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What changed in Backblaze, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Backblaze, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+391 added−407 removedSource: 10-K (2025-03-11) vs 10-K (2024-04-01)

Top changes in Backblaze, Inc.'s 2024 10-K

391 paragraphs added · 407 removed · 309 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

42 edited+10 added−12 removed26 unchanged
Biggest changeMore recently, we also added our Powered By Backblaze program that enables third party platform providers to purchase Backblaze to then sell it to their customers as a part of their product offering. Prospective customers find us through a number of sources including our website, partners, and brand advocates.
Biggest changeThe sales driven motion includes our direct sales team that contracts directly with customers and emphasizes the acquisition of larger customers, our channel sales team that contracts sales through our channel partners, and our alliances team that works with other technology partners to sell B2 Cloud Storage, including through our Powered By Backblaze program that enables third party platform providers to purchase Backblaze to then sell it to their customers as a part of their product offering.
Competition Our current primary competitors generally fall into the following categories: traditional public cloud vendors, such as Amazon.com, Inc. through Amazon Web Services, Alphabet Inc. through Google Cloud Platform, and Microsoft Corporation through Azure; certain smaller and private cloud storage competitors; and legacy on-premises storage vendors such as Dell EMC.
Competition Our current primary competitors generally fall into the following categories: traditional public cloud vendors, such as Amazon.com, Inc. through Amazon Web Services, Alphabet Inc. through Google Cloud Platform, and Microsoft Corporation through Azure; certain smaller and/or private cloud storage competitors; and legacy on-premises storage vendors such as Dell EMC.
Corporate Information We were incorporated in Delaware in 2007 under the name Backblaze, Inc. We completed our initial public offering in November 2021 and our common stock is listed on The Nasdaq Stock Market LLC under the symbol “BLZE.” Our principal executive offices are located at 201 Baldwin Ave., San Mateo, CA 94401 and our telephone number is (650) 352-3738.
Corporate Information We were incorporated in Delaware in 2007 under the name Backblaze, Inc. We completed our initial public offering in November 2021 and our common stock is listed on The Nasdaq Global Market under the symbol “BLZE.” Our principal executive offices are located at 201 Baldwin Ave., San Mateo, CA 94401 and our telephone number is (650) 352-3738.
We lease data center facilities in California, Arizona, Virginia, and Amsterdam, the Netherlands. We believe that our properties are generally suitable to meet our needs for the foreseeable future. In addition, to the extent we require additional space in the future, we believe that it would be available on commercially reasonable terms.
We lease data center facilities in California; Arizona; Virginia; Toronto, Canada; and Amsterdam, the Netherlands. We believe that our properties are generally suitable to meet our needs for the foreseeable future. In addition, to the extent we require additional space in the future, we believe that it would be available on commercially reasonable terms.
The Backblaze Storage Cloud organizes, safeguards, and keeps ov er 850 billion files available on demand and is designed to handle much more in the future. Through our purpose-built software that manages our global physical infrastructure, we provide a platform that we believe is durable, scalable, performant, and secure.
Our Platform and Cloud Services The Backblaze Storage Cloud organizes, safeguards, and keeps ov er 850 billion files available on demand and is designed to handle many more in the future. Through our purpose-built software that manages our global physical infrastructure, we provide a platform that we believe is durable, scalable, performant, and secure.
Customers acquired by our sales motion frequently have a significantly larger average revenue per customer than our self-serve customers. 2 Table of Contents Substantially all of our revenue is recurring in nature. We employ a land-and-expand model that drives additional revenue from existing customers.
Customers acquired by our sales motion frequently have a significantly larger average revenue per customer than our self-serve customers. Substantially all of our revenue is recurring in nature. We employ a land-and-expand model that drives additional revenue from existing customers.
Our customers span a range of industries, including a broad range of businesses, MSPs, developers, media teams, AI innovators, creative agencies, academic institutions, government agencies, research institutes, gaming companies, and 4 Table of Contents individuals. Our customer base is highly diversified, with no single customer accounting for more than 1% of our total revenue in 2023 or 2022.
Our customers span a range of industries, including a broad range of businesses, MSPs, developers, media teams, AI innovators, creative 4 Table of Contents agencies, academic institutions, government agencies, research institutes, gaming companies, and individuals. Our customer base is highly diversified, with no single customer accounting for more than 10% of our total revenue in 2024 or 2023.
Our software manages our global physical infrastructure of more than 300,000 hard drives and one terabit per second (one million megabits per second) of network capacity across multiple data centers. Our systems also manage the automation, monitoring, and security of this infrastructure.
Our software manages our global physical infrastructure of over 300,000 hard drives and one terabit per second (one million megabits per second) of network capacity across multiple data centers. Our systems also manage the automation, monitoring, and security of this infrastructure.
Item 1. Business We are a leading specialized storage cloud platform, providing cloud services to store, use, and protect data in an easy and affordable manner. We provide these cloud services through a purpose-built, web-scale software infrastructure built on commodity hardware.
Item 1. Business Overview We are a leading specialized storage cloud platform, providing businesses and consumers cloud services to store, use, and protect their data in an easy and affordable manner. We provide these cloud services through a purpose-built, web-scale software infrastructure built on commodity hardware.
Customers leverage Computer Backup for many different use cases, including Mac and PC backup; ransomware protection; theft and loss recovery; data archiving; organization and MSP-level management; and remote access. Customers Our customers consist of a wide range of organizations and businesses—particularly mid-market organizations—and consumers.
Customers leverage Computer Backup for many different use cases, including Mac and PC backup; ransomware protection; theft and loss recovery; data archiving; organization and MSP-level management; and remote access. Customers Our customers consist of a wide range of consumers, organizations and businesses, from SMB to enterprise.
Those investments have continued to result in innovations to the platform such as shard stash which improves small file uploads up to 30% faster than competitors and product enhancements such as Powered By Backblaze which enables customers to sell B2 Cloud Storage on their platform.
Those investments have continued to result in innovations to the platform such as shard stash which improves small file uploads up to 30% faster than competitors and product enhancements such as our white-label solution called Powered By Backblaze which enables customers to sell B2 Cloud Storage on their platform and under their own brand.
We have fostered community engagement with content we share on our blog—in 2023 alone, millions of readers consumed content that we shared there. Our free trial and self-serve sign-up processes help convert our blog readers and referrals from our brand advocates into customers, with approximately 76% of our total revenue in 2023 coming from self-serve customers.
We have fostered community engagement with content we share on our blog through which millions of readers consumed content that we share there. Our free trial and self-serve sign-up processes help convert our blog readers and referrals from our brand advocates into customers, with approximately 73% o f our total revenue in 2024 coming from self-serve customers.
Our B2 Cloud Storage revenue grew b y 40% during the year ended December 31, 2023 and our Computer Backup cloud service revenue grew by 7% during the year ended December 31, 2023. Our ecosystem of partners—including tech nology partners, channel partners, and MSPs—helps us expand our platform in existing and new markets. • Technology Partners.
Our B2 Cloud Storage re venue grew by 36% during the year ended December 31, 2024 and our Computer Backup cloud service revenue grew by 16% during the year ended December 31, 2024. Our ecosystem of partners—including tech nology partners, channel partners, and MSPs—helps us expand our platform in existing and new markets. • Technology Partners.
The marketing team consists primarily of product marketing, corporate communications and publishing, social media, growth marketing, and website teams. We leverage both online and offline marketing channels such as blogs, events and trade shows, seminars and webinars, whitepapers, case studies, search engines, advertising and email marketing.
The marketing team consists primarily of demand generation, product marketing, corporate communications and publishing, social media, and lifecycle marketing teams. We leverage both online and offline marketing channels such as blogs, events and trade shows, seminars and webinars, whitepapers, case studies, search engines, advertising and email marketing. Research and Development We invest substantial resources in research and development.
The amount of data stored in this cloud service can scale up and down as needed on a pay-as-you-go basis, or can be paid for on a capacity basis for greater predictability, which we refer to as our B2 Reserve offering.
The amount of data stored in this cloud service can scale up and down as needed on a pay-as-you-go basis, or can be paid for on a capacity basis or committed contract for greater predictability.
No employees are represented by a labor union with respect to his or her employment by us. We have not experienced any work stoppages, and we consider our relations with our employees to be good.
No employees are represented by a labor union with respect to his or her employment by us. We have not experienced any work stoppages, and we consider our relations with our employees to be positive. Facilities Our principal executive offices are located in San Mateo, California.
We believe that by offering an easy to use, cost-effective cloud storage solution, and thereby substantially reducing the cost, complexity and frustration of storing, using, and protecting data, we can empower customers to focus on their core business operations. Through our blog and culture of transparency, we have built a community of millions of readers and brand advocates.
We believe that by offering an easy to use, cost-effective, performant cloud storage solution, and thereby substantially reducing the cost, complexity and frustration of storing, using, and protecting data, we can empower customers to focus on their core business operations.
We regularly optimize our website, and in 2023 we modernized our website to improve the user experience and increase traffic through search engine optimization to accelerate lead generation. We have fostered community engagement through the content shared on our blog, which is read by millions of people.
Prospective customers find us through a number of sources including our website, partners, and brand advocates. We regularly optimize our website to improve the user experience and increase traffic through search engine optimization to accelerate lead generation. We have fostered community engagement through the content shared on our blog, which is read by millions of people.
Sales and Marketing We have a layered go-to-market model that includes our self-service motion and our sales driven motion that focuses on larger customers. The sales driven motion includes our direct sales team that contracts directly with customers and our channel sales team that contracts directly with customers and our channel sales team that contracts sales through our channel partners.
Sales and Marketing We have a layered go-to-market model that includes our self-service motion and our sales driven motion that focuses on larger customers.
Referrals from our community of brand advocates, com bined with our highly efficient and primarily self-serve customer acquisition model and an ecosystem of thousands of partners, have allowed us to attract more than 500,000 customers as of December 31, 2023, and our sales and channel efforts have supported us acquiring larger customers.
Our direct sales activities, channel and technology partners, and referrals from our community of brand advocates, com bined with our highly efficient and self-serve customer acquisition model have allowed us to attract over 500,000 customers as of December 31, 2024, and our direct sales activities have historically supported us in acquiring larger customers.
Research and Development We invest substantial resources in research and development. We have an internal technology roadmap to introduce new features and functionality to our platform.
We have an internal technology roadmap to introduce new features and functionality to our platform.
While we do not own any patents, we protect our intellectual property through a combination of trade secrets, copyrights, trademarks, service marks, and domain names where appropriate.
While we do not own any patents to date, we have two pending patent applications. In addition, we protect our intellectual 5 Table of Contents property through a combination of trade secrets, copyrights, trademarks, service marks, and domain names where appropriate.
We have programs to support these partners, and our newly launched Powered By Backblaze program supports Technology Partners, MSPs, and others by enabling them to more easily integrate our cloud storage and offer it directly to their customers. This expands both their opportunity and ours.
We have programs to support these partners, and our white-label Powered By Backblaze program supports Technology Partners, MSPs, and others by enabling them to more easily integrate our cloud storage and offer it directly to their customers under their own brand. This expands both their opportunity and ours. The markets addressed by our platform include Public Cloud Infrastructure-as-a-Service (IaaS) storage.
Multiple vaults are grouped together to form one cluster, and one or more clusters are organized into a region. Our globally distributed storage platform also offers customers multi-region geographic choice for their data—currently between East and West Coast regions in the United States and Europe—providing flexibility for different needs including geopolitical considerations, regulatory requirements, and performance optimization.
Our globally distributed storage platform also offers customers multi-region geographic choice for their data, including East and West Coast regions in the United States, as well as regions in Canada, and Europe—providing flexibility for different needs including geopolitical considerations, regulatory requirements, and performance optimization.
As of December 31, 2023, we had over 500,000 customers in over 175 countries, including approximately 432,000 customers using our Compu ter Backup cloud services solution and approximately 98,000 customers using our B2 Cloud Storage solution (approximately 17,000 custo mers use both our B2 Cloud Storage and Computer Backup solutions).
As of December 31, 2024, we had over 500,000 cust omers in over 175 countries, including approximately 400,000 customers using our Computer Backup cloud services solution and approximately 100,000 customers using our B2 Cloud Storage solution (approximately 18,000 custom ers use both our B2 Cloud Storage and Computer Backup solutions).
We are also differentiated by brand awareness and reputation; transparency of our pricing with customers; customer support; independence; security; and our partner ecosystem. 5 Table of Contents Intellectual Property Our success depends in part on our ability to obtain and maintain intellectual property protection for our technology platform and cloud services, defend and enforce our intellectual property rights, preserve the confidentiality of our trade secrets, and operate without infringing, misappropriating, or otherwise violating the intellectual property rights of others.
Intellectual Property Our success depends in part on our ability to obtain and maintain intellectual property protection for our technology platform and cloud services, defend and enforce our intellectual property rights, preserve the confidentiality of our trade secrets, and operate without infringing, misappropriating, or otherwise violating the intellectual property rights of others.
We believe that focusing on storage use cases and promoting an open cloud ecosystem helps position us to integrate well with a broad range of partners. From our straightforward pricing model, to our transparent communication with customers, to the popular and insightful content on our blog—we believe we have established ourselves as an open and trusted provider and partner.
From our straightforward pricing model, to our transparent communication with customers, to the popular and insightful content on our blog—we believe we have established ourselves as an open and trusted provider and partner.
More recently, we also added our Powered By Backblaze program that enables third parties to integrate Backblaze and thus offer cloud storage as part of their product offering. Prospective customers find us through a variety of channels including our website, partners, and brand advocates.
The sales driven motion includes our direct sales team that contracts directly with customers, with our channel sales team that contracts sales through our channel partners, and our Powered By Backblaze program that enables third parties to integrate Backblaze and thus offer white-label cloud storage as part of their product offering and under their own branding. 2 Table of Contents Prospective customers find us through a variety of channels including our website, partners, and brand advocates.
Our go-to-market model is a layered approach that includes our self-service motion and our sales driven motion that focuses on larger customers. The sales driven motion includes our direct sales team that contracts directly with customers and our channel sales team that contracts sales through our channel partners.
Our solutions appeal to customers with a desire for easy-to-use and cost-effective solutions. Our go-to-market model is a layered approach that includes our self-service motion and our sales driven motion that focuses on larger customers.
We compete primarily based on the ease of use of our product and lower pricing, along with our support for an open cloud ecosystem. Our innovation increasingly plays a role in how we attract and win customers, including work on key platform features; interoperability; capabilities for configurability and APIs; and, availability, durability, scalability, and performance.
Our innovation increasingly plays a role in how we attract and win customers, including work on key platform features; interoperability; capabilities for configurability and APIs; and, availability, durability, scalability, and performance. We are also differentiated by brand awareness and reputation; transparency of our pricing with customers; customer support; independence; security; and our partner ecosystem.
Customers also strategically tier backups of their core data systems to our cloud, including on-premises and virtual machine servers and other high-capacity storage devices.
Customers also strategically tier backups of their core data systems to our cloud, including on-premises and virtual machine servers and other high-capacity storage devices. More recently, businesses are incorporating B2 Cloud Storage into artificial intelligence (AI) and machine learning (ML) workflow, ensuring data accessibility, scalability, and efficient network performance.
This web-scale software layer receives, stores, and delivers data for customers across the globe. Our code achieves this for billions of files under management by intelligently allocating storage locations in line with capacity and demand. Continued investment in developing data compaction, compression, and other software innovation further improves our ability to efficiently leverage hardware.
