Description of Business and Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Description of Business and Summary of Significant Accounting Policies

Description of Business and Summary of Significant Accounting Policies

Description of Business

Mandiant, Inc., formerly known as FireEye, Inc., with principal executive offices located in Reston, Virginia, was incorporated as NetForts, Inc. on February 18, 2004, under the laws of the State of Delaware, and changed its name to FireEye, Inc. on September 7, 2005. On October 4, 2021, the Company changed its name to Mandiant, Inc.

Mandiant, Inc. and its wholly owned subsidiaries (collectively, the “Company”, “we”, “us” or “our”) provide intelligence-based cybersecurity solutions and services that allow organizations to prepare for, prevent, investigate, respond to and remediate cyber-attacks, including attacks that target on-premise, cloud and critical infrastructure environments.

Our portfolio of cybersecurity solutions and services is comprised of the following:

•Mandiant Advantage software-as-a-service (SaaS) platform with integrated modules for threat intelligence, security validation, attack surface management and security automation, managed services, and consulting services. Our solutions and services help customers minimize the risk of costly cybersecurity breaches by:

•detecting and preventing advanced, targeted and evasive attacks missed by other security controls,

•automating the investigation and triage of security alerts generated by Mandiant solutions, as well as security control solutions from other vendors,

•providing visibility into the latest threats and the tools and techniques used by threat actors,

•validating the effectiveness of existing cybersecurity controls against attacks before an attack occurs,

•providing visibility and defensive insight into the attack surface an adversary may target, and

•providing assessment, training and other strategic security consulting services that help organizations improve their resilience to attack.

The majority of our solutions and services are sold to end-customers directly, with a lesser percentage of sales to our end-customers sold through distributors, resellers, and strategic partners.

On May 29, 2021, we entered into an Asset Purchase Agreement (the “Purchase Agreement”), pursuant to which we agreed to sell the FireEye Products business to Magenta Buyer LLC (“Trellix”), which is backed by a consortium led by Symphony Technology Group (“STG”), in exchange for total cash consideration of $1.2 billion and assumption of certain assets and liabilities of the FireEye Products business as specified in the Purchase Agreement. As a result, the FireEye Products business was classified as discontinued operations in our consolidated financial statements and excluded from continuing operations and the related assets and liabilities were classified as held for sale. The transaction closed on October 8, 2021.

Unless otherwise noted, discussion in these Notes to Consolidated Financial Statements refers to our continuing operations. Refer to Note 2, “Discontinued Operations,” for further information.

On August 4, 2021, we acquired Intrigue Corp. ("Intrigue"), a developer of surface attack management technology, for cash consideration of approximately $12.3 million. Intrigue's attack surface management technology will be integrated into the Mandiant Advantage platform, enabling organizations to discover, monitor and manage risk across their entire attack surface. The intangible assets acquired and net tangible liabilities assumed in the acquisition of Intrigue are presented in the balance sheet as continuing operations.

In November 2020, we acquired Respond Software, Inc. ("Respond Software"), a cybersecurity investigation automation company for a total purchase consideration of $177.6 million. The acquisition of Respond Software, a leader in automation of XDR, is intended to add significant capabilities to our Mandiant Advantage platform by automating threat detection and reducing the amount of analyst time necessary to investigate threats due to the reduction in false positives as well as to accelerate Respond Software's learning models with our unique expertise and threat intelligence. A portion of the goodwill generated by the Respond Software acquisition was allocated to the FireEye Products business based on relative fair value and was reported as held for sale. The amount of Respond Software goodwill reported as held for sale is $34.8 million. The intangible assets acquired and the net tangible liabilities assumed were retained in the sale of the FireEye Products business and are presented as continuing operations in the consolidated balance sheets.

In January 2020, we acquired Cloudvisory LLC ("Cloudvisory"), a provider of cloud visibility and control solutions. As consideration for the acquisition, we paid approximately $13.2 million in cash and assumed $0.3 million in net tangible liabilities. Pursuant to the sale of the FireEye Products business, the intangible assets acquired, including developed technology, and net tangible

liability assumed in this acquisition are reported as held for sale in the consolidated balance sheets. A portion of goodwill generated by the Cloudvisory acquisition totaling $1.8 million was allocated to the FireEye Products business based on relative fair value and is reported as held for sale.

