESTRICTED CASH
Cash$7,237 $1,306 
Restricted cash - included in other assets$169 $ 
Total cash and restricted cash$7,406 $1,306 
See accompanying notes, which are an integral part of these condensed financial statements.
5

BACKBLAZE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1. Organization and Description of Business
Description of Business
Backblaze, Inc. (“Backblaze” or the “Company”) is a storage cloud platform, providing businesses and consumers with solutions to store and use their data. Backblaze provides these cloud services through purpose-built, web-scale software built on commodity hardware. Backblaze was incorporated in the state of Delaware on April 20, 2007 and is headquartered in San Mateo, California.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all disclosures normally required in annual financial statements prepared in accordance with GAAP. Therefore, these unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 28, 2022. In management’s opinion, these unaudited condensed financial statements have been prepared on the same basis as its annual financial statements and reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position as of June 30, 2022, results of operations for the three and six months ended June 30, 2022 and 2021, cash flows for the six months ended June 30, 2022 and 2021, and stockholders' equity (deficit) for the three and six months ended June 30, 2022 and 2021. The results of operations for the three and six months ended June 30, 2022 and 2021 are not necessarily indicative of the results to be expected for the full year or any other future interim or annual period.
Emerging Growth Company
The Company is an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, EGCs can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an EGC or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. The Company expects to use the extended transition period for any other new or revised accounting standards during the period in which it remains an EGC.
Segment Information
The Company has a single operating and reportable segment. In reaching this conclusion, management considers the definition of the chief operating decision maker (“CODM”), how the business is defined by the CODM, the nature of the information provided to the CODM and how that information is used to make operating decisions, allocate resources, and assess performance. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on an aggregated basis for purposes of making operating decisions, assessing financial performance and allocating resources.
Significant accounting policies
The Company’s significant accounting policies are disclosed in the Company’s audited financial statements and related notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 28, 2022.
6

Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Such estimates and assumptions include the costs to be capitalized as internal-use software and their useful life, the useful lives of other long-lived assets, impairment considerations for long-lived assets, the determination of the incremental borrowing rate for lease agreements, expected lease term, lease and non-lease component allocation, estimates related to variable consideration, valuation of the Company’s common stock prior to its initial public offering in November 2021 (the “IPO”), stock options, and Employee Stock Purchase Plan (“ESPP”) and accounting for taxes, including estimates for sales tax and VAT liability, deferred tax assets, valuation allowance and uncertain tax positions. The Company bases its estimates on historical experience and on assumptions that management considers reasonable. Future actual results could differ materially from these estimates.

Prior Period Adjustment
During the three and six months ended June 30, 2022, the Company discovered an error pertaining to a cumulative $0.5 million in excess depreciation expense recorded to cost of revenue in its statement of operations, and a related understatement of its property and equipment, net balance on its statement of financial position, in prior periods. Accordingly, the Company corrected this error by adjusting opening accumulated deficit for the three month period ended June 30, 2022, and retrospectively adjusted the cumulative periods for the impact of this error in the financial statements presented for the three and six months ended June 30, 2022. The Company does not believe that this prior period adjustment had a material impact on any previously presented financial statements.

Concentrations
Vendors. The Company acquires infrastructure equipment from third-party vendors. Vendors may have limited sources of equipment and supplies, which may expose the Company to potential supply and service disruptions that could harm the Company’s business. Two vendors represented an aggregate 24% of total cash disbursements during the three months ended June 30, 2022, while two vendors represented an aggregate 23% of total cash disbursements during the three months ended June 30, 2021. Two vendors represented an aggregate 26% of total cash disbursements during the six months ended June 30, 2022, while two vendors represented an aggregate 27% of total cash disbursements during the six months ended June 30, 2021. Three vendors represented an aggregate 32% of the accounts payable balance as of June 30, 2022, while three vendors represented 40% of the accounts payable balance as of December 31, 2021.

