What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-03-31 compared with 2022-03-28 · 432 added, 343 removed, 615 unchanged (56% of the section changed)

16 unchanged sentences

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended , in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, the Company has changed its method for accounting for leases in the fiscal year 2022 due to the adoption of Topic 842:

Leases, using a modified retrospective approach.

Basis for Opinion

23 unchanged sentences

Accounts receivable, net

Short-term investments 58,733 —

Prepaid expenses and other current assets

1 unchanged sentence

74,399 111,082

Restricted cash, non-current 4,306 —

Property and equipment, net

49,375 43,068

Capitalized internally-developed software, net

Operating lease right-of-use assets 6,881 —

Capitalized internal-use software, net

$ 152,458 $ 163,581

Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)

Liabilities and Stockholders’ Equity

Current liabilities:

2 unchanged sentences

Accrued expenses and other current liabilities

Accrued value-added tax (“VAT”) liability

Capital lease liability and lease financing obligation, current

13,645 11,320

Finance lease liabilities and lease financing obligations, current 18,531 13,645

Operating lease liabilities, current 2,130 —

Deferred revenue, current

22,912 21,722

Debt, current

Total current liabilities

56,274 45,062

Capital lease liability and lease financing obligation, non-current

19,603 17,886

Finance lease liabilities and lease financing obligations, non-current 15,487 19,603

Operating lease liabilities, non-current 5,032 —

Deferred revenue, non-current

Other long-term liabilities

Debt, non-current

Debt facility, non-current 4,306 —

Total liabilities

1 unchanged sentence

Commitments and contingencies (Note 10)

Convertible Preferred Stock

Convertible preferred stock, $ 0.0001 and $ 0.001 par value as of December 31, 2021 and 2020;

10,000,000 and 9,000,000 shares authorized as of December 31, 2021 and 2020, respectively;

zero and 3,359,195 shares issued and outstanding with no aggregate liquidation preference and $ 2,852 as of December 31, 2021 and 2020, respectively.

Stockholders’ Equity (Deficit)

Stockholders’ Equity

Class A common stock, $ 0.0001 par value;

113,000,000 and zero shares authorized as of December 31, 2021 and 2020, respectively;

8,227,992 and zero shares issued and outstanding as of December 31, 2021 and 2020, respectively.

Class B common stock, $ 0.0001 and $ 0.001 par value as of December 31, 2021 and 2020, respectively;

37,000,000 and 36,000,000 shares authorized as of December 31, 2021 and 2020, respectively;

113,000,000 shares authorized as of December 31, 2022 and 2021;

16,198,333 and 8,227,992 shares issued and outstanding as of December 31, 2022 and 2021, respectively.

Class B common stock, $ 0.0001 par value;

37,000,000 shares authorized as of December 31, 2022 and 2021;

17,195,404 and 22,156,842 shares issued and outstanding as of December 31, 2022 and 2021, respectively.

Additional paid-in capital

2 unchanged sentences

( 87,741 ) ( 36,343 )

Total stockholders’ equity (deficit)

Total stockholders’ equity

68,748 95,486

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

Total liabilities and stockholders’ equity

$ 152,458 $ 163,581

14 unchanged sentences

General and administrative

23,470 12,901

Total operating expenses

1 unchanged sentence

Loss from operations ( 48,113 ) ( 18,794 )

Interest expense

Investment income 965 —

Interest expense, net

( 4,289 ) ( 3,677 )

3 unchanged sentences

( 51,437 ) ( 21,608 )

Income tax provision

Income tax (benefit) provision ( 39 ) 96

$ ( 51,398 ) $ ( 21,704 )

9 unchanged sentences

3,359,195 $ 2,784 18,614,905 $ 5 $ 7,794 $ ( 14,639 ) $ ( 6,840 )

— — — — — ( 6,623 ) ( 6,623 )

Adoption of new accounting standard (Topic 606)

— — — — — 267 267

Issuance of common stock upon exercise of stock options

— — 18,133 — 19 — 19

Stock-based compensation

— — — — 2,091 — 2,091

Balance as of December 31, 2020

3,359,195 $ 2,784 18,614,905 $ 5 $ 7,794 $ ( 14,639 ) $ ( 6,840 )

— — — — — ( 21,704 ) ( 21,704 )

Conversion of convertible preferred stock to Class B common stock upon initial public offering ( 3,359,195 ) ( 2,784 ) 3,359,195 ( 3 ) 2,784 — 2,781

Net loss — — — — — ( 21,704 ) ( 21,704 )

Conversion of convertible preferred stock to common stock upon initial public offering ( 3,359,195 ) ( 2,784 ) 3,359,195 ( 3 ) 2,784 — 2,781

Issuance of Class A common stock upon initial public offering, net of underwriting discounts and commissions and other offering costs — — 7,187,500 1 103,142 — 103,143

1 unchanged sentence

Issuance of Class A and Class B common stock upon exercise of stock options — — 500,374 — 478 — 478

— — 500,374 — 478 — 478

Stock-based compensation — — — — 6,062 — 6,062

Balance as of December 31, 2021

— $ — 30,384,834 $ 3 $ 131,826 $ ( 36,343 ) $ 95,486

Net loss — — — — — ( 51,398 ) ( 51,398 )

Issuance of Class A and Class B common stock upon exercise of stock options — — 2,112,819 1 4,407 — 4,408

Issuance of Class A common stock under equity incentive plans, net of taxes withheld — — 321,720 — ( 130 ) — ( 130 )

Issuance of Class A common stock related to Employee Stock Purchase Plan ("ESPP") — — 574,364 — 2,511 — 2,511

Stock-based compensation — — — — 17,871 — 17,871

Balance as of December 31, 2022

10 unchanged sentences

Gain on extinguishment of Paycheck Protection Program (“PPP”) loan

Net accretion of discount on investment securities ( 863 ) —

Realized loss and interest expense on SAFE — 1,566

Noncash lease expense on operating leases 2,457 —

Depreciation and amortization

1 unchanged sentence

Stock-based compensation

Amortization of deferred contract costs

(Gain) loss on disposal of assets and other

Loss (gain) on disposal of assets and other adjustments 37 ( 4 )

Changes in operating assets and liabilities:

3 unchanged sentences

( 379 ) ( 3,131 )

1,001 ( 541 )

Accounts payable

Accrued expenses and other current liabilities

Accrued VAT liability

( 970 ) 2,311

Deferred revenue

Operating lease liabilities ( 2,547 ) —

Other long-term liabilities

Net cash provided by operating activities

( 69 ) ( 495 )

Net cash (used in) provided by operating activities

( 13,781 ) 3,520

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from disposal of property and equipment

Purchases of marketable securities ( 145,871 ) —

Maturities of marketable securities 88,000 —

Purchases of property and equipment, net

( 7,349 ) ( 7,562 )

Capitalized internally-developed software costs

Capitalized internal-use software costs

( 8,634 ) ( 3,628 )

2 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES

Principal payments on capital lease and lease financing obligations

( 12,153 ) ( 10,863 )

Principal payments on finance lease and lease financing obligations ( 16,492 ) ( 12,153 )

Proceeds from initial public offering, net of underwriting discounts and commissions and other offering costs

1 unchanged sentence

( 658 ) ( 2,977 )

Proceeds from PPP

Proceeds from debt facility 4,305 3,500

1 unchanged sentence

Proceeds from SAFE

Proceeds from lease financing

Proceeds from lease financing obligations — 4,308

Employee payroll taxes paid related to net settlement of equity awards ( 130 ) —

Proceeds from exercises of stock options 4,252 478

Net cash provided by (used in) financing activities

106,606 ( 8,748 )

Net increase (decrease) in cash, cash equivalents and restricted cash

98,936 ( 902 )

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Proceeds from employee stock purchase plan 2,511 —

Net cash (used in) provided by financing activities

( 6,212 ) 106,606

Net increase (decrease) in cash, restricted cash and restricted cash, non-current ( 93,847 ) 98,936

Cash and restricted cash at beginning of period 105,012 6,076

Cash, restricted cash and restricted cash, non-current at end of period $ 11,165 $ 105,012

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

2 unchanged sentences

Cash paid for income taxes

Cash paid for operating lease liabilities $ 2,838 $ —

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Stock-based compensation capitalized internal-use software

Equipment acquired through capital lease obligations

Stock-based compensation included in capitalized internal-use software

$ 2,674 $ 433

Accrued bonus settled in restricted stock units $ 1,852 $ —

Financed insurance premiums included in accrued expenses and other current liabilities $ 1,545 $ —

Equipment acquired through finance lease and lease financing obligations $ 17,037 $ 16,499

Accruals related to purchases of property and equipment

Extinguishment of PPP loan

Lease liabilities arising from right-of-use assets upon adoption of ASC 842 $ 5,220 $ —

Assets obtained in exchange for operating lease obligations $ 4,118 $ —

Proceeds from stock option exercises pending settlement $ 156 $ —

Settlement of SAFE notes $ — $ 11,566

Extinguishment of PPP loan

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH

Cash and cash equivalents

$ 6,690 $ 104,843

Restricted cash – included in prepaid expenses and other current assets $ 169 $ 169

Restricted cash, non-current $ 4,306 $ —

Total cash, cash equivalents and restricted cash

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Together, these two closings resulted in net proceeds of approximately $ 103.0 million after deducting the underwriting discounts and commissions and offering expenses.

In connection with the IPO and with the filing of our Amended and Restated Certificate of Incorporation in Delaware and the adoption of its Amended and Restated Bylaws, the following occurred, (i) the reclassification of all outstanding shares of the Company’s common stock into an equivalent number of shares of its Class B common stock, (ii) all shares of the convertible preferred stock then outstanding automatically converted into 3,359,195 shares of Class B common stock and (iii) the SAFE notes automatically converted into 722,860 shares of Class A common stock.