The ability to manage an ever-larger amount of data across ever-larger hard drives while maintaining data availability and durability continues to be highly complex. This web-scale software layer receives, stores, and delivers data for customers across the globe. Our code achieves this for billions of files under management by intelligently allocating storage locations in line with capacity and demand.
We may also be subject to third-party infringement claims from our competitors or non-practicing entities, many of these parties may have more significant resources and funding than we have.
We may also be subject to third-party infringement claims from our competitors or non-practicing entities, many of these parties may have more significant resources and funding than we have. For more information regarding risks related to intellectual property, please see “Risk Factors—Risks Related to Intellectual Property.” Employees and Human Capital W e believe we have an aligned and engaged workforce.
This service is offered as a subscription-based Software-as-a-Service (SaaS) and serves use cases including computer backup, ransomware protection, theft and loss protection, and remote access.
This service is offered as a subscription-based Software-as-a-Service (SaaS) and serves use cases including computer backup, ransomware protection, theft and loss protection, and remote access. Our solutions are designed for individuals and businesses of all sizes, from large-scale businesses (enterprise) to small and medium-sized businesses (SMB) and across all industries.
We own two registered trademarks in the United States for the word Backblaze and the Backblaze logo. Policing unauthorized use of our technology and intellectual property rights is difficult.
We own the following registered trademarks: “Backblaze,” “B2,” “Break Free,” “Blaze Forward” and the Backblaze logo. We also have pending trademark applications. Policing unauthorized use of our technology and intellectual property rights is difficult.
Over the following years we focused relentlessly on cutting away the complexity common among traditional cloud vendors’ services and legacy on-premises system vendors. Today, we believe our solutions are differentiated by their ease of use and affordability.
At its founding, Backblaze set out to dramatically simplify the process of storing, using, and protecting data. Over the following years, we focused relentlessly on cutting away the complexity common among traditional cloud vendors’ services and legacy on-premises system vendors.
Our software splits each uploaded customer file into several data parts, adds multiple redundant parts, and stores these parts across discrete hard drives in different servers in a data center. As a result, even if a few of the parts are entirely lost or offline, we are able to reconstruct the customer data from the remaining parts for durability.
As a result, even if a few of the parts are entirely lost or offline, we are able to reconstruct the customer data from the remaining parts for durability and availability. Multiple vaults are grouped together to form one cluster, and one or more clusters are organized into a region.
Our offices reopened in 2022 after the pandemic, and most employees located in proximity to our headquarters office location utilize a hybrid approach which includes a mixture of working in the office and working remotely from home. Culture is very important at Backblaze and we recognize that employees are our greatest asset.
As of December 31, 2024, we had 346 full -time employees. Many of our employees are based out of our San Mateo, California headquarters. Most employees located in proximity to our headquarters office location utilize a hybrid approach which includes a mixture of working in the office and working remotely from home.
Our Platform and Cloud Services Our Platform: Backblaze Storage Cloud The Backblaze Storage Cloud provides the core platform for our cloud services and is designed to be durable, available, scalable, secure, performant and predictive. This storage cloud organizes, safeguards, and keeps ov er 850 billion files available on demand and is designed to handle many more in the future.
According to IDC forecasts, the worldwide market for Public Cloud IaaS Storage is expected to grow to $118 billion by 2028. Backblaze Storage Cloud The Backblaze Storage Cloud provides the core platform for our cloud services and is designed to be durable, available, scalable, secure, performant and predictive.
The key enabler of the Backblaze Storage Cloud is the software that runs it, which contains millions of lines of code that our software engineering team has written and continually improved since our Company’s founding. The ability to manage an ever-larger amount of data across ever-larger hard drives while maintaining data availability and durability continues to be highly complex.
This storage cloud organizes, safeguards, and keeps ov er 850 billion files available on demand and is designed to handle many more in the future. The key enabler of the Backblaze Storage Cloud is the software that runs it, which contains millions of lines of code that our software engineering team has written and continually improved since our Company’s founding.
Alongside these core processes, our software layer also manages load balancing, caching, deletion, 3 Table of Contents billing, as well as numerous other essential functions for hundreds of thousands of customers. Generally weekly code updates regularly enhance these functions. Our vault architecture creates redundancy for the storage of customer data using proprietary and other algorithms.
Continued investment in developing data compaction, compression, performance optimization, and other software innovation further improves our ability to efficiently leverage hardware. Alongside these core processes, our software layer also manages load balancing, caching, deletion, billing, as well as numerous other essential functions for hundreds of thousands of customers.
These customers use our Storage Cloud platform across more than 175 countries to grow and protect their business data on our over 3 billion gigabytes , of data storage under management. At its founding, Backblaze set out to dramatically simplify the process of storing, using, and protecting data.
As we seek to move up-market, we expect our direct sales activities to increasingly contribute to the acquisition of these customers. Our customers use our Storage Cloud platform across more than 175 countries to store and protect their data with an aggregate of approximately 4 billion gigabytes of data storage under management.
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Our solutions are designed for individuals and businesses of all sizes and across all industries but have a particularly strong appeal to mid-market organizations (which we define as organizations with 10 to 999 employees) due to their desire for easy-to-use and cost-effective solutions.
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Customers use us to support their AI workflows, help ensure the cyber-resilience of their organizations, streamline their media workflows, and enable a variety of other data-focused application and IT needs. Through our blog and culture of transparency, we have built a community of millions of readers and brand advocates.
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The markets addressed by our platform include Public Cloud Infrastructure-as-a-Service (IaaS) storage as well as Data-Protection-as-a-Service (DPaaS). According to IDC forecasts, the worldwide market for Public Cloud IaaS Storage is expected to grow to $91.0 billion by 2025. Additionally, according to IDC, the worldwide market for DPaaS is expected to grow to $18.4 billion by 2025.
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Today, we believe that our solutions are differentiated by their ease of use and affordability while also delivering reliability and performance. We believe that focusing on storage use cases and promoting an open cloud ecosystem helps position us to integrate well with a broad range of partners.
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We believe our efficient go-to-market and focus on ease of use are particularly suited to selling to and serving the needs of mid-market businesses (defined as businesses and organizations with 10 to 999 employees). According to our analysis of IDC data, mid-market businesses are expected to represent approximately 60% of worldwide IaaS spending throughout the forecast period (2021 to 2025).
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Generally weekly code updates regularly enhance these functions. 3 Table of Contents Our vault architecture creates redundancy for the storage of customer data using proprietary and other algorithms. Our software splits each uploaded customer file into several data parts, adds multiple redundant parts, and stores these parts across discrete hard drives in different servers in a data center.
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We believe this ratio serves as a reasonable proxy for spending across both markets. Applying this ratio to the Public Cloud IaaS Storage market yields a mid-market opportunity growing to $54.6 billion in 2025. Applying the same ratio to the DPaaS market yields a mid-market opportunity growing to $11.0 billion by 2025.
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From raw data collection and processing, to model training and inference, B2 Cloud Storage provides a reliable foundation for managing vast datasets, enables seamless data transfer to GPU clusters, optimizes storage for AI-generated outputs, and provides cost-effective, scalable storage for monitoring and logs.
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More recently, businesses are incorporating B2 Cloud Storage into artificial intelligence (AI) and machine learning (ML) workflows ranging from storing large media libraries for later analysis and categorization to housing the large quantities of data that AI models generate.
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B2's open platform and free egress (up to 3x) drive cost-efficient multi-cloud architectures, enabling seamless data orchestration across diverse cloud environments. This flexibility allows customers to leverage best-of-breed GPU services without vendor lock-in, and significantly reduces data transfer costs, maximizing resource utilization and minimizing overall expenses.
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We complement our self-serve customer acquisition model with a growing sales team that is focused on larger customers. Among other things, our sales and marketing teams focus on inbound inquiries, outbound prospecting targeting specific use cases, and growing the adoption of our offerings in existing customers.
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We compete primarily based on the ease of use of our product and lower pricing, along with our free egress (up to 3x) and support for an open cloud ecosystem.
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We have invested, and expect to continue to invest, in our sales and marketing capabilities to capitalize on our large market opportunity. We have also established a Developer Evangelism function to support our focus on supporting developers and applications storage use cases, and scaled up our partnerships team to grow our technology and channel partnership opportunity.
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While many of our employees are based near our headquarters, our organizational framework is structured to allow the acquisition of fully remote employees, providing us with access to a talented and diverse workforce across the country. Culture is very important at Backblaze and we recognize that employees are our greatest asset.
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For more information regarding risks related to intellectual property, please see “Risk Factors—Risks Related to Intellectual Property.” Employees and Human Capital W e believe we have an aligned and engaged workforce with relatively limited employee turnover. As of December 31, 2023, we had 381 f ull-time employees.
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We recognize and value the im portance of fostering an inclusive environment where employees of diverse skills, talents, backgrounds, cultures and circumstances provide Backblaze a competitive advantage in understanding and better serving a broader array of customers. A culture empowered by awareness, acceptance and action ensures Backblaze attracts, retains and rewards high performing talent.
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A significant amount of our employees are based out of our San Mateo, California headquarters. However, since March 2020 and throughout the COVID pandemic, employees generally worked remotely.
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Follow-On Offering On November 20, 2024, we issued and sold an aggregate of 6,250,000 shares (the “Shares”) of our 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”).
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We recognize and value the impor tance of diversity, equity and inclusion and have a Diversity, Equity and Inclusion Committee that is comprised of a diverse group of employees and management.
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We 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, which the underwriters exercised. We received net proceeds of $37.4 million from the offering, after deducting the underwriting discounts and commissions and other offering expenses.
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The committee is committed to cultivating and nurturing an inclusive and diverse environment at Backblaze by providing unique opportunities that will bring forth and promote the variety of cultures, backgrounds and circumstances that make up the Backblaze team while surpassing basic tolerance with awareness, acceptance and action.
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We also note strong survey ratings about our company, as evidenced by our Glassdoor 4.4/5.0 rating, 92% approval of our CEO, 88% “Recommend to a Friend” rating as of March 8, 2023, and inclusion on the “Great Place to Work” nationally recognized list. Facilities Our principal executive offices are located in San Mateo, California.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

134 edited+32 added−24 removed210 unchanged
Biggest changeFor example, for so long as we are a smaller reporting company and not classified as an “accelerated filer” or “large accelerated filer” pursuant to SEC rules, we will be exempt from the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. 22 Table of Contents Risks Related to Accounting and Tax Matters We have identified material weaknesses in our internal controls over financial reporting, and the failure to achieve and maintain effective internal controls over financial reporting could harm our business and negatively impact the value of our Class A common stock.
Biggest changeRisks Related to Accounting and Tax Matters The failure to maintain effective internal controls over financial reporting could harm our business and negatively impact the value of our common stock. We have previously identified material weaknesses in our internal controls over financial reporting, which we remediated.
If our new sales commission program does not effectively incentivize our sales team at appropriate compensation levels, we may not be successful in retaining or hiring qualified sales personnel, obtaining new customers, increasing sales to our existing customer base, or effectively managing compensation levels.
If our sales commission program does not effectively incentivize our sales team at appropriate compensation levels, we may not be successful in retaining or hiring qualified sales personnel, obtaining new customers, increasing sales to our existing customer base, or effectively managing compensation levels.
We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources.
We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources.
Growth in our international operations will subject us to new risks and may increase risks that we currently face, including risks associated with: • higher costs of doing business internationally, including increased energy, infrastructure, accounting, travel, and legal compliance costs; • providing our platform, building out the necessary infrastructure and operating our business across a significant distance, in different languages and among different cultures, including the potential need to modify our platform and features to ensure that they are culturally appropriate and relevant in different countries; • compliance with applicable international laws and regulations, including laws and regulations with respect to privacy, data protection, consumer protection, and unsolicited email, and the risk of penalties to our users and individual members of management or employees if our practices are deemed to be out of compliance, and additional laws and regulations in the United States that are applicable to international operations; • recruiting and retaining talented and capable employees outside the United States, and maintaining our company culture across all of our offices; 15 Table of Contents • management of an employee base in jurisdictions that may not give us the same employment and retention flexibility as does the United States; • operating in jurisdictions that do not protect intellectual property rights to the same extent as does the United States; • compliance by us and our business partners with anti-corruption laws, anti-bribery, anti-money laundering, and similar laws; import and export control laws; tariffs and trade barriers; economic sanctions; and other regulatory limitations on our ability to provide our cloud services in international markets; • foreign exchange controls that might require significant lead time in setting up operations in certain geographic territories; • restrictions that might prevent us from repatriating cash earned outside the United States; • increased tax complexity, including being subject to regular review and audit by both United States federal and state and foreign tax authorities; • taxing authorities of the United States or foreign jurisdictions in which we operate may challenge our methodologies for valuing intercompany arrangements; • double taxation of our international earnings and potentially adverse tax consequences due to changes in the income and other tax laws of the United States or the international jurisdictions in which we operate; and • political and economic instability in various jurisdictions.
Growth in our international operations will subject us to new risks and may increase risks that we currently face, including risks associated with: 15 Table of Contents • higher costs of doing business internationally, including increased energy, infrastructure, accounting, travel, and legal compliance costs; • providing our platform, building out the necessary infrastructure and operating our business across a significant distance, in different languages and among different cultures, including the potential need to modify our platform and features to ensure that they are culturally appropriate and relevant in different countries; • compliance with applicable international laws and regulations, including laws and regulations with respect to privacy, data protection, consumer protection, data sovereignty, and unsolicited email, and the risk of penalties to our users and individual members of management or employees if our practices are deemed to be out of compliance, and additional laws and regulations in the United States that are applicable to international operations; • compliance with immigration laws, both in the United States and the applicable foreign country, which laws and practices are subject to changes and delays; • recruiting and retaining talented and capable employees outside the United States, and maintaining our company culture across all of our offices; • management of an employee base in jurisdictions that may not give us the same employment and retention flexibility as does the United States; • operating in jurisdictions that do not protect intellectual property rights to the same extent as does the United States; • compliance by us and our business partners with anti-corruption laws, anti-bribery, anti-money laundering, and similar laws; import and export control laws; tariffs and trade barriers; economic sanctions; and other regulatory limitations on our ability to provide our cloud services in international markets; • foreign exchange controls that might require significant lead time in setting up operations in certain geographic territories; • restrictions that might prevent us from repatriating cash earned outside the United States; • increased tax complexity, including being subject to regular review and audit by both United States federal and state and foreign tax authorities; • taxing authorities of the United States or foreign jurisdictions in which we operate may challenge our methodologies for valuing intercompany arrangements; • double taxation of our international earnings and potentially adverse tax consequences due to changes in the income and other tax laws of the United States or the international jurisdictions in which we operate; and • political and economic instability in various jurisdictions.
We do not own any issued patents and rely on a combination of trademark, copyright, and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights, all of which provide only limited protection and may not now or in the future provide us with a competitive advantage.
We do not currently own any issued patents and rely on a combination of trademark, copyright, and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights, all of which provide only limited protection and may not now or in the future provide us with a competitive advantage.
Any provision of our Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, or Delaware law that has the effect of delaying, preventing, or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock, and could also affect the price that some investors are willing to pay for our Class A common stock.
Any provision of our Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, or Delaware law that has the effect of delaying, preventing, or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock, and could also affect the price that some investors are willing to pay for our common stock.
