Backblaze Inc

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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. 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 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 consolidated financial statements prepared in accordance with GAAP. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on April 1, 2024. In management’s opinion, these unaudited condensed consolidated financial statements have been prepared on the same basis as its annual consolidated financial statements and reflect all adjustments, which include normal recurring adjustments necessary for the fair statement of the Company’s financial position as of September 30, 2024, results of operations for the three and nine months ended September 30, 2024 and 2023, cash flows for the nine months ended September 30, 2024 and 2023, and stockholders’ equity for the three and nine months ended September 30, 2024 and 2023. The results of operations for the three and nine months ended September 30, 2024 and 2023 are not necessarily indicative of the results to be expected for the full year or any other future interim or annual period.

Reclassifications

Certain reclassifications have been made to prior periods to confirm with current year presentation.

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 condensed consolidated 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 consolidated financial statements and related notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on April 1, 2024.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and the accompanying notes. Such estimates and assumptions include the costs to be capitalized as internal-use software, which include determining whether projects will result in new or additional functionality, the useful lives of other long-lived assets, impairment considerations for long-lived assets, the incremental borrowing rate for lease agreements, lease and non-lease component allocation, estimates related to variable consideration, valuation of the Company’s ESPP expense, and accounting for income taxes, including estimates for 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 and comprehensive loss when realized.

Concentrations and Risks and Uncertainties

Liquidity. The Company believes that its existing cash, cash equivalents and short-term investments together with cash provided by operations, will be sufficient to support its working capital and capital expenditure requirements for at least the next 12 months. However, to achieve its continued growth and objectives, the Company may need to obtain additional sources of financing which may include entering into lease agreements, sale-leaseback arrangements, credit facilities, other debt financing arrangements for the purpose of acquiring infrastructure equipment and to fund its operations, or pursue equity financing. In the event that the Company requires additional financing, it may not be able to raise such financing on terms acceptable to us or at all. If the Company is unable to obtain additional sources of financing, raise additional capital or generate cash flows necessary to expand its operations and invest in continued innovation, it may not be able to compete successfully, which would harm its business, results of operations and financial condition.

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 condensed consolidated balance sheets. While the Company and its bank has not been directly affected by the 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. The Company does not have separate collateral requirements to support financial instruments subject to credit risk.

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.

The following table presents concentrations related to the Company’s cash disbursements, accounts payable transactions, and accounts receivable transactions:

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.

Investments, net

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 allowance for credit losses was a nominal amount as of both September 30, 2024 and December 31, 2023.

The Company’s short-term investments include investment grade commercial paper and U.S. treasury securities 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.

Deferred Contract Costs

Affiliates. Commissions paid to marketing affiliates for new customers or customer renewals are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are recorded when earned and are amortized over the expected benefit period using the straight-line method. As renewal commission is commensurate with a commission in an initial sale, such amounts are capitalized and amortized over the stated contract term, which is generally one year or less. Capitalized commission amounts expected to be recognized within one year of the balance sheet date are recorded as prepaid expenses and other current assets, and the remaining portion is recorded as other assets, on the Company’s condensed consolidated balance sheets. Expenses for commissions are included in sales and marketing expenses in the condensed consolidated statements of operations and comprehensive loss.

Sales Commission. The Company capitalizes sales commission and associated payroll taxes and fringe benefits paid to internal sales personnel that are incremental to the acquisition of customer contracts. The Company determines whether costs should be deferred based on its sales compensation plans, if the commissions are in fact incremental and would not have occurred absent the customer contract.

Sales commissions for renewal of a contract are not considered commensurate with the commissions paid for the acquisition of the initial contract. Commissions paid upon the initial acquisition of a contract are amortized over an estimated period of benefit offive years while commissions paid for renewal contracts are amortized over the contractual term of the renewals. Amortization of deferred contract acquisition costs is recognized on a straight-line basis commensurate with the pattern of revenue recognition and included in sales and marketing expense in the condensed consolidated statements of operations and comprehensive loss. Capitalized commission amounts expected to be recognized within one year of the balance sheet date are recorded as prepaid expenses and other current assets, and the remaining portion is recorded as other assets, on the Company’s condensed consolidated balance sheets.