In connection with the IPO and with the filing of the Company’s Amended and Restated Certificate of Incorporation in Delaware and the adoption of its Amended and Restated Bylaws, the following occurred, (i) the reclassification of all outstanding shares of the Company’s common stock into an equivalent number of shares of its Class B common stock, (ii) all shares of the convertible preferred stock then outstanding automatically converted into 3,359,195 shares of Class B common stock and (iii) the SAFE notes automatically converted into 722,860 shares of Class A common stock.

Basis of Presentation and Summary of Significant Accounting Policies

12 unchanged sentences

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.

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.

1 unchanged sentence

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, expected lease term for capital leases, estimates related to variable consideration, valuation of the Company’s common stock prior to the IPO and stock options and accounting for taxes, including estimates for sales tax and VAT liability, deferred tax assets, valuation allowance and uncertain tax positions.

Such estimates and assumptions include the costs to be capitalized as internal-use software, which include (i) determining whether projects will result in new or additional functionality, (ii) the start and end date of the application development phase of projects, and (iii) their useful life, the useful lives of other long-lived assets, impairment considerations for long-lived assets, the incremental borrowing rate for lease agreements, expected lease term, lease and non-lease component allocation, estim ates related to variable consideration, valuation of the Company’s (i) common stock prior to its IPO in November 2021, (ii) stock options, and (iii) Employee Stock Purchase Plan (“ESPP”) expense, and accounting for taxes, including estimates for sales tax and VAT liability, deferred tax assets, valuation allowance and uncertain tax positions.

The Company bases its estimates on historical experience and on assumptions that management considers reasonable.

1 unchanged sentence

Risks and Uncertainties

The worldwide spread of coronavirus (“COVID-19”) has created significant uncertainty in the global economy.

There have been no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and as a result, the ultimate impact of COVID-19 and the extent to which COVID-19 continues to impact Backblaze’s business will depend on future developments, which are highly uncertain and difficult to predict.

Starting in April 2020, Backblaze began to acquire additional hard drives and related infrastructure equipment through capital lease agreements in order to minimize the impact of potential supply chain disruptions.

The additional leased hard drives resulted in a higher balance of capital equipment and related lease liability, an increase in cash used in financing activities from principal payments, as well as higher ongoing interest and depreciation expense related to these lease agreements.

While the Company has not yet experienced a supply chain disruption, such a disruption may occur in the future.

The Company may also experience other impacts of the COVID-19 pandemic such as the lack of availability of the Company’s key personnel, additional temporary closures of the Company’s office or the facilities of the Company’s business partners, customers, third party service providers or other vendors, the inability to travel to markets and sell its products, and the interruption of the Company’s access to liquidity and capital or financial markets.

The Company does not yet know the full extent of potential impacts on its business or operations or on the global economy as a whole, particularly if the COVID-19 pandemic continues and persists for an extended period of time.

As of the date of these financial statements, the Company is not aware of any specific event or circumstance that would require it to update its estimates, judgments or the carrying value of its assets or liabilities.

The worldwide spread of COVID-19 has had a significant impact on the global economy.

Although it is difficult to identify the exact overall impact of the pandemic, we believe that the pandemic may have caused some customers to reduce their use of cloud storage with us or to delay increasing their use of our cloud storage offerings.

In addition, the pandemic may have caused potential customers to delay their purchasing decisions or to store less data with us.

In addition to the impact on customers, the pandemic has had some impact to our supply chain.

Although the pandemic appears to have substantially lessened, it is possible that the pandemic could re-emerge and adversely impact our business and operations, as well as the business and operations of our customers and partners.

Concentrations

1 unchanged sentence

The Company maintains its cash and cash equivalents with high-quality financial institutions with investment-grade ratings.

Although the Company uses City National Bank, a subsidiary of Royal Bank of Canada (“RBC”), for its banking needs, and does not use Silicon Valley Bank in any capacity, the banking industry has experienced disruption and uncertainty in connection with the recent sudden closure of Silicon Valley Bank in March 2023.

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.

2 unchanged sentences

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 in aggregate 24 % of total cash disbursements during the year ended December 31, 2021, while three vendors represented 40 % of the accounts payable balance as of December 31, 2021.

Two vendors represented in aggregate 31 % of total cash disbursements during the year ended December 31, 2020, while three vendors represented 20 % of the accounts payable balance as of December 31, 2020.

Two vendors represented in aggregate 25 % of total cash disbursements during the year ended December 31, 2022, and two vendors represented 26 % of the accounts p ayable balance as of December 31, 2022.

Two vendors represented in aggregate 24 % of total cash disbursements during the year ended December 31, 2021, and three vendors represented 40 % of the accounts payable balance as of December 31, 2021.

The Company derives substantially all of its revenue from the services operating on its Backblaze Storage Cloud platform:

15 unchanged sentences

As the Company provides its offerings as a hosted service, it does not provide customers the contractual right to take possession of the software at any time, does not incur set up costs, nor does it charge an installation fee for its new customers.

The Company adopted Accounting Standards Codification (“ASC”) 606 on January 1, 2020 using the modified retrospective method and determines revenue recognition through the following five steps:

The Company determines revenue recognition through the following five steps:

Identify the contract with a customer.

The Company considers the terms and conditions of the contracts and its customary business practices in identifying its contracts under ASC 606.

The Company determines it has a contract with a customer when the contract has been approved by both parties, it can identify each party’s rights regarding the services to be transferred and the payment terms for the services, it has determined the customer to have the ability and intent to pay, and the contract has commercial substance.

The Company determines it has a contract with a customer when:

• the contract has been approved by both parties,

• it can identify each party’s rights regarding the services to be transferred and the payment terms for the services,

• it has determined the customer to have the ability and intent to pay, and

• the contract has commercial substance.

The Company applies judgment in determining the customer’s ability and intent to pay, which is based on a variety of factors;

however, as approximately 98 % and 99 % of the Company ’s revenue was generated from customers paying via credit card during the year ended December 31, 2021 and 2020, respectively, the risk of non-payment is reduced.

however, as approximately 96 % and 98 % of the Company ’s revenue was generated from customers paying via credit card during the years ended December 31, 2022 and 2021, respectively, the risk of non-payment is low and historical write-offs having been immaterial.

Identify the performance obligations in the contract.

Performance obligations promised in a contract are identified based on the services and products that will be transferred to the customer that are both capable of being distinct and are distinct in the context of the contract.

The Company’s contracts typically contain a single distinct performance obligation representing one of its Backblaze Storage Cloud platform offerings, which includes either B2 Cloud Storage and Computer Backup services and related customer support.

The Company’s contracts typically contain a single distinct performance obligation representing one of its Backblaze Storage Cloud platform offerings, which includes either B2 Cloud Storage or Computer Backup services and related customer support.

Customers also have the option to purchase a USB device for USB Restore and rental of its Fireball device at the standalone selling price (“SSP”).

5 unchanged sentences

Certain fees that are considered consideration payable to a customer are accounted for as a reduction of the transaction price.

Company’s contracts contain a significant financing component.

None of the Company’s

contracts contain a significant financing component.

Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental entities (e.g., sales and other indirect taxes).

1 unchanged sentence

Contracts that contain multiple distinct performance obligations require an allocation of the transaction price to each performance obligation based on a relative SSP.

The Company determines relative standalone selling price for performance obligations based on the price it sells a good or service separately.

The Company determines SSP for performance obligations based on the price it sells a good or service separately.

Recognize revenue when or as the Company satisfies a performance obligation.

Revenue is recognized when control of the services is transferred to the customers and in an amount that reflects the consideration the Company expects to receive in exchange for those services.

Revenue is recognized when control of the services is transferred to the customer and in an amount that reflects the consideration the Company expects to receive in exchange for those services.

Performance obligations are satisfied over time when the customer simultaneously receives and consumes the benefits as the entity performs.

3 unchanged sentences

Revenue for USB Restore is recognized as USB devices are delivered to customers, and recognition of the Company’s Fireball device rental is time-based.

The Company also offers a 15-day free trial pe riod for its subscription-based arrangements.

The Company does not enter into a contract with the customer during this trial period.

Under its consumption-based arrangements, the Company does not charge customers until at least 10 gigabytes of data have been stored.

The Company also offers a 15-day free trial pe riod for its subscription-based arrangements and it does not enter into a contract with the customer during this trial period.

Separately, under its consumption-based arrangements, the Company does not charge customers until at least 10 gigabytes of data have been stored.

The Company applied the optional exemption of not disclosing the transaction price allocated to the remaining performance obligations for its consumption-based contracts and contracts with original duration of one year or less.

24 unchanged sentences

All stock-based compensation to employees is measured on the grant date, based on the fair value of the awards on the date of grant.

The Company recognizes compensation cost for its awards on a straight-line basis over the requisite service period, which is generally a vesting period of four years .

The Company uses the Black-Scholes option pricing model to measure the fair value of its stock options.

The Company recognizes compensation cost for its awards on a straight-line basis over the requisite service period, which is generally a vesting period of three to four years , except for the awards granted under the Company’s 2022 Bonus Plan (see Note 14).

Share-based compensation includes restricted stock units (“RSUs”), stock option grants and stock purchase rights under the ESPP.

The Company uses the Black-Scholes option pricing model to measure the fair value of its stock options and the stock purchase rights under the ESPP.

The Black-Scholes option pricing model requires the use of complex assumptions, which determine the fair value of stock-based awards.

2 unchanged sentences

Cash and Cash Equivalents

Cash and cash equivalents include cash and certain highly liquid investments with original matur ities of 90 days or less at the date of purchase.