Although the Toshiba buyout and Western Digital spin-out have not resulted in any material impact to our business to date, such industry consolidations, acquisitions or other restructuring events of third party vendors or partners may increase the likelihood of changes at such vendors and partners that could adversely affect our business.
Although the Toshiba buyout and Western Digital spin-out have not resulted in any material impact to our business to date, such industry consolidations, acquisitions or other restructuring events of third party vendors or partners may increase the likelihood of closure or other changes at such vendors and partners that could adversely affect our business.
If our information technology systems, including the data of our customers stored in our systems, are breached or subject to cybersecurity attacks, our reputation and business may be harmed. Our customers rely on our solutions to store their files, which may include confidential or personally identifiable information, critical business information, photos, and other meaningful content.
If our information technology systems, including the data of our customers stored in our systems, are breached or subject to cybersecurity attacks, our reputation and business may be harmed. Our customers rely on our solutions to store or use their files, which may include confidential or personally identifiable information, critical business information, photos, and other meaningful content.
The steps we have taken and will take may not prevent unauthorized use, reverse engineering, or misappropriation of our technologies and we may be unable to detect any of the foregoing. Furthermore, effective trademark, copyright, and trade secret protection may not be available in every country in which our cloud services are available.
Additionally, The steps we have taken and will take may not prevent unauthorized use, reverse engineering, or misappropriation of our technologies and we may be unable to detect any of the foregoing. Furthermore, effective trademark, copyright, and trade secret protection may not be available in every country in which our cloud services are available.
New investors in such issuances could also receive rights senior to those of holders of shares of our Class A common stock. The above factors may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
New investors in such issuances could also receive rights senior to those of holders of shares of our common stock. The above factors may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
In addition, our business could be harmed in the event of any industry consolidations, acquisitions or other restructuring events. For example, in September 2023, Toshiba Corp., one of our hard drive suppliers, announced the completion of a buy-out by various private equity firms and others.
In addition, our business could be harmed in the event of any industry consolidations, acquisitions, other restructuring events or bankruptcies. For example, in September 2023, Toshiba Corp., one of our hard drive suppliers, announced the completion of a buy-out by various private equity firms and others.
The preparation of consolidated financial statements in conformity with United States Generally Accepted Accounting Principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes appearing elsewhere in this Annual Report on Form 10-K.
The preparation of consolidated financial statements in conformity with United States Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes appearing elsewhere in this Annual Report on Form 10-K.
Significant estimates and assumptions involve those related to costs to be capitalized as internal-use software, which include determining whether projects will result in new or additional functionality and those related to the valuation of our Employee Stock Purchase Plan (“ESPP”) expense.
Significant estimates and assumptions involve those related to costs to be capitalized as internal-use software, which include determining whether projects will result in new or additional functionality and those related to the valuation of our Employee Stock Purchase Plan expense.
Ineffective disclosure controls and procedures and internal controls over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our Class A common stock.
Ineffective disclosure controls and procedures and internal controls over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock.
Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal controls over financial reporting until after we are no longer an “emerging growth company” as defined in the JOBS Act.
Our independent registered public accounting firm is not required to attest to the effectiveness of our internal controls over financial reporting until after we are no longer an “emerging growth company” as defined in the JOBS Act.
Our quarterly results of operations may fluctuate as a result of a variety of factors, many of which are outside of our control, and as a result may not fully reflect the underlying performance of our business. Fluctuation in quarterly results may negatively impact the trading price of our Class A common stock.
Our quarterly results of operations may fluctuate as a result of a variety of factors, many of which are outside of our control, and as a result may not fully reflect the underlying performance of our business. Fluctuation in quarterly results may negatively impact the trading price of our common stock.
The risks we face in connection with the opening and expansion of data centers include: • we may not be able to find suitable third-party data center locations with sufficient power, or bandwidth, or such data center locations may not be available on commercially reasonable terms; • we will be required to commit substantial operational and financial resources to open new data centers, and we may not have sufficient customer demand in those markets to support the new data centers; • unanticipated delays in the completion of such projects or availability of components may lead to increased project costs, operational inefficiencies, or interruptions in the delivery or degradation of quality of our service; • issues that are not identified during the testing phases of design and implementation, which may only become evident after we have started to fully utilize the underlying equipment, could disrupt the delivery of our cloud services to customers or increase our costs; and • unanticipated technological changes could affect customer requirements for data centers, and we may not have 20 Table of Contents built such requirements into our new data centers.
The risks we face in connection with the opening and expansion of data centers include: • we may not be able to find suitable third-party data center locations with sufficient power, or bandwidth, or such data center locations may not be available on commercially reasonable terms; • we will be required to commit substantial operational and financial resources to open new data centers, and we may not have sufficient customer demand in those markets to support the new data centers; • unanticipated delays in the completion of such projects or availability of components may lead to increased project costs, operational inefficiencies, or interruptions in the delivery or degradation of quality of our service; • issues that are not identified during the testing phases of design and implementation, which may only become evident after we have started to fully utilize the underlying equipment, could disrupt the delivery of our cloud services to customers or increase our costs; and • unanticipated technological changes could affect customer requirements for data centers, and we may not have built such requirements into our new data centers.
Factors that could cause fluctuations in the market price of our Class A common stock include the following: • price and volume fluctuations in the overall stock market from time to time; • volatility in the market prices and trading volumes of technology stocks; • changes in operating performance and stock market valuations of other technology companies generally or those in our industry in particular; • sales of shares of our Class A common stock by us or our stockholders; • failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow us, or our failure to meet these estimates or the expectations of investors; • the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections; • announcements by us or our competitors of new products or services; • the public’s reaction to our press releases, other public announcements, and filings with the SEC; • rumors and market speculation involving us or other companies in our industry; • actual or anticipated changes in our operating results or fluctuations in our operating results; • actual or anticipated developments in our business, our competitors’ businesses, or the competitive landscape generally; • litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors; • developments or disputes concerning our intellectual property or other proprietary rights; • announced or completed acquisitions of businesses or technologies by us or our competitors; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • changes in accounting standards, policies, guidelines, interpretations, or principles; • outbreaks of war or other hostilities; • any significant change in our management; • a return of pandemic conditions; and • general economic conditions and slow or negative growth of our markets.
Factors that could cause fluctuations in the market price of our common stock include the following: • price and volume fluctuations in the overall stock market from time to time; • volatility in the market prices and trading volumes of technology stocks; • changes in operating performance and stock market valuations of other technology companies generally or those in our industry in particular; • sales of shares of our common stock by us or our stockholders; • failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow us, or our failure to meet these estimates or the expectations of investors; • the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections; • announcements by us or our competitors of new products or services; • the public’s reaction to our press releases, other public announcements, and filings with the SEC; • rumors and market speculation involving us or other companies in our industry; • actual or anticipated changes in our operating results or fluctuations in our operating results; • actual or anticipated developments in our business, our competitors’ businesses, or the competitive landscape generally; • litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors; • developments or disputes concerning our intellectual property or other proprietary rights; 28 Table of Contents • announced or completed acquisitions of businesses or technologies by us or our competitors; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • changes in accounting standards, policies, guidelines, interpretations, or principles; • outbreaks of war or other hostilities; • any significant change in our management; • a return of pandemic conditions; and • general economic conditions and slow or negative growth of our markets.
The risks we face in connection with acquisitions include: • diversion of management time and focus from operating our business to addressing acquisition integration challenges; • coordination of research and development, operational, and sales and marketing functions; • retention of key employees from the acquired company; • cultural challenges associated with integrating employees from the acquired company into our organization; • integration of the acquired company’s accounting, management information, human resources, and other administrative systems; • the need to implement or improve controls, procedures, and policies at a business that prior to the acquisition may have lacked effective controls, procedures, and policies; • liability for activities of the acquired company prior to our acquisition of them, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities; • unanticipated write-offs or charges; and 18 Table of Contents • litigation or other claims in connection with the acquired company, including claims from terminated employees, customers, former stockholders, or other third parties.
The risks we face in connection with acquisitions include: • diversion of management time and focus from operating our business to addressing acquisition integration challenges; • coordination of research and development, operational, and sales and marketing functions; • retention of key employees from the acquired company; • cultural challenges associated with integrating employees from the acquired company into our organization; • integration of the acquired company’s accounting, management information, human resources, and other administrative systems; • the need to implement or improve controls, procedures, and policies at a business that prior to the acquisition may have lacked effective controls, procedures, and policies; • liability for activities of the acquired company prior to our acquisition of them, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities; • unanticipated write-offs or charges; and • litigation or other claims in connection with the acquired company, including claims from terminated employees, customers, former stockholders, or other third parties.
These risks include, among others: • We have a history of cumulative losses, and we do not expect to be profitable for the foreseeable future. • The markets in which we participate are intensely competitive, and if we do not compete effectively, our operating results would be harmed. • Any significant disruption in our service or loss, or delay in availability, of our customers’ data, could damage our reputation and harm our business and operating results. • If we are unable to maintain our brand and reputation, our business, results of operations, and financial condition may be adversely affected. • If our information technology systems, including the data of our customers stored in our systems, are breached or subject to cybersecurity attacks, our reputation and business may be harmed. • If we are unable to attract and retain customers on a cost-effective basis, our revenue and operating results would be adversely affected. • If we are unable to provide successful enhancements, new features, and modifications to our cloud services, our business could be adversely affected. • Material defects or errors in our software could negatively impact our business, harm our reputation, result in significant costs to us, and negatively impact our ability to sell our cloud services. • We rely on third-party vendors and suppliers, including data center and hard drive providers, which may have limited sources of supply, and this reliance exposes us to potential supply and service disruptions that could harm our business. • Our business depends, in part, on the success of our strategic relationships with third parties. • We have identified material weaknesses in our internal controls over financial reporting, and the failure to achieve and maintain effective internal controls over financial reporting could harm our business and negatively impact the value of our Class A common stock. 7 Table of Contents Risks Related to Our Business and Our Industry We have a history of cumulative losses, and we do not expect to be profitable for the foreseeable future.
These risks include, among others: • We have a history of cumulative losses, and we do not expect to be profitable for the foreseeable future. • The markets in which we participate are intensely competitive, and if we do not compete effectively, our operating results would be harmed. • Any significant disruption in our service or loss, or delay in availability, of our customers’ data, could damage our reputation and harm our business and operating results. • If we are unable to maintain our brand and reputation, our business, results of operations, and financial condition may be adversely affected. • If our information technology systems, including the data of our customers stored in our systems, are breached or subject to cybersecurity attacks, our reputation and business may be harmed. • If we are unable to attract and retain customers on a cost-effective basis, our revenue and operating results would be adversely affected. • If we are unable to provide successful enhancements, new features, and modifications to our cloud services, our business could be adversely affected. • Material defects or errors in our software could negatively impact our business, harm our reputation, result in significant costs to us, and negatively impact our ability to sell our cloud services. • We rely on third-party vendors and suppliers, including data center and hard drive providers, which may have limited sources of supply, and this reliance exposes us to potential supply and service disruptions that could harm our business. • Our business depends, in part, on the success of our strategic relationships with third parties. • Although we have previously identified and remediated material weaknesses in our internal controls over financial reporting, we could experience material weaknesses in the future and the failure to achieve and maintain effective internal controls over financial reporting could harm our business and negatively impact the value of our common stock. 7 Table of Contents Risks Related to Our Business and Our Industry We have a history of cumulative losses, and we do not expect to be profitable for the foreseeable future.
Risks Related to Ownership of Our Class A Common Stock Anti-takeover provisions contained in our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
Risks Related to Ownership of Our Common Stock Anti-takeover provisions contained in our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
Under Sections 382 and 383 of the Code, if a corporation undergoes an “ownership change,” our ability to use pre-change net operating loss carryforwards and other pre-change attributes, such as research tax credits, to offset post-change income may be limited. Similar rules may apply under state tax laws. We have performed a Section 382 analysis through December 31, 2022.
Under Sections 382 and 383 of the Code, if a corporation undergoes an “ownership change,” our ability to use pre-change net operating loss carryforwards and other pre-change attributes, such as research tax credits, to offset post-change income may be limited. Similar rules may apply under state tax laws. We have performed a Section 382 analysis through December 31, 2024.
Among other things, our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws include provisions: • creating a classified Board of Directors whose members serve staggered three-year terms; • authorizing “blank check” preferred stock, which could be issued by our Board of Directors without stockholder approval and may contain voting, liquidation, dividend, and other rights superior to our common stock; • limiting the liability of, and providing indemnification to, our directors and officers; • limiting the ability of our stockholders to call and bring business before special meetings; • requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our Board of Directors; and • controlling the procedures for the conduct and scheduling of Board of Directors and stockholder meetings.
Among other things, our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws include provisions: • creating a classified Board of Directors whose members serve staggered three-year terms; • authorizing “blank check” preferred stock, which could be issued by our Board of Directors without stockholder approval and may contain voting, liquidation, dividend, and other rights superior to our common stock; • limiting the liability of, and providing indemnification to, our directors and officers; • limiting the ability of our stockholders to call and bring business before special meetings; • requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our Board of Directors; and 27 Table of Contents • controlling the procedures for the conduct and scheduling of Board of Directors and stockholder meetings.
The market price of our Class A common stock could decline as a result of sales of a large number of shares of our Class A common stock in the market, and the perception that these sales could occur may also depress the market price of our Class A common stock.
The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market, and the perception that these sales could occur may also depress the market price of our common stock.
It cannot be predicted whether, when, in what form or with what effective dates tax laws, regulations and rulings may be enacted, promulgated or issued, which could result in an increase in our or our shareholders’ tax liability or require changes in the manner in which we operate in order to minimize or mitigate any adverse effects of changes in tax law.
It cannot be predicted whether, when, in what form or with what effective dates tax laws, regulations and rulings may be enacted, promulgated or issued, which could result in an increase in our or our stockholders’ tax liability or require changes in the manner in which we operate in order to minimize or mitigate any adverse effects of changes in tax law.
We may also expand our international operations, which may include the establishment of foreign subsidiaries, the opening and expansion of data centers, hiring employees, building out technical infrastructure, and opening offices in foreign jurisdictions. Any new markets or countries into which we attempt to market and sell our cloud services may not be receptive.
We may continue to expand our international operations, which may include the establishment of foreign subsidiaries, the opening and expansion of data centers, hiring employees, building out technical infrastructure, and opening offices in foreign jurisdictions. Any new markets or countries into which we attempt to market and sell our cloud services may not be receptive.
For example, we may be subject to claims brought by customers, vendors or other third parties in connection with various types of disputes, including relating to commercial or contract matters, violation of securities laws, intellectual property laws or other laws, or privacy or other data breaches, or employment claims made by our current or former employees.
For example, we are and may be subject to claims brought by customers, vendors or other third parties in connection with various types of disputes, including relating to commercial or contract matters, violation of securities laws, intellectual property laws or other laws, or privacy or other data breaches, or employment claims made by our current or former employees.
We expect it will be more difficult and expensive to attract and retain mid-market organization customers than other customers because mid-market organizations are more frequently forced to curtail or cease operations due to the sale or failure of their business; can be more difficult to identify and may require more expensive, targeted sales campaigns; and generally have lesser amounts of data to store than larger organizations, thus requiring us to successfully sell to and support more mid-market organizations for meaningful revenue impact.
