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, 2024 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on March 11, 2025 (the “Annual Report”). In management’s opinion, these unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments, which include normal recurring adjustments necessary for fair presentation. The results of operations for the three months ended March 31, 2025 and 2024 are not necessarily indicative of the results to be expected for the full year or any other future interim or annual period.

Reclassifications

To conform to the current period’s presentation, accounts payable of $1.5 million was consolidated into accounts payable, accrued expenses and other current liabilities in the condensed consolidated balance sheet as of December 31, 2024.

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 maintain its EGC status through the fifth anniversary of its IPO and to use the extended transition period for any other new or revised accounting standards during the period in which it remains an EGC.

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.

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. During the second quarter of 2025, the Company conducted a study on the useful lives of its property and equipment, resulting in an extension of the useful life of its infrastructure equipment. See Note 16 for further information.

Comprehensive Loss

The Company does not have any components of other comprehensive income recorded within the condensed consolidated financial statements and therefore does not separately present a statement of comprehensive income in the condensed consolidated financial statements.

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 months ended March 31, 2025 and 2024 waszero as the Company has incurred continuous operating losses.

Concentrations and Risks and Uncertainties

Credit risk. Financial instruments that potentially subject the Company to credit risk primarily consist of cash, cash equivalents, accounts receivable, marketable securities, and unbilled accounts receivable. The Company maintains its cash, restricted cash, and marketable securities 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. 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-chain 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 on 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.

Recently Issued Accounting Pronouncements

In November 2024, the FASB issued ASU 2024-03, “Income Statement (Subtopic 220-40) - Reporting Comprehensive Income - Expense Disaggregation Disclosures.” The ASU requires disclosure of specified information about certain costs and expenses, including (i) certain amounts already required to be disclosed in the same disclosure as the other disaggregation requirements, (ii) a qualitative description of amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, and (iii) the total amount of selling expenses and an entity’s definition of such expenses. This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027 on either a prospective or retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard.

In December 2023, the FASB issued 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 for public companies. As a result, the Company will implement the standard beginning with its annual reporting period ending December 31, 2025. This amendment should be applied on a prospective basis and retrospective application is permitted. The Company is currently evaluating the impact of the adoption of this standard.

Note 3. Revenues

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 allocated to 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):

Earned, Unbilled Revenue

As of March 31, 2025 and December 31, 2024, the Company had $3.3 million and $2.9 million, respectively, of unbilled accounts receivable included within prepaid expenses and other current assets on the condensed consolidated balance sheets.

Deferred Revenue

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

The Company’s deferred revenue as presented on its condensed consolidated balance sheets approximates its contract liability balance as of March 31, 2025 and December 31, 2024. The Company’s total deferred revenue balance as of March 31, 2025, approximates the aggregate amount of the transaction price allocated to remaining performance obligations (“RPOs”) as of that date. As of March 31, 2025, the Company's RPOs were $44.9 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 March 31, 2025, the Company expects to recognize approximately 79% of its RPOs over the next 12 months, and substantially all of its RPOs over the next 24 months.

Deferred Contract Costs

The Company’s deferred contract costs are comprised of third-party affiliate commissions and, starting in 2024, a commission structure for its sales team. See Note 2 to the audited consolidated financial statements included in the Annual Report for additional information on the commission structure. The following tables present the Company’s deferred contract costs and amortization of deferred contract costs (in thousands):

Note 4. Marketable Securities

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, corporate debt, and commercial paper investments with original maturities greater than 90 days are classified as held-to-maturity investments, and money market funds, U.S. treasury, corporate debt, 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 March 31, 2025 and December 31, 2024, respectively. See additional information on the Company’s investments in Note 5—Fair Value Measurements.

Scheduled Maturities

The amortized cost and fair value of the Company’s U.S. treasury, corporate debt and commercial paper investments as of March 31, 2025 and December 31, 2024, 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 tables below.

Note 5. Fair Value Measurements

The Company classifies its U.S. treasury securities and money market funds within Level 1 of the fair value hierarchy, as their fair value is determined by quoted prices in active markets for identical assets. The Company classifies its corporate debt securities within Level 2 of the fair value hierarchy as the fair value of these securities is determined using inputs other than quoted prices that are directly or indirectly observable in the market, including readily available pricing sources for underlying securities that 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 months ended March 31, 2025 and the year ended December 31, 2024, respectively. The Company heldno assets or liabilities that were measured at fair value on a recurring basis as of March 31, 2025 or December 31, 2024, respectively.