Revenue. The Company derives substantially all of its revenue from the services operating on its Backblaze Storage Cloud platform: its Backblaze B2 Cloud Storage (“Backblaze B2”) and Backblaze Computer Backup (“Computer Backup”) offerings. The potential for severe impact to the Company’s business could result if the Company was unable to operate its platform or serve customers through its platform for an extended period of time.
Accounting Pronouncements Recently Adopted
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), or (“ASC 842”), and since that date, has issued several ASUs to further clarify certain aspects of ASU 2016-02 and provide entities with practical expedients that may be elected upon adoption. The Company adopted the new standard beginning January 1, 2022 using the modified retrospective approach, electing the optional transition approach of not adjusting the comparative period financial statements for the impact of adoption. The Company elected the package of practical expedients permitted under the transition guidance, which allows the Company to carryforward its historical lease classification, its assessment on whether a contract is or contains a lease, and its initial direct costs for any leases that existed prior to adoption of the new standard.
In accordance with ASC 842, the Company determines if an arrangement is a lease at its inception. Right-of-use (“ROU”) assets, and corresponding lease liabilities, are recognized at the commencement date based on the present value of remaining lease payments over the lease term, which, for the Company, include primarily fixed payments. As a majority of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available as of the commencement date. For leases existing at adoption, the Company elected to use the remaining lease term and remaining minimum lease payments in calculating the incremental borrowing rate for all existing leases. The discount rate used is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The lease terms may include
7

options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. The Company has elected the short-term lease practical expedient for all asset classes, which allows the lessee to not apply the recognition requirements of ASC 842 to short-term leases (leases with original terms of 12 months or less and that do not include a purchase option that the lessee is reasonably certain to exercise).

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

The adoption of the new standard on January 1, 2022 resulted in the recognition of approximately $5.2 million and $5.6 million of operating lease ROU assets and operating lease liabilities on the Company's condensed balance sheets, respectively, with the ROU asset on an existing lease being offset by an existing ASC 420 obligation of approximately $0.4 million. The Company noted no material impact on its condensed financial statements with respect to its finance leases as a result of its ASC 842 adoption. See Note 10 to these condensed financial statements.
Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires a financial asset measured at an amortized cost basis to be presented at the net amount expected to be collected, with further clarifications made more recently. For trade receivables, loans and other financial instruments, the Company will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. Credit losses relating to available-for-sale debt securities are required to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. This guidance is effective for the Company for its fiscal year beginning January 1, 2023 and interim periods within that fiscal year. The Company is currently evaluating the impact of the adoption of this guidance on its financial statements.
Note 3. Revenues
Deferred Contract Costs
The Company’s amortization of deferred contract costs was $0.3 million and $0.2 million for the three months ended June 30, 2022 and 2021, respectively, and was $0.5 million and $0.4 million for the six months ended June 30, 2022 and 2021, respectively. The amount of capitalized contract costs was $0.4 million as of June 30, 2022 and December 31, 2021, respectively.
Deferred Revenue
Deferred revenue was $25.4 million and $24.9 million as of June 30, 2022 and December 31, 2021, respectively. Revenue recognized for the three months ended June 30, 2022 and 2021 was $9.0 million and $7.4 million, respectively, and was $14.8 million and $12.1 million for the six months ended June 30, 2022 and 2021, respectively, which was included in each deferred revenue balance at the beginning of each respective period. The Company’s deferred revenue as stated on the condensed balance sheets presented its approximate contract liability balance as of June 30, 2022 and December 31, 2021. The Company’s deferred revenue balance as of June 30, 2022, approximates the aggregate amount of the transaction price allocated to remaining performance obligations (“RPOs”) as of that date. Further, as of June 30, 2022, the Company’s deferred revenue, current, balance on its condensed balance sheet of $22.4 million approximates the expected amount to be recognized from its RPOs as revenue over the next 12 months.
8