In May 2019, we acquired Verodin, Inc. ("Verodin"), a security instrumentation platform company. As consideration for the acquisition, we paid $143.7 million in cash, issued 8,404,609 shares of our common stock with an estimated fair value of $119.7 million and recognized $1.5 million of the fair value of assumed stock options attributable to pre-combination services. The intangible assets acquired and net tangible liabilities assumed in the acquisition of Verodin are presented in the balance sheet as continuing operations.

Basis of Presentation and Consolidation

The consolidated financial statements include the accounts of Mandiant, Inc. and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany balances and transactions have been eliminated in consolidation.

See Note 2, "Discontinued Operations," to our consolidated financial statements for additional information.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Such management estimates include, but are not limited to, determining the nature and timing of satisfaction of performance obligations, useful life of our security appliances that are dependent on intelligence and assessing the material rights associated with it, determining the standalone selling price ("SSP") of performance obligations, subscriptions and services, commissions expense including the period of benefit of customer acquisition cost, bonus expense, future taxable income, contract manufacturer liabilities, litigation and settlement costs and other loss contingencies, fair value of our equity awards, achievement of targets for performance stock units, fair value of the liability and equity components of the Convertible Senior Notes (as defined in Note 11), fair value of assets and liabilities sold in the divestiture, allocation of goodwill to discontinued operations, results of operations of the Company's discontinued operations and the purchase price allocation of acquired businesses. We base our estimates on historical experience and on assumptions that we believe are reasonable. Changes in facts or circumstances may cause us to change our assumptions and estimates in future periods, and it is possible that actual results could differ from current or revised future estimates.

Concentrations

Financial instruments that subject us to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, and accounts receivable. We maintain a substantial portion of our cash and cash equivalents in money market funds invested in U.S. Treasury related obligations. Management believes that these financial institutions are financially sound and, accordingly, are subject to minimal credit risk. Deposits held with banks may exceed the amount of insurance provided on such deposits.

Our short-term investments primarily consist of notes and bonds issued by corporate institutions and U.S. Government agencies. All of our investments are highly-rated by credit rating agencies and are issued by organizations with reputable credit, and therefore bear minimal credit risk.

Our accounts receivables are primarily derived from a diverse set of customers across various geographical locations. We perform ongoing credit evaluations of our customers and generally do not require collateral on accounts receivable. We maintain an allowance for doubtful accounts for estimated potential credit losses. See Note 19, "Segment and Major Customers Information," for information on major customers.

We rely primarily on a single contract manufacturer to assemble our products. In some cases, we rely on sole suppliers for certain components.

Foreign Currency Translation and Transactions

The functional currency of our foreign subsidiaries is the U.S. dollar. We translate all monetary assets and liabilities denominated in foreign currencies into U.S. dollars using the exchange rates in effect at the balance sheet dates and other assets and liabilities using historical exchange rates.

Foreign currency denominated revenue and expenses have been re-measured using the average exchange rates in effect during each period. Foreign currency translation and transaction gains and losses have been included in other income (expense) and have not been significant for the years ended December 31, 2021, 2020 and 2019. For the years ended December 31, 2021, 2020 and 2019, we recognized a loss of $1.6 million, a gain of $0.6 million and a loss of $0.7 million, respectively.

Cash and Cash Equivalents

We consider all highly liquid investments with original maturities of three months or less at date of purchase to be cash equivalents. We determine the appropriate classification of our investments at the time of purchase, and evaluate such designation at each balance sheet date.

Short-term Investments

We classify our investments in debt and equity securities as available-for-sale and record these investments at fair value. Investments with an original maturity of three months or less at the date of purchase are considered cash equivalents, while all other investments are classified as short-term or long-term based on the nature of the investments, their maturities, and their availability for use in current operations.

