Markforged Holding Corporation General form of registration statement for all companies including face-amount certificate companies

General form of registration statement for all companies including face-amount certificate companies

Summary of Significant Accounting Policies (Policies)

Summary of Significant Accounting Policies (Policies)

6 Months Ended

12 Months Ended

Jun. 30, 2021

Dec. 31, 2020

Accounting Policies [Abstract]

Unaudited Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) regarding interim financial reporting and include the accounts of MarkForged, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s audited consolidated financial statements for the year ended December 31, 2020. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). The accompanying condensed consolidated financial statements as of June 30, 2021 and for the three and six months ended June 30, 2021 and 2020 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the Company’s financial position as of June 30, 2021 and results of operations for the three and six months ended June 30, 2021 and 2020 and cash flows for the six months ended June 30, 2021 and 2020. The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2021 and 2020 are also unaudited. The condensed balance sheet at December 31, 2020, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. Other than policies noted below, there have been no significant changes to the significant accounting policies disclosed in Note 2 of the audited consolidated financial statements as of December 31, 2020 and 2019 and for the years ended December 31, 2020 and 2019.

The results for the three and six months ended June 30, 2021 and 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements as of December 31, 2020 and 2019 and for each of the two years in the period ended December 31, 2020.

Basis of Presentation

The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). All significant intercompany accounts and transactions have been eliminated in consolidation.

Basis of Presentation

The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). All significant intercompany accounts and transactions have been eliminated in consolidation.

Reporting Currency

The Company’s reporting currency is the U.S. Dollar, while the functional currencies of its foreign subsidiaries are their respective local currencies. The effect of foreign currency translation was immaterial for all periods presented.

Reporting Currency

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management’s significant estimates include allowance for doubtful accounts, reserve for excess and obsolete inventory, fair value of equity awards and assumptions in revenue recognition. Actual results could differ from those estimates.

amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management’s significant estimates include allowance for doubtful accounts, reserve for excess and obsolete inventory, fair value of equity awards and assumptions in revenue recognition. Actual results could differ from those estimates.

Treasury Stock

Treasury stock is accounted for using the cost method, with the purchase price of the common stock and Seed stock separately recorded as a deduction from stockholders’ deficit.

Revenue Recognition

The Company recognized revenue in accordance with Accounting Standards Codification (‘‘ASC’’) Topic 606,

Revenue from Contracts with Customers

(“ASC Topic 606”) during the years ended December 31, 2020 and 2019.

Under ASC Topic 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration which the entity expects to be entitled to in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of the new revenue recognition accounting standard, the Company performs the following five steps:

•

identifies the contract with a customer;

•

identifies the performance obligations in the contract;

•

determines the transaction price;

•

allocates the transaction price to the performance obligations in the contract; and

•

recognizes revenue when (or as) the entity satisfies a performance obligation.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of 90 days or less to be cash equivalents. Cash equivalents consist of money market funds as of December 31, 2020 and 2019.

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. An allowance for doubtful accounts is provided for those accounts receivable considered to be uncollectible based on management’s assessment of the collectability of the accounts receivable which considers historical

write-off

experience and any specific risks identified in customer collection matters

The following presents the changes in the balance of the Company’s allowance for doubtful accounts:


	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2021			2020			2021			2020
Balance at beginning of period	$	1,012		$	1,060		$	1,070		$	1,038
Additions		296			236			378			397
Write – offs		(63	)		(14	)		(64	)		(14	)
Recoveries		(80	)		(179	)		(219	)		(318	)

Balance at end of period	$	1,165		$	1,103		$	1,165		$	1,103

Accounts Receivable and Allowance for Doubtful Accounts

write-off

experience and any specific risks identified in customer collection matters.