Disaggregation of Revenue
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,
2022202120222021
Consumption-based arrangements (B2 Cloud Storage)
$7,741 $5,335 $14,728 $10,050 
Subscription-based arrangements (Computer Backup)
12,794 10,663 25,103 21,055 
Physical Media
153 152 347 357 
Total revenue
$20,688 $16,150 $40,178 $31,462 
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,
2022202120222021
United States$14,852 $11,573 $28,834 $22,653 
Other5,836 4,577 11,344 8,809 
Total$20,688 $16,150 $40,178 $31,462 

Note 4. Investments
The Company holds all investments on a held-to-maturity basis and evaluates each position quarterly for impairment. The Company recognizes an impairment on a security through the statement of operations if (i) the Company intends to sell the impaired security; or (ii) it is more likely than not the Company will be required to sell the impaired security prior to recovery of its amortized cost basis. If a sale is intended or likely to be required, the amortized cost basis of the security will be written down to fair value and the full amount of the impairment will be recognized through the statement of operations as a net realized investment loss.
Fair Values and Gross Unrealized Gains and Losses on Investments
The following table summarizes adjusted cost, gross unrealized losses, and fair value by significant investment category reported as cash and held-to-maturity investments as of June 30, 2022. The Company did not have investments reported as held-to-maturity investments as of December 31, 2021.
Amortized CostGross UnrealizedFair ValueNet Carrying Value
GainsLosses
As of June 30, 2022(In Thousands)
Investments
Commercial paper$80,839 $ $(351)$80,488 $80,839 
Total investments$80,839 $ $(351)$80,488 $80,839 
Scheduled Maturities
The amortized cost and fair value of held-to-maturity securities as of June 30, 2022 and December 31, 2021 by contractual maturity are shown below. The Company did not have held-to-maturity investments as of December 31, 2021.

9

As of June 30, 2022Amortized CostFair Value
(In Thousands)
Within one year$80,839 $80,488 
After one year through five years  
After 5 years through 10 years  
After 10 years  
Total investments$80,839 $80,488 
Aging of Unrealized Losses
As of June 30, 2022, the investment portfolio had gross unrealized losses of $0.4 million, all of which had been in an unrealized loss position of less than twelve months. As of June 30, 2022, the investment portfolio did not have any securities that had been in an unrealized loss position for a period of twelve months or longer. The Company did not have held-to-maturity investments as of December 31, 2021.

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

Less than 12 MonthsTotal
# of SecuritiesFair ValueUnrealized Losses# of SecuritiesFair ValueUnrealized Losses
As of June 30, 2022(Dollars In Thousands)
Investments
Commercial Paper10 $80,488 $(351)10 $80,488 $(351)
Total10 $80,488 $(351)10 $80,488 $(351)

Net Investment Income

The following table presents the components of net investment income (in thousands):
Three Months Ended June 30,
Six Months Ended June 30,
2022202120222021
Investment income$120 $ $195 $ 
Investment expenses    
Net investment income$120 $ $195 $ 

Investment income is included in interest income in the condensed statements of operations.

Note 5. Fair Value Measurements
The Company measures financial assets and liabilities at fair value at each reporting date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are reported under a three-level valuation hierarchy. The classification of the Company’s financial assets within the hierarchy is as follows:
Level 1 — Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities. The Company’s Level 1 assets include money market funds.
Level 2 — Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
10