Cash equivalents are primarily recorded at cost, which approximates fair valu e due to their generally short maturities.

Cash and cash equivalents include cash and certain highly liquid investments with maturities of 90 days or less at the date of purchase.

Cash equivalents are primarily recorded at cost, which approximates fair value due to their short maturities.

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.

In evaluating whether a decline in fair value is other-than-temporary, the Company considers several factors including, but not limited to:

• the intent to sell the security or whether it is more likely than not the Company will be required to sell the security before recovery;

• the severity and duration of the decline in fair value;

• the financial condition of the issuer;

• the failure of the issuer to make scheduled interest or principal payments;

• recent credit downgrades of the applicable security or the issuer below investment grade;

• adverse conditions specifically related to the security, an industry or a geographical area.

The Company’s short-term investments include investment grade commercial paper with original maturities of 365 days or less at the date of purchase.

Short-term investments are recorded at amortized cost on the balance sheet.

Fair Value of Financial Instruments

4 unchanged sentences

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.

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 carrying amounts reflected in the balance sheets for accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities and other liabilities and deferred revenue approximate their respective fair values due to the short maturities of those instruments.

The carrying amounts reflected in the balance sheets for accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities and other liabilities and deferred revenue, current approximate their respective fair values due to the short maturities of those instruments.

Accounts Receivable, Net

1 unchanged sentence

The allowance for doubtful accounts is estimated based on the Company’s assessment of its ability to collect on customer accounts receivable and wa s not material as of December 31, 2022 and 2021.

Company regularly reviews the allowance by considering certain factors such as historical experience, credit quality, age of accounts receivable balances and other known conditions that may affect a customer’s ability to pay.

The Company regularly reviews the allowance by considering certain factors such as historical experience, credit quality, age of accounts receivable balances and other known conditions that may affect a customer’s ability to pay.

In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial obligations, a specific allowance is recorded against amounts due from the customer which reduces the net recognized receivable to the amount the Company reasonably believes will be collected.

13 unchanged sentences

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 balance sheets.

Expense for commissions are included in sales and marketing expenses in the statements of operations.

Expenses for commissions are included in sales and marketing expenses in the statements of operations.

Property and Equipment, Net

11 unchanged sentences

Shorter of useful life or expected lease term

Capitalized Internally-Developed Software, Net

The Company capitalizes qualifying software development costs related to new features and enhancements to the functionality of its platform and related products, as well as certain implementation costs.

Capitalized Internal-Use Software, Net

The Company capitalizes qualifying software development costs related to new features and enhancements to the functionality of its platform and related products.

The costs consist of personnel costs (including related benefits and stock-based compensation) that are incurred during the application development stage.

9 unchanged sentences

Impairment of Long-lived Assets

Long-lived assets with finite lives include property and equipment, capitalized internally-developed software, and certain implementation costs incurred for cloud computing arrangements.

Long-lived assets with finite lives include property and equipment, capitalized internal-use software, and certain implementation costs incurred for cloud computing arrangements.

The Company evaluates these long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

6 unchanged sentences

The Company classifies deferred revenue from services that will be provided in more than 12 months as non-current on its balance sheets.

The Company enters into capital lease arrangements for hard drives and related equipment, and operating leases for rental of co-location space in data centers and offices.

The Company enters into finance lease arrangements for hard drives and related equipment, and operating leases for rental of co-location space in data centers and offices.

The Company determines if an arrangement is or contains a lease at inception by evaluating various factors, including if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration and other facts and circumstances.

The lease term begins on the date of initial possession of the leased asset.

For finance leases, the lease term generally begins on the date of initial possession of the leased asset, and for operating leases the term begins when the Company has the right to use the leased space and obtain the economic benefits.

The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably assured at lease inception.

Lease classification is determined at the lease commencement date.

Capital leases are included in property and equipment, net, on the Company’s balance sheets.

The underlying assets of finance leases are included in property and equipment, net, on the Company’s balance sheets.

Accounting Pronouncements Recently Adopted

In August 2018, the FASB issued ASU No.

2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40) , which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).

The accounting for the service element of a hosting arrangement that is a service contract is not affected by this new guidance.

The Company adopted this standard effective January 1, 2021 on a prospective basis.

The adoption did not have a material impact on the financial statements.

See Note 8 for further details.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes , which simplifies the accounting for income taxes by eliminating some exceptions to the general approach in ASC 740, Income Taxes, in order to reduce cost and complexity of its application.

The Company adopted this standard effective January 1, 2021.

The adoption did not have a material impact on the financial statements.

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 and 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 carry forward 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.

For arrangements classified as an operating lease, 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, includes primarily fixed payments.

As a majority of the Company’s operating leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available as of the commencement date for each lease component.

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 an amount equal to the lease payments on a collateralized basis over a similar term in a similar economic environment.

The lease terms may include 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 leases belonging to the colocation lease agreement asset class.

For its colocation lease agreements, the Company only recognizes fixed minimum payments for tangible components as ROU assets and operating lease liabilities, as this class of agreements may include significant intangible components.

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 balance sheet, respectively, with the ROU asset on an existing lease being offset by an existing ASC 420, Exit or Disposal Cost Obligations, obligation of approximately $ 0.4 million .

The Company noted no material impact on its financial statements with respect to its finance leases as a result of its ASC 842 adoption.

See Note 10 to these financial state ments.

Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , which requires the recognition of lease assets and lease liabilities arising from operating leases on the balance sheet.

Subsequently, the FASB also issued a

series of amendments to this new lease standard that address the transition methods available and clarify the guidance for lessor costs and other aspects of the new lease standard.

The Company will adopt the standard effective January 1, 2022 and expects to adopt using the modified retrospective transition method without restating comparative periods.

The Company is currently evaluating the impact of the adoption of this guidance on its financial statements for operating leases outstanding as of December 31, 2021 and the impact of recognition of lease assets and lease liabilities arising from operating leases on its balance sheet.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326):

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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.

Impact of the New Revenue Standard, ASC 606

The Company recorded a net reduction to accumulated deficit of $ 0.3 million, as of January 1, 2020 due to the cumulative impact of adopting ASC 606 and ASC 340-40, Other Assets and Deferred Costs—Contracts with Customers .

Prior to the adoption, the Company had not capitalized contract costs on its December 31, 2020 balance sheet.

The following table summarizes the cumulative transition adjustments for the adoption of the new revenue standard recorded on the January 1, 2020 balance sheet to reflect the aggregate impact of capitalizing eligible contract costs under ASC 340-40 from all contracts not completed as of January 1, 2020 (in thousands).

December 31, 2019

balance sheet

Cumulative transition

adjustment for the new

revenue standard January 1, 2020

balance sheet

Prepaid expenses and other current assets

$ 2,023 $ 236 $ 2,259

Accumulated deficit

( 8,283 ) 267 ( 8,016 )

The following tables summarize the impact of the new revenue standard on the Company’s statement of operations for the year ended December 31, 2020 and the balance sheet as of December 31, 2020.

The impact noted in the tables below is a result of the Company’s adoption of accounting for deferred contract costs under ASC 340-40 in conjunction with its adoption of ASC 606 (in thousands).

For the Year Ended

December 31, 2020

As reported Impact of the new

revenue standard Results under the prior

revenue standard

Operating Expenses

Sales and marketing

$ 11,924 $ 66 $ 11,990

December 31, 2020

reported Impact of the new

revenue standard Results under the prior

revenue standard

Prepaid expenses and other current assets

$ 2,947 $ ( 387 ) $ 2,560

809 ( 42 ) 767

This guidance is effective for the Company for its fiscal year beginning January 1, 2023 and

interim periods within that fisc al year.

The adoption of, and future elections under, this ASU are not expected to have a material impact on the Company’s financial statements.

Deferred Contract Costs

The Company’s amortization of deferred contract costs was $ 0.8 million and $ 0.7 million during the year ended December 31, 2021 and 2020, respectively.

The Company’s amortization of deferred contract costs was $ 0.9 million and $ 0.8 million during the years ended December 31, 2022 and 2021, respectively.

The amount of capitalized contract costs was $ 0.4 million as of December 31, 2022 and 2021, respectively.

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Deferred revenue was $ 25.5 million and $ 24.9 million as of December 31, 2022 and 2021, respectively.

Revenue recognized during the year ended December 31, 2021 and 2020 was approximately $ 17.6 million and $ 15.8 million, respectively, which was included in each deferred revenue balance at the beginning of each respective period.

The Company’s deferred revenue as stated on the balance sheets presented approximate its contract liability balance as of December 31, 2021 and 2020.

Disaggregation of Revenues

The following table presents the Company’s revenues disaggregated by timing of revenue recognition (in thousands):

Total revenue recognized during the year ended December 31, 2022 and 2021 was approximately $ 21.7 million and $ 17.6 million, respectively, which was included in each deferred revenue balance at the beginning of each respective period.

The Company’s deferred revenue as stated on the balance sheets presented approximates its contract liability balance as of December 31, 2022 and 2021.

The Company’s deferred revenue balance as of December 31, 2022 , approximates the aggregate amount of the transaction price allocated to remaining performance obligations (“RPOs”) as of that date.

Further, as of December 31, 2022 , the Company’s deferred revenue, current, balance on its balance sheet of $ 22.9 million approximates the expected amount to be recognized from its RPOs as revenue over the next 12 months.

Disaggregation of Total Revenue

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

For the Years Ended

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$ 85,155 $ 67,479

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

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

For the Years Ended

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$ 60,950 $ 48,346

United Kingdom 4,652 3,686

Canada 4,324 3,439

15,229 12,008

$ 85,155 $ 67,479

Cash Equivalents

The Company’s cash equivalents on its balance sheets included money market funds with an amortized cost and estimated fair value of $ 2.7 million as of December 31, 2020.