The following presents the changes in the balance of the Company’s allowance for doubtful accounts:


	Year Ended December 31,
(in thousands)	2020			2019
Balance at beginning of year	$	1,038		$	175
Additions		591			1,014
Write – offs		(559	)		(151	)

Balance at end of year	$	1,070		$	1,038

Fair Value of Financial Instruments

The Company is required to provide information according to the fair value hierarchy based on the observability of the inputs used in the valuation techniques. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:


Level 1		Quoted prices in active markets for identical assets or liabilities

Level 2		Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

The following table presents information about the Company’s assets and liabilities that are measured at fair value as of June 30, 2021 and December 31, 2020 and indicates the fair value hierarchy of the valuation:


	Fair Value Measurements
(in thousands)	Level 1		Level 2		Level 3		Total
June 30, 2021
Money market funds included in cash and cash equivalents	$	31,337	$	—	$	—	$	31,337
December 31, 2020
Money market funds included in cash and cash equivalents	$	56,907	$	—	$	—	$	56,907
Warrant liability		—		—		545		545

The Company remeasures its warrant liability at fair value at each reporting period using Level 3 inputs via the Black-Scholes option-pricing model. The significant assumptions used in preparing the option pricing model are disclosed in Note 10 Stock Warrants. All warrants were exercised in June 2021. There were no transfers between levels during the periods presented.


	Three Months Ended June 30,					Six Months Ended June 30,
(in thousands)	2021			2020		2021			2020
Balance at beginning of period	$	1,555		$	382	$	545		$	370
Change in fair value		241			—		1,251			12
Derecognition of liability		(1,796	)		—		(1,796	)		—

Balance at end of period	$	—		$	382	$	—		$	382

At December 31, 2020, the fair value of the Company’s debt using Level 2 inputs was approximately $

4.7

million

calculated using a discounted cash flow method. All debt was paid off in January 2021 as disclosed in Note 7 Borrowings.

Fair Value of Financial Instruments


Level 1		Quoted prices in active markets for identical assets or liabilities.

Level 2		Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table presents information about the Company’s assets that are measured at fair value as of December 31, 2020 and 2019, and indicates the fair value hierarchy of the valuation:


	Fair Value Measurements
(in thousands)	Level 1		Level 2		Level 3		Total
December 31, 2020
Money market funds included in cash and cash equivalents	$	56,907	$	—	$	—	$	56,907
Warrant liability		—		—		545		545

December 31, 2019
Money market funds included in cash and cash equivalents	$	58,182	$	—	$	—	$	58,182
Warrant liability		—		—		370		370


	Year ended December 31,
(in thousands)	2020		2019
Balance at beginning of year	$	370	$	150
Change in fair value		175		220

Balance at end of year	$	545	$	370

At December 31, 2020, the fair value of the Company’s debt using Level 2 inputs is approximately $4.7 million calculated using a discounted cash flow method.

Concentration of Credit Risk

Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents held on deposit at one financial institution and accounts receivable. The Company does not require collateral from customers for amounts owed. At June 30, 2021 and December 31, 2020, no one customer represented greater than 10% of the accounts receivable balance. For the three and six months ended June 30, 2021 no one customer represented more than 10% of total revenue. Historically, the Company has not experienced any significant credit loss related to any individual customer.

Concentration of Credit Risk

Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents held on deposit at one financial institution and accounts receivable. The Company does not require collateral from customers for amounts owed. At December 31, 2020 and 2019, no one customer represented greater than 10% of the accounts receivable balance. For the years ended December 31, 2020 and 2019, no one customer represented more than 10% of total revenue. Historically, the Company has not experienced any significant credit loss related to any individual customer.

Property and Equipment

Property and equipment are recorded at cost and are depreciated over their estimated useful lives using the straight-line method. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the determination of net income or loss. Repairs and maintenance costs are expensed as incurred

The cost of property and equipment is depreciated based upon the following asset lives:


Asset Classification		Estimated Useful Life
Machinery and equipment		5 years
Leasehold improvements		Shorter of estimated useful life or remaining lease term
Computer equipment		3 years
Computer software		3 years
Furniture and fixtures		3 years

Impairment of Long-Lived Assets

The Company evaluates whether events or circumstances have occurred that indicate that the estimated remaining useful life of its long-lived assets may warrant reassessment or that the carrying value of these assets may not be recoverable. When a triggering event is identified, management assesses the recoverability of the asset group, which is the lowest level where identifiable cash flows are largely independent, by comparing the expected undiscounted cash flows of the asset group to the carrying value. When the carrying value is not recoverable and an impairment is determined to exist, the asset group is written down to fair value. The Company did not identify any triggering events or record any impairment during the three and six months ended June 30, 2021 and 2020.