Note 6. Property and Equipment, Net

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

(1) Construction-in-progress relates to assets that have not yet been placed in service and is primarily comprised of hard drives that are not yet deployed.

For the Company’s equipment under finance leases and lease financing obligations, accumulated depreciation was $30.0 million and $29.3 million as of March 31, 2025 and December 31, 2024, respectively. The carrying value of the Company’s equipment under finance lease agreements and lease financing obligations was $38.5 million and $35.7 million as of March 31, 2025 and December 31, 2024, respectively.

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

Note 7. Capitalized Internal-Use Software, Net

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

Amortization expense of capitalized internal-use software for the three months ended March 31, 2025 and 2024 is included in the condensed consolidated statements of operations as follows:

As of March 31, 2025, the future amortization of capitalized internal-use software has not materially changed compared to the information provided in Note 8 of the Notes to Consolidated Financial Statements in the Annual Report.

Note 8. Leases

The Company enters into finance lease arrangements to obtain hard drives and related equipment for its data center operations. The terms of these agreements generally 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 2025 and 2029. Financing lease right-of-use assets are included in property and equipment, net on the Company’s condensed consolidated balance sheets.

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 in 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 restrictive covenants. The Company's leases have original lease periods expiring between 2025 and 2031. The Company had no short-term leases as of March 31, 2025.

The weighted average remaining lease terms and discount rates as of March 31, 2025 and December 31, 2024 were as follows:

The following table presents the components of lease expense (in thousands):

(1) The presentation of prior period data has been revised to conform to current year presentation. There have been no changes to the reported amounts, rather certain amounts have been disaggregated to further improve clarity and transparency.

(2)Substantially all of the 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.

(3) Lease financing obligations pertain to agreements involving failed sale-leaseback transactions.

(4) 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 following table presents supplemental cash flow information relating to the Company’s leases:

The future minimum commitments for finance leases and lease financing obligations as of March 31, 2025 were as follows (in thousands):

There have been no material changes to the Company’s operating lease commitments during the three months ended March 31, 2025.

Note 9. Commitments and Contingencies

Contractual Commitments

The Company has non-cancellable commitments related mainly to service agreements used to facilitate the Company’s operations. As of March 31, 2025, the Company had $0.8 million, $1.3 million, and $0.7 million payable for these commitments during the remainder of the year ending December 31, 2025 and the years ending December 31, 2026 and December 31, 2027, respectively.

During the three months ended March 31, 2024, the Company made payments of $0.1 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 December 31, 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 both the three months ended March 31, 2025 and 2024.

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 10. Debt

Debt Facility

On December 10, 2024, the Company voluntarily terminated its revolving credit agreement (as amended, the “RCA”) with City National Bank (“Lender”).

As of March 31, 2024, the interest rate associated with the outstanding balance under the RCA was 8.1% per annum. Total interest expense and amortization of debt issuance costs related to the RCA was $0.1 million for the three months ended March 31, 2024.

Note 11. Stockholders’ Equity

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

Note 12. 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 directorsand 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 (iii) a smaller number of shares determined by the Company’s Board of Directors.

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 (iii) a smaller number of shares determined by the Company’s Board of Directors.

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.

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 thethree months ended March 31, 2025 was as follows:

(1) Includes 301,571 RSUs granted and vested during the period pursuant to the 2024 Bonus Plan.

As of March 31, 2025, total unrecognized compensation cost related to RSUs was $40.2 million, which will be recognized over a weighted-average period of 2.3 years.

Bonus Plan

In January 2025, the Compensation Committee approved a new bonus structure (the “2025 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 2025 Bonus Plan. The Compensation Committee assesses the actual performance against these targets to determine the payout amount which is disbursed in the following year. Payouts include both cash and RSU components, which are accounted for under Accounting Standards Codification (“ASC”) 710, Compensation-General and ASC 718, Compensation-Stock Compensation, respectively. The RSUs will be issued under the 2021 Plan and are subject to performance and service condition vesting requirements, beginning from the grant date to the payout date, with the number of RSUs varying according to the established payout amount. Participants must remain employed with the Company through the date of payout to maintain eligibility under the 2025 Bonus Plan.