The Company determines the period of benefit for commissions paid for the acquisition of the initial contract by taking into consideration the duration of its relationships with its customers, customer retention data, its technology development lifecycle, and other factors. The Company periodically reviews the carrying amount of deferred contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit of these deferred costs. The Company didnot recognize any impairment of deferred contract costs during the periods presented.

Recently Issued Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740) - Improvements to Income Tax Disclosures” requiring enhancements and further transparency to certain income tax disclosures, most notably the tax rate reconciliation and income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024 on a prospective basis and retrospective application is permitted. The Company is currently evaluating the impact of the adoption of this standard.

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure.” The ASU updates reportable segment disclosure requirements, primarily through requiring enhanced disclosures about significant segment expenses and information used to assess segment performance. These disclosures are required quarterly and also applies to public entities with a single reportable segment. The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024, with early adoption permitted. It is required to be adopted retrospectively for all prior periods presented in the financial statements. The Company does not expect the adoption of this guidance to have a material impact on the condensed consolidated financial statements.

Note 3. Revenues

Deferred Revenue

The following table presents information regarding the Company’s deferred revenue (in thousands):

The Company’s deferred revenue as presented on its condensed consolidated balance sheets approximates its contract liability balance as of September 30, 2024 and December 31, 2023. The Company’s total deferred revenue balance as of September 30, 2024, approximates the aggregate amount of the transaction price allocated to remaining performance obligations (“RPOs”) as of that date. As of September 30, 2024, the Company's RPOs were $38.6 million. This amount includes deferred revenue arising from consideration invoiced for which the related performance obligations have not been satisfied, as well as future committed revenue for periods within current contracts with customers. As of September 30, 2024, the Company expects to recognize approximately 82% of its RPOs over the next 12 months, and substantially all of its RPOs over the next 24 months.

Disaggregation of Total Revenue

The following table presents the Company’s total revenue disaggregated by product (in thousands):

(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 total revenue disaggregated by timing of revenue recognition (in thousands):

Total revenue by geographic area, based on the location of the Company’s customers, was as follows (in thousands):

Deferred Contract Costs

The following tables present the Company’s deferred contract costs and amortization of deferred contract costs (in thousands). Starting in 2024, the Company implemented a new commission structure for its sales team. See “Note 2. Basis of Presentation and Summary of Significant Accounting Policies — Deferred Contract Costs — Sales Commission” for additional information on the commission structure.

Note 4. Investments

Fair Values and Gross Unrealized Gains and Losses on Investments

The following table summarizes adjusted cost, gross unrealized gains and losses, and fair value by significant investment category. The Company’s U.S. treasury and commercial paper investments with original maturities greater than 90 days are classified as held-to-maturity investments, and commercial paper investments with original maturities of 90 days or less are classified as cash equivalents on its condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively.

Scheduled Maturities

The amortized cost and fair value of held-to-maturity securities as of September 30, 2024 and December 31, 2023, by contractual maturity, are shown below.

Aging of Unrealized Losses

For those securities in an unrealized loss position, the length of time the securities were in such a position is presented in the table below. There wereno securities in an unrealized loss position as of September 30, 2024.

Note 5. Fair Value Measurements

The Company classifies its U.S. treasury securities within Level 1 of the fair value hierarchy because the fair value of these securities are priced based on quoted markets in active markets for identical assets. The Company classifies its commercial paper within Level 2 of the fair value hierarchy because the fair value of these securities are priced by using inputs other than quoted prices that are directly or indirectly observable in the market, including readily available pricing sources for underlying securities which may not be actively traded.

The following table presents the level within the fair value hierarchy at which the Company’s held-to-maturity investments are measured (in thousands):

There were no transfers between levels of the fair value hierarchy during the three and nine months ended September 30, 2024 and the year ended December 31, 2023, respectively. The Company heldno assets or liabilities that were measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023, respectively.

Note 6. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

Note 7. Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

Depreciation expense was $5.4 million and $5.5 million for the three months ended September 30, 2024 and 2023, respectively and was $16.4 million and $15.8 million for the nine months ended September 30, 2024 and 2023, respectively. For the Company’s equipment under finance leases and lease financing obligations, accumulated depreciation was $28.8 million and $31.6 million as of September 30, 2024 and December 31, 2023, respectively. The carrying value of the Company’s equipment under finance lease agreements and lease financing obligations was $33.1 million and $37.1 million as of September 30, 2024 and December 31, 2023, respectively.