Impairment of Long-Lived Assets

Inventory

Inventory is stated at lower of cost or net realizable value. Cost is based on a standard costing system which approximates the cost on a first in, first out method. The Company regularly reviews inventory for excess and obsolescence and records a provision to write down inventory to its net realizable value.

Cost of Revenue

Cost of revenue is primarily comprised of cost of product and software subscriptions, maintenance services, personnel-related costs, third party logistics, warranty fulfillment costs, and overhead. For the production of consumables, the Company utilizes its internal manufacturing facilities and personnel, while for the production of the Company’s additive manufacturing hardware, third party manufacturers are utilized.

For internally manufactured products, the cost of revenue includes raw material, labor conversion costs, and overhead related to the manufacturing operations, inclusive of associated depreciation. Cost of revenue for maintenance services is comprised of costs associated with the Company’s customer success teams’ provision of remote and

on-site

support services to customers in addition to the cost of replacement parts.

The Company’s cost of revenue also includes indirect costs of providing products and services to its customers. These indirect costs consist primarily of reserves for excess and obsolete inventory and stock- based compensation.

Research and Development

The Company expenses all research and development costs as incurred. These costs consist mainly of employee compensation and other personnel-related costs, product prototypes, facility costs, as well as engineering services.

Sales and Marketing

Advertising costs, a component of sales and marketing expenses, were

$1.2 million and $3.0

million during the three and six months ended June 30, 2021, respectively, compared to $0.5 million and $1.5 million for the three and six months ended June 30, 2020.

Sales and Marketing

Sales and marketing costs are expensed as incurred and are primarily comprised of personnel-related costs for the Company’s sales and marketing departments, costs related to sales commissions, trades shows, facilities costs, as well as advertising and other demand generating services. Sales and marketing expenses include advertising costs which were $3.0 million and $5.4 million during 2020 and 2019, respectively.

Shipping and Handling Costs

The Company recognizes shipping and handling costs in cost of revenue within the consolidated statements of operations and comprehensive loss. When shipping and handling services are provided subsequent to the point in time control is transferred, the Company accounts for the shipping and handling services as a fulfillment activity and accrues the related costs.

Stock-Based Compensation

The Company recognizes expense for stock-based compensation awards based on the estimated fair value of the award on the date of grant, which is amortized on a straight-line basis over the employee’s or director’s requisite service period, generally the vesting period of the award. The Company uses the Black- Scholes pricing model to estimate the fair value of options on the date of grant

The Company uses the Black-Scholes pricing model to estimate the fair value of options on the date of grant. The use of a valuation model requires management to make certain assumptions with respect to selected model inputs. The Company grants stock options at exercise prices determined equal to the fair value of common stock on the date of the grant, as determined by the Board of Directors. The fair value of the Company’s common stock at each measurement date is based on a number of factors, including the results of third-party valuations, the Company’s historical financial performance, and observable arms-length sales of the Company’s capital stock including convertible preferred stock, and the prospects of a liquidity event, among other inputs. The computation of expected option life is based on an average of the vesting term and the maximum contractual life of the Company’s stock options, as the Company does not have sufficient history to use an alternative method to the simplified method to calculate an expected life for employees. The Company estimates an expected forfeiture rate for stock options, which is factored into the determination of stock-based compensation expense. The volatility assumption is based on the historical and implied volatility of the Company’s peer group with similar business models. The risk-free interest rate is based on U.S. Treasury

zero-coupon

issues with a remaining term equal to the expected life assumed at the date of grant. The dividend yield percentage is zero because the Company does not currently pay dividends nor does the Company intend to do so in the future.

These estimates involve inherent uncertainties and the use of different assumptions may have resulted in stock-based compensation expense that was different from the amounts recorded.

