INCOME TAXES

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

17. INCOME TAXES

The components of (loss) before (benefit from) income taxes are:

(in thousands)	2021		2020		2019
Domestic	$	(125,947)	$	(59,281)	$	(51,396)
Foreign	(6,040)		(65,608)		(83,450)
	$	(131,987)	$	(124,889)	$	(134,846)

The components of (benefit from) income taxes are:

(in thousands)	2021		2020		2019
Current:
Federal	$	1,921	$	(11,251)	$	1,050
State	363		399		405
Foreign	4,105		7,113		3,449
Total current provision for (benefit from)	6,389		(3,739)		4,904
Deferred:
Federal	(42,214)		(34,573)		(25,356)
State	(9,413)		(8,119)		(5,143)
Foreign	(23,709)		(17,085)		(18,818)
Total deferred (benefit)	(75,336)		(59,777)		(49,317)
	$	(68,947)	$	(63,516)	$	(44,413)

A reconciliation of the U.S federal statutory tax rate and the Company’s effective tax rate:

(in thousands)	2021		2020		2019
U.S. federal income taxes at statutory rates	$	(27,717)	$	(26,227)	$	(28,318)
Valuation allowance	(469)		(5,881)		727
State income taxes, net of federal benefit and tax credits	(7,217)		(6,994)		(4,450)
Permanent differences	541		1,773		2,606
Federal research and experimentation credits	(6,380)		(5,716)		(4,295)
Tax effects of foreign activities	3,599		3,050		3,056
Tax-exempt income	—		—		(91)
Provision to return adjustments	(2,016)		3,416		(5,460)
Non-deductible compensation	5,464		1,806		1,716
Expiration of statutes and changes in estimates	(2,250)		55		2,420
Excess tax benefits related to stock-based compensation	(20,697)		(25,797)		(14,291)
Cares Act	—		(10,576)		—
Impact of change in tax law	(11,811)		7,489		1,908
Other	6		86		59
	$	(68,947)	$	(63,516)	$	(44,413)

Deferred income taxes

Significant components of net deferred tax assets and liabilities are:

	December 31,
(in thousands)	2021		2020
Deferred tax assets:
Net operating loss carryforwards	$	133,164	$	88,129
Accruals and reserves	38,526		26,309
Interest expense carryforward	7,759		3,464
Software revenue	336		—
Convertible senior notes	8,362		—
Depreciation	3,764		4,795
Tax credit carryforwards	40,590		31,556
Other	1,015		370
Total deferred tax assets	233,516		154,623
Valuation allowances	(25,855)		(23,409)
Total net deferred tax assets	207,661		131,214
Deferred tax liabilities:
Capped call transactions	(14,961)		(20,858)
Convertible senior notes	—		(6,473)
Software revenue	—		(11,477)
Intangibles	(12,044)		(4,338)
Total deferred tax liabilities	(27,005)		(43,146)
	$	180,656	$	88,068

The Company regularly assesses the need for a valuation allowance against its deferred tax assets. In making that assessment, the Company considers both positive and negative evidence related to the likelihood of realizing the deferred tax assets to determine, based on the weight of available evidence, whether it is more-likely-than-not that some or all of the deferred tax assets will not be realized. This determination requires significant judgment, including assumptions about future taxable income based on historical and projected information. There were no material changes in the valuation allowance in 2021. In 2020, the change was $6 million due to expiring acquisition net operating losses with a valuation allowance.

As of December 31, 2021, the Company’s net operating losses and credit carryforwards are:

(in thousands)	Federal		State
Net operating losses (1)	$	203,835	$	13,810
Net operating losses due to acquisitions (1)	$	64,847	$	2,008
Credit carryforwards (2)	$	30,115	$	1,516
Credit carryforwards due to acquisitions	$	640	$	60

(1) Excludes federal and state net operating losses of $26.7 million and $0.8 million, respectively, from prior acquisitions that the Company expects will expire unutilized.

(2) Excludes federal and state tax credits of $0.1 million and $9.1 million, respectively, that the Company expects will expire unutilized.

Carryforward losses and credits expire between 2022 and 2039, except for the 2020 and 2021 federal net operating loss of $139.0 million and $1.0 million of state credits, which both have unlimited carryforward periods.

The Company’s India subsidiary is primarily located in Special Economic Zones (“SEZs”) and is entitled to a tax holiday in India. The tax holiday reduces or eliminates income tax in India. The tax holiday in the Hyderabad SEZ is scheduled to expire in 2024. The tax holiday in the Bengaluru SEZ is scheduled to expire in 2022.

Uncertain tax benefits

A rollforward of the Company’s gross unrecognized tax benefits is:

(in thousands)	2021		2020		2019
Balance as of January 1,	$	23,801	$	23,271	$	18,157
Additions for tax positions related to the current year	653		653		510
Additions for tax positions of prior years	—		962		4,917
Reductions for tax positions of prior years	(6,870)		(1,085)		(313)
Balance as of December 31,	$	17,584	$	23,801	$	23,271

As of December 31, 2021, the Company had $17.6 million of total unrecognized tax benefits, which would decrease the Company’s effective tax rate if recognized.

Tax examinations

The Company files federal and state income tax returns in the U.S. and in various foreign jurisdictions. In the ordinary course of business, the Company and its subsidiaries are examined by various tax authorities, including the Internal Revenue Service in the U.S. As of December 31, 2021, the Company’s U.S. federal tax returns for the years 2014 through 2017 were under examination by the Internal Revenue Service. In addition, certain foreign jurisdictions are auditing the Company’s income tax returns for periods ranging from 2013 through 2019. The Company does not expect the results of these audits to have a material effect on the Company’s financial condition, results of operations, or cash flows. With few exceptions, the statute of limitations remains open in all jurisdictions for the tax years 2016 to the present.