The Company had no money market funds as of December 31, 2021.

Fair Values and Gross Unrealized Gains and Losses on Investments

The following table summarizes adjusted cost, gross unrealized losses, and fair value by significant investment category.

The Company’s commercial paper investments are classified as held-to-maturity on its balance sheets as of December 31, 2022 .

The Company did not have an investments balance as of December 31, 2021 .

Amortized Cost Gross Unrealized Fair Value Net Carrying Value

As of December 31, 2022

(In Thousands)

Commercial paper $ 58,733 $ — $ ( 144 ) $ 58,589 $ 58,733

Total investments $ 58,733 $ — $ ( 144 ) $ 58,589 $ 58,733

Scheduled Maturities

The amortized cost and fair value of held-to-maturity securities as of December 31, 2022 by contractual maturity are shown below.

As of December 31, 2022

Amortized Cost Fair Value

(In Thousands)

Within one year $ 58,733 $ 58,589

After one year through five years — —

After 5 years through 10 years — —

After 10 years — —

Total investments $ 58,733 $ 58,589

Aging of Unrealized Losses

As of December 31, 2022, the Company’s investments had an aggregate gross unrealized loss of $ 0.1 million, all of which had been in an unrealized loss position of less than twelve months and are recorded at amortized cost on the Company’s balance sheet.

As of December 31, 2022 , the investment portfolio did not have any securities that had been in an unrealized loss position for a period of twelve months or longer.

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 Months Total

# of Securities Fair Value Unrealized Losses # of Securities Fair Value Unrealized Losses

As of December 31, 2022 (Dollars In Thousands)

Commercial paper 11 $ 58,589 $ ( 144 ) 11 $ 58,589 $ ( 144 )

Total 11 $ 58,589 $ ( 144 ) 11 $ 58,589 $ ( 144 )

Fair Value Measurements

The following table presents the fair value hierarchy for the Company’s assets measured at fair value on a recurring basis as of December 31, 2021 and 2020 (in thousands):

Level 1 Level 2

December 31, December 31, December 31,

2021 2020 2021 2020 2021 2020

Cash equivalents:

Money market funds

$ — $ 2,651 $ — $ — $ — $ —

Fair values determined by Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets.

The following table summarizes the total carrying value of the Company’s Level 3 instruments held as of December 31, 2021 including cumulative realized gains and losses recognized during the year months ended December 31, 2021 (in thousands):

The Company classifies its fair value disclosure for its held-to-maturity investments, which are comprised of investment grade commercial paper, within Level 2 of the fair value hierarchy because the fair value of these securities are priced by

using inputs based on non-binding market consensus that are primarily corroborated by observable market data or quoted market prices for similar instruments.

There were no transfers between levels of the fair value hierarchy for the year ended December 31, 2022 and 2021, respectively.

The Company held no assets or liabilities that were measured at fair value on a recurring basis as of December 31, 2022 and 2021, respectively.

The following table summarizes the total carrying value of the Company’s Level 3 instruments held as of December 31, 2021 including cumulative realized losses recognized during the year ended December 31, 2021 (in thousands):

Year Ended December 31, 2021

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See Note 11 for further details on the SAFE Notes.

A s of December 31, 2022 and December 31, 2021, the Compa ny had $ 169 thousand in restricted cash related to the letter of credit established according to requirements under a lease agreement, reported as a component of other current assets on the balance sheets.

Additionally, as of December 31, 2022 , the Company had $ 4.3 million in restricted cash related to the line of credit agreement with City National Bank.

See Note 11 for further details.

Prepaid Expenses and Other Current Assets

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Unbilled accounts receivable $ 1,637 $ 1,220

$ 1,220 $ 841

Prepaid expenses 1,288 2,403

Prepaid subscriptions 1,312 730

Prepaid flash drives 378 —

Prepaid Physical Media Hardware 246 378

Capitalized commissions 365 345

Receivable from payment processor 644 289

Prepaid data migration fees

Financed prepaid insurance 1,545 —

Other 1,083 565

Total prepaid expenses and other current assets

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The carrying value of the Company’s equipment under capital lease agreements and collateralized financing obligations was $ 37.8 million and $ 36.9 million as of December 31, 2022 and 2021, respectively.

During the years ended December 31, 2021 and 2020, the Company recorded a gain and a loss of less than $ 0.1 million, respectively, as a result of disposing of certain hard drives.

During the years ended December 31, 2022 and 2021, the Company recorded a loss and a gain of less than $ 0.1 million , respectively, as a result of disposing of certain hard drives.

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 statements of operations.

As of December 31, 2021 and 2020, substantially all of the Company’s assets were held in the United States.

Capitalized Internally-Developed Software, Net

Capitalized internally-developed software, net consisted of the following (in thousands):

As of December 31, 2022 , the Company had long-lived assets of $ 56.3 million, comprising of property and equipment, net and operating lease right-of-use assets, with $ 50.2 million located in the United States and $ 6.1 million located in The Netherlands.

As of December 31, 2021, substantially all of the Company’s assets were held in the United States.

Capitalized Internal-Use Software, Net

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

Developed software

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Total capitalized internal-use software

23,921 12,679

accumulated amortization

2 unchanged sentences

$ 16,704 $ 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 prepaids expenses and other current assets and other assets as of December 31, 2021, on a prospective basis.

In accordance with the adoption of ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software , 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 to 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 $ 2.2 million and $ 1.7 million for the years ended December 31, 2022 and 2021, respectively.

Amortization of developed software and software for internal use are included in cost of revenue and general and administrative expense, respectively, in the Company’s statements of operations for the years ended December 31, 2021 and 2020.

Amortization of developed and general and administrative internal-use

software are included in cost of revenue and general and administrative expense, respectively, in the Company’s statements of operations for the years ended December 31, 2022 and 2021.

As of December 31, 2022, future amortization expense is expected to be as follows (in thousands):

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Accrued compensation $ 2,728 $ 1,159

$ 1,648 $ 1,295

Accrued sales tax

ESPP withholding 415 489

Accrued expenses 2,881 1,646

Accrued income tax

Accrued sales taxes 208 1,209

Accrued value-added tax ("VAT") 1,220 2,511

Financed insurance premiums (see Note 11) 1,545 —

Other 421 606

Accrued expenses and other current liabilities $ 9,418 $ 7,620

$ 5,109 $ 3,596

Commitments and Contingencies

Capital Leases and Lease Financing Obligations

The Company enters into capital lease arrangements to obtain hard drives and related equipment for its data center operations.

The terms of these agreements primarily range from three to four years and certain of these arrangements have optional renewals.

Contingent rental payments are generally not included in the Company’s lease agreements.

The leases are generally secured by the underlying leased equipment.

The future minimum commitments for these capital leases and lease financing obligations as of December 31, 2021 were as follows (in thousands):

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 terms of these agreements primarily range from three -to- four years and certain of these arrangements have optional renewals to extend the term of the lease generally at a fixed price.

Contingent rental payments are generally not included in the Company’s finance lease agreements.

Finance leases are generally secured by the underlying leased equipment.

The Company’s finance leases have original lease periods expiring between 2023 and 2025.

The underlying assets of finance leases are included in the property and equipment, net on the Company’s balance sheet.

A s of December 31, 2022 , the weighted average remaining lease term for finance lease and lease financing obligation agreements was approximately two years and the weighted average discount rate for finance leases was 10.2 %.

For th e Company’s assets acquired through finance lease and lease financing obligation agreements, which are related to sale-leaseback agreements, depreciation expense was $ 13.2 million and $ 11.5 million for the years ended December 31, 2022 and 2021, respectively.

Depreciation expense on assets acquired through the Company’s finance leases and lease financing obligations is included in cost of revenue in its statements of operations.

During the year ended December 31, 2022 , total finance lease costs were $ 16.1 million, of which interest expense was approximately $ 3.9 million, and total lease financing obligation costs were $ 1.4 million, of which interest expense was approximately $ 0.3 million.

The cash paid on interest on finance lease and lease financing obligations was $ 3.8 million for the year ended December 31, 2022 .

During the year ended December 31, 2021, the Company entered into four sale-leaseback arrangements with vendors to provide $ 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 transactions were each 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 interest expense and repayment of the financing liability.

The failed sale-leaseback transactions continued to be accounted for as a failed sale-leaseback upon adoption of ASC 842 because the leaseback is classified as financing.

The Company did not enter into any new sale-leaseback arrangements during the year ended December 31, 2022.

The future minimum commitments for these finance leases and lease financing obligations as of December 31, 2022 were as follows (in thousands):

Year Ending December 31,

Finance leases Lease financing obligations Total

2023 $ 19,458 $ 1,385 $ 20,843

2024 11,557 1,240 12,797

2025 3,287 521 3,808

Thereafter — — —

Total future minimum lease and financing commitments 34,302 3,146 37,448

1 unchanged sentence

Total liability $ 31,224 $ 2,794 $ 34,018

For the Company’s assets acquired through capital lease agreements, depreciation expense was $ 11.5 million and $ 9.2 million for the years ended December 31, 2021 and 2020, respectively, which is included in cost of revenue in its statements of operations.

During the year ended December 31, 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 interest expense and repayment of the financing liability.

As of December 31, 2021, the future minimum payments related to the financing agreements consisted of the following (in thousands):

Prior to the ASC 842 adoption, the future minimum commitment 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

Total future minimum lease and financing commitments

Less imputed interest

Total liability

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,

Total future minimum financing payments

1 unchanged sentence

The Company leases its facilities for data centers and office space under non-cancelable operating leases with various expiration dates.

Certain lease agreements include options to renew or terminate the lease, which are not reasonably certain to be exercised and therefore are not factored into the determination of lease payments.