The Company has repurchased fully vested restricted common shares from its employees pursuant to individual repurchase agreements. The Company allows its employee to elect the Company to retain an amount to cover the employee’s tax withholding obligations incurred as a result of the repurchase. The employee tax withholding related to net settlement is recorded in the accrued expenses caption on the Company’s consolidated balance sheets.

Warranty Reserves

Substantially all of the Company’s hardware products are covered by a standard assurance warranty of one year. In the event of a failure of a product covered by this warranty, the Company may repair or replace the product, at its option. The Company’s warranty reserve reflects estimated material and labor costs for potential or actual product issues for which the Company expects to incur an obligation. The Company periodically assesses the appropriateness of the warranty reserve and adjusts the amount as necessary. If the data used to calculate the appropriateness of the warranty reserve are not indicative of future requirements, additional or reduced warranty reserves may be necessary.

Warranty reserves are included within accrued expenses on the condensed consolidated balance sheets. The following table presents changes in the balance of the Company’s warranty reserve:


	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2021			2020			2021			2020
Balance at beginning of period	$	538		$	1,261		$	564		$	1,260
Additions to warranty reserve		366			250			633			482
Claims fulfilled		(336	)		(144	)		(629	)		(375	)

Balance at end of period	$	568		$	1,367		$	568		$	1,367

Warranty reserve is recorded through cost of revenue in the condensed consolidated statements of operations and comprehensive loss.

Warranty Reserves

potential or actual

product issues for which the Company expects to incur an obligation. The Company periodically assesses the appropriateness of the warranty reserve and adjusts the amount as necessary. If the data used to calculate the appropriateness of the warranty reserve are not indicative of future requirements, additional or reduced warranty reserves may be necessary.

Warranty reserves are included within accrued expenses on the consolidated balance sheets. The following table presents changes in the balance of the Company’s warranty reserve:


	Year Ended December 31,
(in thousands)	2020			2019
Balance at beginning of year	$	1,260		$	80
Additions to warranty reserve		821			2,415
Claims fulfilled		(882	)		(1,235	)
Change in estimate related to pre-existing warranties		(635	)		—

Balance at end of year	$	564		$	1,260

Warranty reserve is recorded through cost of revenue in the consolidated statements of operations and comprehensive loss.

Common Stock

The holders of the common stock are entitled to one vote for each share held at all meetings of stockholders (and written actions in lieu of meetings).

Dividends may be declared and paid on common stock from funds lawfully available as and when determined by the Board of Directors and subject to any preferential dividend rights of any then outstanding preferred stock. Through the year ended December 31, 2020, no dividends had been declared.

Warrants

Warrants to purchase the Company’s common stock issued in conjunction with the Company’s former term loan facility debt are recorded as a liability and classified as other liabilities on the consolidated balance sheets. The change in the fair value is recognized in other expense in the consolidated statements of operations and comprehensive loss.

Warrants to purchase the Company’s Series D convertible preferred stock issued in conjunction with a customer contract are recorded as additional Series D convertible preferred stock and classified as mezzanine equity on the consolidated balance sheets.

Earnings Per Share

The Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the

two-class

method required for participating securities. The Company’s convertible preferred stock contractually entitles the holders of such shares to participate in dividends but does not contractually require the holders of such shares to participate in the Company’s losses. As such, net losses for the periods presented were not allocated to these securities.

The Company presents basic and diluted loss per common share amounts. Basic loss per common share is calculated by dividing net loss attributable to common stockholders, less any participating dividends by the weighted average number of common shares outstanding during the applicable period. See Note 13 for further information.

Income Taxes

The Company files U.S. federal and state tax returns where applicable. The

non-U.S.

subsidiaries file income tax returns in their respective jurisdictions. The Company accounts for income taxes under the asset and liability method, which recognizes deferred tax assets or liabilities for the expected future tax consequences based on the differences between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate, in effect when the differences are expected to reverse. Valuation allowances are provided, if based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Significant management judgement is required in determining the Company’s provision for income taxes, the Company’s deferred tax assets and liabilities, and any valuation allowance recorded against those net deferred tax assets.

