Backblaze, Inc. 10-K

Item 8. Financial Statements and Supplementary Data BACKBLAZE, INC. INDEX TO THE FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (BDO USA, P.C., San Jose, California, PCAOB ID # 243 ) 54 Consolidated Balance Sheets 55 Consolidated Statements of Operations and Comprehensive Loss 56 Consolidated Statements of Changes in Stockholders’ Equity 57 Consolidated Statements of Cash Flows 58 Notes to Consolidated Financial Statements 60 53 Table of Contents Report of Independent Registered Public Accounting Firm Stockholders and Board of Directors Backblaze, Inc. San Mateo, California Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Backblaze, Inc. (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion Th ese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion /s/ BDO USA, P.C. We have served as the Company’s auditor since 2020. San Jose, California March 11, 2025 54 Table of Contents BACKBLAZE, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) December 31, 2024 2023 Assets Current assets: Cash and cash equivalents $ 45,776 $ 12,502 Accounts receivable, net 1,831 800 Short-term investments, net 9,139 16,799 Prepaid expenses and other current assets 9,002 8,413 Total current assets 65,748 38,514 Restricted cash, non-current — 4,128 Property and equipment, net 42,949 45,600 Operating lease right-of-use assets, net 15,873 9,980 Capitalized internal-use software, net 41,801 32,521 Other assets 2,187 944 Total assets $ 168,558 $ 131,687 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 1,459 $ 1,973 Accrued expenses and other current liabilities 7,584 8,768 Finance lease liabilities and lease financing obligations, current 16,327 18,492 Operating lease liabilities, current 4,026 1,878 Deferred revenue, current 30,407 25,976 Total current liabilities 59,803 57,087 Finance lease liabilities and lease financing obligations, non-current 13,142 13,310 Operating lease liabilities, non-current 12,844 8,151 Deferred revenue, non-current 5,147 4,073 Debt facility, non-current — 4,128 Total liabilities $ 90,936 $ 86,749 Commitments and contingencies (Note 11) Stockholders’ Equity Preferred stock, 0.0001 par value; 10,000,000 shares authorized as of December 31, 2024 and 2023; zero shares issued and outstanding as of December 31, 2024 and 2023. — — Class A common stock, $ 0.0001 par value; 113,000,000 shares authorized as of December 31, 2024 and 2023; 53,375,770 and 39,150,610 shares issued and outstanding as of December 31, 2024 and 2023, respectively. 5 4 Class B common stock, 0.0001 par value; 295,986 shares authorized as of December 31, 2024 and 2023; zero shares issued and outstanding as of December 31, 2024 and 2023 — — Additional paid-in capital 273,602 192,388 Accumulated deficit ( 195,985 ) ( 147,454 ) Total stockholders’ equity 77,622 44,938 Total liabilities and stockholders’ equity $ 168,558 $ 131,687 The accompanying notes are an integral part of these consolidated financial statements. 55 Table of Contents BACKBLAZE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except share and per share data) For the Years Ended December 31, 2024 2023 Revenue $ 127,628 $ 102,019 Cost of revenue 58,285 52,162 Gross profit 69,343 49,857 Operating expenses: Research and development 42,098 39,527 Sales and marketing 44,440 41,270 General and administrative 29,094 26,965 Total operating expenses 115,632 107,762 Loss from operations ( 46,289 ) ( 57,905 ) Investment income 1,422 1,984 Interest expense, net ( 3,658 ) ( 3,792 ) Loss before provision for income taxes ( 48,525 ) ( 59,713 ) Income tax provision 6 — Net loss and comprehensive loss $ ( 48,531 ) $ ( 59,713 ) Net loss per share attributable to Class A and Class B common stockholders, basic and diluted $ ( 1.11 ) $ ( 1.66 ) Weighted average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted (1) 43,543,023 36,011,446 (1) On July 6, 2023, all shares of the Company’s then outstanding Class B common stock were automatically converted into the same number of Class A common stock, pursuant to the terms of the Company’s Amended and Restated Certificate of Incorporation. No additional shares of Class B common stock will be issued following such conversion. See Note 13 for further details. The accompanying notes are an integral part of these consolidated financial statements. 56 Table of Contents BACKBLAZE, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in thousands, except share data) Class A Common Stock (1) Additional Paid-in Capital Accumulated Deficit Total Shares Amount Balance as of December 31, 2022 33,393,737 $ 4 $ 156,485 $ ( 87,741 ) $ 68,748 Net loss — — — ( 59,713 ) ( 59,713 ) Issuance of Class A common stock upon exercise of stock options 2,446,846 — 4,613 — 4,613 Issuance of Class A common stock under 2021 Plan 2,327,073 — — — — Issuance of Class A common stock related to the 2021 Employee Stock Purchase Plan ("ESPP") 695,046 — 2,339 — 2,339 Issuance of restricted stock units related to the 2022 Bonus Plan (See Note 14) 287,908 — 1,848 — 1,848 Stock-based compensation — — 27,103 — 27,103 Balance as of December 31, 2023 39,150,610 4 192,388 ( 147,454 ) 44,938 Net loss — — — ( 48,531 ) ( 48,531 ) Issuance of shares of common stock upon public offering, net of underwriting discounts and commissions and other offering costs 7,187,500 1 36,980 — 36,981 Issuance of common stock upon exercise of stock options 2,526,902 — 7,537 — 7,537 Issuance of common stock under 2021 Plan 3,434,104 — — — — Issuance of common stock related to ESPP 780,206 — 2,768 — 2,768 Issuance of restricted stock units related to the 2023 Bonus Plan (See Note 14) 296,448 — 3,507 — 3,507 Stock-based compensation — — 30,422 — 30,422 Balance as of December 31, 2024 53,375,770 $ 5 $ 273,602 $ ( 195,985 ) $ 77,622 (1) On July 6, 2023, all shares of the Company’s then outstanding Class B common stock were automatically converted into the same number of Class A common stock, pursuant to the terms of the Company’s Amended and Restated Certificate of Incorporation. No additional shares of Class B common stock will be issued following such conversion. See Note 13 for further details. The accompanying notes are an integral part of these consolidated financial statements. 57 Table of Contents BACKBLAZE INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the Years Ended December 31, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 48,531 ) $ ( 59,713 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Net accretion of discount on investment securities and net realized investment gains 64 417 Noncash lease expense on operating leases 2,727 2,350 Depreciation and amortization 28,328 24,912 Impairment loss on right-of-use assets 898 — Stock-based compensation 28,628 25,177 Impairment of capitalized internal-use software — 232 Gain on disposal of property and equipment ( 154 ) ( 292 ) Other, net 345 — Changes in operating assets and liabilities: Accounts receivable ( 1,031 ) 56 Prepaid expenses and other current assets ( 741 ) ( 445 ) Other assets ( 1,346 ) ( 389 ) Accounts payable ( 547 ) ( 295 ) Accrued expenses and other current liabilities 948 ( 1,422 ) Deferred revenue 5,505 4,526 Operating lease liabilities ( 2,588 ) ( 2,464 ) Net cash provided by (used in) operating activities 12,505 ( 7,350 ) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of marketable securities ( 38,097 ) ( 26,358 ) Maturities of marketable securities 45,693 67,874 Proceeds from disposal of property and equipment 455 369 Purchases of property and equipment ( 1,711 ) ( 5,512 ) Capitalized internal-use software costs ( 12,471 ) ( 14,716 ) Net cash (used in) provided by investing activities ( 6,131 ) 21,657 CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on finance lease and lease financing obligations ( 19,503 ) ( 19,510 ) Proceeds from issuance of common stock upon public offering, net of underwriting discounts and commission and other offering costs 37,434 — Payments of offering costs ( 383 ) — Proceeds from debt facility 554 4,273 Repayment of debt facility ( 4,682 ) ( 4,450 ) Proceeds from insurance premium financing — 893 Principal payments on insurance premium financing ( 893 ) ( 1,545 ) Proceeds from lease financing obligations — 4,450 Proceeds from exercises of stock options 7,477 4,708 Proceeds from ESPP 2,768 2,339 Net cash provided by (used in) financing activities 22,772 ( 8,842 ) Net increase in cash 29,146 5,465 Cash and cash equivalents and restricted cash, at beginning of period 16,630 11,165 Cash and cash equivalents, at end of period $ 45,776 $ 16,630 RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH Cash and cash equivalents $ 45,776 $ 12,502 Restricted cash, non-current $ — $ 4,128 Total cash and cash equivalents and restricted cash, non-current $ 45,776 $ 16,630 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 3,579 $ 3,733 Cash paid for income taxes $ 54 $ 59 Cash paid for operating lease liabilities $ 4,012 $ 2,801 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Stock-based compensation included in property and equipment and capitalized internal-use software $ 3,991 $ 4,960 58 Table of Contents Accrued bonus settled in restricted stock units $ 3,507 $ 1,848 Bonus plan expense classified as stock-based compensation $ 2,248 $ 3,034 Equipment acquired through finance lease and lease financing obligations $ 17,105 $ 13,094 Assets obtained in exchange for operating lease obligations $ 9,206 $ 5,448 The accompanying notes are an integral part of these consolidated financial statements. 59 Table of Contents BACKBLAZE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Organization and Description of Business Description of Business Backblaze, Inc. and its subsidiaries (collectively, “Backblaze” or the “Company”) is a storage cloud platform, providing businesses and consumers with solutions to store and use their data. Backblaze provides these cloud services through purpose-built, web-scale software built on commodity hardware. Backblaze was incorporated in the state of Delaware on April 20, 2007 and is headquartered in San Mateo, California. Follow-On Offering On November 20, 2024, the Company issued and sold an aggregate of 6,250,000 shares of the Company’s Class A common stock, par value $ 0.0001 per share (the “Common Stock”) at a public offering price of $ 5.60 per share (the “Follow-On Offering”). The Company also granted the underwriters an option to purchase up to an additional 937,500 shares of Common Stock at the same per-share price of $ 5.60 per share. The underwriters exercised their option to purchase the additional shares. The Company received net proceeds of $ 37.4 million from the Follow-On Offering, after deducting the underwriting discounts and commissions and other offering expenses. Offering costs of $ 0.5 million, which consisted of direct incremental legal, accounting, and consulting fees were incurred by the Company in connection with the Follow-On Offering. These costs were offset against the proceeds from the Follow-On Offering. Note 2. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements and accompanying notes have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries, including the formation of Backblaze Netherlands B.V. and Backblaze Worldwide, Inc. subsidiaries in 2023. All intercompany balances and transactions have been eliminated in consolidation. Emerging Growth Company The Company is an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, EGCs can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an EGC or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. The Company expects to use the extended transition period for any other new or revised accounting standards during the period in which it remains an EGC. Segment Information The Company has a single operating and reportable segment. In reaching this conclusion, management considers the definition of the chief operating decision maker (“CODM”), how the business is defined by the CODM, the nature of the information provided to the CODM and how that information is used to make operating decisions, allocate resources and assess performance. The Company’s chief operating decision maker is its Chief Executive Officer (“CEO”), who reviews financial information presented on an aggregated basis for purposes of making operating decisions, assessing financial performance and allocating resources. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the 60 Table of Contents accompanying notes. Such estimates and assumptions include the costs to be capitalized as internal-use software, which include determining whether projects will result in new or additional functionality, the useful lives of other long-lived assets, impairment considerations for long-lived assets, the incremental borrowing rate for lease agreements, lease and non-lease component allocation, estim ates related to variable consideration, valuation of the Company’s Employee Stock Purchase Plan (“ESPP”) expense, and accounting for income taxes, including estimates for deferred tax assets, valuation allowance, and uncertain tax positions. The Company bases its estimates on historical experience and on assumptions that management considers reasonable. Future actual results could differ materially from these estimates. Foreign Currency The reporting currency of the Company is the United States dollar (“USD”). The functional currency of the Company and its subsidiaries is USD. Transaction gains and losses that arise from exchange rate fluctuations on monetary transactions denominated in a currency other than the functional currency are included in general and administrative on the consolidated statements of operations and comprehensive loss when realized. Concentrations and Risks and Uncertainties Credit risk. Financial instruments that potentially subject the Company to credit risk primarily consist of cash, cash equivalents, accounts receivable, short-term investments, and unbilled accounts receivable. The Company maintains its cash, restricted cash, and short-term investments with high-quality financial institutions with investment-grade ratings. In the event of a failure of any financial institutions where the Company maintains deposits, it may lose timely access to its funds at such institutions and incur significant losses to the extent its funds exceed the $250,000 limit insured by the Federal Deposit Insurance Corporation. Deposits with these financial institutions may exceed the amount of insurance provided on such deposits. For accounts receivable, the Company is exposed to credit risk in the event of nonpayment by customers to the extent of the amount recorded on the consolidated balance sheets. The Company does not have separate collateral requirements to support financial instruments subject to credit risk. Vendors. The Company acquires infrastructure equipment from third party vendors. Vendors may have limited sources of equipment and supplies, which may expose the Company to potential supply and service disruptions that could harm the Company’s business. The following table presents concentrations related to the Company’s cash disbursements, accounts payable transactions, and accounts receivable transactions. For the Years Ended December 31 2024 2023 Cash disbursement concentration Number of vendors 3 2 Total cash disbursements represented by vendors listed above 36 % 21 % December 31, 2024 2023 Accounts payable concentration Number of vendors 1 2 Total accounts payable balance represented by vendors listed above 14 % 30 % Accounts Receivable Concentration Number of customers 2 2 Total accounts receivable balance represented by customers listed above 35 % 36 % Revenue. The Company derives substantially all of its revenue from the services operating on its Backblaze Storage Cloud platform: its Backblaze B2 Cloud Storage (“B2 Cloud Storage”) and Backblaze Computer Backup (“Computer Backup”) offerings. The potential for severe impact to the Company’s business could result if the Company was unable to operate its platform or serve customers through its platform, for an extended period of time. No customer accounted for more than 10% of the Company’s revenues during the years ended December 31, 2024 and 2023. 61 Table of Contents Restructuring Restructuring charges are comprised of severance costs related to workforce reductions and facilities costs related to the Company’s partial exit from leased space at its corporate headquarters. The Company recognizes restructuring charges when the liability is incurred. For involuntary terminations, employee termination benefits are accrued at the date (i) management has committed to a plan of termination, which includes identification of employees to be terminated and related information, (ii) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn, and (iii) employees have been notified of their termination dates and expected severance payments. For voluntary terminations, the Company recognizes a liability when the termination benefit has been irrevocably accepted by the employee. Revenue Recognition The Backblaze Storage Cloud provides the core platform for the Company’s B2 Cloud Storage and its Computer Backup offerings. The Company derives its revenue primarily from fees earned from customers accessing these offerings through its platform. These fees are primarily paid monthly in arrears for its consumption-based, or capacity based, arrangements related to its B2 Cloud Storage offering, or charged upfront for subscription-based arrangements related to its Computer Backup and B2 Cloud Storage offerings. The Company provides services to its customers under Computer Backup subscription-based arrangements o f one month , one-year , and two-years , which automatically renew at the end of the respective term. The Company generally provides services to its customers under its B2 Cloud Storage subscription-based offering arrangements of one-year to five-years . The Company also recognizes revenue fro m products offered to its customers for the ability to securely restore data using a USB drive (“USB Restore”) and for migrating large data sets to its platform using its proprietary Fireball device. The Company refers to these products as its “Physical Media revenue”. Physical Media revenue was less than 1 % of the Company’s revenue for each of the years ended December 31, 2024 and 2023. The Company’s monthly subscription arrangements do not provide customers with refund rights. One to five-year subscription arrangements are eligible for a full refund up to 30 days after subscribing. For its Physical Media revenue, the Company offers a full refund to its customers restoring data using a USB drive, if the drives are returned to the Company within 30 days of receipt. The Company recognizes revenue net of its estimate of expected customer cancellations, returns, and discounts. These estimates involve inherent uncertainties and use of management’s judgment. While the majority of the Company’s customers pay via credit card, amounts that have been invoiced are recorded in accounts receivable and in revenue, or deferred revenue, depending on whether appropriate revenue recognition criteria have been met. 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, and does not charge an installation fee for its new customers. The Company determines revenue recognition through the following five steps: 1. 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 Accounting Standards Codification (“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; • the contract has commercial substance; and • it is probable the Company will collect substantially all of the consideration in the contract. The Company applies judgm ent in determining the customer’s ability and intent to pay, which is based on a variety of factors; however, as a substantial portion of the Company ’s revenue was generated from customers paying via credit card during the years ended December 31, 2024 and 2023, respectively, the risk of non-payment is low and historical write-offs having been immaterial. 62 Table of Contents 2. 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 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”). 3. Determine the transaction price. The transaction price is determined based on the consideration the Company expects to receive in exchange for transferring services and products to the customer. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue recognized under the contract will not occur. The Company’s variable consideration includes consumption-based revenue and revenue arrangements that offer the right of return. The Company offers a 30 day right of ret urn for its 1 to 5-year subscription-based arrangements and records a refund liability based on historical return data. Certain fees that are considered consideration payable to a customer are accounted for as a reduction of the transaction price. 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). 4. Allocate the transaction price to performance obligations in the contract. 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 SSP for performance obligations based on the price it sells a service or product separately. 