The Company recorded a gain of $0.1 million and $0.3 million for the three and nine months ended September 30, 2024, respectively, as a result of disposing of certain hard drives. During the three and nine months ended September 30, 2023, the Company recorded a gain of $0.2 million and $0.3 million, respectively, 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. These gains are recorded as general and administrative expenses in the Company’s condensed consolidated statements of operations and comprehensive loss.

The Company has long-lived assets, comprising of property and equipment, net and operating lease right-of-use assets consisting of the following (in thousands):

Note 8. Capitalized Internal-Use Software, Net

Capitalized internal-use software, net consisted of the following (in thousands):

Amortization expense of capitalized internal-use software was $1.9 million and $1.0 million for the three months ended September 30, 2024 and 2023, respectively and was $4.9 million and $2.5 million for the nine months ended September 30, 2024 and 2023, 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 and comprehensive loss.

As of September 30, 2024, future amortization expense is expected to be as follows (in thousands):

Note 9. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

(1) As of September 30, 2024, the Company reclassified certain current liabilities from accounts payable to accrued expenses and other current liabilities. The prior period amount of $0.3 million as of December 31, 2023 has been reclassified to conform with current presentation.

Note 10. Finance Leases and Lease Financing Obligations

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 fromtwo tofour 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 2024 and 2027. Finance leases are included in property and equipment, net on the Company’s condensed consolidated balance sheets.

As of September 30, 2024, the weighted average remaining lease term for finance lease and lease financing obligation agreements was 1.8 years and the weighted average discount rate for finance leases was 11.3%. As of December 31, 2023, the weighted average remaining lease term for finance lease and lease financing obligation agreements was 1.7 years and the weighted average discount rate for finance leases was approximately 11.0%.

The following table presents information regarding assets acquired through finance lease and lease financing obligation agreements, which are related to sale-leaseback agreements (in thousands):

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 and comprehensive loss.

The future minimum commitments for these finance leases and lease financing obligations as of September 30, 2024 were as follows (in thousands):

Note 11. Commitments and Contingencies

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 2025 and 2031. The Company had no short-term leases as of September 30, 2024.

As of September 30, 2024, the weighted average remaining lease term for operating leases was approximately 4.6 years and the weighted average discount rate for operating leases was approximately 7.0%. As of December 31, 2023, the weighted average remaining lease term for operating leases was 5.5 years and the weighted average discount rate for operating leases was approximately 7.1%.

The future minimum commitments for these operating leases as of September 30, 2024 were as follows (in thousands), which excludes amounts allocated to services under operating lease agreements that are considered non-lease components:

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, which are not recorded on the Company’s condensed consolidated balance sheets. 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 September 30, 2024 for non-lease components were as follows (in thousands):

The following table presents information regarding the Company’s operating leases (in thousands). Total operating lease cost does not include costs related to services.

In September 2024, the Company entered into an operating lease agreement that had not yet commenced with lease obligations of $1.1 million. The operating lease is expected to commence in the fourth quarter of 2024 with a non-cancellable lease term of approximately 3 years. In addition, in July 2024, the Company entered into an operating lease agreement with lease obligations of $6.0 million, which partially commenced in the third quarter of 2024. The remaining obligation of $1.4 million under this lease is expected to commence in the fourth quarter of 2024. The operating lease has a non-cancellable lease term of approximately 5 years.

Other Contractual Commitments

Other non-cancellable commitments relate mainly to service agreements used to facilitate the Company’s infrastructure operations. As of September 30, 2024, the Company had non-cancelable purchase commitments of $0.3 million and $0.9 million payable during the remainder of the year ending December 31, 2024 and the year ending December 31, 2025, respectively.

During the nine months ended September 30, 2024, the Company made payments of $0.2 million to a related party, Meaningful Works, for marketing services per terms of an agreement. An executive officer of Meaningful Works is an immediate family member of the Company’s CEO. As of September 30, 2024, the scope of services has been completed per terms of the agreement.

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 contrib uted $0.5 million to the 401(k) plan for each of the three months ended September 30, 2024 and 2023, respectively, and $1.5 million and $1.4 million for the nine months ended September 30, 2024 and 2023, respectively.

Legal Matters

The Company is involved from time to time in various claims and legal actions arising in the ordinary course of business. While it is not feasible to predict or determine the ultimate outcome of these matters, the Company believes that there are not any current legal proceedings that are likely to have a material adverse effect on its financial position, results of operations or cash flows. However, the results of legal proceedings are inherently unpredictable and litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.