During March 2022, the Compensation Committee approved the Bonus Plan (as defined in Note 14 to Notes to Consolidated Financial Statements in the Annual Report) for its employees, which includes awards in the form of RSUs issued under the 2021 Plan. In January 2025, the Compensation Committee approved the issuance of 301,571 RSUs that immediately vested based on actual performance against the performance targets set in the Bonus Plan for the year ended December 31, 2024.

Pursuant to the bonus plans, the Company recognized $1.1 million and $0.8 million in stock-based compensation during the three months ended March 31, 2025 and 2024, respectively, of which the Company capitalized $0.1 million in each period for the development of internal-use software.

Stock Options

Stock options granted under the equity plans generally vest based on continued service over four years and expireten years from the date of grant.

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 three months ended March 31, 2025 and 2024 was $1.5 million and $9.9 million, respectively. As of March 31, 2025, total unrecognized compensation cost related to stock options was $1.7 million, which will be recognized over a weighted-average period of 0.5 years.

ESPP

The Company recorded stock-based compensation under the 2021 ESPP plan of $0.5 million and $0.3 million for the three months ended March 31, 2025 and 2024, respectively, of which the Company capitalized $0.1 million and $0.2 million, respectively, for the development of internal-use software.

As of March 31, 2025, the total unrecognized stock-based compensation expense related to the ESPP was $2.6 million and is expected to be recognized over a weighted average period of 0.9 years.

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 thethree months ended March 31, 2025 and 2024, the Company capitalized $0.7 million and $1.0 million, respectively, of stock-based compensation for the development of internal-use software.

Note 13. Net Loss per Share Attributable to Common Stockholders

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. The diluted net loss per share attributable to common stockholders is computed by giving effect to all potentially dilutive common stock equivalents during the period. For purposes of this calculation, the Company’s stock options, share purchase rights pursuant to the Company’s ESPP, and unvested restricted stock are considered to be potential common stock equivalents, but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive.

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

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 weighted average 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 14. Restructuring

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 included an involuntary reduction in headcount of approximately 12% of the Company’s workforce. In addition, as part of the 2024 Restructuring Plan, the Company reduced its footprint at its corporate headquarters. The 2024 Restructuring Plan was substantially completed as of December 31, 2024.

The 2024 Restructuring Plan resulted in total restructuring charges of $4.9 million, which were recognized in the fourth quarter of 2024, and primarily consisted of employee severance and benefits in connection with the workforce reduction, which amounted to $3.9 million. The Company also recorded an impairment charge of $0.9 million to its operating right-of-use assets related to the lease of the Company’s corporate headquarters and $0.1 million of professional services fees related to the execution of the Company’s 2024 Restructuring Plan.

The following table presents a summary of the liabilities related to the 2024 Restructuring Plan that are included within accrued expenses and other current liabilities on the condensed consolidated balance sheets (in thousands):

Note 15. Segment Reporting

The Company operates inone operating and reportable segment, which derives revenue from the services operating on its storage platform. The Company’schief operating decision maker (the “CODM”)is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance and allocating resources.

Measure of Segment Profit or Loss

The key measure of segment profit or loss utilized by the CODM to assess the performance of and allocate resources to the Company’s operating segment is consolidated net income (loss). Net income (loss) is used in monitoring budget versus actual results and is presented on the consolidated statements of operations and comprehensive loss. The measure of segment assets is reported on the condensed consolidated balance sheet as total consolidated assets.

The CODM reviews cost of revenue, research and development, sales and marketing, and general and administrative expenses exclusive of depreciation, amortization, and stock-based compensation, which are reviewed separately. The segment information for the three months ended March 31, 2025 and 2024 is presented below in the following table (in thousands):

(1) Cost of revenue and operating expenses have been adjusted to exclude depreciation, amortization and stock-based compensation, which are disaggregated in their presentation to the CODM.

(2) Other segment items include investment income, interest expense, foreign exchange loss (gain), and income tax provision.

Note 16. Subsequent Events

During the second quarter of 2025, the Company conducted a study on the useful lives of its property and equipment, resulting in an extension of the useful life for both its Data center equipment, which include hard drives, and Machinery and equipment, which includes servers and other infrastructure equipment, from a range of 3 to 5 years to a uniform life of 6 years, effective April 1, 2025. The decision to extend the useful life of these assets was based on historical data and continuous improvements made to the efficiency and durability of the Company’s storage infrastructure. Based on the carrying value of these assets as of March 31, 2025, the extension of their useful lives is anticipated to result in a reduction in depreciation expense of approximately $5.0 million for the remainder of the year.