5. Recognize revenue when or as the Company satisfies a performance obligation. Revenue is recognized based on the output method 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 Company performs. Revenue is generally recognized over the common measure of progress (i.e., time-based or consumption-based) for the entire performance obligation. Revenue from subscription-based arrangements is recognized on a straight-line basis over the contractual term beginning on the date that the service commences, as customers are entitled to the same benefits throughout the contractual term. Fees from consumption-based arrangements are generally recognized as services are delivered based on the amount of daily storage consumed. 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 Computer Backup 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 non-current deferred revenue balance of $ 5.1 million on the Company’s consolidated balance sheet as of December 31, 2024 will be recognized starting in 2026 and going forward. As of December 31, 2023, the Company’s non-current deferred revenue balance was $ 4.1 million, which will be recognized in 2025. For revenue generated from arrangements that involve third-parties, the Company evaluates whether it is the principal or the agent based on maintaining control over the services being provided and maintaining the relationship with the end-customer. The Company’s revenue is reported on a gross basis, as the Company is the principal. Cost of Revenue Cost of revenue includes costs directly associated with the delivery of services and products, which consists of expenses for providing Backblaze’s platform to its customers. These expenses include rent and utilities for operating in co-location facilities, personnel costs, network and bandwidth costs, shipping and handling for Physical Media revenue, depreciation of the Company’s equipment and capital lease assets in co-location facilities and other infrastructure expenses incurred in connection with its customers’ use of its services. The Company periodically receives discounts from third-party vendors that are recorded as a reduction to cost of revenue on its consolidated statements of operations and comprehensive loss. Personnel-related costs associated with customer support and maintaining service availability include salaries, benefits, bonuses and stock-based compensation. Cost of revenue also includes credit card processing fees, amortization of capitalized internal-use software development costs and allocated overhead costs. 63 Table of Contents Research and Development Costs Research and development costs consist primarily of personnel-related expenses associated with the Company’s research and development staff, including salaries, benefits, bonuses and stock-based compensation. Research and development costs also include consultants or professional services fees, costs related to the support and maintenance of systems used in product development, subscription services for use by its research and development organization and an allocation of its overhead costs. Research and development costs are generally expensed as incurred, unless they qualify as capitalized internal-use software. Advertising Costs Advertising costs are expensed as incurred and are included in sales and marketing expenses in the consolidated statements of operations and comprehensive loss. These costs were $ 4.2 million and $ 3.6 million for the years ended December 31, 2024 and 2023, respectively. Income Taxes The Company accounts for income taxes using the asset and liability method. Deferred income taxes are recognized by applying the enacted statutory tax rates applicable to future years to differences between the carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance to amounts that are more likely than not to be realized. Where interpretation of the tax law may be uncertain, the Company recognizes, measures and discloses income tax uncertainties. The Company accounts for interest expense and penalties related to unrecognized tax benefits as income tax expense in its consolidated statements of operations and comprehensive loss. The Company is subject to periodic audits by the Internal Revenue Service and other taxing authorities, which may challenge tax positions taken by the Company. Stock-based Compensation 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 one to four years , except for the awards granted under the Company’s 2022 Bonus Plan (see Note 14). Stock-based compensation includes restricted stock units (“RSUs”), stock option grants and stock purchase rights under the Employee Stock Purchase Plan (“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. If an award contains a provision whereby vesting is accelerated upon a change in control, the Company recognizes stock-based compensation expense on a straight-line basis, as a change in control is considered to be outside of its control and is not considered probable until it occurs. Forfeitures are accounted for in the period in which they occur. Cash and Cash Equivalents 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 classification of the Company’s cash and cash equivalents is Level 1 within the valuation hierarchy. Restricted Cash The Company had restricted cash of $ 4.1 million related to the line of credit agreement with City National Bank as of December 31, 2023 . The Company did no t have a restricted cash balance as of December 31, 2024. See Note 12 for further details. 64 Table of Contents Investments, net The Company holds all investments on a held-to-maturity basis, and they are reported at amortized cost with realized gains or losses reported in earnings. The Company determines the appropriate classification of its investment in debt securities at the time of purchase and re-evaluates such determination at each balance sheet date. The Company will recognize an allowance for estimated credit losses on its held-to-maturity securities, using a forward-looking expected loss model, which reflects losses that are expected to be incurred over the life of the financial instrument. The Company uses a roll-rate method to determine the estimated credit losses using factors including historical global average default rates and expected recovery rates on similar credit quality, bond maturity and duration, along with historical experience, current conditions, and forecasts of future economic conditions, if available. The Company monitors the credit profile of its held-to-maturity securities on a periodic basis, using third party data to assess their credit ratings as well as any adverse conditions specifically related to the security. The allowance for credit losses was a nominal amount for the years ended December 31, 2024 an d 2023. 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 consolidated balance sheet. Fair Value of Financial Instruments The Company measures financial assets and liabilities at fair value at each reporting date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are reported under a three-level valuation hierarchy. The classification of the Company’s financial assets within the hierarchy is as follows: Level 1 — Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities. 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 consolidated 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 Accounts receivable are recorded net of an allowance when the Company has an unconditional right to payment. Under the current expected credit losses model, accounts receivable are carried at the original invoiced amount less an estimated allowance for expected credit losses based on the probability of future collection. The allowance is estimated based on the Company’s assessment of its ability to collect on customer accounts receivable. The allowance wa s a nominal amount as of December 31, 2024 and 2023. The provision, direct write-offs, and recoveries were also nominal for the years ended December 31, 2024 and 2023. 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. Unbilled Accounts Receivable Unbilled accounts receivable represents recognized and unbilled revenue for consumption-based contracts that is billed monthly in arrears. Substantially all of the Company’s unbilled accounts receivable is charged via a credit card upon billing. Unbilled accounts receivable is included in prepaid expenses and other current assets on the consolidated balance sheets. The balance of unbilled accounts receivable as of December 31, 2024 and 2023 is presented in Note 6. 65 Table of Contents Deferred Contract Costs Sales commissions and related taxes and benefits earned by our sales force as well as sales commission earned by marketing affiliates are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for new contracts are deferred and then amortized on a straight-line basis over a period of benefit that we have estimated to be five years . We determined the period of benefit by taking into consideration the duration of our customer contracts, our customer retention rate and the technology development life cycle. Sales commissions for renewal contracts are deferred and then amortized on a straight-line basis over the related contractual renewal period. Amortization expense is included in sales and marketing expenses on the consolidated statements of operations and comprehensive loss. Property and Equipment, Net Property and equipment, both owned and under capital leases, are stated at cost, less accumulated depreciation, which is computed on a straight-line basis over the asset’s estimated useful life. Leasehold improvements are amortized over the shorter of the useful life of the asset or expected lease term. Improvements that increase functionality of the asset are capitalized and depreciated over the asset’s remaining useful life. Construction-in-progress is not depreciated. Fully depreciated assets are retained in property and equipment until removed from service. The following table presents the estimated useful lives of property and equipment: Property and Equipment Useful life Data center equipment 3 - 5 years Machinery and equipment 3 - 5 years Computer equipment 3 - 5 years Leasehold improvements Shorter of useful life or expected lease term 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. Capitalization of costs begins when two criteria are met: (i) the preliminary project stage is completed, and (ii) it is probable that the software will be completed and used for its intended function. Capitalization ceases when the software is substantially complete and ready for its intended use, including the completion of all significant testing. Costs related to preliminary project activities and post-implementation operating activities are expensed as incurred. The Company reviews its capitalization criteria for each project individually. Capitalized costs are amortized over the estimated useful life of the software, which is generally five years , on a straight-line basis, and represents the manner in which the expected benefit will be derived. The Company determines the useful lives of identifiable project assets after considering the specific facts and circumstances related to each project. The amortization of costs related to the platform applications is included in cost of revenue in the consolidated statements of operations and comprehensive loss. Significant judgments related to the capitalization of software costs include determining whether it is probable that projects will result in new or additional functionality. Impairment of Long-lived Assets Long-lived assets with finite lives include property and equipment, capitalized internal-use software, certain implementation costs incurred for cloud computing arrangements, and right-of-use assets. 