The Company follows the authoritative guidance on accounting for and disclosure of uncertainty in tax positions which requires the Company to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals of litigation processes, based on the technical merits of the position. For tax positions meeting the

more-likely-than-not

threshold, the tax amount recognized in the financial statements is reduced to the largest benefit that has a greater than fifty percent likelihood of being realized upon the ultimate settlement with the relevant taxing authority.

Loss Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs for loss contingencies are expensed as incurred.

Segment Information

The Company determines its chief operating decision maker (“CODM”) based on the person responsible for making resource allocation decisions. Operating segments are components of the business for which the CODM regularly reviews discrete financial information. The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions.

Segment Information

Recently Adopted Accounting Pronouncements

The Company is provided the option to adopt new or revised accounting guidance as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (“the JOBS Act”) either (1) within the same periods as those otherwise applicable to public business entities, or (2) within the same time periods as private companies, including early adoption when permissible. With the exception of standards the Company elected to early adopt, when permissible, the Company has elected to adopt new or revised accounting guidance within the same time period as private companies

In August 2018, the FASB issued ASU

2018-15,

Intangibles — Goodwill and Other —

Internal-Use

Software (Subtopic

350-40)

(“ASU

2018-15”),

which aligns the requirements for capitalizing implementation costs incurred where the entity is the customer in a hosting arrangement that is a service contract with those of developing or obtaining

internal-use

software. These changes become effective for the Company for the fiscal year beginning on January 1, 2021 and interim periods beginning on January 1, 2022, with early adoption permitted. The adoption of this standard on January 1, 2021 did not have a material effect on the Company’s condensed consolidated financial statements.

In December 2019, the FASB issued ASU

2019-12,

Income Taxes (Topic 740) — Simplifying the Accounting for Income Taxes

(“ASU

2019-12”)

which simplifies the accounting for income taxes by eliminating some exceptions to the general approach in Accounting Standards Codification 740,

Income Taxes

. It also clarifies certain aspects of the existing guidance to promote more consistent application. As a result of the ASU, accounting for changes in tax law and

year-to-date

losses in interim periods will be simplified. These changes become effective for the Company for the fiscal year beginning after December 15, 2020 and interim periods within those fiscal years. The Company has determined that the adoption of ASU

2019-12

will not have a material impact on its condensed consolidated financial statements.

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2014-09

and its related amendments regarding ASC Topic 606,

Revenue from Contracts with Customers

. The standard provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also provides guidance on the recognition of incremental costs related to obtaining customer contracts. The Company adopted ASC Topic 606 on January 1, 2019, using the modified retrospective method for all contracts not completed as of the date of adoption. The adoption of ASC Topic 606 did not result in a material impact to the consolidated financial statements as of the adoption date; however, adoption did result in changes to the Company’s financial statement disclosures.

In June 2018, the FASB issued ASU

No. 2018-07,

Compensation-Stock Compensation (Topic 718): Improvements to Non employee Share-Based Payment Accounting

(“ASU

2018-07”),

which substantially aligns

the measurement and classification guidance for share based payments to non employees with the guidance for share based payments to employees. The ASU also clarifies that any share based payment issued to a customer should be evaluated by ASC Topic 606 and the consideration payable to a customer guidance. The new ASU was adopted using a modified retrospective transition approach. The ASU is effective for the Company beginning January 1, 2020 for annual periods and January 1, 2021 for interim periods. The adoption of this standard on January 1, 2020 did not have a material effect on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU

2018-13,

Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement

(“ASU

2018-13”),

which modifies the disclosure requirements on fair value measurements in ASC 820, Fair Value Measurement. After the adoption of this update, an entity will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; the valuation processes for Level 3 fair value measurements. ASU

2018-13

is effective in fiscal years beginning after December 15, 2019. The amendments on changes in unrealized gains and losses are applied prospectively for only the most recent period presented in the initial fiscal year of adoption. The adoption of this standard on January 1, 2020 did not have an impact on the consolidated financial statements of the Company.