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 future minimum commitments for these operating leases as of December 31, 2021 were as follows (in thousands), which also include minimum payments for services under our operating lease agreements:

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Th e Company's leases have original lease periods expiring between 2023 and 2031.

The Company does not have a material amount of short-term leases as of December 31, 2022 .

As of December 31, 2022, the weighted average remaining lease term for operating leases was approximately 5.6 years and the weighted average discount rate for operating leases was approximately 5.4 %.

The future minimum commitments for these operating leases as of December 31, 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,

Rental expense related to the Company’s operating leases was approximately $ 7.1 million for the year ended December 31, 2021, of which $ 6.3 million and $ 0.8 million is included in cost of revenue and general and administrative expenses in its statement of operations, respectively.

Rental expense related to the Company’s operating leases was approximately $ 5.2 million for the year ended December 31, 2020, of which $ 4.6 million and $ 0.6 million is included in cost of revenue and general and administrative expenses in its statement of operations, respectively.

In December 2020, the Company ceased use of an existing operating lease agreement for office space and recognized a one-time charge of $ 0.6 million for the remaining payments under the agreement.

The one-time loss was recorded as general and administrative expense in the Company’s statement of operations.

The current portion of the remaining obligation from the operating lease agreement is recorded in accrued expenses and other current liabilities and the non-current portion is recorded in other long-term liabilities on the Company’s balance sheet.

Thereafter 2,038

Total future minimum operating lease commitments 8,424

Less imputed interest ( 1,262 )

Total $ 7,162

Non-lease components included in the Company’s colocation lease agreements are related to non-tangible utilities and services used in its data center operations.

The Company used judgment and third-party data in determining the stand-alone price for allocating consideration to lease and non-lease components under these colocation lease agreements, such as, the price of utilities as compared to its tangible data center footprint within each colocation facility.

The future minimum commitments for the Company’s non-cancellable contractual obligations as of December 31, 2022 for non-lease components were as follows (in thousands):

Year Ending December 31,

Thereafter 6,106

Total future minimum commitments $ 23,197

Prior to the ASC 842 adoption, the future minimum commitments for these operating leases as of December 31, 2021 were as follows (in thousands), which also include minimum payments for services under operating lease agreements:

Year Ending December 31,

Rental expense related to the Company’s operating leases was $ 6.5 million for the year ended December 31, 2022, of which $ 4.9 million is included in cost of revenue in its statement of operations.

During the year ended December 31, 2022, total operating lease cost was $ 7.7 million, which does not include costs related to services.

Rental expense related to the Company’s operating leases was $ 7.1 million for the year ended December 31, 2021.

Other Contractual Commitments

Other non-cancellable commitments relate mainly to infrastructure agreements used to facilitate the Company’s operations.

This amount does not include amounts related to finance lease, lease financing obligations and operating leases as disclosed above.

As of December 31, 2022, the Company had future minimum payments under the Company’s non-cancelable purchase commitments of $ 10.8 million and $ 0.2 million payable during the years ending December 31, 2023 and 2024, respectively.

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The Company is involved from time to time in various claims and legal actions arising in the ordinary course of business.

While it is not feasible to predict or determine the ultimate outcome of these matters, the Company believes that none of its current legal proceedings will 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 if an unfavorable ruling were to occur in any of the current legal proceedings there exists the possibility of a material adverse effect on the Company’s financial position, results of operations and cash flows.

While it is not feasible to predict or determine the ultimate outcome of these matters, the Company believes that none of its current legal proceedings are likely to have a material adverse effect on its financial position, results of operations or cash

However, the results of legal proceedings are inherently unpredictable and litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.

On July 15, 2022, the Company received a demand letter from the investors that participated in the Simple Agreement for Future Equity agreement in August 2021 related to a contractual dispute in connection with the SAFE transaction.

The investors sought a refund of their original investment of $ 10.0 million .

In February 2023, the Company settled with the SAFE holders for a full release of all claims related to the SAFE transaction for a one-time payment in the amount of $ 1.5 million in aggregate.

The $ 1.5 million settlement is included as a general and administrative expense in the Company’s statement of operations during the year ended December 31, 2022.

One of the SAFE holders, TMT Investments PLC (“TMT”), a beneficial holder of more than 5% of the Company’s capital stock, was a party to the settlement and received a pro-rata payment of $ 0.3 million as part of the SAFE settlement.

The Company undertook an analysis of its sales tax exposure based on the South Dakota vs.

1 unchanged sentence

Supreme Court determined that physical presence was not required to determine the potential exposure a company has for sales tax purposes.

Based on the Company’s initial analysis, its total accrual for sales tax payable was $ 1.2 million and $ 0.6 million as of December 2021 and 2020, respectively, which includes estimated amounts for penalties and interest.

Based on the Company’s analysis, its total accrual for sales tax payable was $ 0.2 million and $ 1.2 million as of December 2022 and 2021, respectively, which includes estimated amounts for penalties and interest.

Accrued VAT Liability

8 unchanged sentences

Credit Facility

On October 11, 2017, the Company entered into a $ 15.0 million revolving credit agreement with HomeStreet Bank.

Under this agreement, amounts available to be borrowed were based on the lesser of $ 15.0 million or the Company’s trailing four month’s monthly recurring revenue multiplied by a retention rate as defined in the agreement.

Advances on the line of credit bear interest at the Wall Street Journal prime rate plus 0.25 %.

Borrowings were secured by substantially all of the Company’s assets, with limited exceptions.

During April 2021, the Company amended its revolving credit agreement with HomeStreet Bank.

Under this amendment, among other things, (i) amounts available to be borrowed were based on the lesser of $ 10.0 million or the Company’s trailing four months monthly recurring revenue multiplied by a retention rate set forth in the amendment and (ii) advances on the line of credit bear interest at the Wall Street Journal prime rate plus 1.00 %.

The revolving credit agreement, as amended, matured on June 1, 2022.

During October 2021, the Company entered into a revolving credit agreement with City National Bank.

Under this agreement, among other things, (i) amounts available to be borrowed are $ 9.5 million and (ii) advances on the line of credit bear interest at the average Secured Overnight Financing Rate (“SOFR”) rate plus 2.75 %.

During October 2021, the Company entered into a revolving credit agreement (“RCA”) with City National Bank (“Lender”).

Under this agreement, among other things, (i) amounts available to be borrowed are $ 9.5 million and (ii) 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 of (i) 3.00 % or (ii) the prime rate most recently announced by the Lender.

The revolving credit agreement matures in September 2024.

2 unchanged sentences

The amendment removed the financial covenants under the agreement and added a requirement for cash collateral to be posted prior to any advance.

As of December 31, 2021, the Company had no outstanding balance and the total amount available to the to be borrowed was $ 9.5 million.

During April 2022, the Company entered into a second amendment to its revolving credit agreement with City National Bank.

Under this amendment, the amount available to be borrowed was increased to $ 30.0 million from $ 9.5 million.

There were no other material changes to the agreement as a result of the amendment.

The Company began borrowing under the RCA during the year ended December 31, 2022.

As of December 31, 2022, the Company had an outstanding balance of $ 4.3 million and the total amount available to the Company to be borrowed was $ 25.7 million .

Under the RCA, the outstanding balance of $ 4.3 million as of December 31, 2022 was collateralized by an equal amount of cash held by the Company.

As such, the Company held $ 4.3 million in cash that it deemed to be restricted and is included in restricted cash, non-current on the Company’s balance sheet as of December 31, 2022 .

With prior written notice to the Lender, the Company has the right, at any time prior to the maturity date, to terminate the RCA.

In the event of such termination, the aggregate principal of the then outstanding amounts, including any accrued interest to date, shall be repaid and the restrictions on the associated collateralized cash would be released.

As of December 31, 2022, the interest rate associated with the outstanding balance under the RCA was 6.7 %, which is a per annum rate.

Interest payments on outstanding borrowing are due on the last day of each monthly interest period and payments for the commitment fee are due at the end of each calendar quarter.

Advances under the RCA are due in full in September 2024.

As the RCA is a multi-year revolving credit agreement, the Company classifies the facility as long-term debt on its balance sheets as it has the intent and ability to maintain the facility outstanding for longer than 12 months.

Insurance Premium Financing Agreement

Effective November 2022, the Company entered into an insurance policy with annual premiums totaling $ 2.1 million.

The Company has executed a Finance Agreement with AFCO Premium Credit LLC over a term of twelve months , with an annual interest rate of 4.5 %, that finances the payment of the total premiums owed.

The agreement requires a $ 0.5 million down payment, with the remaining $ 1.5 million plus interest paid over three quarterly installments.

These quarterly payments start February 10, 2023.

As of December 31, 2022, the unpaid balance is approximately $ 1.5 million, reported as a component of accrued expenses and other current liabilities on the balance sheets.

Paycheck Protection Program

On April 22, 2020, the Company received approximately $ 2.3 million in funding through the U.S.

Small Business Administration’s Paycheck Protection Program that was part of the CARES Act that was signed into law in March 2020.

On April 22, 2020, the Company received $ 2.3 million in funding through the U.S.

Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) that was part of the CARES Act that was signed into law in March 2020.

The interest rate on the loan is 1.00 % per year and matured in April 2022.

The note was payable in monthly installments of principal and interest, beginning in August 2021.

The note was able to be repaid at any time with no payment penalty.

The application for these funds required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company.

An application to forgive the entire amount was submitted with the lender in July 2020.

Any request for forgiveness would have been subject to review and approval by the lender and the SBA.

Further, the SBA stated that all PPP loans in excess of $2.0 million, and other PPP loans as appropriate, were subject to review by the SBA for compliance

with program requirements.

If the SBA determined in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request or the subsequent use of loan proceeds, the SBA will seek repayment of the PPP loan, including interest and potential penalties.