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. Recoverability of assets held and used is measured by comparison of the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset exceeds these estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the assets exceeds the fair value of the asset or asset group during the quarter in which the determination is made. 66 Table of Contents Deferred Revenue The Company records deferred revenue when customer payments are received in advance of satisfying the performance obligations on the Company’s contracts. Subscription-based arrangements are generally billed and paid in advance of satisfaction of these performance obligations. Deferred revenue relating to the Company’s subscription-based arrangements that have a contractual expiration date of less than 12 months are classified as current. The Company classifies deferred revenue from services that will be provided in more than 12 months as non-current on its consolidated balance sheets. Leases 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. 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. 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. 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. The Company records an asset and lease liability on its consolidated balance sheets for leases that have yet to commence when it has the ability to control the underlying asset as that creates a significant right and obligation to the Company. The underlying assets of finance leases are included in property and equipment, net, on the Company’s consolidated balance sheets. Variable lease payments are expensed as incurred and include certain non-lease components, such as maintenance and other services provided by the lessor to the extent the charges are variable. 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 right-of-use assets and operating lease liabilities, as this class of agreements may include significant intangible components. Accounting Pronouncements Recently Adopted In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “ Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure .” The ASU updates reportable segment disclosure requirements, primarily through requiring enhanced disclosures about significant segment expenses and information used to assess segment performance. These disclosures are required quarterly and also applies to public entities with a single reportable segment. The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024, with early adoption permitted. It is required to be adopted retrospectively for all prior periods presented in the financial statements. We adopted the provisions of ASU 2023-07 in the fourth quarter of 2025, which resulted in additional disclosures in the notes to our consolidated financial statements. See Note 17, Segment Reporting. The adoption of this standard did not have an impact on the Company’s financial position or results of operations. Recently Issued Accounting Pronouncements In November 2024, the FASB issued ASU 2024-03, “ Income Statement (Subtopic 220-40) - Reporting Comprehensive Income - Expense Disaggregation Disclosures. ” The ASU requires disclosure of specified information about certain costs and expenses, including (i) certain amounts already required to be disclosed in the same disclosure as the other disaggregation requirements, (ii) a qualitative description of amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, and (iii) the total amount of selling expenses and an entity’s definition of such 67 Table of Contents expenses. This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027 on either a prospective or retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard. In December 2023, the FASB issued ASU 2023-09, “ Income Taxes (Topic 740) - Improvements to Income Tax Disclosures ” requiring enhancements and further transparency to certain income tax disclosures, most notably the tax rate reconciliation and income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024 on a prospective basis and retrospective application is permitted. The Company is currently evaluating the impact of the adoption of this standard. Note 3. Revenues Disaggregation of Total Revenue The following table presents the Company’s revenue disaggregated by solution (in thousands): For the Years Ended December 31, 2024 2023 B2 Cloud Storage $ 63,335 $ 46,427 Computer Backup 64,293 55,592 Total revenue (1) $ 127,628 $ 102,019 ________________ (1) For the periods presented, Physical Media revenue has been consolidated into B2 Cloud Storage or Computer Backup revenue based on the underlying offering from which it originates. The following table presents the Company’s total revenue disaggregated by timing of revenue recognition (in thousands): For the Years Ended December 31, 2024 2023 Consumption-based arrangements $ 61,459 $ 45,771 Subscription-based arrangements 65,658 55,679 Physical Media (point in time) 511 569 Total revenue $ 127,628 $ 102,019 Total revenue by geographic area, based on the location of the Company’s customers, was as follows (in thousands): For the Years Ended December 31, 2024 2023 United States $ 94,323 $ 73,262 United Kingdom 6,703 5,463 Canada 5,757 5,027 Other 20,845 18,267 Total revenue $ 127,628 $ 102,019 68 Table of Contents Deferred Revenue The following table presents information regarding the Company’s deferred revenue (in thousands): December 31, 2024 2023 Deferred revenue $ 35,554 $ 30,049 For the Years Ended December 31 2024 2023 Total revenue recognized, included in each deferred revenue balance at the beginning of each respective period $ 26,076 $ 22,983 The Company’s deferred revenue as stated on the consolidated balance sheets presented approximates its contract liability balance as of December 31, 2024 and 2023. The Company’s total deferred revenue balance as of December 31, 2024 , approximates the aggregate amount of the transaction price allocated to remaining performance obligations (“RPOs”) as of that date. As of December 31, 2024 , the Company’s RPOs were $ 41.3 million. This amount includes deferred revenue arising from consideration invoiced for which the related performance obligations have not been satisfied, as well as future committed revenue for periods within current contracts with customers whose contracts exceed one year. As of December 31, 2024, the Company expects to recogn ize $ 34.3 million or approximately 83 % of its RPOs over the next 12 months, and substantially all of its RPOs over the next 24 months. Deferred Contract Costs The following table presents the Company’s amortization of deferred contract costs (in thousands): December 31, 2024 2023 Deferred contract costs for affiliates $ 542 $ 489 Deferred contract costs for sales commissions 972 — For the Years Ended December 31 2024 2023 Amortization of deferred contract costs related to affiliates $ 1,142 $ 978 Amortization of deferred contract costs related to sales commissions 126 — Note 4. Investments Fair Values and Gross Unrealized Gains and Losses on Investments The following table summarizes adjusted cost, gross unrealized gains and losses, and fair value by significant investment category. The Company’s commercial paper investments with original maturities greater than 90 days are classified as held-to-maturity and commercial paper investments with original maturities of 90 days or less are classified as cash 69 Table of Contents equivalents on its consolidated balance sheets as of December 31, 2024 and 2023 . See additional information on our investments in Note 5.—Fair Value Measurements . Amortized Cost Gross Unrealized Fair Value Net Carrying Value Gains Losses As of December 31, 2024 (In Thousands) Investments Commercial paper $ 9,139 $ — $ ( 2 ) $ 9,137 $ 9,139 Amortized Cost Gross Unrealized Fair Value Net Carrying Value Gains Losses As of December 31, 2023 (In Thousands) Cash equivalents Commercial paper $ 4,976 $ 10 $ — $ 4,986 $ 4,976 Investments Commercial paper $ 16,799 $ — $ ( 10 ) $ 16,789 $ 16,799 Scheduled Maturities The amortized cost and fair value of held-to-maturity securities as of December 31, 2024 and 2023 by contractual maturity are shown below. As of December 31, 2024 Amortized Cost Fair Value (In Thousands) Within one year $ 9,139 $ 9,137 After one year through five years — — After 5 years through 10 years — — After 10 years — — Total investments $ 9,139 $ 9,137 As of December 31, 2023 Amortized Cost Fair Value (In Thousands) Within one year $ 16,799 $ 16,789 After one year through five years — — After 5 years through 10 years — — After 10 years — — Total investments $ 16,799 $ 16,789 70 Table of Contents Aging of Unrealized Losses For those securities in an unrealized loss position, the length of time the securities were in such a position is presented in the table below. Less than 12 Months # of Securities Fair Value Unrealized Losses As of December 31, 2024 (Dollars In Thousands) Investments Commercial paper 3 $ 9,137 $ ( 2 ) Less than 12 Months # of Securities Fair Value Unrealized Losses As of December 31, 2023 (Dollars In Thousands) Investments Commercial paper 4 $ 16,789 $ ( 10 ) Note 5. Fair Value Measurements The Company classifies its fair value disclosure of 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. The following table summarizes the fair value of the Company’s Level 2 instruments held as of December 31, 2024 and 2023 (in thousands): December 31, 2024 2023 Commercial paper $ 9,137 $ 16,789 There were no transfers between levels of the fair value hierarchy for the years ended December 31, 2024 and 2023. The Company held no assets or liabilities that were measured at fair value on a recurring basis as of December 31, 2024 and 2023. Note 6. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following (in thousands): December 31, 2024 2023 Unbilled accounts receivable, net $ 2,864 $ 2,375 Prepaid expenses 3,257 3,314 Receivable from payment processor 1,347 1,276 Other 1,534 1,448 Total prepaid expenses and other current assets $ 9,002 $ 8,413 71 Table of Contents Note 7. Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): December 31, 2024 2023 Data center equipment $ 54,552 $ 37,245 Leased and financed data center equipment 65,037 68,757 Machinery and equipment 16,872 14,004 Computer equipment 2,239 2,472 Leasehold improvements 244 1,114 Construction-in-process (1) 311 1,371 Total property and equipment 139,255 124,963 Less: accumulated depreciation and amortization ( 96,306 ) ( 79,363 ) Total property and equipment, net $ 42,949 $ 45,600 (1) Construction-in-process relates to assets that have not yet been placed in service related to hard drives not yet deployed. Deprec iation expense was $ 21.3 million and $ 21.3 million for the years ended December 31, 2024 and 2023, respectively. For the Company’s equipment under finance leases and collateralized financing obligations, accumulated depreciation was $ 29.3 million and $ 31.6 million as of December 31, 2024 and 2023, respectively. The carrying value of the Company’s equipment under finance lease agreements and collateralized financing obligations was $ 35.7 million and $ 37.1 million as of December 31, 2024 and 2023, respectively. During the years ended December 31, 2024 and 2023, the Company recorded gains of $ 0.2 million and $ 0.4 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 gains are recorded as general and administrative expenses in the Company’s consolidated statements of operations and comprehensive loss. The following table presents property and equipment, net and operating lease right-of-use assets by geographic region (in thousands): December 31, 2024 2023 United States $ 47,930 $ 50,746 Canada 3,309 — The Netherlands 7,583 4,834 Total property and equipment, net and operating lease right-of-use assets $ 58,822 $ 55,580 Note 8. Capitalized Internal-Use Software, Net Capitalized internal-use software, net consisted of the following (in thousands): December 31, 2024 2023 Developed software $ 59,435 $ 43,156 General and administrative software 144 144 Total capitalized internal-use software 59,579 43,300 Less: accumulated amortization ( 17,778 ) ( 10,779 ) Total capitalized internal-use software, net $ 41,801 $ 32,521 72 Table of Contents Amortization expense of capitalized internal-use software was $ 7.0 million and $ 3.6 million for the years ended December 31, 2024 and 2023, respectively. Amortization of developed software and software purchased for internal use are included in cost of revenue and general and administrative expense, respectively, in the Company’s consolidated statements of operations and comprehensive loss for the years ended December 31, 2024 and 2023. As of December 31, 2024, future amortization expense is expected to be as follows (in thousands): Year Ending December 31, 2025 $ 10,318 2026 10,081 2027 9,364 2028 7,613 2029 3,994 Thereafter 431 Total $ 41,801 The Company evaluates capitalized internal-use software for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. During the year ended December 31, 2023, the Company recorded an impairment expense of $ 0.2 million, related to an in-house operating system initiative that was determined to no longer provide future economic benefits during 2023. The impairment expense is recorded as research and development expense in the Company’s consolidated statements of operations and comprehensive loss. No impairment expense was recorded during the year ended December 31, 2024. Note 9. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): December 31, 2024 2023 Accrued compensation $ 3,620 $ 4,105 ESPP withholding 485 426 Accrued expenses 1,457 1,284 Accrued value-added tax ("VAT") 1,139 1,266 Financed insurance premiums (see Note 12) — 893 Other (1) 883 486 Accrued expenses and other current liabilities $ 7,584 $ 8,460 (1) Certain reclassifications to previously reported financial information have been made to conform to our current period presentation. As of December 31, 2024 , the Company reclassified certain current liabilities from accounts payable to accrued expenses and other current liabilities. The prior period amount of $ 0.3 million as of December 31, 2023 has been reclassified to conform with current presentation. Note 10. Finance Leases and Lease Financing Obligations Finance Leases and Lease Financing Obligations The Company enters into finance lease arrangements to obtain hard drives and related equipment for its data center operations. The term of t hese agreements primarily range from two -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 2025 and 2027. Finance leases are included in property and equipment, net on the Company’s consolidated balance sheets. As of December 31, 2024, the weighted average remaining lease term for finance lease and lease financing obligation agreements was approximately 1.9 years and the weighted average discount rate for finance leases was 11.9 %. As of 73 Table of Contents December 31, 2023, the weighted average remaining lease term for finance lease and lease financing obligation agreements was approximately 1.7 years and the weighted average discount rate for finance leases was 11.0 %. The following table presents information regarding assets acquired through finance lease and lease financing obligation agreements, which are related to sale-leaseback agreements (in thousands): For the Years Ended December 31, 2024 2023 Depreciation expense $ 15,338 $ 15,425 Total finance lease costs $ 15,118 $ 16,886 Total interest expense included in finance lease costs $ 2,444 $ 2,827 Total lease financing obligation costs $ 3,339 $ 1,775 Total interest expense included in lease financing obligation costs $ 675 $ 409 Cash paid on interest on finance lease and lease financing obligations $ 3,119 $ 3,236 Depreciation expense on assets acquired through the Company’s finance leases and lease financing obligations is included in cost of revenue in its consolidated statements of operations and comprehensive loss. During the year ended December 31, 2023 , the Company entered into two sale-leaseback arrangements with vendors to provide an aggregate of $ 4.5 million in cash proceeds for previously purchased hard drives and related equipment. The Company concluded the related lease arrangements would be classified as a lease financing obligation as the Company was reasonably certain to exercise the purchase option within the arrangement. 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. The Company did no t enter into any sale-leaseback arrangements during the year ended December 31, 2024. The future minimum commitments for these finance leases and lease financing obligations as of December 31, 2024 were as follows (in thousands): Year Ending December 31, Finance leases Lease financing obligations Total 2025 $ 15,728 $ 2,921 $ 18,649 2026 9,303 — 9,303 2027 5,227 — 5,227 Total future minimum lease and financing commitments 30,258 2,921 33,179 Less imputed interest ( 3,500 ) ( 210 ) ( 3,710 ) Total finance lease and lease financing obligation $ 26,758 $ 2,711 $ 29,469 Note 11. Commitments and Contingencies Operating Leases The Company leases its facilities for data centers and office space under non-cancelable operating leases with various expiration dates. Certain lease agreements include renewal options to extend the lease term at a price to be determined upon exercise. These options are not reasonably certain to be exercised and therefore are not factored into the determination of lease payments. Contingent rental payments are generally not included in the Company’s lease agreements. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Th e Company's leases have original lease periods expiring between 2025 and 2031 . The Company had no short-term leases as of December 31, 2024 and short-term lease costs of $ 0.7 million during the year ended December 31, 2023. A s of December 31, 2024, the weighted average remaining lease term for operating leases was approximately 4.4 years and the weighted average discount rate for operating leases was approximately 7.2 %. As of December 31, 2023, the weighted average remaining lease term for operating leases was approximately 5.5 years and the weighted average discount rate for operating leases was approximately 7.1 %. 74 Table of Contents The future minimum commitments for these operating leases as of December 31, 2024 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, 2025 $ 5,056 2026 4,585 2027 3,554 2028 3,310 2029 2,119 Thereafter 923 Total future minimum operating lease commitments 19,547 Less imputed interest ( 2,677 ) Total $ 16,870 Non-lease components included in the Company’s colocation lease agreements are related to non-tangible utilities and services used in its data center operations, which are not recorded on the Company’s consolidated balance sheets. The Company used judgment and third-party data in determining the stand-alone price for allocating consideration to lease and non-lease components under these colocation lease agreements, such as, the price of utilities as compared to its tangible data center footprint within each colocation facility. The future minimum commitments for the Company’s non-cancellable contractual obligations as of December 31, 2024 for non-lease components were as follows (in thousands): Year Ending December 31, 2025 $ 4,595 2026 4,317 2027 3,309 2028 3,323 2029 2,727 Thereafter 1,460 Total future minimum commitments $ 19,731 The following table presents information regarding the Company’s operating leases (in thousands). Total operating lease cost does not include costs related to services. For the Years Ended December 31, 2024 2023 Rental expense for both lease and non-lease components $ 8,407 $ 8,127 Rental expense for both lease and non-lease components included in cost of revenue $ 7,234 $ 6,821 Rental expense related to lease components $ 3,397 $ 3,128 Total operating lease cost $ 12,493 $ 10,641 Total operating lease cost o f $ 12.5 million for the year ended December 31, 2024 includes $ 4.1 million of variable lease costs. The Company did not incur short-term lease costs during the year ended December 31, 2024 . Total operating lease cost of $ 10.6 million for the year ended December 31, 2023 includes $ 1.8 million of variable lease costs and $ 0.7 million of short-term lease costs. Other Contractual Commitments Other non-cancellable commitments relate mainly to service agreements to support the Company’s operations. As of December 31, 2024, the Company had non-cancelable purchase commitmen ts of $ 1.0 million and $ 0.4 million payable during the years ending December 31, 2025 and 2026. 