In November 2019, the FASB issued ASU

2019-08,

Compensation Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements — Share-Based Consideration Payable to a Customer

(“ASU

2019-08”),

which requires that share based consideration payable to a customer is measured under stock compensation guidance. Under ASU

2019-08,

awards issued to customers are measured and classified following the guidance in Topic 718 while the presentation of the fair value of the award is determined following the guidance in ASC 606. ASU

2019-08

is effective in fiscal years beginning after December 15, 2019. The new ASU was adopted using a modified retrospective transition approach. The adoption of this standard on January 1, 2020 did not have an impact on the consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU

2016-13,

Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

(“ASU

2016-13”),

which requires immediate recognition of expected credit losses for financial assets carried at amortized cost, including trade and

other receivables, loans and

commitments,

held-to-maturity

debt securities and other financial assets, held at the reporting date to be measured based on historical experience, current conditions and reasonable supportable forecasts. The new credit loss model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. These changes become effective for the Company on January 1, 2023. The Company is currently evaluating the impact that the adoption of ASU

2016-13

will have on its condensed consolidated financial statements.

In February 2016, the FASB issued ASU

2016-02,

Leases (Topic 842)

(“ASU

2016-02”),

which improves transparency and comparability among companies by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. ASU

2016-02

requires lessees to recognize assets and liabilities on the balance sheet for all leases with terms longer than twelve months. The new standard also requires lessees to apply a dual approach, classifying leases as either finance or operating leases. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. These changes become effective for the Company for the fiscal year beginning on January 1, 2022 and interim periods beginning on January 1, 2023, with early adoption permitted. The Company previously disclosed that it would adopt ASU

2016-02

for its 2021 fiscal year, the Company has reevaluated the planned adoption date and has determined it will adopt ASU

2016-02

for its 2022 fiscal year. Although the Company is currently evaluating the method of adoption of this guidance and the impact that the adoption of ASU

2016-02

will have on its condensed consolidated financial statements, it expects changes to its balance sheet due to the recognition of

right-of-use

assets and lease liabilities related to its leases.

Recent Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU

2019-12,

Income Taxes (Topic 740) — Simplifying the Accounting for Income Taxes

(“ASU

2019-12”)

which simplifies the accounting for income taxes by eliminating some exceptions to the general approach in Accounting Standards Codification 740, Income Taxes. It also clarifies certain aspects of the existing guidance to promote more consistent application. As a result of the ASU, accounting for changes in tax law and

year-to-date

losses in interim periods will be simplified. These changes become effective for the Company for the fiscal year beginning on January 1, 2022 and interim periods beginning on January 1, 2023, with early adoption permitted. The Company is currently evaluating the impact that the adoption of ASU

2019-12

will have on its consolidated financial statements.

In August 2018, the FASB issued ASU

2018-15,

Intangibles — Goodwill and Other —

Internal-Use

Software (Subtopic

350-40)

(“ASU

2018-15”),

which aligns the requirements for capitalizing implementation costs incurred where the entity is the customer in a hosting arrangement that is a service contract with those of developing or obtaining

internal-use

software. These changes become effective for the Company for the fiscal year beginning on January 1, 2021 and interim periods beginning on January 1, 2022, with early adoption permitted. The Company is currently evaluating the impact that the adoption of ASU

2018-15 will

have on its consolidated financial statements.

In June 2016, the FASB issued ASU

2016-13,

Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

(“ASU

2016-13”),

which requires immediate recognition of expected credit losses for financial assets carried at amortized cost, including trade and other receivables, loans and commitments,

held-to-maturity

measure expected credit losses on assets that have a low risk of loss. These changes become effective for the Company on January 1, 2023. The Company is currently evaluating the impact that the adoption of ASU

2016-13

will have on its consolidated financial statements.

In February 2016, the FASB issued ASU

2016-02,

Leases (Topic 842)

(“ASU

2016-02”),

which improves transparency and comparability among companies by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. ASU

2016-02

for its 2021 fiscal year. Although the Company is currently evaluating the method of adoption of this guidance and the impact that the adoption of ASU

2016-02

will have on its consolidated financial statements, it expects changes to its balance sheet due to the recognition of

right-of-use

assets and lease liabilities related to its leases