The Company recognized the entire loan amount as a financial liability, with interest accrued and expensed over the term of the loan.

An application to forgive the entire amount was submitted with the lender in July 2020.

In June 2021, the Company received notification from the SBA that the Company’s forgiveness application of the PPP loan and accrued interest, totaling $ 2.3 million, was approved in full, and the Company has no further obligations related to the PPP loan.

Accordingly, the Company recorded the forgiveness of the PPP loan as gain on extinguishment of debt on its statement of operations as of December 31, 2021.

Accordingly, the Company recorded the forgiveness of the PPP loan as gain on extinguishment of debt on its statement of operations for the year ended December 31, 2021.

Convertible notes and related party transactions

During August 2021, the Company issued investors convertible notes (the “Security”) in the amount of $ 10.0 million.

The Security is classified as a Simple Agreement for Future Equity agreement (“SAFE”).

The convertible notes are automatically convertible into shares of the Company’s Class A common stock upon the completion of an initial public offering (or other liquidity event if sooner) at a discounted price to the value of its common stock at the time of such event.

The discount shall initially be equal to 10 % and shall increase by an additional 10 % annually following the effective date, subject to a maximum discount of 50 %.

The discount shall be adjusted pro-rata on a monthly basis, increasing on the monthly anniversary of the effective date of the agreement.

Interest shall accrue at the simple rate of 5 % per annum of the outstanding amount commencing upon the effective date of the agreement and continuing until the outstanding principal amount has been paid in full or converted.

The accrued interest shall be added to the purchased amount upon conversion into equity.

If there is a change of control event, these SAFE notes will automatically convert into the securities offered in connection with such change of control event.

The Security was classified as a Simple Agreement for Future Equity agreement.

The convertible notes were automatically convertible into shares of the Company’s Class A common stock upon the completion of an initial public offering (or other liquidity event if sooner) at a discounted price to the value of its common stock at the time of such event.

The Company determined that the SAFE notes should be classified as a liability based on evaluating the characteristics of the instrument, which contained both debt and equity-like features.

As such, the Company recorded the carrying value of the SAFE notes and the associated accrued interest as a current liability on its balance sheet upon its issuance.

The fair value of the SAFE notes was determined in interim periods during 2021 using unobservable inputs.

In valuing the SAFE notes, the Company used a Monte Carlo simulation to forecast a range of probability-weighted settlement paths in combination with income, market, and cost-based valuation approaches.

The settlement paths used probabilities ranging from 5 % to 65 %.

The Company used a discount rate of approximately 30 % to adjust the probability-weighted settlement paths to their present value.

An increase in the discount rate would decrease the fair value of the instrument, and an

increase in probabilities of certain settlement paths would increase the fair value of the instrument.

On November 10, 2021, in connection with the IPO, the SAFE notes automatically converted into 722,860 shares of Class A common stock.

The Company valued the notes on the settlement date of November 10, 2021 based on the Class A common stock price of $ 16.00 , which was the price of the Class A common stock sold in the IPO.

The weighted average discount on the SAFE notes was approximately 13 % and interest accrued was $ 0.1 million.

This valuation resulted in a realized loss of $ 1.4 million that the Company recorded in its statement of operations.

Furthermore, $ 2 million of the SAFE notes were purchased by TMT Investments PLC, a beneficial holder of more than 5% of the Company’s capital stock, and was deemed to be a related party transaction.

Convertible Preferred Stock

Convertible preferred stock is carried at its issuance price, net of issuance costs.

As of December 31, 2020, convertible preferred stock consisted of the following (in thousands, except share data):

authorized Shares

outstanding Carrying

value Aggregate

Preferred stock:

2,520,000 1,325,898 $ 350 $ 350

1,064,153 1,064,153 1,131 1,250

1,938,290 969,144 1,303 1,252

5,522,443 3,359,195 $ 2,784 $ 2,852

In connection with the IPO on November 10, 2021, and with the filing of the Company’s Amended and Restated Certificate of Incorporation in Delaware and the adoption of its Amended and Restated Bylaws, all outstanding shares of convertible preferred stock were converted into 3,359,195 shares of Class B common stock.

As of December 31, 2021 and 2020, the Company had 10,000,000 and 9,000,000 shares of preferred stock authorized.

Significant rights and preferences of the above convertible preferred stock are as follows:

Each share of convertible preferred stock is convertible, at the option of the holder, into one share of common stock, prior to the Company’s adoption of a dual class structure upon IPO, as determined by dividing its original price per share for the relevant series, plus any accrued but unpaid dividends on such shares, by the conversion price for such series.

The conversion price of the Series 1 Preferred shall be $ 0.2640 , the Series A Preferred shall be $ 1.18 and the Series Preferred A-1 shall be $ 1.29 .

Each share of convertible preferred stock automatically converts into the number of shares of common stock into which such shares are convertible at the then-effective conversion ratio upon (i) the written request of a majority of the outstanding shares of convertible preferred stock voting together as a single class on an as-if-converted basis or (ii) the closing of a firmly underwritten public offering of common stock with gross proceeds of at least $ 50 million.

The holders of convertible preferred stock are entitled to one vote per share, which is the same number of votes per share as common stock into which the convertible preferred stock is convertible.

The holders of convertible preferred stock vote together as one class with the holders of common stock.

Holders of convertible preferred stock shall be entitled to receive, when, as, and if declared by the Board of Directors (the “Board”), but only out of funds that are legally available therefor, cash dividends.

Such dividends shall be payable on a pari passu basis and only when, as, and if declared by the Board and shall be non-cumulative.

No dividends on convertible preferred stock or common stock have been declared by the Board through December 31, 2021.

Liquidation preference.

In the event of any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary (a “Liquidation Event”), the holders of convertible preferred stock shall be entitled, before any distribution or payment shall be made to the holders of common stock, to be paid out of the assets of the Company legally available for distribution for each share of convertible preferred stock, an amount per share of convertible preferred stock equal to the sum of the original issuance price plus all declared and unpaid dividends on such convertible preferred stock.

Shares of convertible preferred stock shall not be entitled to be converted into shares of common stock in order to participate in any distribution as shares of common stock without first foregoing participation in such distribution as shares of convertible preferred stock.

If, upon any such Liquidation Event, the assets of the Company shall be insufficient to make payment in full to all holders of the convertible preferred stock, then the assets shall be distributed among the holders of convertible preferred stock on a pari passu basis, in proportion to the full amounts to which they would otherwise be respectively entitled.

After the payment of the full liquidation preference to convertible preferred stockholders, the remaining assets of the corporation legally available for distribution to stockholders will be distributed ratably to the holders of common stock.

Classification.

The convertible preferred stock is contingently redeemable upon certain deemed liquidation events such as a change in control or an involuntary winding-up or dissolution of the Company.

The convertible preferred stock is not mandatorily redeemable, but since a deemed liquidation event would constitute a redemption event outside of the Company’s control, all shares of convertible preferred stock have been presented outside of permanent equity in mezzanine equity on the balance sheets.

Stockholders’ Equity (Deficit)

Furthermore, $ 2.0 million of the SAFE notes were purchased by TMT, and was deemed to be a related party transaction.

In addition, as described more fully in Note 10, TMT also received a pro-rata payment of $ 0.3 million as part of the settlement relating to a contractual dispute in connection with the SAFE transaction, in exchange for a full release of claims related to the SAFE transaction.

Stockholders’ Equity

Common Stock.

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The Class B common stock on the Company’s balance sheets presented is representative of its common stock prior to the inception of the dual class structure.

Subsequent to the IPO, the Company has two classes of common stock, Class A common stock and Class B common stock.

Subsequent to the IPO, the Company has had two classes of common stock, Class A common stock and Class B common stock.

The rights of the holders of Class A common stock and Class B common stock are identical, except for voting, transfer, and conversion rights.

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

Convertible preferred stock

December 31, 2022

2011 Equity Incentive Plan

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Options outstanding 1,509,187

RSU’s outstanding 18,750

Restricted stock units outstanding 3,716,061

Shares available for future grants 1,836,566

Stock Options.

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

Restricted Stock Units (“RSUs”) .

RSUs granted under the 2021 Equity Incentive Plan generally vest based on continued service over a one year period and expire ten years from the date of grant.

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

available for

grant Outstanding

Options Weighted-

Price Weighted-

life (years) Aggregate

Balance as of December 31, 2019

1,043,212 8,549,996 $ 1.93 6.53 $ 5,834

Shares authorized

( 3,317,134 ) 3,317,134 3.20

— ( 18,133 ) 1.03

439,261 ( 439,261 ) 2.67

Balance as of December 31, 2020

865,339 11,409,736 $ 2.27 6.52 $ 36,889

Shares authorized

( 4,437,720 ) 4,437,720 12.15

— ( 500,374 ) 0.96

406,900 ( 406,900 ) 4.52

2011 Equity Plan Expiration ( 177,995 ) —

RSUs granted ( 18,750 ) —

Balance as of December 31, 2021

3,880,274 14,940,182 $ 5.19 6.69 $ 182,843

Vested and exercisable as of December 31, 2021

8,444,516 $ 2.13 4.80 $ 124,616

The weighted-average grant-date fair value of options granted was $ 7.10 and $ 2.40 during the years ended December 31, 2021 and 2020, respectively.

The aggregate grant-date fair value of options vested was $ 3.7 million and $ 1.5 million during the years ended December 31, 2021 and 2020, respectively.

The intrinsic value of options exercised was $ 5.6 million and less than $ 0.1 million during the years ended December 31, 2021 and 2020, respectively.

Intrinsic value represents the difference between the exercise price of the options and the fair value of the Company’s underlying common stock of the option award.