We expect it will be more difficult and expensive to attract and 17 Table of Contents retain mid-market organization customers than other customers because mid-market organizations are more frequently forced to curtail or cease operations due to the sale or failure of their business; can be more difficult to identify and may require more expensive, targeted sales campaigns; and generally have lesser amounts of data to store than larger organizations, thus requiring us to successfully sell to and support more mid-market organizations for meaningful revenue impact.
In addition, our daily trading volume may be limited and significantly less than the amount of shares available for sale. In the event that the number of our Class A common stock shares offered for sale on any given day exceeds the existing demand for our shares, it may cause our stock price to fall.
In addition, our daily trading volume may be limited and significantly less than the amount of shares available for sale. In the event that the number of our common stock shares offered for sale on any given day exceeds the existing demand for our shares, it may cause our stock price to fall.
In addition, because we offer our Computer Backup cloud service at a fixed price, the amount of data our customers back up affects our costs and gross margins. Subject to certain limitations, we also offer free egress for our B2 Cloud Storage customers.
In addition, because we offer our Computer Backup cloud service at a fixed price, the amount of data our customers back up affects our costs and gross margins. Subject to certain limitations, we also offer up to three times free egress for our B2 Cloud Storage customers.
We may become subject to legal proceedings, investigations, and claims that arise in the ordinary course of business.
We are and may become subject to legal proceedings, investigations, and claims that arise in the ordinary course of business.
Infrastructure and Third Parties We rely on third-party vendors and suppliers, including data center and hard drive providers, which may have limited sources of supply, and this reliance exposes us to potential supply and service disruptions that could harm our business.
Risks Related to Reliance on Infrastructure and Third Parties We rely on third-party vendors and suppliers, including data center and hard drive providers, which may have limited sources of supply, and this reliance exposes us to potential supply and service disruptions that could harm our business.
We rely on third-party software for certain essential financial and operational services, and a failure or disruption in these services could materially and adversely affect our ability to manage our business effectively. We rely on third-party software to provide many essential financial and operational services to support our business, including HubSpot, NetSuite, PagerDuty, and Zendesk.
We rely on third-party software for certain essential financial and operational services, and a failure or disruption in these services could materially and adversely affect our ability to manage our business effectively. We rely on third-party software to provide many essential financial and operational services to support our business, including HubSpot, NetSuite, FireHydrant, and Zendesk.
Sales of a substantial number of our Class A common stock in the public market could cause our share price to fall.
Sales of a substantial number of our common stock in the public market could cause our share price to fall.
Many of our competitors and potential competitors are larger and have greater name and brand recognition; much longer operating histories; larger marketing budgets for the development, promotion and sale of their products or services; broader service offerings and capabilities; and significantly greater resources than we do.
Many of our competitors and potential competitors are larger and have greater name and brand recognition; longer operating histories; larger budgets for the development, promotion and sale of their products or services; broader service offerings and capabilities; and significantly greater resources than we do.
Our brand promotion activities may not be successful or yield increased revenue. The promotion of our brand may require us to make substantial expenditures, particularly if our markets become more competitive and we expand into new markets or offer new products or services, or additional features.
Our brand promotion activities may not be successful or yield increased revenue. The promotion of our brand may require us to make substantial expenditures, particularly as our markets become more competitive and we expand into new markets or offer new products or services, or additional features.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business, our market, or our competitors, or if they adversely change their recommendations regarding our Class A common stock, the market price of our Class A common stock and trading volume could decline.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business, our market, or our competitors, or if they adversely change their recommendations regarding our common stock, the market price of our common stock and trading volume could decline.
This bankruptcy matter was resolved without disruption 8 Table of Contents to our normal operations, but future bankruptcies or similar events affecting our third-party hosted data center providers could result in disruptions to our Company, access to customer data may become unavailable or customer data could be lost, and it may take a significant period of time to achieve full resumption of our cloud services.
This bankruptcy matter was resolved without disruption to our normal operations, but future bankruptcies or similar events affecting our third-party hosted data center providers could result in disruptions to our Company, access to customer data may become unavailable or customer data could be lost, and it may take a significant period of time to achieve full resumption of our cloud services.
The market price of our Class A common stock has been, and will likely continue to be, volatile, and you could lose all or part of your investment. Prior to the listing of our Class A common stock, there was no public market for shares of our Class A common stock.
The market price of our common stock has been, and will likely continue to be, volatile, and you could lose all or part of your investment. Prior to the listing of our common stock, there was no public market for shares of our common stock.
As a result, our revenue could be reduced as a result of any general or industry decline in demand for cloud-based storage solutions, particularly given that we would not have meaningful revenue from other market sectors to offset any temporary or longer-term downturn in demand for cloud-based storage solutions. 17 Table of Contents Adverse economic conditions may adversely impact our revenue and profitability.
As a result, our revenue could be reduced as a result of any general or industry decline in demand for cloud-based storage solutions, particularly given that we would not have meaningful revenue from other market sectors to offset any temporary or longer-term downturn in demand for cloud-based storage solutions. Adverse economic conditions may adversely impact our revenue and profitability.
We may also issue additional shares of our Class A common stock, convertible securities or other equity, including pursuant to our equity compensation plans. Such issuances could be dilutive to investors and could cause the price of shares of our Class A common stock to decline.
We may also issue additional shares of our common stock, convertible securities or other equity, including pursuant to our equity compensation plans. Such issuances could be dilutive to investors and could cause the price of shares of our common stock to decline.
Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions. Risks Related to Intellectual Property Assertions by a third party that our cloud services infringe, misappropriate, or otherwise violate their intellectual property could subject us to costly and time-consuming litigation and adversely impact our business.
Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions. 25 Table of Contents Risks Related to Intellectual Property Assertions by a third party that our cloud services infringe, misappropriate, or otherwise violate their intellectual property could subject us to costly and time-consuming litigation and adversely impact our business.
Even if we are successful, we cannot assure you that these relationships will result in increased customer usage of our cloud services or increased revenue. 21 Table of Contents Our business is exposed to risks associated with online payment processing methods. Many of our customers pay for our cloud services and products using credit cards.
Even if we are successful, we cannot assure you that these relationships will result in increased customer usage of our cloud services or increased revenue. Our business is exposed to risks associated with online payment processing methods. Many of our customers pay for our cloud services and products using credit cards.
If any of the analysts who may cover us adversely change their recommendations regarding our Class A common stock or provide more favorable recommendations about our competitors, the market price of our Class A common stock would likely decline.
If any of the analysts who may cover us adversely change their recommendations regarding our common stock or provide more favorable recommendations about our competitors, the market price of our common stock would likely decline.
Certain types of customers may also have longer sales cycles, less predictability or higher volatility in the amount of data they store with us, increased pricing or negotiation leverage, and increased customer education and overall customer engagement needs. In addition, some customers may demand more customization, integration, and support services.
Certain types of customers may also have longer sales cycles, less predictability or higher volatility in the amount of data they store with us, increased pricing or negotiation leverage, and increased customer education, prolonged contract negotiations and overall customer engagement needs. In addition, some customers may demand more customization, integration, and support services.
If there are any limitations or errors with respect to such data or methodologies, our business opportunities may be limited, which could negatively affect our shares of Class A common stock.
If there are any limitations or errors with respect to such data or methodologies, our business opportunities may be limited, which could negatively affect our shares of common stock.
We cannot ensure that we will be able to retain the services of any member of our senior management or other key employees, particularly given that some of these employees may hold equity of the Company that is largely vested, or that we would be able to timely replace members of our senior management or other key employees should any of them depart.
We cannot ensure that we will be able to retain the services of any member of our senior management or other key employees, 14 Table of Contents particularly given that some of these employees may hold equity of the Company that is largely vested, or that we would be able to timely replace members of our senior management or other key employees should any of them depart.
Since our IPO, the stock price of our Class A common stock has experienced very high volatility and the market prices of securities of other newly public companies have historically been highly volatile.
Since our IPO, the stock price of our common stock has experienced very high volatility and the market prices of securities of other newly public companies have historically been highly volatile.
Competition for executive officers, software developers, sales personnel, operational personnel, and other key employees in our industry is intense. In particular, we compete with many other companies for software developers with high levels of experience in designing, 14 Table of Contents developing, and managing cloud-based software, as well as for skilled sales and operations professionals.
Competition for executive officers, software developers, sales personnel, operational personnel, and other key employees in our industry is intense. In particular, we compete with many other companies for software developers with high levels of experience in designing, developing, and managing cloud-based software, as well as for skilled sales and operations professionals.
For example, a third party vendor that operated one of our multiple data center locations, filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code in 2022.
Also, a third party vendor that operated one of our multiple data center locations filed for bankruptcy under Chapter 11 under the United States Bankruptcy Code in 2022.
Our growth has placed, and future growth will continue to place, a significant strain on our management, corporate culture, quality of our cloud services, and administrative, operational, security, and financial infrastructure.
Our growth has placed, and future growth may continue to place, a significant strain on our management, corporate culture, quality of our cloud services, and administrative, operational, security, and financial infrastructure.
The trading market for our Class A common stock will be influenced by the research and reports that securities or industry analysts may publish about us, our business, our market, or our competitors.
The trading market for our common stock will be influenced by the research and reports that securities or industry analysts may publish about us, our business, our market, or our competitors.
Our recent price increase for Computer Backup and B2 Cloud Storage could make it more difficult to attract new customers and retain existing customers, or cause existing customers to reduce the amount of data that they store with us or subscriptions they purchase from us.
Our recent price increase for Computer Backup and B2 Cloud Storage could make it more difficult to attract new customers and retain existing customers, or cause existing customers to reduce the amount of data that they store with us or 12 Table of Contents subscriptions they purchase from us.
Any such sales also could cause the market price of our Class A common stock to fall and make it more difficult for you to sell shares of our Class A common stock.
Any such sales also could cause the market price of our common stock to fall and make it more difficult for you to sell shares of our common stock.
In some circumstances, we may choose to do so through the acquisition of complementary businesses and technologies rather than through internal development. The identification of suitable acquisition candidates can be difficult, time-consuming, and costly, and we may be unable to successfully complete proposed acquisitions.
In some circumstances, we may choose to do so through the acquisition of 18 Table of Contents complementary businesses and technologies rather than through internal development. The identification of suitable acquisition candidates can be difficult, time-consuming, and costly, and we may be unable to successfully complete proposed acquisitions.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act), the Sarbanes-Oxley Act, and the rules and regulations of the Nasdaq Global Market.
As a public company, we are subject to the reporting requirements of the Exchange Act, as amended (the Exchange Act), the Sarbanes-Oxley Act, and the rules and regulations of the Nasdaq Global Market.
Also, the use of generative artificial intelligence, or other societal or political 9 Table of Contents developments resulting in periods of increased political tensions and military conflicts, could result in a greater likelihood of cybersecurity incidents that could either directly or indirectly impact our operations.
Also, the use of generative artificial intelligence, or other societal or political developments resulting in periods of increased political tensions and military conflicts, could result in a greater likelihood of cybersecurity incidents that could either directly or indirectly impact our operations.
Factors that may cause fluctuations in our quarterly results of operations include, without limitation: • our ability to attract new customers; • the amount of customer churn; • fluctuations in the amount of data customers store with us; • the amount and timing of operating expenses and equipment purchases related to the maintenance and expansion of our business; • interruptions or loss of service of our offerings; • the timing and success of new product feature and service introductions by us or our competitors; • our ability to retain and increase revenue from customers; • changes in deferred revenue balances; • changes in or timing of cash flows; • changes in the competitive dynamics of our industry, including consolidation among competitors; 13 Table of Contents • security breaches of our systems; • our involvement in litigation, or the threat thereof; • the length of the sales cycle; • outbreaks of war or other hostilities, such as the Russia-Ukraine and Israel-Hamas hostilities; • inflation in the United States, which has recently hit a four decade high, and other regions; • the impact of pandemics on our business or that of our customers and partners; • the timing of expenses and receipt of perceived benefits related to any acquisitions; • changes in laws and regulations that impact our business; and • general economic and market conditions.
Factors that may cause fluctuations in our quarterly results of operations include, without limitation: • our ability to attract new customers; • the amount of customer churn; • fluctuations in the amount of data customers store with us; • the amount and timing of operating expenses and equipment purchases related to the maintenance and expansion of our business; 13 Table of Contents • interruptions or loss of service of our offerings; • the timing and success of new product feature and service introductions by us or our competitors; • our ability to retain and increase revenue from customers; • changes in deferred revenue balances; • changes in or timing of cash flows; • changes in the competitive dynamics of our industry, including consolidation among competitors; • security breaches of our systems; • our involvement in litigation, or the threat thereof; • the length of the sales cycle; • the amount and timing of sales commissions, particularly with respect to pipeline, that may precede or exceed the actual corresponding revenue we receive; • outbreaks of war or other hostilities, such as the Russia-Ukraine and Israel-Hamas hostilities; • inflation in the United States, which has recently hit a four decade high, and other regions; • the impact of pandemics on our business or that of our customers and partners; • the timing of expenses and receipt of perceived benefits related to any acquisitions; • changes in laws and regulations that impact our business; and • general economic and market conditions.
In the event of a shortage, supply interruption, material pricing change or other significant events involving one of our suppliers, we may be unable to develop alternate sources in a timely manner or at all.
In the event of a shortage, supply interruption, material pricing change or other significant events involving 21 Table of Contents one of our suppliers, we may be unable to develop alternate sources in a timely manner or at all.
In the event that we become 26 Table of Contents subject to such claims, we could be subject to significant damages, enjoined from the sale of our solutions that contained the open-source software, and required to comply with onerous conditions.
In the event that we become subject to such claims, we could be subject to significant damages, enjoined from the sale of our solutions that contained the open-source software, and required to comply with onerous conditions.
Although we have taken, and continue to take, various actions to prevent and mitigate potential cybersecurity attacks, it is very difficult to successfully identify, stop, or resolve such attacks, or implement adequate preventative measures and we will continue to incur costs in our efforts to protect against and respond to cyber-attacks and potential cyber-attacks.
Although we have taken, and continue to take, various actions to prevent and mitigate potential cybersecurity attacks, it is very difficult to successfully identify, stop, or resolve such attacks, or implement adequate preventative measures and we will 9 Table of Contents continue to incur costs in our efforts to protect against and respond to cyber-attacks and potential cyber-attacks.
Our efforts to comply with the complex matrix of data privacy 16 Table of Contents laws around the world subjects us to increasing costs to review and comply with such laws, including updating our policies, procedures, and business practices to address such evolving privacy laws.
Our efforts to comply with the complex matrix of data privacy laws around the world subjects us to increasing costs to review and comply with such laws, including updating our policies, procedures, and business practices to address such evolving privacy laws.
As a result of disclosure of information in filings required of a public company, our business and financial condition has become more visible, which may result in threatened or actual litigation, including by competitors.
As a result of disclosure 30 Table of Contents of information in filings required of a public company, our business and financial condition has become more visible, which may result in threatened or actual litigation, including by competitors.
If our guidance is 28 Table of Contents not accurate or varies from actual results due to our inability to meet our assumptions or the impact on our financial performance that could occur as a result of various risks and uncertainties, the market value of our Class A common stock could decline significantly.
If our guidance is not accurate or varies from actual results due to our inability to meet our assumptions or the impact on our financial performance that could occur as a result of various risks and uncertainties, the market value of our common stock could decline significantly.