75 Table of Contents During 2024, the Company made payments of $ 0.2 million to a related party, Meaningful Works, for marketing services per terms of an agreement. An executive officer of Meaningful Works is an immediate family member of the Company’s CEO. As of December 31, 2024 , the scope of services has been completed per terms of the agreement. 401(k) Plan The Company sponsors a 401(k) defined contribution plan covering all eligible U.S. employees. Contributions to the 401(k) plan are discretionary. The Company contributed $ 2.0 million and $ 1.9 million to the 401(k) plan for the years ended December 31, 2024 and 2023, respectively. Legal Matters The Company is involved from time to time in various claims and legal actions arising in the ordinary course of business. While it is not feasible to predict or determine the ultimate outcome of these matters, the Company believes that there are not any current legal proceedings that are likely to have a material adverse effect on its financial position, results of operations or cash flows. However, the results of legal proceedings are inherently unpredictable and litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors. Indemnification The Company enters into indemnification provisions under agreements with other parties from time to time in the ordinary course of business. The Company has agreed in certain circumstances to indemnify and defend the indemnified party for claims and related losses suffered or incurred by the indemnified party from third-party claims due to the Company’s activities or non-compliance with certain representations and warranties made by the Company. It is not possible to determine the maximum potential loss under these indemnification provisions due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision. No losses have been recorded in the consolidated statements of operations and comprehensive loss in connection with the indemnification provisions. Note 12. Debt Debt Facility In December 2023 , the Company entered into a fourth amendment related to the revolving credit agreement (as amended, the “RCA”) with City National Bank (“Lender”). Under this amendment, the maximum borrowing available was reduced from $ 30.0 million to $ 20.0 million. Furthermore, advances on the line of credit will bear monthly interest at a variable rate equal to, at the Company’s discretion, (a) the average Secured Overnight Financing Rate (“SOFR”) plus 2.75 %, or (b) the base rate. The base rate under the RCA is a rate equal to the greater of (i) 3.00 % or (ii) the prime rate most recently announced by the Lender. The RCA had an unused line fee equal to 0.3 % of the difference between the maximum balance available under the RCA and the average daily balance outstanding during the quarter, payable within ten days of the last day of each quarter. The RCA provided for an annual commitment fee equal to 0.5 % on the amount available to be borrowed, payable annually on December 29th. On December 10, 2024, the Company voluntarily terminated the RCA with the Lender. At the time of termination, no amounts were outstanding under the RCA, as the Company had fully paid down the revolving credit amount following the closing of the Follow-On Offering in November 2024. The Company recognized $ 0.1 million related to the acceleration of the remaining unamortized debt issuance costs incurred in connection with securing and amending the RCA. The Company classified the facility as a debt facility, non-current on its consolidated balance sheets as of December 31, 2023. Prior to its termination, the outstanding balance of the RCA was collateralized by cash held by the Company. As such, the Company held cash that it deemed to be restricted, which was included in restricted cash, non-current on the Company’s consolidated balance sheets as of December 31, 2023. Total interest expense and amortization of debt issuance costs related to the RCA were $ 0.7 million and $ 0.6 million for the years ended December 31, 2024 and 2023, respectively. 76 Table of Contents Insurance Premium Financing Agreement In November 2023, the Company entered into an insurance policy with annual premiums totaling $ 1.2 million . The Company executed a finance agreement with AFCO Premium Credit LLC over a term of twelve months , with an annual interest rate and weighted average interest rate for the year ended December 31, 2023 of 7.0 %, that finances the payment of the total premiums owed. The finance agreement required a $ 0.3 million down payment, with the remaining $ 0.9 million plus interest paid over three quarterly installments. As of December 31, 2024, the balance was paid in full. Total interest expense related to this agreement was a nominal amount for the year ended December 31, 2024. Note 13. Stockholders’ Equity Common Stock. From the time of its initial public offering through July 5, 2023, the Company had two outstanding 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 were identical, except for voting, transfer, and conversion rights. On July 6, 2023, all of the Company’s then-outstanding shares of the Company’s Class B common stock were automatically converted (the “Conversion”) into the same number of shares of Class A common stock pursuant to the terms of the Company’s Amended and Restated Certificate of Incorporation. No additional shares of Class B common stock will be issued following the Conversion. In addition, on July 7, 2023, the Company filed a Certificate of Retirement with the Secretary of State of the State of Delaware effecting the retirement of the shares of Class B common stock that were issued but no longer outstanding following the Conversion. The Company had reserved shares of common stock for future issuance as follows: December 31, 2024 December 31, 2023 2011 Equity Incentive Plan ("2011 Plan") Options outstanding 5,264,351 7,988,657 2021 Equity Incentive Plan Options outstanding 1,114,620 1,318,485 Restricted stock units outstanding 4,351,393 5,256,833 Shares available for future grants 6,933,867 7,400,180 2021 Employee Stock Purchase Plan Shares available for future purchases 965,766 962,960 2024 Inducement Plan Shares available for future grants 2,000 — Total 18,631,997 22,927,115 Note 14. Stock-Based Compensation Equity Incentive Plans In 2021, the Company adopted the 2021 Equity Incentive Plan (the “2021 Plan”) under which the Company may grant options, stock appreciation rights, RSUs, restricted stock awards, other equity-based awards and incentive bonuses to employees, officers, non-employee directors and other service providers of the Company and its affiliates. The number of shares available for issuance under the 2021 Plan is increased on January 1 of each year beginning in 2022 and ending with a final increase in 2031 in an amount equal to the lesser of: (i) 4,784,100 shares, (ii) 5 % of the total number of shares of Class A common stock outstanding on the preceding December 31, or (ii) a smaller number of shares determined by the Company’s Board of Directors. As of December 31, 2024 , the 2021 Plan provides for future grants and/or issuances of up to 6,933,867 shares of our common stock. Equity-based awards under our employee compensation plans are made with newly issued shares reserved for this purpose. In 2021, the Company adopted the 2021 Employee Stock Purchase Plan (the “2021 ESPP”). The number of shares available for issuance under the 2021 ESPP is increased on January 1 of each year beginning in 2022 and ending with a 77 Table of Contents final increase in 2041 in an amount equal to the lesser of: (i) 1,913,630 shares, (ii) 2 % of the total number of shares of Class A common stock outstanding on the preceding December 31, or (ii) a smaller number of shares determined by the Company’s Board of Directors. As of December 31, 2024 , the 2021 Plan provides for future grants and/or issuances of up to 965,766 shares of our common stock. On August 2, 2024, the Company adopted the 2024 New Employee Equity Incentive Plan (the “Inducement Plan”), pursuant to which the Company reserved 414,740 shares of its Class A common stock to be used exclusively for grants of equity-based awards to individuals who were not previously employees or directors of the Company, as an inducement material to the individual’s entry into employment with the Company. The Inducement Plan was adopted by the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) without stockholder approval. Restricted Stock Units RSUs granted under the 2021 Plan generally vest based on continued service up to a four-year period for employees, and over a one-year period for non-employee directors. RSU activity for the year ended December 31, 2024 was as follows: Shares Weighted-average grant date fair value per share Shares unvested as of December 31, 2023 5,256,833 $ 5.63 Granted 3,900,834 $ 6.97 Vested ( 3,730,552 ) $ 6.25 Forfeited ( 662,982 ) $ 6.09 Shares unvested and expected to vest as of December 31, 2024 4,764,133 $ 6.18 As of December 31, 2024, total unrecognized compensation cost related to RSUs was $ 25.7 million, which will be recognized over a weighted-average period of 1.93 years. In February and March 2025, the Company’s Compensation Committee approved the issuance of RSUs totaling approximately 2.8 million. These RSUs have service-based vesting periods that are satisfied over three years . The Company expects to recognize $ 19.6 million in stock-based compensation on a straight-line basis over the vesting period of these awards. Bonus Plan During March 2022, the Compensation Committee approved a new bonus structure (“Bonus Plan”) for its employees. The Bonus Plan is contingent upon the achievement of annual corporate performance targets. In each respective calendar year, the Company accrues for the Bonus Plan. The actual payout amount is determined by the Compensation Committee based on the actual achievement with respect to the annual performance targets and paid in the subsequent year in the variable number of RSUs equal to the payout amount. These RSUs are issued under the 2021 Plan and are subject to performance and service condition vesting requirements, beginning from the grant date to the payout date. Participants must remain employed with the Company through the date of payout to maintain eligibility under the Bonus Plan. Pursuant to the Bonus Plan, during February 2023 the Compensation Committee approved the issuance of approximately 288,000 RSUs that immediately vested based on actual performance against the performance targets for 2022. During February 2023, the Company’s Board of Directors approved 2023 corporate performance targets under its Bonus Plan for its employees. During February 2024, the Company’s Board of Directors