We regularly review our investment portfolio to identify and evaluate investments that have indicators of possible impairment. An investment is impaired if the fair value of the investment is less than its cost. Fair value is calculated based on publicly available market information or other estimates determined by management. If the fair value of an investment is less than its amortized cost basis at the balance sheet date and if we do not intend to sell the investment, we consider available evidence to assess whether it is more likely than not that we will be required to sell the investment before the recovery of its amortized cost basis. Factors considered in our evaluation include, but are not limited to: general market conditions, the length of time and extent a security’s fair value has been below its cost, the financial condition and near-term prospects of the investee, the credit quality of the security’s issuer, likelihood of recovery and our intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in value. For our debt instruments, we also evaluate whether we have the intent to sell the security or it is more likely than not that we will be required to sell the security before recovery of its cost basis.

Once an impairment is determined to be attributable to credit-related factors, allowance for credit losses (i.e., the credit loss component) is recognized as credit loss expense, a charge in other income (expense), net, on our consolidated statements of operations, and any remaining unrealized losses (i.e., the non-credit loss component), are included in accumulated other comprehensive income (loss) on our consolidated statements of convertible preferred stock and stockholders' equity.

Prior to 2020, we followed the guidance in Accounting Standards Codification (“ASC”) 320 Investments—Debt and Equity Securities in determining whether unrealized losses were other than temporary. In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-13—Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“Topic 326”). We adopted Topic 326 on January 1, 2020, and now consider whether unrealized losses have resulted from a credit loss or other factors. We concluded that an allowance for credit losses was unnecessary as of December 31, 2021 and 2020 and there was no impairment charge for any unrealized losses in 2019.

Fair Value of Financial Instruments

We define fair value as the price that would be received from selling an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, we consider the principal or most advantageous market in which to transact and the market-based risk. We apply fair value accounting for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The carrying amounts reported in the consolidated financial statements approximate the fair value for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities due to their short-term nature.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally two to five years.

The estimated useful lives of property and equipment are described below:

Property and Equipment	Useful Life
Computer equipment and software	2 to 5 years
Leasehold improvements	Shorter of estimated useful life or remaining lease term
Furniture and fixtures	5 years
Machinery and equipment	2 to 5 years

Leases

We determine if an arrangement is a lease and classification of that lease, if applicable, at inception based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefits from the use of the asset throughout the period, and (3) whether we have a right to direct the use of the asset. We currently do not have any

finance leases. We have elected to not recognize a lease liability or right-of-use ("ROU") asset for short-term leases (leases with a term of twelve months or less and do not include an option we are reasonably certain to exercise to purchase the underlying asset).

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make minimum lease payments arising from the lease. ROU assets are initially measured at amounts, which represents the present value of the lease payments over the lease, plus any initial direct costs incurred and less any lease incentives received. Annually, all ROU assets are reviewed for impairment. The lease liability is initially measured at lease commencement date based on the present value of minimum lease payments over the lease term. As the rates implicit in the leases are not readily available, we use our Incremental Borrowing Rate ("IBR") based on the information available at commencement date of a lease in determining the present value of lease payments. The determination of our IBR requires judgment. We took into consideration our recent debt offerings as well as external credit rating factors when determining our current IBR. Our lease terms may include options to extend or terminate the lease. We do not include these options in our minimum lease terms unless we believe they are reasonably certain to be exercised. We have lease agreements with lease and non-lease components, which are generally accounted for separately. Non-lease components (i.e. common area maintenance) are separate from the lease components and are paid on actual usage. Therefore, the non-lease components are not included in the determination of the ROU asset or lease liability and are reflected as an expense in the period incurred. Our operating lease costs for operating lease payments are recognized on a straight-line basis over the lease term.

We also sublease certain office space to third-parties. Our subleases consist of office space which was vacated as part of restructuring activities. We do not recognize ROU assets or lease liabilities associated with subleased office spaces in which we are the sublessor. Sublease income is recognized ratably over the term of the agreement.