Although we take measures to protect our systems and sensitive information from unauthorized access or disclosure, third parties may be able to circumvent our security by deploying viruses, worms, and other malicious software programs that are designed to attack or attempt to infiltrate our systems and networks, including distributed denial of service (DDoS) or phishing attacks, that can undermine the availability and performance of our systems and cloud services, resulting in the blocking of our services by ISPs or governments, fraudulently steal data, or otherwise cause damage to our reputation.
Although we take measures to protect our systems and sensitive information from unauthorized access or disclosure, third parties may be able to circumvent our security by deploying viruses, worms, and other malicious software programs that are designed to attack or attempt to infiltrate our systems and networks, including distributed denial of service (DDoS) or phishing attacks, that can undermine the availability and performance of our systems and cloud services, lead to the blocking of our services by ISPs or governments, fraudulently steal data, or otherwise cause damage to our reputation and negatively impact us and our customers.
If we become more exposed to currency fluctuations and are unable to successfully 19 Table of Contents hedge against the risks associated with currency fluctuations, our results of operations could be materially and adversely affected.
If we become more exposed to currency fluctuations and are unable to successfully hedge against the risks associated with currency fluctuations, our results of operations could be materially and adversely affected.
For example, a third party vendor that operated one of our multiple data center locations filed for bankruptcy under Chapter 11 under the United States Bankruptcy Code in 2022.
For example, a third party vendor that operated one of our multiple data center locations, filed for bankruptcy under Chapter 11 of the United States 8 Table of Contents Bankruptcy Code in 2022.
Many of the companies with which we compete for experienced personnel have greater resources than we do and can frequently offer such personnel substantially greater compensation than we can offer. In addition, in 2024 we implemented a new commission structure for our sales team.
Many of the companies with which we compete for experienced personnel have greater resources than we do and can frequently offer such personnel substantially greater compensation than we can offer. In addition, in 2024 we implemented a new commission structure for our sales team and expect to periodically optimize our commission structure.
We must continue to effectively manage our data center capacity, servers and equipment, and locations. The costs of building out and maintaining our data centers, including the purchase and leasing of equipment, constitute a significant portion of our capital and operating expenses.
We must continue to effectively manage our infrastructure, including capital expenditures to maintain and expand our data center capacity, servers and equipment, and locations. The costs of building out and maintaining our data centers, including the purchase and leasing of equipment, constitute a significant portion of our capital and operating expenses.
We cannot guarantee that we have entered into such agreements with each party that may have or has had access to our trade secrets or proprietary information, including our technology and processes.
We cannot guarantee that we have entered into such agreements with each 26 Table of Contents party that may have or has had access to our trade secrets or proprietary information, including our technology and processes.
Our future financial performance also depends in part on our ability to continue to increase revenue from our customers through additional paid products, such as Enterprise Control and multi-region selection. Our customers’ decision whether to opt for additional paid products is driven by a number of factors.
Our future financial performance also depends in part on our ability to continue to increase revenue from our customers through new features and additional paid products, such as Event Notifications, Live Read, Enterprise Control and multi-region selection. Our customers’ decision whether to opt for additional paid products is driven by a number of factors.
Furthermore, we could be required to pay substantial monetary damages, including treble damages and attorneys’ fees if we are found to have 25 Table of Contents willfully infringed a party’s intellectual property rights.
Furthermore, we could be required to pay substantial monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a party’s intellectual property rights.
Specifically, our Amended and Restated Certificate of Incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum provision for: (i) any derivative action or proceeding brought on behalf of us; (ii) any action asserting a claim of breach of a fiduciary duty; (iii) any action arising pursuant to any provision of the DGCL, our Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws (as either may be amended from time to time); (iv) any action to interpret, apply, enforce, or determine the validity of our Amended and Restated Certificate of Incorporation or our Amended and Restated Bylaws; (v) any action asserting a claim against us that is governed by the internal affairs doctrine; or (vi) any action asserting an “internal corporate claim” as defined in the DGCL. 29 Table of Contents These exclusive forum provisions would not apply to suits brought to enforce a duty or liability created by the Exchange Act.
Specifically, our Amended and Restated Certificate of Incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum provision for: (i) any derivative action or proceeding brought on behalf of us; (ii) any action asserting a claim of breach of a fiduciary duty; (iii) any action arising pursuant to any provision of the DGCL, our Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws (as either may be amended from time to time); (iv) any action to interpret, apply, enforce, or determine the validity of our Amended and Restated Certificate of Incorporation or our Amended and Restated Bylaws; (v) any action asserting a claim against us that is governed by the internal affairs doctrine; or (vi) any action asserting an “internal corporate claim” as defined in the DGCL.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited. As of December 31, 2023 we had net operating loss carryforwards for U.S. federal income tax purposes of $91.4 million available to offset future U.S. federal taxable income.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited. As of December 31, 2024, we had net operating loss carryforwards for U.S. federal income tax purposes of $123.3 million available to offset future U.S. federal taxable income.
For example, our facilities as well as the data centers that we use are vulnerable to damage or interruption from human error, intentional bad acts, extreme weather, earthquakes, floods, fires, war or other military conflict, including the conflicts between Russia-Ukraine and Israel-Hamas, which may further escalate and could directly or indirectly involve other countries, including the United States, terrorist attacks, cybersecurity attacks or the risk of potential cybersecurity attacks, power losses, hardware failures, systems failures, telecommunications failures, and similar events, any of which could disrupt our service, destroy user content, or prevent us from being able to continuously back up or record changes in our users’ content.
Our facilities and data centers are also vulnerable to damage or interruption from human error, intentional bad acts, war or other military conflict, including the conflicts between Russia-Ukraine and Israel-Hamas, which may further escalate and could directly or indirectly involve other countries, including the United States, terrorist attacks, cybersecurity attacks or the risk of potential cybersecurity attacks, power losses, hardware failures, systems failures, telecommunications failures, and similar events, any of which could disrupt our service, destroy user content, or prevent us from being able to continuously back up or record changes in our users’ content.
In addition, we may also be subject to subpoena requests from third parties as well as governmental agencies from time to time that require us to provide certain information relating to matters targeted against other third parties, which can be time consuming.
In addition, we are also and may also be subject to subpoena requests from third parties as well as governmental agencies 20 Table of Contents from time to time that require us to provide certain information relating to matters targeted against other third parties, which can be time consuming.
In addition, we regularly encounter attempts to create false or undesirable user accounts, which can disrupt our systems, impair system performance and impact analytics.
In addition, we regularly encounter attempts to create false or undesirable user accounts and various types of DDoS attacks, which can disrupt our systems, impair system performance and impact analytics.
In the event of a failure of any financial institutions where we maintain deposits, we may lose timely access to our funds at such institutions and incur significant losses to the extent our funds exceed the $250,000 limit insured by the Federal Deposit Insurance Corporation. In addition, we use City National Bank, a subsidiary of RBC, for our banking needs.
In the event of a failure of any financial institutions where we maintain deposits, we may lose timely access to our funds at such institutions and incur significant losses to the extent our funds exceed the $250,000 limit insured by the Federal Deposit Insurance Corporation. In addition, we use one or more commercial banks for our banking needs.
Our ability to obtain additional financing, if and when required, will depend on investor and lender demand, our operating performance, the condition of the capital markets, and other factors. For example, we often use leases to finance the equipment we use to provide our cloud-based services, and we have a revolving credit agreement with City National Bank.
Our ability to obtain additional financing, if and when required, will depend on investor and lender demand, our operating performance, the condition of the capital markets, and other factors. For example, we often use leases to finance the equipment we use to provide our cloud-based services.
Current or future supply chain interruptions that could be exacerbated by global political tensions, such as the Russia-Ukraine and Israel-Hamas hostilities, or tensions between Taiwan and China, particularly if those tensions escalate into an armed conflict or directly or indirectly involve other countries, including the United States, that could disrupt the global supply chain and result in the implementation of trade barriers, including boycotts or the use of economic sanctions and export control restrictions, any of which could negatively impact our ability to acquire hard drives and semiconductors.
Current or future supply chain interruptions could be triggered or exacerbated by global political tensions, such as the imposition, or threat of potential imposition, of tariffs or other trade restrictions, hostilities or tensions such as the Russia-Ukraine, Israel-Hamas and China-Taiwan conflicts, particularly if those tensions escalate into an armed conflict or directly or indirectly involve other countries, which may include the implementation of trade barriers, including boycotts or the use of economic sanctions and export control restrictions, any of which could negatively impact our ability to acquire hard drives and semiconductors.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeOur CISO and other key personnel also frequently engage with key vendors, industry groups, and law enforcement communities as part of our continuing efforts to improve our cybersecurity program. Experience Our CISO has 30 years of experience working in cybersecurity, IT, governance, risk management, regulatory compliance, and data protection and privacy program design and implementation.
Biggest changeThe Audit Committee also receives information regarding cybersecurity incidents, including prompt updates for any cybersecurity incidents that may be deemed material events impacting us and which might require public disclosure. Our CISO and other key personnel also frequently engage with key vendors, industry groups, and law enforcement communities as part of our continuing efforts to improve our cybersecurity program.
Our customers rely on our solutions to store, use and protect their files, which may include confidential or personally identifiable information, critical business information, photographs, and other meaningful content. A successful cybersecurity attack could adversely affect the confidentiality, integrity, and availability of our information systems or any data residing therein.
Our customers rely on our solutions to store, use and protect their files, which may include confidential or personally identifiable information, critical business information, and other meaningful content. A successful cybersecurity attack could adversely affect the confidentiality, integrity, and availability of our information systems or any data residing therein.
We generally conduct a security risk assessment based on the potential for harm prior to onboarding of any such new services and include security and privacy addenda to our contracts where applicable. • Education and Awareness: We have established a security and privacy awareness program that runs throughout the year and includes training for all company personnel to enhance employee awareness of how to detect and respond to cybersecurity threats as well as more targeted training for company personnel that have increased responsibility for mitigating certain potential cybersecurity risks.
We generally 31 Table of Contents conduct a security risk assessment based on the potential for harm prior to onboarding of any such new services and include security and privacy addenda to our contracts where applicable. • Education and Awareness: We have established a security and privacy awareness program that runs throughout the year and includes training for all company personnel to enhance employee awareness of how to detect and respond to cybersecurity threats as well as more targeted training for company personnel that have increased responsibility for mitigating certain potential cybersecurity risks.
For more information relating to cybersecurity risks and uncertainties, please see the risk factor entitled “If our information technology systems, including the data of our customers stored in our systems, are breached or subject to cybersecurity attached, our reputation and business may be harmed” in Part I, Item 1A, and other risk factors in this 10-K.
For more information relating to cybersecurity risks and uncertainties, please see the risk factor entitled “If our information technology systems, including the data of our customers stored in our systems, are breached or subject 32 Table of Contents to cybersecurity attached, our reputation and business may be harmed” in Part I, Item 1A, and other risk factors in this 10-K.
We dedicate significant effort and resources to protect our systems and data, as well as the data of our customers from cybersecurity threats. We are dependent on internal and external information technology systems and 30 Table of Contents infrastructure to securely process, transmit, and store critical information.
We dedicate significant effort and resources to protect our systems and data, as well as the data of our customers from cybersecurity threats. We are dependent on internal and external information technology systems and infrastructure to securely process, transmit, and store critical information.
Governance Our Board of Directors, in coordination with its committees, with input from the Risk Management Committee, oversees our enterprise risk management process, including the risks arising from cybersecurity threats.
Governance Our Board of Directors, in coordination with its committees, with input from the Risk Management Committee, a cross-functional committee comprised of our executives and other leaders of various departments, oversees our enterprise risk management process, including the risks arising from cybersecurity threats.
Our CISO also regularly provides updates to the Audit Committee on our cybersecurity program, including recent developments, key initiatives to strengthen our systems, applicable industry standards, vulnerability assessments, third-party and independent reviews, and other information security considerations. 31 Table of Contents The Audit Committee also receives information regarding cybersecurity incidents, including prompt updates for any cybersecurity incidents that may be deemed material events impacting us and which might require public disclosure.
Our CISO also regularly provides updates to the Audit Committee on our cybersecurity program, including recent developments, key initiatives to strengthen our systems, applicable industry standards, vulnerability assessments, third-party and independent reviews, and other information security considerations.
He previously served as the Chief Information Security Officer at multiple federal healthcare contractor organizations, and also served as the Director of IT Security at a publicly traded international satellite radio company. He is an IAPP Fellow of Information Privacy and holds over 35 security, privacy, and risk management certifications.
Experience Our CISO has 30 years of experience working in cybersecurity, IT, governance, risk management, regulatory compliance, and data protection and privacy program design and implementation. He previously served as the Chief Information Security Officer at multiple federal healthcare contractor organizations, and also served as the Director of IT Security at a publicly traded international satellite radio company.
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He is an IAPP Fellow of Information Privacy, holds a GIAC Law of Data Security and Investigations certification, and also holds approximately 40 security, privacy, and risk management certifications.
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As is common in the industry, we also experience periodic phishing and distributed denial-of-service (DDoS) attacks.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our corporate headquarters is located in San Mateo, California and consists of approximately 24,000 square feet of space under a lease agreemen t which expires in 2029. We also lease space in multiple data centers located domestically in California, Arizona and Virginia, and one data center located internationally in Amsterdam, in the Netherlands.
Biggest changeItem 2. Properties Our corporate headquarters is located in San Mateo, California and consists of approximately 24,000 square feet of space, including approximately 12,000 square feet of space subject to a potential sublease to a third party, under a lease agreemen t which expires in 2029.
We lease all of our facilities and do not own any real property. We expect to add facilities as we grow our employee base, our Backblaze Storage Cloud platform and expand geographically, and may also elect to consolidate the locations of the data centers we use as well as other operation centers from time to time to address our needs.
We may add facilities as we grow our employee base, expand our Backblaze Storage Cloud platform, and may also elect to consolidate the locations of the data centers we use as well as other operation centers from time to time to address our needs and strategy.
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We also lease space in multiple data centers located domestically in California, Arizona and Virginia, and data centers located internationally in Amsterdam, the Netherlands and Toronto, Canada. We lease all of our facilities and do not own any real property.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeRegardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors. Item 4. Mine Safety Disclosures Not applicable. 32 Table of Contents Part II
Biggest changeRegardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors. Item 4. Mine Safety Disclosures Not applicable. 33 Table of Contents Part II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 32 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 33 Item 6. Reserved 33 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 34 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 52 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 33 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 34 Item 6. Reserved 34 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 35 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 51 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe net proceeds to us after deducting underwriting discounts and commissions were approximately $103.0 million. All of the shares issued and sold in our IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333- 260333), which was declared effective by the SEC on November 10, 2021.
Biggest changeAll of the shares issued and sold in our Follow-On Offering were registered under the Securities Act pursuant to a registration statement on Form S-3 (File No. 333-279033), which was filed with the SEC on May 10, 2024 and declared effective by the SEC on May 13, 2024, and Prospectus Supplement filed with the SEC on November 21, 2024 pursuant to Rule 424(b)(5).
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market information Our Class A common stock has been listed on The Nasdaq Stock Market LLC under the symbol “BLZE” since November 11, 2021. Prior to that date, there was no public trading market for our common stock.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market information Our Class A common stock (“common stock”) has been listed on The Nasdaq Global Market under the symbol “BLZE” since November 11, 2021. Prior to that date, there was no public trading market for our common stock.
We currently intend to retain all available funds and any future earnings for the operation and expansion of our business. Additionally, our ability to pay dividends is limited by restrictions on our ability to pay dividends or make distributions under the terms of our credit facility. Accordingly, we do not anticipate declaring or paying dividends in the foreseeable future.