2021 Employee Stock Purchase Plan

Shares available for future purchases 990,132

Promissory notes

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All of the principal was used to exercise options for 234,526 shares of the Company’s common stock.

As of December 31, 2021, the promissory notes have been settled.

In October 2021, the Company’s Board of Directors adopted the 2021 Employee Stock Purchase Plan (“ESPP”), which became effective on the date of the IPO.

The ESPP initially reserved and authorized the issuance of up to a total of 956,800 shares of Class A common stock to participating employees.

The initial offering period commenced in November 2021 and the first purchase date will occur in May 2022.

Eligible employees enrolled in the offering period at the start of each purchase period, may purchase a number of shares at a price per share equal to 85 % of the lesser of (1) the stock price at the employee’s first participation in the offering period or (2) the fair market value of the Company’s common stock on the purchase date.

As of December 31, 2021 , the promissory notes had been settled.

Convertible Preferred Stock

In connection with the IPO on November 10, 2021, as further discussed in Note 11, and with the filing of the Company’s Amended and Restated Certificate of Incorporation in Delaware and the adoption of its Amended and Restated Bylaws, all shares of the Company’s convertible preferred stock outstanding, totaling 3,359,195 , were automatically converted into an equivalent number of Class B common stock on a one -to-one basis and their carrying value of $ 2.7 million was reclassified into stockholder’s equity.

As of December 31, 2022 and December 31, 2021, there were no shares of convertible preferred stock issued and outstanding.

Stock-Based Compensation

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Following the increase, the Plan had 12,420,000 shares authorized as of December 31, 2020.

During March 2021, the Company’s Board approved an increase to the number of authorized shares under the Plan by 1,800,000 .

Following the increase, the Plan had 14,220,000 shares authorized.

During August 2021, the Company’s Board approved an increase to the number of authorized shares under the 2011 Stock Plan by 180,000 .

In March and August 2021, the Company’s Board approved increases to the number of authorized shares under the Plan by 1,980,000 .

Following the increases, the Plan had 14,400,000 shares authorized.

The Plan expired in September 2021.

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In October 2021, the Company’s Board of Directors and stockholders adopted the 2021 Equity Incentive Plan (the “2021 Plan”) and it was approved by stockholders in October 2021.

The 2021 Plan replaced our 2011 Plan.

However, awards outstanding under our 2011 Plan will continue to be governed by their existing terms.

The 2021 Plan replaced the 2011 Plan.

However, awards outstanding under the 2011 Plan will continue to be governed by their existing terms.

The 2021 Plan has the features described below.

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or (iii) the number of shares determined by the Board of Directors.

In general, to the extent that any awards under the 2021 Plan are forfeited, terminate, expire or lapse without the issuance of shares, or if we reacquire the shares subject to awards granted under our 2021 Plan, those shares will again become available for issuance under our 2021 Plan, as will shares applied to pay the exercise or purchase price of an award or to satisfy tax withholding obligations related to any award.

During the year ended December 31, 2022, the Company increased the number of shares reserved under the 2021 Plan by 1,519,241 pursuant to this evergreen provision.

In general, to the extent that any awards under the 2021 Plan are forfeited, terminate, expire or lapse without the issuance of shares, or if the Company reacquires the shares subject to awards granted under our 2021 Plan, those shares will again become available for issuance under our 2021 Plan, as will shares applied to pay the exercise or purchase price of an award or to satisfy tax withholding obligations related to any award.

Restricted Stock Units

During November 2021, in connection with the IPO, the Company granted its first RSUs under the 2021 Plan to certain of its non-employee directors.

During the year ended December 31, 2022, the Company began granting more RSUs than options to its employees and non-employee directors.

All RSUs granted have service-based vesting conditions.

RSUs granted under the 2021 Equity Incentive Plan generally vest based on continued service over a three - to- four year period for employees, and over a one year period for non-employee directors .

RSU activity for the year ended December 31, 2022 was as follows:

Shares Weighted-average grant date fair value per share

Unvested balance as of December 31, 2021

18,750 $ 22.04

Granted 4,163,608 $ 6.87

Vested ( 344,017 ) $ 9.37

Forfeited ( 122,280 ) $ 10.31

Unvested balance as of December 31, 2022

3,716,061 $ 6.60

Stock Options

The following table summarizes the Black-Scholes option pricing model weighted-average assumptions used in estimating the fair value of stock options granted to employees during the years ended December 31, 2021 and 2020, inclusive of grants from the 2021 and 2011 Equity Incentive Plans:

Stock Options.

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

The following table summarizes the Black-Scholes option pricing model weighted-average assumptions used in estimating the fair value of stock options granted to employees during the years ended December 31, 2022 and 2021, inclusive of grants issued under from the 2021 and 2011 Equity Incentive Plans:

For the Years Ended December 31,

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Expected volatility 49.0 % 49.1 %

49.1 % 48.9 %

Risk-free interest rate 1.20 % 1.10 %

1.10 % 0.46 %

Expected dividend yield — % — %

Expected term.

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Prior to the IPO, because the Company’s common stock was not yet publicly traded, the Company estimated the fair value of common stock.

The Board considered numerous objective and subjective factors to determine the fair value of the Company’s common stock at each meeting in which awards are approved.

The factors considered include, but are not limited to:

The Board of Directors (the “Board”) considered numerous objective and subjective factors to determine the fair value of the Company’s common stock at each meeting in which awards were approved.

The factors considered included, but are not limited to:

(i) the results of contemporaneous independent third-party valuations of the Company’s common stock;

2 unchanged sentences

(iv) actual operating and financial results;

(v) current business conditions and projections;

(v) then current business conditions and projections;

(vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company, given prevailing market conditions;

and (vii) precedent transactions involving the Company’s shares.

During November 2021, in connection with the IPO, the Company granted its first RSUs under the 2021 Plan to certain of its non-employee directors.

These restricted stock awards vest upon the one-year anniversary of the award.

As of December 31, 2021, 18,750 RSU’s had been granted, and no RSU’s had been vested, forfeited or cancelled.

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

available for

grant Outstanding

Equity Awards Weighted-

Price Weighted-

life (years) Aggregate

Balance as of December 31, 2020

865,339 11,409,736 $ 2.27 6.52 $ 36,889

Shares authorized 7,242,500

Options granted ( 4,437,720 ) 4,437,720 12.15

Options exercised — ( 500,374 ) 0.96

Options cancelled 406,900 ( 406,900 ) 4.52

2011 Stock Plan expiration ( 177,995 ) —

RSUs granted ( 18,750 ) —

Balance as of December 31, 2021

3,880,274 14,940,182 $ 5.19 6.69 $ 182,843

Shares authorized 1,519,241

Options granted ( 109,800 ) 109,800 13.29

Options exercised — ( 2,112,819 ) 2.09

Options cancelled 565,882 ( 565,882 ) 6.37

RSU award activity, net of shares withheld for taxes ( 4,019,031 ) —

Balance as of December 31, 2022

1,836,566 12,371,281 $ 5.74 6.07 $ 32,385

Vested and exercisable as of December 31, 2022

8,787,912 $ 3.80 5.16 $ 28,866

The weighted-average grant-date fair value of options granted was $ 6.26 and $ 7.10 during the years ended December 31, 2022 and 2021, respectively.

The intrinsic value of options exercised was $ 10.5 million and $ 5.6 million for the years ended December 31, 2022 and 2021, respectively.

Aggregate intrinsic value represents the difference between the exercise price of the options and the estimated fair value of the Company’s underlying common stock at the time of exercise.

The aggregate grant-date fair value of options vested was $ 13.0 million and $ 3.7 million for the years ended December 31, 2022 and 2021, respectively.

In October 2021, the Company’s Board of Directors adopted the 2021 Employee Stock Purchase Plan (“ESPP”), which became effective on the date of the IPO.

The ESPP initially reserved and authorized the issuance of up to a total of 956,800 shares of Class A common stock to participating employees.

During the year ended December 31, 2022, the Company increased the number of shares reserved under the ESPP by 607,696 pursuant to its evergreen provision.

The initial offering period commenced in November 2021 and the first purchase date occurred in May 2022.

Under the Company’s ESPP, eligible employees may authorize payroll deductions of up to 50 % of their eligible compensation, subject to IRS limitations, during prescribed offering periods to purchase shares of the Company’s Class A common stock at a price per share equal to 85 % of the lesser of (1) the stock price at the employee’s first participation in the offering period or (2) the fair market value of the Company’s common stock on the purchase date.

A participant may participate in only one offering period at a time, and a new offering period generally begins each May 20th and November 20th.

Each offering period is generally 24 months and consists of four exercise dates (each, generally six months following the start of the offering period or the preceding exercise date, as the case may be).

If the fair market value of the Company’s Class A common stock is less on a given exercise date than on the date of grant, employee participation in that offering period ends and participants are automatically re-enrolled in the next new offering period.

The ESPP shall terminate automatically 20 years after its effective date, unless the ESPP is extended by the Board of Directors and the extension is approved within 12 months by a vote of the stockholders of the Company.

As of December 31, 2022, 574,364 shares of Class A common stock have been purchased under the ESPP.

The fair value of the purchase rights under the ESPP was estima ted using the Black-Scholes option pricing model with a similar methodology for determining inputs as the Company’s stock options, as described above.

The Company recorded stock-based compensation expense under this plan of $ 2.9 million f or the year ended December 31, 2022, of which $ 0.6 million was capitalized for the development of capitalized internal-use software.

As of December 31, 2022 , the total unrecognized stock-based compensation expense related to the ESPP was $ 4.5 million and is expected to be recognized over a weighted

average period of 2 years.

As of December 31, 2022 , $ 0.4 million had been withheld on behalf of employees for future purchases.