Discontinued Operations

We consider assets to be held for sale when management commits to a formal plan to actively market the assets for sale at a price reasonable in relation to fair value, it is unlikely that significant changes will be made to the plan, the assets are available for immediate sale in their present condition, an active program to locate a buyer and other actions required to complete the sale have been initiated and the sale of the assets is expected to be completed within one year. Upon designation as held for sale, we record the carrying value of the assets at the lower of the then current carrying value or estimated fair value, less costs to sell. Fair value is determined based on external data available or management’s estimates, depending upon the nature of the assets and liabilities. Goodwill is allocated to the FireEye Products business and designated as held for sale based on the relative fair values of the FireEye Products business and the remaining business. The fair value is determined based on the Company’s market capitalization and management’s estimate of the control premium a buyer would pay to obtain control of the business. Following recording as such, assets held for sale are not depreciated or amortized thereafter.

If the disposal of the component of an entity (or group of components) represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results, it meets the criteria for discontinued operations. The results of discontinued operations, as well as any gain or loss on the disposal transaction, are presented separately, net of tax, from the results of continuing operations for all periods presented. The revenue and expenses included in the results of discontinued operations are the revenue and direct operating expenses incurred by the discontinued component that may be reasonably segregated from the revenue and costs of the ongoing operations of the Company. The assets and liabilities for the FireEye Products business have been accounted for as assets and liabilities held for sale in our consolidated balance sheets as the sale was completed on October 8, 2021. The operating results have been included in discontinued operations in our consolidated financial statements and excluded from continuing operations for all periods presented. The consolidated statement of cash flows presents combined cash flows from continuing operations with cash flows from discontinued operations within each cash flow statement category. The prior periods have been adjusted to reflect the assets and liabilities held for sale and discontinued operations.

Impairment of Long-Lived Assets

We evaluate events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances occur, we assess the recoverability of long-lived assets by determining whether or not the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future undiscounted cash flows is less than the carrying amount of an asset, we record an impairment charge for the amount by which the carrying amount of the assets exceeds the fair value of the asset. Through December 31, 2021 we have not written down any of our long-lived assets as a result of impairment.

Business Combinations

We have accounted for all of our acquisitions using the acquisition method. The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired, based on their estimated fair values. The excess of the fair value of purchase consideration over the values of these identifiable assets and liabilities is recorded as goodwill.

When determining the fair value of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to identifiable intangible assets. Significant assumptions used in valuing certain identifiable intangible assets include, but are not limited to, expected long-term market growth, future expected operating expenses, costs of capital, and appropriate discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and, as a result, actual results may differ from estimates.

Goodwill and Purchased Intangible Assets

Goodwill represents the excess of the aggregate purchase price paid over the fair value of the net tangible and identifiable intangible assets acquired. In the valuation of our goodwill, we must make assumptions regarding estimated future cash flows to be derived from our business. If these estimates or their related assumptions change in the future, we may be required to record impairment for these assets. Goodwill is not amortized and is tested for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company has determined that it operates as one reporting unit and has selected December 1 as the date to perform its annual impairment test.

We perform the impairment testing by first assessing qualitative factors to determine whether existence of events or circumstances leads to a determination that it is more likely than not that the fair value of its reporting unit is less than its carrying amount. In assessing the qualitative factors, we consider the impact of certain key factors including macroeconomic conditions, industry and market considerations, management turnover, changes in regulation, litigation matters, changes in enterprise value, and overall financial performance. If, after assessing the totality of events or circumstances, the Company determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then it performs a quantitative assessment to determine whether there is any impairment. To calculate any potential impairment, the Company compares the fair value of a reporting unit with its carrying amount, including goodwill. There was no impairment of goodwill recorded for the years ended December 31, 2021, 2020 or 2019.

Purchased intangible assets with finite lives are carried at cost, less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets. Purchased intangible assets with indefinite lives are assessed for potential impairment annually, or when events or circumstances indicate that their carrying amounts might be impaired.

Contract Balances

Accounts Receivable

Trade accounts receivable are recorded at the billable amount where we have the unconditional right to bill, net of allowances for doubtful accounts. The allowance for doubtful accounts is based on our assessment of the collectability of accounts. Management regularly reviews the adequacy of the allowance for doubtful accounts by considering the age of each outstanding invoice, each customer's expected ability to pay and collection history, when applicable, to determine whether a specific allowance is appropriate. Accounts receivable deemed uncollectible are charged against the allowance for doubtful accounts when identified.