Dividend Policy We have never declared or paid any dividends on our common stock. We currently intend to retain all available funds and any future earnings for the operation and expansion of our business. Additionally, our ability to pay dividends is limited by restrictions on our ability to pay dividends or make distributions under the terms of our credit facility.
Because many of our shares of Class A common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial owners of our Class A common stock represented by these record holders. Dividend Policy We have never declared or paid any dividends on our common stock.
Holders of Record As of February 28, 2025 , there were 12 sto ckholders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial owners of our common stock represented by these record holders.
There has been no material change in the planned use of proceeds from our IPO from those disclosed in the Final Prospectus for our IPO dated as of November 10, 2021 and filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act, as amended, on November 12, 2021.
There has been no material change in the planned use of proceeds from the offering from those disclosed in the Prospectus Supplement dated as of November 21, 2024 and filed with the SEC on November 21, 2024.
Recent Sales of Unregistered Securities Not applicable. Issuer Repurchases of Securities None. Use of Proceeds In November 2021, we completed our initial public offering (“IPO”), in which we issued and sold an aggregate of 7,187,500 shares of our Class A common stock at a public offering price of $16.00 per share, which resulted in gross proceeds of $115.0 million.
Recent Sales of Unregistered Securities Not applicable. Issuer Repurchases of Securities None. Use of Proceeds On November 20, 2024, we issued and sold an aggregate of 6,250,000 shares (the “Shares”) of our 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”).
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Holders of Record As of February 29, 2024 , there were 20 sto ckholders of record of our Class A common stock.
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Accordingly, we do not anticipate declaring or paying dividends in the foreseeable future.
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We 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, which the underwriters exercised. We received net proceeds of $37.4 million from the offering, after deducting the underwriting discounts and commissions and other offering expenses.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeWe maintain a full valuation allowance against our U.S. deferred tax assets because we have concluded that it is more likely than not that our deferred tax assets will not be realized. 41 Table of Contents Results of Operations The following table sets forth our consolidated statements of operations data for the periods indicated: For the Years Ended December 31, 2023 2022 (in thousands) Revenue $ 102,019 $ 85,155 Cost of revenue (1) 52,162 41,292 Gross profit 49,857 43,863 Operating expenses: Research and development (1) 39,527 33,107 Sales and marketing (1) 41,270 35,399 General and administrative (1) 26,965 23,470 Total operating expenses 107,762 91,976 Loss from operations (57,905) (48,113) Investment income 1,984 965 Interest expense (3,792) (4,289) Loss before provision for income taxes (59,713) (51,437) Income tax benefit — (39) Net loss $ (59,713) $ (51,398) __________________ (1) Includes stock-based compensation expense as follows: For the Years Ended December 31, 2023 2022 (in thousands) Cost of revenue $ 1,986 $ 1,267 Research and development 9,218 6,698 Sales and marketing 8,801 5,360 General and administrative 5,172 3,724 Total stock-based compensation expense $ 25,177 $ 17,049 The consolidated statement of operations for the year ended December 31, 2023 includes additional expense of $0.9 million recorded in the fourth quarter to increase stock based compensation expense under our employee stock purchase plan (“ESPP”). 42 Table of Contents The following table sets forth our consolidated statements of operations data expressed as a percentage of revenue for the periods indicated: For the Years Ended December 31, 2023 2022 Revenue 100 % 100 % Cost of revenue 51 48 Gross profit 49 52 Operating expenses: Research and development 39 39 Sales and marketing 40 42 General and administrative 26 28 Total operating expenses 106 108 Loss from operations (57) (57) Investment income 2 1 Interest expense (4) (5) Loss before provision for income taxes (59) (60) Income tax (benefit) provision — — Net loss (59) % (60) % Comparison of the Years Ended December 31, 2023 and 2022 Revenue For the Years Ended December 31, 2023 2022 Change % Change (in thousands, except percentages) B2 Cloud Storage revenue $ 46,427 $ 33,202 $ 13,225 40 % Computer Backup revenue 55,592 51,953 3,639 7 % Total revenue (1) $ 102,019 $ 85,155 $ 16,864 20 % ________________ (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.
Biggest changeWe maintain a full valuation allowance against our U.S. deferred tax assets because we have concluded that it is more likely than not that our deferred tax assets will not be realized. 42 Table of Contents Results of Operations The following table sets forth our consolidated statements of operations and comprehensive loss data for the periods indicated: For the Years Ended December 31, 2024 2023 (in thousands) Revenue $ 127,628 $ 102,019 Cost of revenue (1) 58,285 52,162 Gross profit 69,343 49,857 Operating expenses: Research and development (1) 42,098 39,527 Sales and marketing (1) 44,440 41,270 General and administrative (1) 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) __________________ (1) Includes stock-based compensation expense as follows: For the Years Ended December 31, 2024 2023 (in thousands) 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 $ 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.
Net Revenue Retention Rate We believe the growth in use of our platform by our existing customers is an important measure of the health of our business and our future growth prospects. We measure this growth by monitoring our overall net revenue retention rate, which measures our ability to retain and expand revenue from existing customers.
Net Revenue Retention Rate We believe the growth in the use of our platform by our existing customers is an important measure of the health of our business and our future growth prospects. We measure this growth by monitoring our overall net revenue retention rate, which measures our ability to retain and expand revenue from existing customers.
Non-GAAP Financial Measures To supplement our consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States, or GAAP, we provide investors with non-GAAP financial measures including adjusted gross margin and adjusted EBITDA, each as defined below.
Non-GAAP Financial Measures To supplement our consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States, or GAAP, we provide investors with non-GAAP financial measures including adjusted gross margin, adjusted EBITDA, and adjusted EBITDA margin, each as defined below.
Investing Activities Cash provided by investing activities during the year ended December 31, 2023 was $21.7 million, resulting primarily from $67.9 million from the maturity of our short-term investments and $0.4 million proceeds from the disposal of property and equipment, offset in part by the purchase of short-term maturity investments of $26.4 million, $14.7 million related to the development of software for adding new features and enhanced functionality to our platform and capital expenditures of $5.5 million in support of infrastructure deployments to support our growing business.
Cash provided by investing activities during the year ended December 31, 2023 was $21.7 million, resulting primarily from $67.9 million from the maturity of our short-term investments and $0.4 million proceeds from the disposal of property and equipment, offset in part by the purchase of short-term maturity investments of $26.4 million, $14.7 million related to the development of software for adding new features and enhanced functionality to our platform and capital expenditures of $5.5 million in support of infrastructure deployments to support our growing business.
Critical Accounting Policies and Estimates Our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K are prepared in accordance with GAAP. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures.
Critical Accounting Estimates Our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K are prepared in accordance with GAAP. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures.
We expect our investment in research and development expenses to increase in absolute dollars for the foreseeable future as we continue to focus our research and development investments on adding new features to our platform, improving our cloud service offerings, and increasing the functionality of our existing features.
We expect our investment in research and development to increase in absolute dollars for the foreseeable future as we continue to focus our research and development investments on adding new features to our platform, improving our cloud service offerings, and increasing the functionality of our existing features.
The net cash outflow from changes in operating assets and liabilities was primarily the result of a $2.5 million decrease in operating lease liabilities, a $1.4 million decrease in accrued expenses and other current liabilities, which decreased primarily due to our accrued compensation and due to timing of payment of our expenses, a $0.4 million increase in other assets, a $0.4 million increase in prepaid and other current assets and a $0.3 million decrease in accounts payable, offset in part by a $4.5 million increase of deferred revenue, which increased due to our growing customer base and upfront collections from our customers.
The net cash outflow from changes in operating assets and liabilities was primarily the result of a $2.5 million decrease in operating lease liabilities, a $1.4 million decrease in 49 Table of Contents accrued expenses and other current liabilities, which decreased primarily due to our accrued compensation and due to timing of payment of our expenses, a $0.4 million increase in other assets, a $0.4 million increase in prepaid and other current assets and a $0.3 million decrease in accounts payable, offset in part by a $4.5 million increase of deferred revenue, which increased due to our growing customer base and upfront collections from our customers.
We believe that adjusted EBITDA, when taken together with our GAAP financial results, provides meaningful supplemental information regarding our operating performance by excluding certain items that may not be indicative of our business, results of operations or outlook.
We believe that adjusted EBITDA and Adjusted EBITDA Margin, when taken together with our GAAP financial results, provides meaningful supplemental information regarding our operating performance by excluding certain items that may not be indicative of our business, results of operations, or outlook.
Although most B2 Cloud Storage is paid for by customers in arrears, we recognize revenue in the month these storage services are delivered, and consider this revenue recurring as customers are charged as long as their data is stored with us.
Although B2 Cloud Storage is generally paid for by customers in arrears, we recognize revenue in the month these storage services are delivered, and consider this revenue recurring as customers are charged as long as their data is stored with us.
We believe our high gross customer retention rates demonstrate that we serve a vital service to our customers, as the vast majority of our customers tend to continue to use our platform from one period to the next.
We believe our high gross customer retention rates demonstrate that we provide a vital service to our customers, as the vast majority of our customers tend to continue to use our platform from one period to the next.
Our future capital requirements will depend on many factors, including our total revenue growth rate, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, the potential expansion of our data centers, the price at which we are able to purchase or lease infrastructure equipment, the introduction of platform enhancements, and the continuing market adoption of our platform.
Our future capital requirements will depend on many factors, including our total revenue growth rate, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, the potential expansion of our data centers, the price at which we are able to purchase or lease infrastructure equipment, the impact of inflation on interest rates, the introduction of platform enhancements, and the continuing market adoption of our platform.
We define adjusted gross margin as gross profit, excluding stock-based compensation expense, depreciation and amortization within cost of revenue, as a percentage of adjusted gross profit to total revenue. We exclude stock-based compensation, which is a non-cash item, because we do not consider it indicative of our core operating performance.
We define adjusted gross margin as gross profit, excluding stock-based compensation expense, depreciation and amortization and restructuring charges within cost of revenue, as a percentage of adjusted gross profit to revenue. We exclude stock-based compensation, which is a non-cash item, and restructuring charges because we do not consider it indicative of our core operating performance.
Cash flows from operating activities primarily consist of our net loss adjusted for certain non-cash items, including stock-based compensation, depreciation, and amortization of property and equipment, amortization of capitalized internal-use software, net, and changes in operating assets and liabilities during each period.
Cash flows from operating activities primarily consist of our net loss adjusted for certain non-cash items, including stock-based compensation, depreciation, and amortization of property and equipment, amortization of capitalized internal-use software, net, noncash lease expense, and changes in operating assets and liabilities during each period.
In addition, the disruption and uncertainty impacting the banking industry from failures of other banks resulted in some reduced access to capital, increased costs of capital, and reduced opportunities to invest with investment grade securities, which may have also resulted in lower investment yields and investment income.
In addition, the disruption and uncertainty impacting the banking industry from failures of other banks resulted in some reduced access to capital, increased costs of capital, and reduced opportunities to invest with investment grade securities, which may have 48 Table of Contents also resulted in lower investment yields and investment income.
For the year ended December 31, 2023, cash used in operating activities was $7.4 million, which resulted from a net loss of $59.7 million, adjusted for non-cash charges of $52.8 million and a net cash outflow of $0.4 million from changes in 48 Table of Contents operating assets and liabilities.
For the year ended December 31, 2023, cash used in operating activities was $7.4 million, which resulted from a net loss of $59.7 million, adjusted for non-cash charges of $52.8 million and a net cash outflow of $0.4 million from changes in operating assets and liabilities.
Some of these investments, including costs of infrastructure equipment (including related depreciation) and expansion, are incurred in advance of generating revenue, and either the failure to generate anticipated revenue or fluctuations in the timing of revenue could affect our gross margin from period to period.
Some of these investments, including costs of infrastructure equipment (including related depreciation) and expansion, and software development costs and related amortization are incurred in advance of generating revenue, and either the failure to generate anticipated revenue or fluctuations in the timing of revenue could affect our gross margin from period to period.
Key Components of Results of Operations Revenue We generate revenue primarily from our B2 Cloud Storage and Computer Backup cloud services offered on our platform. Our platform is offered to our customers primarily through either a consumption or a subscription-based arrangement through B2 Cloud Storage and Computer Backup, respectively.
Key Components of Results of Operations Revenue We generate revenue primarily from our B2 Cloud Storage and Computer Backup cloud services offered on our platform. Our platform is offered to our customers primarily through either a consumption or committed contract basis or a subscription-based arrangement through B2 Cloud Storage and Computer Backup, respectively.
Computer Backup and B2 Cloud Storage (subscription-based arrangements) revenue is recognized on a straight-line basis over the contractual term of the arrangement beginning on the date that the service commences, provided that all other revenue recognition criteria have been met. See Note 2 to the consolidated financial statements for details on our revenue recognition policy.
Computer Backup (subscription-based arrangements) revenue is recognized on a straight-line basis over the contractual term of the arrangement beginning on the date that the service commences, provided that all other revenue recognition criteria have been met. See Note 2 to our consolidated financial statements for details on our revenue recognition policy.
We believe adjusted gross margin provides consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as this metric eliminates the effects of depreciation and amortization.
We believe adjusted gross margin provides consistency and comparability with our past 46 Table of Contents financial performance and facilitates period-to-period comparisons of operations, as this metric eliminates the effects of depreciation and amortization.
These measures are presented for 45 Table of Contents supplemental informational purposes only, have limitations as analytical tools and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP.
These measures are presented for supplemental informational purposes only, have limitations as analytical tools and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP.
Our finance lease commitments relate primarily to our infrastructure equipment. Purchase commitments 49 Table of Contents relate mainly to infrastructure agreements and subscription arrangements used to facilitate our operations. For more information, see Note 10 to our consolidated financial statements located elsewhere in this Annual Report on Form 10-K.
Our finance lease commitments relate primarily to our infrastructure equipment. Purchase commitments relate mainly to infrastructure agreements and subscription arrangements used to facilitate our operations. For more information, see Note 11 to our consolidated financial statements located elsewhere in this Annual Report on Form 10-K.
We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by management.
We base our estimates on historical experience and on various other assumptions that we believe to be 50 Table of Contents reasonable under the circumstances. Actual results could differ significantly from the estimates made by management.
We plan to continue investing in sales and marketing by increasing our sales and marketing headcount, supplementing our self-serve model with a direct sales approach, expanding our partner ecosystem, driving our go-to-market strategies, building our lead generation and brand awareness, and sponsoring additional marketing events.
We plan to continue investing in sales initiatives, supplementing our self-serve model with a direct sales approach, expanding our partner ecosystem, driving our go-to-market strategies, building our lead generation and brand awareness, and sponsoring marketing events.
Our Net Revenue Retention Rate was flat for B2 Cloud Storage for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Our Net Revenue Retention Rate was essentially flat for B2 Cloud Storage for the year ended December 31, 2024 compared to the year ended December 31, 2023 .
In the future, we may enter into arrangements to acquire or invest in complementary businesses, products, and technologies. We plan to enter into finance lease agreements for purchase of infrastructure equipment and may also be required or choose to seek additional equity or debt financing in addition to our existing credit facility.
In the future, we may enter into arrangements to acquire or invest in complementary businesses, products, and technologies. We plan to continue to enter into finance lease agreements for purchase of infrastructure equipment and may also be required or choose to seek additional equity or debt financing.