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 and comprehensive loss in connection with the indemnification provisions.

Note 12. Debt

Debt Facility

In December 2023, the Company entered into a fourth amendment related to the revolving credit agreement (as amended, the “RCA”) with City National Bank (“Lender”). Under this amendment, the maximum borrowing available was reduced from $30 million to $20 million. Furthermore, advances on the line of credit will bear monthly interest at a variable rate equal to, at the Company’s discretion, (a) the average Secured Overnight Financing Rate (“SOFR”) plus 2.75%, or (b) the base rate. The base rate under the RCA is a rate equal to the greater (i) of 3.00% or (ii) the prime rate most recently announced by the Lender. The RCA has an unused line fee equal to 0.3% of the difference between the maximum balance available under the RCA and the average daily balance outstanding during the quarter, payable withinten days of the last day of each quarter. The RCA provides for an annual commitment fee equal to 0.5% on the amount available to be borrowed, payable annually on December 29th. In connection with the RCA, the Company incurred an additional $32 thousand of additional debt issuance costs which, together with $0.1 million of commitment fees and $0.1 million of the then unamortized debt issuance costs, will be amortized over the remaining term of the facility.

As of September 30, 2024, the interest rate associated with the outstanding balance under the RCA was 8.1% per annum. Interest payments on outstanding borrowings 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 and amortization of debt issuance costs related to the RCA was $0.1 million and $0.2 million for the three months ended September 30, 2024 and 2023, respectively, and $0.4 million and $0.5 million for the nine months ended September 30, 2024 and 2023, respectively.

As of September 30, 2024, the Company had an outstanding balance of $4.7 million and the total amount available to the Company to be borrowed was $15.3 million. Under the RCA, the outstanding balance as of September 30, 2024 was collateralized by cash held by the Company. As such, the Company held $4.7 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 September 30, 2024. Furthermore, as of September 30, 2024 and December 31, 2023, the carrying value of the Company's debt facility obligations approximates fair value.

Advances under the RCA are due in full in December 2025. As the RCA is a multi-year revolving credit agreement, the Company classifies the facility as long-term debt on its condensed consolidated balance sheets as it has the intent and ability to maintain the facility outstanding for longer than 12 months. The Company classified the facility as a debt facility, non-current on its condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023.

Insurance Premium Financing Agreement

In November 2023, the Company entered into an insurance policy with annual premiums totaling$1.2 million. The Company executed a finance agreement with AFCO Premium Credit LLC over a term oftwelve months, with an annual interest rate and weighted average interest rate for the periods presented of 7%, that finances the payment of the total premiums owed. The finance agreement required a $0.3 million down payment, with the remaining$0.9 million plus interest paid over three quar terly installments. These quarterly payments started on February 10, 2024. As of September 30, 2024, the balance was paid in full. Total interest expense related to this agreement was a nominal amount during both the three and nine months ended September 30, 2024, respectively.

Note 13. Stockholders’ Equity

The Company had reserved shares of common stock for future issuance as follows:

Note 14. Stock-Based Compensation

Equity Incentive Plans

In 2021, the Company adopted the 2021 Equity Incentive Plan (the “2021 Plan”) under which the Company may grant options, stock appreciation rights, restricted stock units (“RSUs”), restricted stock awards, other equity-based awards and incentive bonuses to employees, officers, non-employee directors and other service providers of the Company and its affiliates.

The number of shares available for issuance under the 2021 Plan is increased on January 1 of each year beginning in 2022 and ending with a final increase in 2031 in an amount equal to the lesser of: (i)4,784,100 shares, (ii)5% of the total number of shares of Class A common stock outstanding on the preceding December 31, or (ii) a smaller number of shares determined by the Company’s Board of Directors.

As of September 30, 2024, the 2021 Plan provides for future grants and/or issuances of up to approximately 6.9 million shares of our common stock. Equity-based awards under our employee compensation plans are made with newly issued shares reserved for this purpose.

In 2021, the Company adopted the 2021 Employee Stock Purchase Plan (the “2021 ESPP”). The number of shares available for issuance under the 2021 ESPP is increased on January 1 of each year beginning in 2022 and ending with a final increase in 2041 in an amount equal to the lesser of: (i)1,913,630 shares, (ii)2% of the total number of shares of Class A common stock outstanding on the preceding December 31, or (ii) a smaller number of shares determined by the Company’s Board of Directors.