The following table summarizes the Black-Scholes option pricing model weighted-average assumptions used in estimating the fair value of the stock purchase rights granted to employees under the ESPP for the years ended December 31, 2022 and 2021:

For the Years Ended December 31,

Expected term (in years)

Expected volatility

Risk-free interest rate

0.10 % - 4.75 %

0.10 % - 0.51 %

Expected dividend yield — % — %

Stock-Based Compensation Expense

2 unchanged sentences

Cost of revenue

$ 1,267 $ 509

Research and development

3 unchanged sentences

$ 17,049 $ 5,629

During the years ended December 31, 2021 and 2020, the Company capitalized $ 0.4 million and $ 0.2 million, respectively, of stock-based compensation for the development of internal-use software.

As of December 31, 2021, total compensation cost related to stock options not yet vested was $ 32.8 million , which will be recognized over a weighted-average period of 3.0 years .

During the years ended December 31, 2021 and 2020, the Company’s Board approved modifications to extend the exercise period of vested options for certain terminated employees by the earlier of five years from the employee’s termination date or the option expiration date.

The modification was effective upon the Board’s approvals, which resulted in incremental stock-based compensation expense during both years.

As a result, the Company recognized an incremental $ 0.1 million in stock-based compensation during both years ended December 31, 2021 and 2020, respectively.

During the years ended December 31, 2022 and 2021, the Company capitalized $ 2.7 million and $ 0.4 million, respectively, of stock-based compensation for the development of capitalized internal-use software.

As of December 31, 2022, total compensation cost related to stock options and RSUs not yet vested was $ 21.2 million and $ 22.7 million, respectively which will be recognized over a weighted-average period of 2.1 years and 3.0 years, respectively.

During March 2022, the Company’s Compensation Committee approved a new bonus plan (“2022 Bonus Plan”) for its employees.

The 2022 Bonus Plan is contingent upon the achievement of annual corporate performance targets.

If these performance targets are met during 2022, employees will be paid out under the plan in RSUs in 2023.

As a result, the Company recognized $ 1.9 million in stock-based compensation during the year ended December 31, 2022 based on progress made towards these performance targets.

Pursuant to the 2022 Bonus Plan, during February 2023 the Company’s Compensation Committee approved the issuance of approximately 288,000 RSUs that immediately vested.

During the year ended December 31, 2021, the Company’s Board approved modifications to extend the exercise period of vested options for certain terminated employees by the earlier of five years from the employee’s termination date or the option expiration date.

The modification was effective upon the Board’s approvals.

As a result, the Company recognized an incremental $ 0.1 million in stock-based compensation during the year ended December 31, 2021.

There were no such modifications during the year ended December 31, 2022.

Net Loss per Share Attributable to Common Stockholders

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The rights of the holders of the Class A common stock and Class B common stock are identical, except with respect to voting and conversion.

Accordingly, the Class A common stock and Class B common stock share equally in our net losses.

Prior to the IPO, our participating securities also included convertible preferred stock.

The holders of convertible preferred stock did not have a contractual obligation to share in our losses, and as a result, net losses were not allocated to these participating securities.

The Company considers its convertible preferred stock to be participating securities.

Accordingly, the Class A common stock and Class B common stock share equally in the Company’s net losses.

Prior to the IPO, the Company’s participating securities also included convertible preferred stock.

The holders of convertible preferred stock did not have a contractual obligation to share in the Company’s losses, and as a result, net losses were not allocated to these participating securities.

Subsequent to the IPO, the Company considers its convertible preferred stock to be participating securities.

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 convertible preferred stock and stock options 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.

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 shares issued in the IPO, the shares issued pursuant to the exercise by the underwriters of an option to purchase additional shares, and the shares of Class A and Class B common stock issued upon conversion of the SAFE notes, respectively, are included in the table below.

For illustration purposes, Class B common stock in the table below for the 2021 periods presented represents the Company’s common stock prior the adoption of the dual class structure in connection with the IPO.

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

The shares issued in the IPO, the shares issued pursuant to the exercise by the underwriters of an option to purchase additional shares, and the shares of Class A and Class B common stock issued upon conversion of the outstanding shares of convertible preferred stock and SAFE notes are included in the table below weighted for the period outstanding.

For illustration purposes, Class B common stock in the table below represents the Company’s common stock prior the adoption of the dual class structure in connection with the IPO.

For the Year Ended December 31,

For the Years Ended December 31,

(in thousands, except share and per share amounts)

1 unchanged sentence

Net loss attributable to common stockholders

$ ( 1,137 ) $ ( 20,567 ) N/A $ ( 6,623 )

$ ( 20,980 ) $ ( 30,418 ) $ ( 1,137 ) $ ( 20,567 )

Denominator for basic and diluted net loss per share:

Weighted-average shares used in computing net loss per share attributable to common stockholders – basic and diluted

1,065,955 19,279,700 N/A 18,609,422

12,924,084 18,738,217 1,065,955 19,279,700

Net loss per share attributable to common stockholders – basic and diluted

$ ( 1.07 ) $ ( 1.07 ) N/A $ ( 0.36 )

$ ( 1.62 ) $ ( 1.62 ) $ ( 1.07 ) $ ( 1.07 )

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 because including them would have been antidilutive are as follows:

Convertible preferred stock

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:

RSUs 3,716,061 18,750

Stock options 12,371,281 14,940,182

14,940,182 11,409,736

14,958,932 14,768,931

Shares issuable pursuant to the ESPP 120,191 35,961

Total 16,207,533 14,994,893

The following table presents the components of net loss before income taxes (in thousands):

5 unchanged sentences

The provision for income taxes for the years ended were as follows (in thousands):

For the Years Ended

Total current

1 unchanged sentence

Total provision

$ ( 39 ) $ 96

Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

1 unchanged sentence

The following table presents a reconciliation of the statutory federal rate and the Company’s effective tax rate:

For the Years Ended December 31,

For the Years Ended

Statutory federal income (benefit) rate

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PPP loan adjustment — % ( 2 ) %

( 3 ) % ( 6 ) %

Effective tax rate

The components of the Company’s deferred tax assets and liabilities consisted of (in thousands):

As of December 31,

Deferred tax assets:

3 unchanged sentences

Stock-based compensation

Research and experimental expenditures under IRC Section 174 5,062 —

Accruals and other

9 unchanged sentences

$ ( 5,482 ) $ ( 6,092 )

Net deferred tax asset/(liability)

Net deferred tax liability

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If an ownership change has occurred, the Company’s ability to use its NOLs or tax credit carryforwards may be restricted, which could require the Company to pay federal or state income taxes earlier than would be required if such limitations were not in effect.

On March 27, 2020, the CARES Act was signed into law.

Among some of the items that the CARES Act affects are changes to NOL limitations, NOL carryforward and carryback periods, changes to interest limitations, and depreciation of qualified improvement property.

The tax provisions under the CARES Act do not have a material impact on the income tax provision for the year ended December 31, 2021 given the existence of the full valuation allowance.

On June 29, 2020, California State Assembly Bill 85 (the “Trailer Bill”) was enacted which suspends the use of California NOL deductions and certain tax credits, including research and development tax credits, for the 2020, 2021, and 2022 tax years.

The Trailer Bill did not have a material impact on the Company’s financial statements as of December 31, 2021.

Effective for tax years beginning after December 31, 2021, taxpayers are required to capitalize any expenses they incurred that are considered incidental to research and experimentation (“R&E”) activities under IRC Section 174.

While taxpayers historically had the option of deducting these expenses under IRC Section 174, the Tax Act mandates capitalization and amortization beginning with tax years after December 31, 2021.

Expenses incurred in connection with R&E activities must

be amortized over a 5-year period if incurred in the US or over a 15-year period if incurred outside of the United States.

R&E activities are broader in scope than the calculation of qualified research activities under IRC Section 41 (for research and development tax credit purposes).

For the year ended December 31, 2022, the Company performed an analysis based on all the guidance available and has determined that it will continue to be in a loss position after considering the R&E capitalization.

The Company will continue to monitor the effects of this legislation, however, the Company does not expect to pay cash taxes as a result of this change as the remaining operating expenses excluding R&E expense are significant and expect to continue to generate losses for tax purposes in the near future.

Uncertain Income Tax Positions

2 unchanged sentences

The following table summarizes the activity related to the Company’s unrecognized tax benefits (in thousands):

Years Ended December 31,

For the Years Ended

Balance at beginning of year

3 unchanged sentences

Balance at end of year

$ 1,239 $ 817

The Company’s policy is to account for interest and penalties as income tax expense.

7 unchanged sentences

Subsequent Events

Since December 31, 2021, the Company has entered into various capital lease agreements for acquiring infrastructure equipment to operate its core business.

The Company’s future minimum commitment under these agreements total approximately $ 3.9 million and extend through 2025.

Subsequent to receipt of IPO proceeds, during January 2022, the Company entered into investments of short-term commercial paper in the amount of approximately $ 90 million.

During March 2022, the Company’s Compensation Committee approved the issuance of approximately 780,000 RSUs with service-based vesting periods that are satisfied over three or four years .

Starting in January 2023, the Company initiated a reduction in headcount incurring employee termination expenses and other associated costs, in aggregate, estimated to be between $ 3.5 million to $ 4.0 million.

The Company expects to recognize the majority of these expenses in the first quarter of fiscal year 2023.

In February 2023, in addition to approving equity awards related to the 2022 Bonus Plan (see Note 14), the Company’s Compensation Committee approved the issuance of approximately 701,000 RSUs with service-based vesting periods that are satisfied over three or four years .

The Company expects to recognize approximately $ 4.1 million in stock-based compensation on a straight-line basis over the vesting period of these awards.

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What changed 10-K

Item 8. Financial Statements and Supplementary Data