Further, during the periods presented, customers who store data with us generally increase the amount of their data stored over time, as evidenced by our B2 Cloud Storage net revenue retention rate of 122% as of December 31, 2023. Fees from B2 Cloud Storage (consumption-based arrangements) are recognized as services are delivered.
Further, during the periods presented, customers who store data with us generally increase the amount of their data stored over time, as evidenced by our B2 Cloud Storage net revenue retention r ate of 123% as of December 31, 2024. Fees from B2 Cloud Storage (consumption-based arrangements) are recognized as services are delivered.
Additionally, we provide customers with additional value through cross-sell, upsell, and use case expansion that can result in additional revenue per customer.
Additionally, we provide customers with additional value through cross-sell, upsell, and 36 Table of Contents use case expansion that can result in additional revenue per customer.
While ARR is not a guarantee of future revenue, we consider over 98% of our total revenue recurring for the periods presented. As noted above, our gross customer retention rate has been consistent over the periods presented at approximately 90%.
While ARR is not a guarantee of future revenue, we consider substantially all of our revenue as recurring in nature for the periods presented. As noted above, our gross customer retention rate has been consistent over the periods presented at approximately 90%.
Our Gross Customer Retention Rate was essentially flat for both B2 Cloud Storage and Computer Backup for the year ended December 31, 2023 compared to the year ended December 31, 2022. Annual Recurring Revenue We define annual recurring revenue (“ARR”) as the annualized value of all B2 Cloud Storage and Computer Backup arrangements as of the end of a period.
Our Gross Customer Retention Rate decreased by 1% for both B2 Cloud Storage and Computer Backup for the year ended December 31, 2024 compared to the year ended December 31, 2023. Annual Recurring Revenue We define annual recurring revenue (“ARR”) as the annualized value of all B2 Cloud Storage and Computer Backup arrangements as of the end of a period.
The amount of data stored in this cloud service can scale up and down as needed primarily on a pay-as-you-go basis or can be paid for on a capacity basis for greater predictability, which we refer to as our B2 Reserve offering. Backblaze Computer Backup automatically backs up data from laptops and desktops for businesses and individuals.
The amount of data stored in this cloud service can scale up and down as needed primarily on a pay-as-you-go basis or can be paid for on a capacity or committed contract basis for greater predictability. Backblaze Computer Backup automatically backs up data from laptops and desktops for businesses and individuals.
We generate revenue primarily from our two cloud services: • Backblaze B2 Cloud Storage, which enables customers to store data for any use case, and for developers to embed our platform into their applications.
We generate revenue primarily from our two cloud services: • Backblaze B2 Cloud Storage, which enables customers to store data for a wide range of use cases, and for developers to embed our platform into their applications.
Our Annual ARPU increased for B2 Cloud Storage and Computer Backup by 32% and 13%, respectively, for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to the 2023 price increase and our focus on adding larger customers.
Our Annual ARPU increased for B2 Cloud Storage and Computer Backup by 12% and 14%, respectively, for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to increased storage and our focus on adding larger customers.
Income Tax Benefit For the Years Ended December 31, 2023 2022 Change % Change (in thousands, except percentages) Income tax benefit $ — $ (39) $ 39 (100) % Our benefit for income taxes was relatively flat for the year ended December 31, 2023, compared to the same period in 2022.
Income Tax Provision For the Years Ended December 31, 2024 2023 Change % Change (in thousands, except percentages) Income tax provision $ 6 $ — $ 6 — % Our provision for income taxes was relatively flat for the year ended December 31, 2024, compared to the same period in 2023.
The increase in sales and marketing expense was primarily attributable to an increase of $3.4 million related to stock-based compensation, $2.7 million in personnel-related expenses as a result of increased headcount, $1.0 million related to restructuring charges, $0.5 million in fees for consultants and contractors, and $0.1 44 Table of Contents million in overhead and general expenses, partially offset by $2.1 million decreased advertising expenses related primarily to our B2 Cloud Storage offering as we continue to focus marketing expenditures on high return initiatives.
The increase in sales and marketing expense was primarily attributable to $2.6 million in personnel-related expenses as a result of increased headcount, $0.8 million related to restructuring charges, $0.6 million increased advertising and other expenses related primarily to our B2 Cloud Storage offering as we continue to focus marketing expenditures on high return initiatives, partially offset by a decrease of $0.4 million related to stock-based compensation, and a $0.4 million decrease in fees for consultants and contractors.
Under this amendment, the maximum borrowing available was reduced from $30 million to $20 million. Furthermore, advances on the line of credit will bear monthly interest at a variable rate equal to, at our discretion, (a) the average SOFR plus 2.75%, or (b) the base rate. 47 Table of Contents T he RCA matures in December 2025.
Under the RCA, as amended in December 2023, the maximum borrowing available was reduced from $30 million to $20 million and advances on the line of credit will bear monthly interest at a variable rate equal to, at our discretion, (a) the average SOFR plus 2.75%, or (b) the base rate.
Customers may purchase our B2 Cloud Storage on a capacity basis for greater predictability, which we refer to as our B2 Reserve offering. For prospective customers interested in Computer Backup, we offer a free 15-day trial and automatically start to back up all their files securely to our Backblaze Storage Cloud.
Customers may purchase our B2 Cloud Storage on a capacity or committed contract basis for greater predictability. For prospective customers interested in Computer Backup, we offer a free 15-day trial and automatically start to back up all their files securely to our Backblaze Storage Cloud. Prospective customers can then choose to sign up on a per computer basis.
The following table shows a summary of our cash flows for the periods presented: For the Years Ended December 31, 2023 2022 (in thousands) Net cash used in operating activities $ (7,350) $ (13,781) Net cash provided by (used in) investing activities 21,657 (73,854) Net cash used in financing activities (8,842) (6,212) Operating Activities Our largest source of operating cash is payments received from our customers.
The following table shows a summary of our cash flows for the periods presente d: For the Years Ended December 31, 2024 2023 (in thousands) Net cash provided by (used in) operating activities $ 12,505 $ (7,350) Net cash (used in) provided by investing activities $ (6,131) $ 21,657 Net cash provided by (used in) financing activities $ 22,772 $ (8,842) Operating Activities Our largest source of operating cash is payments received from our customers.
Our Net Revenue Retention Rate decreased by 8% for Computer Backup for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to customer churn. 38 Table of Contents Gross Customer Retention Rate We use gross customer retention rate to measure our ability to retain our customers.
Our Net Revenue Retention Rate increased by 9% for Computer Backup for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to the price increase. 39 Table of Contents Gross Customer Retention Rate We use gross customer retention rate to measure our ability to retain our customers.
Sales and marketing expenses also include investments related to advertising, marketing, our brand awareness activities, commissions paid to marketing partners, and an allocation of our general overhead expenses.
Sales and marketing expenses also include investments related to advertising, marketing, our brand awareness activities, commissions paid to marketing partners, sales commissions paid to our employees that are recognized as expenses over the period of benefit, and an allocation of our general overhead expenses.
Management’s Discussion and Analysis of Financial Condition and Result of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
Item 7. Management’s Discussion and Analysis of Financial Condition and Result of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included in “Part II — Item 8.
Operating Expenses The most significant components of our operating expenses are personnel costs, which consist of salaries, benefits, bonuses, and stock-based compensation. We also incur other non-personnel costs related to our general overhead expenses.
Operating Expenses The most significant components of our operating expenses are personnel costs, which consist of salaries, benefits, bonuses, and stock-based compensation.
For the year ended December 31, 2022, cash used in operating activities was $13.8 million, which resulted from a net loss of $51.4 million, adjusted for non-cash charges of $38.8 million and a net cash outflow of $1.2 million from changes in operating assets and liabilities.
For the year ended December 31, 2024, cash used in operating activities was $12.5 million, which resulted from a net loss of $48.5 million, adjusted for non-cash charges of $60.8 million and a net cash inflow of $0.2 million from changes in operating assets and liabilities.
You should review the section titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements and in Part I, Item 1A,“Risk Factors”, for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Annual Report on Form 10-K.
Risk Factors.” You should review the disclosure under the heading, “Risk Factors” for a discussion of important factors that could cause our actual results to differ materially from those described or implied in these forward-looking statements contained in the following discussion and analysis and elsewhere in this Annual Report on Form 10-K.
We intend to continue investing in our research and development activities to build upon our strong position in the technology community. We also plan to launch new products that are adjacent to our current offerings, which will provide us with the ability to further cross-sell and upsell.
We also plan to launch new products that are adjacent to our current offerings, which will provide us with the ability to further cross-sell and upsell.
General and Administrative General and administrative expenses consist primarily of personnel costs for our accounting, finance, legal, IT, security, human resources, and administrative support personnel and executives. General and administrative expenses also include costs related to legal and other professional services fees, sales and other taxes; depreciation and amortization; and an allocation of our general overhead expenses.
General and administrative expenses also include costs related to legal and other professional services fees, sales and other taxes; depreciation and amortization; and an allocation of our general overhead expenses.
International Expansion Whil e our sales and marketing efforts have primarily focused on the United States, our existing customer base spans more than 175 co untries, with approximately 28% of our total revenue originating outside of the United States for the year ended December 31, 2023.
International Expansion Whil e our sales and marketing efforts have primarily focused on the United States, our existing customer base spans more th an 175 countries, with 26% of our total revenue originating outside of the United States for the year ended December 31, 2024. We believe international expansion may represent a meaningful opportunity.
We believe that our existing cash, cash equivalents, and short-term investments, together with cash provide d by operations and our revolving credit facility, will be sufficient to support our working capital and capital expenditure requirements for at least the next 12 months.
We believe that our existing cash, cash equivalents, and short-term investments, together with cash provide d by operations, will be sufficient to support our working capital and capital expenditure requirements for at least the next 12 months. Our material cash requirements include contractual and other obligations under our finance and operating lease agreements, and purchase commitments as discussed below.
Our ARR increased by $6.6 million, or 12.4%, for Computer Backup for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to the price increase and, to a lesser extent, growth from existing customers.
Our ARR increased by $12.6 million, or 22% for B2 Cloud Storage for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to the price increase and increased storage from new and existing customers.
Significant judgments related to the capitalization of internal use software costs include determining whether it is probable that projects will result in new or additional functionality. 51 Table of Contents Recent Accounting Pronouncements See the sections titled “Basis of Presentation and Summary of Significant Accounting Policies—Accounting Pronouncements Recently A dopted” and “Basis of Presentation and Summary of Significant Accounting Policies—Recently Issued Accounting Pronouncements” in N ote 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information.
Recent Accounting Pronouncements See the sections titled “Basis of Presentation and Summary of Significant Accounting Policies—Accounting Pronouncements Recently A dopted” and “Basis of Presentation and Summary of Significant Accounting Policies—Recently Issued Accounting Pronouncements” in N ote 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information.
December 31, 2023 2022 B2 Cloud Storage Net revenue retention rate (NRR) 122 % 122 % Gross customer retention rate 90 % 90 % Annual recurring revenue (in millions) $ 57.6 $ 38.6 Number of customers 97,842 86,874 Annual average revenue per user $ 577 $ 437 Computer Backup Net revenue retention rate (NRR) 100 % 108 % Gross customer retention rate 91 % 90 % Annual recurring revenue (in millions) $ 60.0 $ 53.4 Number of customers 431,745 436,080 Annual average revenue per user $ 140 $ 124 Total Company Net revenue retention rate (NRR) 109 % 113 % Gross customer retention rate 91 % 91 % Annual recurring revenue (in millions) $ 117.6 $ 92.0 Number of customers (1) 511,942 506,456 Annual average revenue per user $ 228 $ 181 _____________ (1) The number of customers for each of B2 Cloud Storage and Computer Backup solutions include customers that use both our B2 Cloud Storage and Computer Backup solutions.
December 31, 2024 2023 B2 Cloud Storage Net revenue retention rate (NRR) 123 % 122 % Gross customer retention rate 89 % 90 % Annual recurring revenue (in millions) $ 70.2 $ 57.6 Number of customers 107,616 97,842 Annual average revenue per user $ 645 $ 577 Computer Backup Net revenue retention rate (NRR) 109 % 100 % Gross customer retention rate 90 % 91 % Annual recurring revenue (in millions) $ 66.5 $ 60.0 Number of customers 417,845 431,745 Annual average revenue per user $ 159 $ 140 Total Company Net revenue retention rate (NRR) 116 % 109 % Gross customer retention rate 90 % 91 % Annual recurring revenue (in millions) $ 136.7 $ 117.6 Number of customers (1) 507,647 511,942 Annual average revenue per user $ 268 $ 228 (1) The number of customers for each of B2 Cloud Storage and Computer Backup solutions include customers that use both our B2 Cloud Storage and Computer Backup solutions.
The outsta nding balance is collateralized by an equal amount of cash held, which we are obligated to hold as restricted cash. For further details, see Note 11 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. We use City National Bank, a subsidiary of RBC, for our banking needs.
For further details, see Note 12 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. We use City National Bank, a subsidiary of RBC, for our banking needs.
Prospective customers can then choose to sign up on a per computer basis. The service is delivered via a SaaS model where revenue is recognized ratably over the subscription term. Subscriptions are offered to customers on a monthly, annual, or biennial basis, providing customers flexibility to choose their commitment lengths.
The service is delivered via a SaaS model where revenue is recognized ratably over the subscription term. Subscriptions are offered to customers on a monthly, annual, or biennial basis, providing customers flexibility to choose their commitment lengths. We generally charge a flat rate for this solution and provide virtually unlimited backup capabilities to customers.
We also plan to continue to build our ecosystem of partners. We believe that delivering our Storage Cloud solutions through our alliance, developer, and MSP partnerships is an area of opportunity for us. By adding more partners and deepening our relationships with them, we expand our use cases and drive new customer acquisition.
We intend to continue to uplevel and expand our sales team to focus on more and larger customers. We also plan to continue to build our ecosystem of partners. We believe that delivering our Storage Cloud solutions through our alliance, developer, and MSP partnerships is an area of opportunity for us.
During the third quarter of 2023, we announced pricing increases across our Computer Backup and B2 Cloud Storage products, which became effective in October 2023.
During the third quarter of 2023, we announced pricing increases across our Computer Backup and B2 Cloud Storage products, which became effective in October 2023. We realized a favorable impact to total revenue across our products, and did not experience a significant change in costs as a result of the increase.
Consumption-based revenue is variable and is related to fees charged for our customers’ use of our platform and is recognized as revenue in the period in which the consumption occurs.
Our subscription arrangements generally range in duration from one month to three years, for which we bill our customers up front for the entire period. Consumption-based revenue is variable and is related to fees charged for our customers’ use of our platform and is recognized as revenue in the period in which the consumption occurs.
Number of Customers 39 Table of Contents We define a customer at the end of any period as a distinct account, as identified by a unique account identifier, that has paid for our cloud services, which makes up substantially all of our user base.
Our ARR incre ased by $6.5 million, or 11%, for Comp uter Backup for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to the price increase. 40 Table of Contents Number of Customers We define a customer at the end of any period as a distinct account, as identified by a unique account identifier, that has paid for our cloud services, which makes up substantially all of our user base.
In both cases, our customers use this offering in a consumption-based or capacity based model, and • Backblaze Computer Backup, which provides virtually unlimited backup to businesses and consumers in a SaaS subscription model. We believe our pricing is simple and straightforward, with fees and terms that are generally shared transparently on our website.