Level 3 — Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
The Company classifies its investments, which are comprised of investment grade commercial paper, within Level 2 of the fair value hierarchy because the fair value of these securities are priced by using inputs based on non-binding market consensus that are primarily corroborated by observable market data or quoted market prices for similar instruments.
The following table presents the fair value hierarchy for the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2022 and as of December 31, 2021 (in thousands):
Level 1Level 2Level 3
June 30,
2022
December 31,
2021
June 30,
2022
December 31,
2021
June 30,
2022
December 31,
2021
Assets
Investments
Commercial Paper$ $ $80,488 $ $ $ 
Total investments$ $ $80,488 $ $ $ 
Total$ $ $80,488 $ $ $ 
There were no transfers between levels of the fair value hierarchy for the six months ended June 30, 2022 and the year ended December 31, 2021, respectively. The Company had no Level 3 instruments held as of June 30, 2022 and December 31, 2021, respectively.
As of June 30, 2022 and December 31, 2021, the Company had $169 thousand in restricted cash related to the letter of credit established according to requirements under a lease agreement, reported as a component of other assets on the condensed balance sheets.
Note 6. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
June 30,
2022
December 31,
2021
Unbilled accounts receivable$1,349 $1,220 
Prepaid expenses1,763 2,403 
Prepaid subscriptions1,373 730 
Prepaid Physical Media hardware313 378 
Capitalized commissions358 345 
Receivable from payment processor459 289 
Prepaid data migration fees116 93 
Other407 472 
Total prepaid expenses and other current assets
$6,138 $5,930 
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Note 7. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
June 30,
2022
December 31,
2021
Data center equipment
$26,065 $25,338 
Leased and financed data center equipment
61,001 50,419 
Machinery and equipment
9,389 7,803 
Computer equipment
2,168 1,631 
Leasehold improvements
966 956 
Total property and equipment
99,589 86,147 
Less: accumulated depreciation
(51,286)(43,079)
Total property and equipment, net
$48,303 $43,068 
Depreciation expense was $4.0 million and $3.6 million for the three months ended June 30, 2022 and 2021, respectively, and was $8.3 million and $7.2 million for the six months ended June 30, 2022 and 2021, respectively. For the Company’s equipment under finance leases and collateralized financing obligations, accumulated depreciation was $19.3 million and $13.5 million as of June 30, 2022 and December 31, 2021, respectively. The carrying value of the Company’s equipment under finance lease agreements and lease financing obligations was $41.7 million and $36.9 million as of June 30, 2022 and December 31, 2021, respectively.

The Company recorded a loss of less than $0.1 million for the three and six months ended June 30, 2022, respectively, as a result of disposing of certain hard drives. During the three and six months ended June 30, 2021, no material gain or loss was realized related to the disposal of long-lived assets. These disposals occurred in the ordinary course of business, as the Company continuously evaluates its requirements for operating its data centers. The loss and gains are recorded as general and administrative expenses in the Company’s condensed statements of operations.
As of June 30, 2022 and December 31, 2021, substantially all of the Company’s assets were held in the United States.
Note 8. Capitalized Software, Net
Capitalized software, net consisted of the following (in thousands):
June 30,
2022
December 31,
2021
Developed software
$16,465 $12,535 
General and administrative software
144 144 
Total capitalized internal-use software
16,609 12,679 
Less: accumulated amortization
(6,059)(5,042)
Total capitalized internal-use software, net
$10,550 $7,637 
In accordance with the adoption of ASU 2018-15, during 2021 the Company aligned its capitalization of implementation costs for cloud computing arrangements with its accounting for the underlying software license included in such arrangements. Accordingly, the Company reclassified these implementation costs on its balance sheet in prepaid expenses and other current assets and other assets as of December 31, 2021, on a prospective basis.
Amortization expense of capitalized internal-use software was $0.5 million and $0.4 million for the three months ended June 30, 2022 and 2021, respectively, and was $1.0 million and $0.8 million for the six months ended June 30, 2022 and 2021, respectively. Amortization of developed software and software purchased for internal use are included in cost of revenue and general and administrative expense, respectively, in the Company’s statements of operations. As of June 30, 2022, future amortization expense is expected to be as follows (in thousands):
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Year Ending December 31,
Remainder of 2022$1,273 
20232,683 
20242,422 
20251,967 
20261,514 
Thereafter
691 
Total
$10,550 
Note 9. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
June 30,
2022
December 31,
2021
Accrued compensation
$2,187 $1,159 
ESPP Withholding453 489 
Accrued expenses
2,129 1,646 
Accrued sales tax
704 1,209 
Accrued value-added tax ("VAT") liability1,592 2,511 
Other
319 606 
Accrued expenses and other current liabilities
$7,384 $7,620 
Note 10. Commitments and Contingencies
Finance Leases and Lease Financing Obligations
The Company enters into finance lease arrangements to obtain hard drives and related equipment for its data center operations. The term of these agreements primarily range from three to four years and certain of these arrangements have optional renewals to extend the term of the lease generally at a fixed price. Contingent rental payments are generally not included in the Company’s finance lease agreements. The finance leases are generally secured by the underlying leased equipment. The Company's finance leases have original lease periods expiring between 2022 and 2025. Finance leases are included in property and equipment, net on the Company’s condensed balance sheet.
At June 30, 2022, the weighted average remaining lease term for finance lease agreements was approximately 2.3 years and the weighted average discount rate for finance leases was approximately 10.7%.