As of September 30, 2024, the 2021 Plan provides for future grants and/or issuances of up to approximately 1.4 million shares of our common stock.

On August 2, 2024, the Company adopted the 2024 New Employee Equity Incentive Plan (the “Inducement Plan”), pursuant to which the Company reserved 414,740 shares of its Class A common stock to be used exclusively for grants of equity-based awards to individuals who were not previously employees or directors of the Company, as an inducement material to the individual’s entry into employment with the Company. The Inducement Plan was adopted by the

Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) without stockholder approval. As of September 30, 2024, no activity has occurred under this plan.

Restricted Stock Units

Restricted stock units (“RSUs”) granted under the 2021 Plan generally vest based on continued service up to afour-year period for employees, and over aone year period for non-employee directors.

RSU activity for thenine months ended September 30, 2024 was as follows:

The weighted-average grant-date fair value of 4,214,704 RSUs granted during the nine months ended September 30, 2023 was $5.04. The intrinsic fair value of vested RSUs was $22.2 million and $9.3 million during the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, total unrecognized compensation cost related to RSUs was $29.9 million, which will be recognized over a weighted-average period of 1.8 years.

Bonus Plan

During March 2022, the Compensation Committee approved a new bonus structure (“Bonus Plan”) for its employees. The Bonus Plan is contingent upon the achievement of annual corporate performance targets. In each respective calendar year, the Company accrues for the Bonus Plan. The actual payout amount is determined by the Compensation Committee based on the actual achievement with respect to the annual performance targets and paid in the subsequent year in the variable number of RSUs equal to the payout amount. These RSUs are issued under the 2021 Plan and are subject to performance and service condition vesting requirements, beginning from the grant date to the payout date. Participants must remain employed with the Company through the date of payout to maintain eligibility under the Bonus Plan.

Pursuant to the Bonus Plan, during February 2023 the Compensation Committee approved the issuance of approximately 288,000 RSUs that immediately vested based on actual performance against the performance targets for 2022.

During February 2023, the Company’s Board of Directors approved 2023 corporate performance targets under its Bonus Plan for its employees. During February 2024, the Compensation Committee approved the issuance of approximately 296,000 RSUs that immediately vested based on actual performance against the performance targets for 2023.

During February 2024, the Company’s Board of Directors approved annual corporate performance targets under its Bonus Plan for 2024 for its employees. As of September 30, 2024, the accrued bonus balance is $1.3 million, reported as a component of accrued expenses and other current liabilities on the condensed consolidated balance sheets.

Pursuant to the Bonus Plan, the Company recognized $0.5 million and $1.7 million in stock-based compensation during the three months ended September 30, 2024 and 2023, respectively, of which the Company capitalized $0.1 million and $0.2 million of stock-based compensation expense under this plan for the development of internal-use software for the three months ended September 30, 2024 and 2023, respectively.

The Company recognized $1.8 million and $2.6 million in stock-based compensation during the nine months ended September 30, 2024 and 2023, respectively, of which the Company capitalized $0.2 million and $0.4 million of stock-based compensation expense under this plan for the development of internal-use software during the nine months ended September 30, 2024 and 2023, respectively.

Stock Options

A summary of stock option award activity under the Company’s equity plans and related information is as follows (in thousands, except share, price and year data):

The intrinsic value of options exercised for the nine months ended September 30, 2024 and 2023 was $12.5 million and $6.1 million, respectively. As of September 30, 2024, total unrecognized compensation cost related to stock options was $4.5 million, which will be recognized over a weighted-average period of 0.8 years.

ESPP

The Company recorded stock-based compensation expense under this plan of $0.4 million and $0.9 million for the three months ended September 30, 2024 and 2023, respectively, of which the Company capitalized $0.1 million and $0.2 million for the three months ended September 30, 2024 and 2023, 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 $1.2 million and $2.8 million for the nine months ended September 30, 2024 and 2023, respectively, of which the Company capitalized $0.4 million and $0.7 million for the nine months ended September 30, 2024 and 2023, respectively, of stock-based compensation expense under this plan for the development of internal-use software.