Deferred Revenue (Contract Liabilities) and Contract Assets

Deferred revenue consists of amounts for which we have the unconditional right to bill, but have not been recognized as revenue because the related subscriptions or services have not been transferred. These amounts include non-refundable customer deposits that are prepaid for future performance obligations, such as delivery of our Expertise on Demand units and pre-paid retainers. Deferred revenue that will be realized during the succeeding 12-month period is recorded as current, and the remaining deferred revenue is recorded as non-current. Our contract assets consist of assets typically resulting from when revenue has been recognized but we do not have the right to bill the customer due to allocation of transaction price, and such amounts have been included in prepaid expenses and other current assets. Our contract assets were immaterial as of December 31, 2021 and 2020.

In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our solutions and services, not to receive financing from our customers or to provide customers with financing. Examples include invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period.

Assets Recognized from Costs to Obtain a Contract with a Customer

Deferred Commissions

Our customer acquisition costs are primarily related to sales commissions and related payroll taxes earned by our sales force and such costs are considered incremental costs to obtain a contract. Sales commissions for initial contracts are deferred and then amortized taking into consideration the pattern of transfer to which the asset relates and may include expected renewal periods where renewal commissions are not commensurate with the initial commissions period. We typically recognize the initial commissions over the longer of the customer relationship (generally estimated to be three years) or over the same period as the initial revenue arrangement to which these costs relate. Renewal commissions not commensurate with the initial commissions paid are generally amortized over the renewal period. Deferred commissions that will amortize within the succeeding twelve month period are classified

as current, and included in prepaid expenses and other current assets on the consolidated balance sheets. The remaining balance is classified as non-current, and included in deposits and other long-term assets. As of December 31, 2021 and 2020, the amount of deferred commissions included in prepaid expenses and other current assets was $23.9 million and $14.3 million, respectively. The amount of deferred commissions included in deposits and other long-term assets as of December 31, 2021 and 2020 was $21.4 million and $11.4 million, respectively.

Revenue Recognition

Revenue from Contracts with Customers

Revenue is recognized when all of the following criteria are met:

•Identification of the contract, or contracts, with a customer - A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and the parties are committed to perform, and (iii) we determine that collection of substantially all consideration to which it will be entitled in exchange for goods or services that will be transferred is probable based on the customer’s intent and ability to pay the promised consideration.

•Identification of the performance obligations in the contract - Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the goods or service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods or services, we apply judgment to determine whether promised goods or services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised goods or services are accounted for as a combined performance obligation.

•Determination of the transaction price - The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods or services to the customer adjusted for estimated variable consideration, if any. We typically estimate the transaction price impact of discounts offered to the customers for early payments on receivables or rebates based on channel partner sales achievements. Constraints are applied when estimating variable considerations based on historical experience where applicable.

•Allocation of the transaction price to the performance obligations in the contract - If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative SSP basis. Determination of SSP requires judgment. We determine standalone selling price taking into account available information such as historical selling prices of the performance obligation, geographic location, overall strategic pricing objective, market conditions and internally approved pricing guidelines related to the performance obligations.

•Recognition of revenue when, or as, we satisfy performance obligation - We satisfy performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at or over the time the related performance obligation is satisfied by transferring a promised good or service to a customer.

Nature of Solutions and Services

We generate revenue from the sales of cloud based subscriptions, managed services and professional services, primarily through our indirect relationships with our partners or direct relationships with end customers through our direct sales force. We account for our performance obligations in accordance with Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, regarding Accounting Standards Codification Topic 606 (“ASC 606”), and all related interpretations.

Revenue from subscriptions to our cloud-based solutions, which allow customers to use our hosted security software over a contracted period without taking possession of the software and managed services where we provide managed detection and response services for customers, are recognized over the contractual term.

Professional services, which include incident response, security assessments, and other strategic security consulting services are offered on a time-and-materials basis or through fixed fee arrangements, and we recognize the associated revenue as the services are delivered.