For the Company’s assets acquired through finance lease and lease financing obligation agreements, depreciation expense was $3.2 million and $3.0 million for the three months ended June 30, 2022 and 2021, respectively, and was $6.2 million and $6.0 million for the six months ended June 30, 2022 and 2021, respectively. Depreciation expense on 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 commitments during the six months ended June 30, 2022.

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, 2022, total finance lease costs were $7.3 million, of 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.

During 2021, the Company entered into four sale-leaseback arrangements with vendors to provide approximately $4.3 million in cash proceeds for previously purchased hard drives and related equipment. The Company concluded the related lease arrangements would be classified as lease financing obligations as it has the option to repurchase the assets at their fair value at a future date. Therefore, the transaction was deemed a failed sale-leaseback and was accounted for as a financing arrangement. The assets continue to be depreciated over their useful lives, and payments are allocated between
13

interest expense and repayment of the financing liability. The failed sale-leaseback transactions will continue to be accounted for as a failed sale-leaseback upon adoption of ASC 842 because the leaseback is classified as financing.

The future minimum commitments for these finance leases and lease financing obligations as of June 30, 2022 were as follows (in thousands):
Year Ending December 31,
Finance leasesLease financing obligationsTotal
Remainder of 2022$9,668 $692 $10,360 
202316,998 1,385 18,383 
20249,674 1,240 10,914 
20251,714 521 2,235 
2026   
Thereafter   
Total future minimum lease and financing commitments38,054 3,838 41,892 
Less imputed interest(4,168)(511)(4,679)
Total liability$33,886 $3,327 $37,213 
Prior to the ASC 842 adoption, the future minimum commitments for these finance leases and lease financing obligations as of December 31, 2021 were as follows (in thousands):
Year Ending December 31,
2022$16,765 
202314,123 
20246,707 
2025617 
2026 
Thereafter
 
Total future minimum lease and financing commitments
38,212 
Less imputed interest
(4,964)
Total liability
$33,248 
Prior to the ASC 842 adoption, as of December 31, 2021, the future minimum payments related to the lease financing obligations consisted of the following (in thousands):
Year Ending December 31,
2022$1,385 
20231,385 
20241,240 
2025387 
2026— 
Thereafter
 
Total future minimum financing payments
$4,397 
Operating Leases
The Company leases its facilities for data centers and office space under non-cancelable operating leases with various expiration dates. Certain lease agreements include renewal options to extend the lease term at a price to be determined upon exercise. These options are not reasonably certain to be exercised and therefore are not factored into the determination of 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
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Company's leases have original lease periods expiring between 2022 and 2031. The Company does not have a material amount of short-term leases as of June 30, 2022.
At June 30, 2022, the weighted average remaining lease term for operating leases was approximately 3.9 years and the weighted average discount rate for operating leases was approximately 4.2%.
The future minimum commitments for these operating leases as of June 30, 2022 were as follows (in thousands), which excludes amounts allocated to services under operating lease agreements that are considered non-lease components:
Year Ending December 31,
Remainder of 2022