As of September 30, 2024, the total unrecognized stock-based compensation expense related to the ESPP was $0.7 million and is expected to be recognized over a weighted average period of 0.6 years, of which $0.3 million is related to incremental modification expense. As of September 30, 2024, $1.4 million had been withheld on behalf of employees.

The following table summarizes the Black-Scholes option pricing model used in estimating the fair value of the stock purchase rights under the ESPP during the nine months ended September 30, 2024 and 2023. There were no ESPP offerings requiring fair value inputs during the three months ended September 30, 2024 and 2023.

Total Stock-Based Compensation Expense

Stock-based compensation expense included in the condensed consolidated statements of operations and comprehensive loss was as follows (in thousands):

During thenine months ended September 30, 2024 and 2023, the Company capitalized $3.2 million and $3.7 million, respectively, of stock-based compensation for the development of internal-use software.

Additionally, during the third quarter of 2024, the Compensation Committee approved amendments to outstanding vested stock options held by certain former employees in connection with their separation from the Company to extend the option expiration and also accelerate the vesting of RSU’s. As a result of the modifications, the Company recognized $1.0 million of expense, of which $0.7 million is recorded in sales and marketing, and $0.3 million is recorded in general and administrative expense on the Company’s condensed consolidated statements of operations and comprehensive loss.

Note 15. Net Loss per Share Attributable to Common Stockholders

The Company computes net loss per share for periods prior to the Conversion, as defined below, using the two-class method required for multiple classes of common stock and participating securities. Prior to the Conversion, shares of Class A and Class B were the only outstanding equity in the Company. The rights of the holders of the Class A common stock and Class B common stock were identical, except with respect to voting, transfer and conversion. Accordingly, the Class A common stock and Class B common stock shared equally in the Company’s net losses.

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. The diluted net loss per share attributable to common stockholders is computed by giving effect to all potentially dilutive common stock equivalents during the period. For purposes of this calculation, the Company’s stock options, share purchase rights 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.

On July 6, 2023, all of the Company’s then-outstanding shares of Class B common stock, par value $0.0001 per share, were automatically converted into the same number of shares of Class A common stock, par value $0.0001 per share, pursuant to the terms of the Company’s Amended and Restated Certificate of Incorporation (the “Conversion”). No additional shares of Class B common stock will be issued following the conversion. In addition, on July 7, 2023, the Company filed a Certificate of Retirement with the Secretary of State of the State of Delaware effecting the retirement of the shares of Class B common stock that were issued but no longer outstanding following the Conversion.

The following table presents the calculation of basic and diluted net loss per share (in thousands, except share and per share data):

(1) On July 6, 2023, all shares of the Company’s then outstanding Class B common stock were automatically converted into the same number of Class A common stock, pursuant to the terms of the Company’s Amended and Restated Certificate of Incorporation. No additional shares of Class B common stock will be issued following such conversion.

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:

Note 16. 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 by June 30, 2023, and the total cost was $3.6 million. During this period, approximately 1% of the Company’s workforce terminated employment voluntarily and 4% terminated employment involuntarily. As a result, the Company incurred employee termination expenses and other associated costs.

A summary of the restructuring charges as reported on the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2023, of which $0.7 million were related to involuntary terminations, is as follows (in thousands):

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):

The Company completed its remaining payments for severance and termination related liabilities as of December 31, 2023.

Note 17. 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 nine months ended September 30, 2024 and 2023 waszero as the Company has incurred continuous operating losses. The Company recorded a $6.0 thousand income tax provision during the nine months ended September 30, 2024. The Company recordedno income tax provision or benefit during the three months ended September 30, 2024 and the three and nine months ended September 30, 2023, respectively.

Note 18. Subsequent Events

2024 Restructuring Plan

In November 2024, management approved a restructuring plan intended to improve the Company’s cost structure and operating efficiency (the “2024 Restructuring Plan”). The 2024 Restructuring Plan includes a reduction in headcount of approximately 12% of the Company’s workforce. The Company expects to incur expenses related to employee severance and benefits of approximately$4.0 million to$6.0 million during the remainder of 2024 in connection with the 2024 Restructuring Plan. No accrual was recorded as of September 30, 2024. In addition, as part of the 2024 Restructuring Plan, the Company will reduce its footprint at its office facilities. Facilities costs are expected to amount to approximately$0.5 million to$1.0 million. The 2024 Restructuring Plan is expected to be substantially completed by the end of the year.