approved annual corporate performance targets under its Bonus Plan for 2024 for its employees. As of December 31, 2024, the accrued balance was $ 1.8 million, reported as a component of accrued expenses and other current liabilities on the consolidated balance sheets. Pursuant to the Bonus Plan, during 78 Table of Contents February 2025 and February 2024, the Company’s Compensation Committee approved the issuance of 301,571 RSUs and approximately 296,000 RSUs, respectively, that immediately vested. The Company recognized $ 2.2 million and $ 3.0 million in stock-based compensation during the years ended December 31, 2024 and 2023, respectively based on progress made towards these performance targets. During the years ended December 31, 2024 and 2023 , the Company capitalized $ 0.3 million and $ 0.5 million, respectively, of stock-based compensation expense under this plan for the development of internal-use software. Stock Options 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. A summary of stock option award activity under the Company’s equity plans and related information is as follows (in thousands, except share, price and year data): Outstanding stock options Weighted- average exercise Price Weighted- average remaining contractual life (years) Aggregate intrinsic value Balance as of December 31, 2023 9,307,142 $ 6.41 5.57 $ 31,250 Options granted — — Options exercised ( 2,526,902 ) 2.98 Options cancelled ( 401,487 ) 14.08 Balance as of December 31, 2024 6,378,753 $ 7.28 4.95 $ 12,136 Vested and exercisable as of December 31, 2024 6,013,202 $ 6.77 4.84 $ 12,112 Vested and expected to vest 6,378,753 $ 7.28 4.95 $ 12,136 The intrinsic value of options exercised was $ 13.9 million and $ 8.8 million for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, total unrecognized compensation cost related to stock options was $ 2.8 million , which will be recognized over a weighted-average period of 0.60 years . ESPP The initial offering period under the ESPP 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. During the years ended December 31, 2024 and 2023, 780,206 and 695,046 shares of Class A common stock were purchased under the ESPP. The fair value of the purchase rights under the ESPP was estima ted using the Black-Scholes option pricing model. The Company recorded stock-based compensation expense under this plan of $ 1.6 million and $ 4.2 million f or the years ended December 31, 2024 and 2023, respectively, of which $ 0.5 million and $ 0.8 million was capitalized for the development of capitalized internal-use software. 79 Table of Contents As of December 31, 2024 , the total unrecognized stock-based compensation expense related to the ESPP was $ 3.3 million, which is expected to be recognized over a weighted average period of 1.09 years. 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, 2024 and 2023: For the Years Ended December 31, 2024 2023 Expected term (in years) 0.5 - 2.0 0.5 - 2.0 Expected volatility 48 % - 74 % 46 % - 64 % Risk-free interest rate 4.31 % - 5.43 % 4.29 % - 5.43 % Expected dividend yield — % — % Total Stock-Based Compensation Expense Stock-based compensation expense included in the consolidated statements of operations and comprehensive loss consists of all RSUs, including those related to the Bonus Plan, options, and ESPP awards. Total stock-based compensation expense was as follows (in thousands): For the Years Ended December 31, 2024 2023 Cost of revenue $ 1,907 $ 1,986 Research and development 11,277 9,218 Sales and marketing 9,505 8,801 General and administrative 5,939 5,172 Total stock-based compensation expense (1) $ 28,628 $ 25,177 (1) Stock-based compensation expense includes restructuring charges of $ 2.5 million and $ 0.1 million , incurred during the years ended December 31, 2024 and 2023. Of the $ 2.5 million in stock-based compensation restructuring charges incurred during the year ended December 31, 2024, $ 0.3 million related to cost of revenue , $ 0.9 million related to research and development costs, $ 1.2 million , related to sales and marketing costs, and $ 0.1 million related to general and administrative costs. Of the $ 0.1 million in stock-based compensation restructuring charges occurred during 2023. $ 0.1 million related to sales and marketing costs. During the years ended December 31, 2024 and 2023 , the Company capitalized $ 4.0 million and $ 5.0 million, respectively, of stock-based compensation for the development of capitalized internal-use software and property and equipment. Additionally, during the year ended December 31, 2024 , the Compensation Committee approved amendments to outstanding vested stock options held by certain former employees in connection with their voluntary separation from the Company to extend the option expiration and also accelerate the vesting of RSU’s. As a result of the modifications, the Company recognized $ 1.1 million of expense, of which $ 0.8 million is recorded in sales and marketing, and $ 0.3 million is recorded in general and administrative expense on the Company’s consolidated statements of operations and comprehensive loss. The Company also incurred stock-based compensation costs of $ 2.5 million in connection with restructuring activities that occurred during the year ended December 31, 2024. See Note 16 for additional information. Note 15. Net Loss per Share Attributable to Common Stockholders Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. The diluted net loss per share attributable to common stockholders is computed by giving effect to all potentially dilutive common stock equivalents during the period. For purposes of this calculation, the Company’s stock options, share purchase rights pursuant to the Company’s ESPP, shares issuable under the Bonus Plan, 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. 80 Table of Contents Prior to the Conversion, as defined below, of Class A and Class B common stock were the only outstanding equity in the Company. The rights of the holders of the Class A common stock and Class B common stock were identical, except with respect to voting, transfer, and conversion. Accordingly, the Class A common stock and Class B common stock shared equally in the Company’s net losses. On July 6, 2023, all of the Company’s then-outstanding shares of Class B common stock, par value $ 0.0001 per share, were automatically converted into the same number of shares of Class A common stock, par value $ 0.0001 per share, pursuant to the terms of the Company’s Amended and Restated Certificate of Incorporation (the “Conversion”). No additional shares of Class B common stock will be issued following the conversion. In addition, on July 7, 2023, the Company filed a Certificate of Retirement with the Secretary of State of the State of Delaware effecting the retirement of the shares of Class B common stock that were issued but no longer outstanding following the Conversion. The following table presents the calculation of basic and diluted net loss per share (in thousands, except share and per share data): For the Years Ended December 31 2024 2023 (in thousands, except share and per share amounts) Numerator: Net loss and comprehensive loss attributable to common stockholders $ ( 48,531 ) $ ( 59,713 ) 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 43,543,023 36,011,446 Net loss per share attributable to common stockholders – basic and diluted $ ( 1.11 ) $ ( 1.66 ) Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential common shares outstanding would have been antidilutive. The potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented are as follows: December 31, 2024 2023 RSUs 2,245,142 5,256,833 Stock options 5,193,911 9,307,142 Shares issuable pursuant to the ESPP 191,271 101,430 Bonus Plan 152,636 106,147 Total 7,782,960 14,771,552 Note 16. Restructuring Restructuring Plans In November 2024, management approved a restructuring plan intended to improve the Company’s cost structure and operating efficiency (the “2024 Restructuring Plan”). The 2024 Restructuring Plan included a reduction in headcount of approximately 12 % of the Company’s workforce. During this period, approximately 12 % of the Company’s workforce terminated employment involuntarily. In addition, as part of the 2024 Restructuring Plan, the Company reduced its footprint at its corporate headquarters. The 2024 Restructuring Plan was substantially completed by December 31, 2024. During the year ended December 31, 2024, the Company recognized restructuring charges of $ 4.9 million, primarily for employee severance and benefits in connection with the workforce reduction, which amounted to $ 3.9 million. The Company also recorded an impairment charge of $ 0.9 million on its right-of-use asset related to the lease of the Company’s corporate headquarters and $ 0.1 million of professional services fees related to the execution of the Company’s 2024 81 Table of Contents Restructuring Plan, both of which are recorded as a component of general and administrative in the consolidated statements of operations and comprehensive loss. The impairment charge of $ 0.9 million related to the Company’s corporate headquarters was the result of a partial exit from the office space for which the Company has an operating lease. The Company intends to sublease the vacated space in connection with the partial exit from the facility, and as a result, the Company determined that the right-of-use asset associated with the lease may exceed its fair value. The Company performed an assessment of the right-of-use asset and determined that the carrying value of the asset was impaired based on the application of a discounted cash flow model to a valuation appraisal of the facility obtained from a third party. The majority of the employee severance and benefits costs incurred in connection with the 2024 Restructuring Plan were related to noncash stock-based compensation. The Company accelerated certain of the RSUs awarded to employees impacted by the 2024 Restructuring Plan and also extended certain of the employees’ options to satisfy the settlement of termination benefits to impacted employees. The severance and benefits costs related to the noncash stock-based compensation amounted to $ 2.5 million, of which $ 2.1 million related to the acceleration of RSUs and $ 0.4 million related to the extension of options. These charges were recorded as components of various line items in the consolidated statements of operations and comprehensive loss. The following table presents the stock-based compensation costs as reported in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2024 and December 31, 2023 (in thousands): For the Years Ended December 31, Stock-based Compensation 2024 