In both cases, our customers use this offering on a consumption-based or capacity-based model or committed contract basis, and • Backblaze Computer Backup, which provides virtually unlimited backup to businesses and consumers in a SaaS subscription model using primarily flat-rate pricing.
B2 Cloud Storage increased by $13.2 million for the year ended December 31, 2023 compared to the year ended December 31, 2022, approximately $10.0 million of which was due to increased storage by our customers, $1.9 million from the price increase in October 2023 and $1.3 million from sales of B2 Reserve.
The increase was largely due to increased storage from new and existing customers of $8.9 million, the impact of the price increase in October 2023 of $6.0 million, and increased sales of B2 Reserve of $2.0 million . Computer Backup increased by $8.7 million, or 16% for the year ended December 31, 2024.
General and Administrative General and administrative expense increased by $3.5 million, or 15%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
General and Administrative General and administrative expense increased by $2.1 million, or 8%, for the year ended December 31, 2024.
As of December 31, 2023, we had non-cancelable purchase commitments of $1.2 million and $0.6 million payable for the years ending December 31, 2024 and 2025, respectively.
In addition, we have purchase commitments that relate mainly to infrastructure agreements used to facilitate our operations. As of December 31, 2024, we had non-cancelable purchase commitments of $1.0 million and $0.4 million payable for the years ending December 31, 2025 and 2026, respectively.
To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected. We believe that the accounting policies described below involve a substantial degree of judgment and complexity.
To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected. Our accounting estimates do not involve significant estimation uncertainty that may have or is reasonably likely to have a material impact on our financial condition or results of operations.
Because of these limitations, when evaluating our performance, you should consider adjusted EBITDA alongside other financial performance measures, including our net loss and other GAAP results. 46 Table of Contents The following table presents a reconciliation of net loss, the most directly comparable financial measure stated in accordance with GAAP, to adjusted EBITDA for each of the periods presented: For the Years Ended December 31, 2023 2022 (in thousands, except percentages) Net loss $ (59,713) $ (51,398) Adjustments: Depreciation and amortization 24,912 20,151 Stock-based compensation (1) 25,052 17,049 Interest expense and investment income 1,808 3,324 Income tax benefit — (39) SAFE holder settlement — 1,500 Non-recurring professional services 411 — Workforce reduction and related severance charges 3,616 — Adjusted EBITDA $ (3,914) $ (9,413) Adjusted EBITDA Margin (4) % (11) % (1) During the year ended December 31, 2023 , $125 thousand of stock-based compensation expense is classified as workforce reduction and related severance charges in the table above as it was incurred as part of our restructuring program.
The following table presents a reconciliation of net loss, the most directly comparable financial measure stated in accordance with GAAP, to Adjusted EBITDA for each of the periods presented: For the Years Ended December 31, 2024 2023 (in thousands, except percentages) Net loss $ (48,531) $ (59,713) Adjustments: Depreciation and amortization 28,328 24,912 Stock-based compensation (1) 26,104 25,052 Interest expense and investment income 2,236 1,808 Income tax provision 6 — Foreign exchange loss (2) 32 123 Non-recurring professional services — 411 Restructuring charges (3) 4,861 3,616 Adjusted EBITDA $ 13,036 $ (3,791) Adjusted EBITDA Margin 10 % (4) % 47 Table of Contents (1) During the three months ended December 31, 2024 , $2.5 million of stock-based compensation expense is classified as restructuring charges in the table above, as it was incurred as part of our restructuring program.
Incom e Tax (Benefit) Provision Provision for income taxes consists primarily of income taxes in certain foreign and state jurisdictions in which we conduct business.
Interest Expense, net Interest expense, net consists primarily of interest related to our finance lease agreements and interest on the previously outstanding balance of our debt facility. Incom e Tax Provision Provision for income taxes consists primarily of income taxes in certain foreign and state jurisdictions in which we conduct business.
The net cash outflow from changes in operating assets and liabilities was primarily the result of a $2.5 million decrease in operating lease liabilities and $1.0 million decrease in accrued expenses and other current liab ilities, which decreased primarily due to timing of payment of our expenses, offset in part by a $1.6 million increase in accounts payable and a $1.0 million decrease in other assets.
The net cash inflow from changes in operating assets and liabilities was primarily the result of a $5.5 million increase of deferred revenue, which increased due to our growing sales and to timing of collections from our customers and a $0.9 million increase in accrued expenses and other current liabilities.
Financing Activities Cash used in financing activities for the year ended December 31, 2023 was $8.8 million.
We also incurred $0.4 million of offering costs in connection with our Follow-On Offering. Cash used in financing activities for the year ended December 31, 2023 was $8.8 million.
More recently, we also added our Powered By Backblaze program that enables third parties to integrate Backblaze B2 and thus offer cloud storage as part of their product offering. We also have a community of thousands of partners that has arisen as a result of our efforts.
More recently, we also added our Powered By Backblaze program, a white label solution that enables third parties to integrate B2 and thus offer cloud storage as part of their product offering under their brand. In addition, we have a self-serve selling motion. Prospective customers find us through a variety of channels including our website, partners, and brand advocates.
We also will continue investing in optimizing the conversion rate of visitors to customers. We intend to leverage this model as an efficient approach to attract new customers, turning them into brand advocates, partners, and more referrals. Furthermore, we plan to continue to build and scale our paid lead generation and outbound sales motion to increasingly grow in the mid-market.
We also will continue investing in optimizing the conversion rate of visitors to customers. We intend to leverage this model as an efficient approach to attract new customers, turning them into brand advocates, partners, and more referrals. Continued Platform Investment and New Product Launches We are committed to delivering market-leading products that continue to make cloud storage and backup easy.
We provide these cloud services through a purpose-built, web-scale software infrastructure built on commodity hardware. We believe that by substantially reducing the complexity and frustration of storing, using, and protecting data, we can empower customers to focus on their core business operations.
We believe that by offering an easy to use, cost-effective, performant cloud storage solution, and thereby substantially reducing the cost, complexity and frustration of storing, using, and protecting data, we can empower customers to focus on their core business operations.
Expansion Within Existing Customers Our future success will depend in part on our ability to increase usage and adoption of our solutions with existing customers. We intend to increase revenue from existing customer relationships through the development of additional features and use cases, expanding our Customer Success initiatives, and natural customer data growth.
By adding more partners and deepening our relationships with them, we expand our use cases and drive new customer acquisition. Expansion Within Existing Customers Our future success will depend in part on our ability to increase usage and adoption of our solutions with existing customers.
These customers use our Storage Cloud platform across more than 175 countries to grow and protect their business data on our over three billion gigabytes of data storage under management. Our Backblaze Storage Cloud provides a platform that is the foundation for our B2 Cloud Storage Infrastructure-as-a-Service (IaaS) offering and our Backblaze Computer Backup Software-as-a-Service (SaaS) offering.
Our Backblaze Storage Cloud provides a platform that is the foundation for our B2 Cloud Storage Infrastructure-as-a-Service (IaaS) offering and our Backblaze Computer Backup Software-as-a-Service (SaaS) offering. B2 Cloud Storage enables customers to store data, developers to build applications, and partners to expand their use cases.
Our content is intended to encourage organic, inbound traffic that we believe serves as our greatest source of advocates and referrals. Our free trial and self-serve sign-up processes help convert our blog readers and referrals from our brand advocates into customers, with approximately 76% of our total revenue in 2023 coming from self-serve customers.
Our free trial and self-serve sign-up processes help convert our blog readers and referrals from our brand advocates into customers, with approximately 73% of our total revenue in 2024 coming from self-serve customers. Substantially all of our revenue is recurring in nature. We employ a land-and-expand model that seeks to drive additional revenue from existing customers.
As of December 31, 2023 and December 31, 2022, our principal sources of liquidity were cash, short-term investments and restricted cash, current and restricted cash, non-current of $33.4 million and $69.7 million, respectively. In general, our restricted cash may only be used to pay down our credit facility.
As of December 31, 2024 and 2023 , our principal sources of liquidity were cash, restricted cash, and short-term investments of $54.9 million and $33.4 million, respectively.
We consider adjusted EBITDA to be an important measure because it helps illustrate underlying trends in our business and our historical operating performance on a more consistent basis. We define adjusted EBITDA margin as adjusted EBITDA as a percentage of total revenue.
We consider Adjusted EBITDA and Adjusted EBITDA Margin to be important measures because they help illustrate underlying trends in our business and our historical operating performance on a more consistent basis. Our calculation of Adjusted EBITDA may differ from the calculations of Adjusted EBITDA by other companies and therefore comparability may be limited.
Continued Platform Investment and New Product Launches We are committed to delivering market-leading products that continue to make cloud storage and backup easy. We believe we must maintain our product quality and strength of our brand in order to retain the current customer base as well as drive further revenue growth in our business.
We believe we must maintain our product and platform quality and strength of our brand in order to retain the current customer base as well as drive further revenue growth in our business. We intend to continue investing in our research and development activities to build upon our strong position in the technology community.
The increase was primarily attributable to an increas e of $6.8 million in personnel-related expenses due to an increase in engineering headcount that was partially offset by an incremental $6.1 million of personnel-related expenses capitalized related to development of internal-use software related to new features for our platform during 2023, $2.5 million related to stock-based compensation expense, $2.3 million related to restructuring charges, and $0.6 million in hosting and subscription fees supporting our research and development investments.
The increase was primarily attributable to an increas e of $3.7 million in personnel-related expenses due to an increase in engineering headcount, $1.2 million related to stock-based compensation expense, partially offset by $1.0 million decrease related to restructuring charges, $0.7 million decrease in overhead and general office expenses, and $0.4 million decrease in facilities related and consultant expenses.
The increase was primarily attributa ble to an increase of $6.0 million related to managing and operating our co-location facilities, and an increase of $4.9 million for depreciation of our infrastructure equipment, which resulted from purchasing additional hard drives and related infrastructure in order to support the growth of our business.
The increase was primarily attributable to an increase of $3.4 million for depreciation of our infrastructure equipment, resulting from purchasing additional hard drives and related infrastructure in order to support the growth of our business, a $2.0 million increase in rent, bandwidth, and utility expenses, an increase of $0.8 million in credit card fees, and an increase of $0.5 million related to restructuring charges.
Operating Expenses For the Years Ended December 31, 2023 2022 Change % Change (in thousands, except percentages) Research and development $ 39,527 $ 33,107 $ 6,420 19 % Sales and marketing 41,270 35,399 5,871 17 % General and administrative 26,965 23,470 3,495 15 % Research and Development Research and development expense increased by $6.4 million, or 19%, f or the year ended December 31, 2023 compared to the year ended December 31, 2022.
Operating Expenses For the Years Ended December 31, 2024 2023 Change % Change (in thousands, except percentages) Research and development $ 42,098 $ 39,527 $ 2,571 7 % Sales and marketing 44,440 41,270 3,170 8 % General and administrative 29,094 26,965 2,129 8 % Research and Development Research and development expense incre ased by $2.6 million, or 7%, for the year ended December 31, 2024.
Non-cash charges primarily consisted of $20.2 million for depreciation and amortization expense and $17.0 million for stock-based compensation expense.
Non-cash charges primarily consisted of $28.3 million for depreciation and amortization expense, $28.6 million for stock-based compensation expense, noncash lease expense of $2.7 million, and $0.9 million related to loss on impairment of right-of-use assets.
Cash used in financing activities was primarily due to principal payments on our finance lease agreements and lease financing obligations of $16.5 million related to hard drives and other infrastructure equipment used in our co-location facilities and $0.7 million related to payments made for offering costs that are deferred, offset in part by $4.3 million in proceeds from the exercise of employee stock options, $4.3 million in proceeds from our credit facility, and $2.5 million in proceeds from our ESPP.
Cash provided was partially offset by cash used of $19.5 million for principal payments on our finance lease agreements and lease financing obligations related to hard drives and other infrastructure equipment used in our co-location facilities, and $0.9 million related to repayment of principal on financed insurance premiums. We used $4.7 million to repay, in full, our line of credit.
Our price increase amounts noted above are inherent estimates that are based on an average price charged per customer and other assumptions that may offset the increase, such as free egress and impact of the price increase on the amount of data stored and customer license count.
Our price increase amounts noted above are inherent estimates that are based on an average price charged per customer and other assumptions that may offset the increase, such as free egress and impact of the price increase on the amount of data stored and customer license count. 44 Table of Contents Cost of Revenue and Gross Margin For the Years Ended December 31, 2024 2023 Change % Change (in thousands, except percentages) Cost of revenue $ 58,285 $ 52,162 $ 6,123 12 % Gross margin 54 % 49 % Total cost of revenue increased by $6.1 million, or 12%, for the year ended December 31, 2024.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeFurther, our credit facility with City National Bank, which was initially entered into during October 2021, as amended, is at a variable interest rate tied, at our discretion, to SOFR or to the prime rate most recently announced by City National Bank, assuming such rate is greater than 3.0%.
Biggest changeFurther, prior to its termination, our credit facility with City National Bank, was at a variable interest rate tied, at our discretion, to SOFR or to the prime rate most recently announced by City National Bank, assuming such rate is greater than 3.0%. 51 Table of Contents Inflation Risk The inflation rate has recently been falling by some measures after reaching a nearly three decade high in 2022, but interest rates remain high and may continue to increase our operating costs and our interest expense.
Interest Rate Risk Our exposure to interest rate risk primarily relates to our finance lease arrangements and lease financing obligations for obtaining hard drives and related equipment for our data center operations, which may be impacted by interest rate changes for any future agreements we enter in to, and our credit facility with City National Bank.
Interest Rate Risk Our exposure to interest rate risk primarily relates to our finance lease arrangements and lease financing obligations for obtaining hard drives and related equipment for our data center operations, which may be impacted by interest rate changes for any future agreements we enter in to.
We also earn interest income generated by cash, cash equivalents and short-term investments held at City National Bank. As of December 31, 2023, we had cash and cash equivalents and short-term investments balances of $12.5 million and $16.8 million, respectively. Interest-earning instruments carry a degree of interest rate risk.
We also earn interest income generated by cash, cash equivalents and short-term investments held at City National Bank. As of December 31, 2024, we had cash and cash equivalents and short-term investments balances of $45.8 million and $9.1 million, respectively. Interest-earning instruments carry a degree of interest rate risk.
I n addition, most of our operating expenses are denominated in the U.S. dollar, resulting in minimal foreign currency risks. The volatility of exchange rates depends on many factors that we cannot accurately forecast.
Our sales are currently denominated in the U.S. dollar and we have minimal foreign currency risk related to our revenue. I n addition, most of our operating expenses are denominated in the U.S. dollar, resulting in minimal foreign currency risks. The volatility of exchange rates depends on many factors that we cannot accurately forecast.
Foreign Currency Exchange Rate Risk Our reporting currency and the functional currency of our wholly owned foreign subsidiary is the U.S. dollar. Our sales are currently denominated in the U.S. dollar and we have minimal foreign currency risk related to our revenue.
There can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition. Foreign Currency Exchange Rate Risk Our reporting currency and the functional currency of our wholly owned foreign subsidiary is the U.S. dollar.
Added
We continue to monitor the impact of inflation in order to minimize its effects through focusing on upmarket revenue growth, productivity improvements, and cost reductions. However, we may not be able to sufficiently offset our increases costs through these measures, for competitive reasons or because of other factors influencing our operations.

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