Discontinued Operations

Revenue from discontinued operations was generated primarily from sales of network, email, endpoint security, Helix SIEM and Cloudvisory solutions deployed on a customer's premises, either as an integrated security appliance or a distributed hybrid on-premise/private cloud configurations. As a single performance obligation, revenue from sales of appliance hardware and related subscriptions was recognized ratably over the contractual term, typically one to three years. Such contracts typically contained a material right of

renewal option that allows the customer to renew their Dynamic Threat Intelligence ("DTI") cloud and support subscriptions for an additional term at a discount to the original purchase price of the single performance obligation. For contracts that contained a material right of renewal option, the value of the performance obligation allocated to the renewal was recognized ratably over the period between the end of the initial contractual term and end of the estimated useful life of the related appliance and license. A small portion of our revenue in the product and related subscription and support revenue related to discontinued operations was derived from the sale of our network forensics appliances and our central management system appliances. These appliances were not dependent on regular security intelligence updates, and revenue from these appliances was therefore recognized when ownership was transferred to our customer, typically at shipment.

Advertising Costs

Advertising costs, which are expensed and included in sales and marketing expense when incurred, were $10.9 million, $4.2 million and $3.2 million during the years ended December 31, 2021, 2020 and 2019, respectively.

Software Development Costs

The costs to develop internal-use software are subject to capitalization and begin amortizing once the software is substantially ready for use. These costs are included in property and equipment and are generally amortized over 3 years. All other software development costs are expensed as incurred and included in research and development expense on the Consolidated Statements of Operations.

Stock-Based Compensation

Compensation expense related to stock-based transactions, including employee and non-employee director awards and our 2013 Employee Stock Purchase Plan (the "ESPP"), is measured and recognized in the financial statements based on fair value. The fair value of each option award is estimated on the grant date using the Black-Scholes option-pricing model and a single option award approach. This model requires that at the date of grant we determine the fair value of the underlying common stock, the expected term of the award, the expected volatility of the price of our common stock, risk-free interest rates, and expected dividend yield of our common stock. The fair value of restricted stock awards and restricted stock units is based on the closing market price of our common stock on the date of grant. The stock-based compensation expense is recognized using a straight-line basis over the requisite service period of the entire awards, which is generally four years. Performance-based awards are subject to performance conditions. We recognize compensation expense over the requisite service period of each vesting tranche, when it becomes probable that the performance criteria set by our Board of Directors will be achieved.

We recognize forfeitures as they occur, and no longer estimate a forfeiture rate when calculating the stock-based compensation for our equity awards.

We account for stock options issued to non-employees based on the fair value of the awards determined using the Black-Scholes option-pricing model. The fair value of stock options granted to non-employees is remeasured as the stock options vest, and the resulting change in value, if any, is recognized in the statement of operations during the period the related services are rendered.

Income Taxes

We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. In addition, deferred tax assets are recorded to reflect the future benefit of utilizing net operating losses and research and development credit carry forwards. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized. We recognize taxes on Global Intangible Low-Taxed Income (“GILTI”) as a current period expense when incurred.

We apply the authoritative accounting guidance prescribing a threshold and measurement attribute for the financial recognition and measurement of a tax position taken or expected to be taken in a tax return. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation settlement. The second step is to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statements of operations. Accrued interest and penalties are included within other long-term liabilities in the consolidated balance sheets.

Common Stock Repurchase Program

On June 2, 2021, we announced a stock repurchase program for the repurchase of up to $500 million of our common stock. There is no expiration date on this authorization, and we may suspend, amend or discontinue the repurchase program at any time. During the year ended December 31, 2021, we cumulatively repurchased 16.8 million shares of our common stock for $300.0 million, at an average repurchase price of approximately $17.81 per share. The repurchases were recorded to additional paid-in capital as we are in an accumulated net deficit position.

Net Income (Loss) Per Share

We calculate our basic and diluted net income (loss) per share in conformity with the two-class method required for companies with participating securities based upon income (loss) from continuing operations. Under the two-class method, net income (loss) is determined by allocating undistributed earnings, calculated as net income (loss) less current period convertible preferred stock cumulative dividends, between common stock and the convertible preferred stock. In computing diluted net income, undistributed earnings are re-allocated to reflect the potential impact of dilutive securities. Our basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The diluted net loss per share attributable to common stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, convertible preferred stock, options to purchase common stock and convertible senior notes are considered common stock equivalents, but have been excluded from the calculation of diluted net loss per share as their effect is anti-dilutive.