2023 Cost of revenue $ 291 $ — Research and development 885 — Sales and marketing 1,225 80 General and administrative 123 45 Total $ 2,524 $ 125 In January 2023, the Company initiated measures to reduce headcount to pursue greater cost efficiency and align strategic initiatives (the “2023 Restructuring Plan”). These measures were substantially completed by June 30, 2023, and the total cost was $ 3.6 million. During this period, approximately 1 % of the Company’s workforce terminated employment voluntarily and 4 % terminated employment involuntarily. As a result, the Company incurred employee termination expenses and other associated costs. A summary of the restructuring charges related to the 2024 Restructuring Plan and the 2023 Restructuring Plan as reported in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2024 and 2023 are presented in the table below. Of the total charges incurred during the year ended December 31, 2023, $ 0.7 million were related to involuntary terminations. All costs during the year ended December 31, 2024 were related to involuntary terminations. For the Years Ended December 31, 2024 2023 Total Restructuring Charges (in thousands) Cost of revenue $ 460 $ — Research and development 1,278 2,311 Sales and marketing 1,867 1,025 General and administrative (1) 1,256 280 Total $ 4,861 $ 3,616 (1) General and administrative includes $ 0.9 million related to the impairment of the right-of-use asset related to the lease of the Company’s corporate headquarters. The following table presents a summary of the liabilities related to the 2024 Restructuring Plan that are included within accrued expenses and other current liabilities on the consolidated balance sheet (in thousands): 82 Table of Contents Balance as of January 1, 2024 $ — Charges incurred 3,928 Noncash stock-based compensation ( 2,524 ) Cash payments during the period ( 1,049 ) Balance as of December 31, 2024 $ 355 (1) Charges incurred exclude right-of-use asset impairment of $ 0.9 million. The following table presents a summary of the liabilities related to the 2023 Restructuring Plan that were included within accrued expenses and other current liabilities on the consolidated balance sheet, (in thousands): Balance as of January 1, 2023 $ — Severance and other personnel costs 3,616 Cash payments during the period ( 3,616 ) Balance as of December 31, 2023 $ — Note 17. Segment Reporting The Company operates in one reportable segment, which derives revenue from the services operating on its storage platform. The Company’s CODM, the chief executive officer, reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance on a regular basis. The CODM does not assess the performance of our products and solutions on measures of profit or loss, or asset-based metrics. Measure of Segment Profit or Loss The key measure of segment profit or loss utilized by the CODM to assess performance of and allocate resources to the Company’s operating segment is consolidated net income (loss) and adjusted earnings before interest, taxes, depreciation and amortization. Net income (loss) is used in monitoring budget versus actual results. This measure is presented on the consolidated statements of operations and comprehensive loss. Significant segment expenses included in net income (loss) include cost of revenue, research and development, sales and marketing, general and administrative expense, investment income, interest expense, net, and income tax provision, which are presented on the consolidated statements of operations and comprehensive loss. The measure of segment assets is reported on the consolidated balance sheet as total consolidated assets. See Note 3 and Note 7 for additional disclosures of disaggregated revenue and geographical information. In addition to the significant segment expenses noted above, significant segment expenses reviewed by the CODM for the years ended December 31, 2024 and 2023 are presented in the following table (in thousands): For the Years Ended December 31, 2024 2023 Depreciation 21,329 21,286 Amortization 6,999 3,626 Stock-based compensation 28,628 25,177 $ 56,956 $ 50,089 83 Table of Contents Note 18. Income Taxes The following table presents the components of net loss before income taxes (in thousands): For the Years Ended December 31, 2024 2023 United States $ ( 48,656 ) $ ( 59,713 ) Non-U.S. 131 — Loss before provision for income taxes $ ( 48,525 ) $ ( 59,713 ) The provision for income taxes included in the consolidated statements of operations and comprehensive loss is comprised of the following (in thousands): For the Years Ended December 31, 2024 2023 Current Federal $ — $ — State 6 — Non-U.S. — — Total current 6 — Deferred: Federal — — State — — Non-U.S. — — Total deferred $ — $ — Total provision $ 6 $ — The following table presents a reconciliation of the statutory federal rate and the Company’s effective tax rate, using a federal statutory rate of 21%: For the Years Ended December 31, 2024 2023 Statutory federal income (benefit) rate ( 21 ) % ( 21 ) % Increase (decrease) resulting from: State income tax rate ( 4 ) % ( 4 ) % Change in valuation allowance 37 % 29 % Stock-based compensation ( 4 ) % 2 % Tax credits ( 7 ) % ( 6 ) % Other — % — % Effective tax rate — % — % 84 Table of Contents 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. The components of the Company’s deferred tax assets and liabilities consisted of (in thousands): December 31, 2024 2023 Deferred tax assets: Net operating loss (“NOL”) carryforwards $ 31,417 $ 23,111 R&D credit carryforwards 13,829 10,502 Stock-based compensation 2,646 2,083 Research and experimental expenditures under IRC Section 174 19,382 14,063 Lease liabilities 4,189 2,507 Disallowed interest expense 3,438 2,767 Accruals and other 1,335 1,064 76,236 56,097 Valuation allowance ( 62,492 ) ( 44,606 ) Total deferred tax assets 13,744 11,491 Deferred tax liabilities: Property and equipment, net ( 1,024 ) ( 1,967 ) Right of use assets, net ( 3,936 ) ( 2,496 ) Capitalized internal-use software ( 8,784 ) ( 7,028 ) Total deferred tax liabilities $ ( 13,744 ) $ ( 11,491 ) Net deferred tax liabilities $ — $ — 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. Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Based on evidence of Company's earnings history, the net U.S. deferred tax assets have been fully offset by a valuation allowance. The val uation allowance increased by $ 17.9 million and $ 17.6 million during the years ended December 31, 2024 and 2023, respectively. Effective for tax years beginning after December 31, 2021, taxpayers are required to capitalize any expenses 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 December 2017 Tax Cuts and Jobs Act mandates capitalization and amortization of R&E expenses for tax years beginning after December 31, 2021. Expenses incurred in connection with R&E activities in the US must be amortized over a 5-year period if incurred, and R&E expenses incurred outside the US must be amortized over a 15-year period. R&E activities are broader in scope than qualified research activities that are considered under IRC Section 41 (relating to the research tax credit). For the year ended December 31, 2024, the Company performed an analysis based on available guidance and determined that it will not impact (increase) taxable income. The Company will continue to monitor this issue for future developments and its impact on taxable income. As of December 31, 2024, the Company had federal and state NOL carryforwards of $ 123.3 million and $ 95.6 million, respectively. The federal NOL carryforwards consisted of $ 16.0 million generated before January 1, 2018, which will begin to expire in 2027 but are able to offset 100% of taxable income and $ 107.3 million generated after December 31, 2017 that will carryforward indefinitely but will be subject to 80% taxable income limitation beginning in tax years after December 31, 2022 as provided by the CARES Act. State net operating loss carryforwards in the amount of $ 79.2 million begin expiring in 2029 and approximately $ 16.4 million have an indefinite life. 85 Table of Contents The Company has federal research and development (“R&D”) credit carryforwards of $ 11.7 million which will begin to expire in 2032 and California R&D credit carryforwards of $ 5.5 million which do not expire. The Company also has $ 0.1 million of California enterprise zone credits which will begin to expire in 2028. Utilization of some of the federal and state net operating loss and credit carryforwards are subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 (specifically Section 382), as amended, and similar state provisions. The Company performed a Section 382 analysis through December 31, 2024 and determined that ownership changes occurred in the year 2007, 2009, 2012, and 2024. The ownership changes identified had no significant impact on federal and state net operating losses. The annual limitations may result in the expiration of net operating losses and credits before utilization in the future. On August 16, 2022, the Inflation Reduction Act was enacted in the U.S. and introduced a 15% alternative minimum tax based on the financial statement income of certain large corporations (“CAMT”) and an excise tax of 1% of stock repurchases, effective January 1, 2023. The various provisions of the Inflation Reduction Act do not have a material impact on the Company’s consolidated financial statements for the years ended December 31, 2024 and 2023 . Uncertain Income Tax Positions The following table summarizes the activity related to the Company’s unrecognized tax benefits (in thousands): For the Years Ended December 31, 2024 2023 Balance at beginning of year $ 1,889 $ 1,239 Tax positions related to the current year: Additions 628 649 Reductions — — Tax positions related to the prior year: Additions — 1 Reductions ( 50 ) — Balance at end of year $ 2,467 $ 1,889 The total amount of unrecognized tax benefits as of December 31, 2024 was $ 2.5 million, all related to federal and state tax jurisdictions . If recognized, none of the unrecognized tax benefits would affect the effective tax rate. As of December 31, 2024, the Company had no interest related to unrecognized tax benefits. No amounts of penalties related to unrecognized tax benefits were recognized in the provision for income taxes. The Company does not anticipate any significant change within twelve months of this reporting date. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is subject to U.S. federal and state income tax examination for calendar tax years beginning in 2007 due to NOLs that are being carried forward for tax purposes. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures None .