Convertible Senior Notes

We allocated the principal amount of the Convertible Senior Notes between its liability and equity components. The carrying amount of the liability component was determined by measuring the fair value of a similar debt instrument of similar credit quality and maturity that did not have the conversion feature. The carrying amount of the equity component, representing the embedded conversion option, was determined by deducting the fair value of the liability component from the principal amount of the Convertible Senior Notes as a whole. The equity component is included in additional paid-in-capital in consolidated balance sheets and is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the Convertible Senior Notes over the carrying amount of the liability component was recorded as a debt discount, and is being amortized to interest expense using the effective interest method through the first date holders have the right to require us to repurchase all or any portion of their Convertible Senior Notes; the first put date (see Note 11, "Convertible Senior Notes"). We allocate the total amount of transaction costs incurred to the liability and equity components using the same proportions as the proceeds from the Convertible Senior Notes. Transaction costs attributable to the liability component were recorded as a direct deduction from the liability component of the Convertible Senior Notes, and are being amortized to interest expense using the effective interest method through the first put date. Transaction costs attributable to the equity component were netted with the equity component of the Convertible Senior Notes in additional paid-in capital.

Recently Adopted Accounting Pronouncements

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This standard requires capitalization of the implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Further, the standard also requires the Company to expense the capitalized implementation costs of a hosting arrangement over the term of the hosting arrangement. We adopted the standard effective January 1, 2020. The standard did not have a significant impact on our consolidated financial statements.

Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This standard eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge (i.e. Step 2 of the current guidance), instead measuring the impairment charge as the excess of the reporting unit's carrying amount over its fair value (i.e. Step 1 of the current guidance). We adopted the standard effective January 1, 2020. The standard did not have a significant impact on our consolidated financial statements.

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard changes the impairment model for most financial assets and certain other instruments by introducing a current expected credit loss ("CECL") model. The CECL model is a more forward-looking approach based on expected losses rather than incurred losses, requiring entities to estimate and record losses expected over the remaining contractual life of an asset. The guidance was effective for the Company beginning in the first quarter of 2020. We adopted the standard effective January 1, 2020. The standard did not have a significant impact on our consolidated financial statements.

Simplifying Accounting for Income Taxes

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill and allocating consolidated income taxes to separate financial statements of entities not subject to income tax. ASU 2019-12 is effective for annual and interim periods in fiscal years beginning after December 15, 2020. Early adoption was permitted and we adopted ASU 2019-12 as of January 1, 2020. The adoption did not have a significant impact on our consolidated financial statements.

Recent Legislation

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted and signed into U.S. law to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID-19 pandemic. Changes in tax laws or rates are accounted for in the period of enactment. The income tax provisions of the CARES Act do not have a significant impact on our current taxes, deferred taxes, or uncertain tax positions.

Recent Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06): This standard simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes from U.S. GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature will no longer be amortized into income as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Among other potential impacts, this change is expected to reduce reported interest expense, increase reported net income, and result in a reclassification of certain conversion feature balance sheet amounts from stockholders’ equity to liabilities as it relates to the Convertible Senior Notes. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share (EPS), which is consistent with the Company’s accounting treatment under the current standard. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020, and can be adopted on either a fully retrospective or modified retrospective basis. We are adopting the standard on January 1, 2022, using the modified retrospective basis. We expect the adoption to result in an approximately $200.0 million decrease to the opening balance of accumulated deficit, approximately $270.0 million decrease to the opening balance of additional paid-in capital, and approximately $70.0 million increase to the opening balance of the Convertible Senior Notes, net on the consolidated balance sheet.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This standard requires an acquiring entity to apply Topic 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities in a business combination in a manner consistent with how the acquiree recognized and measured them in its preacquisition financial statements. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal year. Early adoption of the amendments is permitted, including adoption in an interim period. We are currently evaluating the timing and overall impact of this standard on our consolidated financial statements.