Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes

Income Taxes

Note 13 - Income Taxes

Income (loss) before provision (benefit) for income taxes included the following components for the years ended December 31 (in thousands):

	2023		2022		2021
United States	$	132,448	$	191,631	$	(146,995)
Foreign		22,552		4,887		5,620
Total	$	155,000	$	196,518	$	(141,375)

Significant components of the provision (benefit) for income taxes were as follows for the years ended December 31 (in thousands):

	2023		2022		2021
Current:
Federal	$	33,084	$	10,804	$	(331)
State		10,371		10,118		85
Foreign		2,804		2,892		(60)
Total current		46,259		23,814		(306)
Deferred:
Federal		(61,106)		26,238		(65,557)
State		(9,244)		(2,002)		(15,266)
Foreign		89		(2,146)		478
Total deferred		(70,261)		22,090		(80,345)
Tax impact of unrecorded tax benefits liability		4,775		3,475		(706)
Provision for income taxes (Income tax benefit)	$	(19,227)	$	49,379	$	(81,357)

A reconciliation of our effective income tax rate to the federal statutory rate follows for the years ended December 31 (in thousands):

	2023			2022			2021
Federal income tax at the statutory rate	$	32,550		$	41,283		$	(29,691)
Excess stock-based compensation benefit		(106,522)			(4,616)			(205,483)
Executive compensation limitation		77,350			5,784			180,509
R&D credits		(26,204)			(13,340)			(34,376)
Change in valuation allowance		(4,695)			10,216			8,961
Change in liability for unrecognized tax benefits		4,351			3,215			10,188
State income taxes, net of federal benefit		3,658			7,928			(12,717)
Tax effects of intercompany transactions		(2,033)			(417)			96
Foreign tax credit		(1,922)			—			—
Global intangible low-taxed income		1,890			653			1,250
Other permanent differences (1)		1,201			1,118			592
Difference between statutory and foreign tax rates		1,013			(428)			(155)
Foreign derived intangible income deduction		(961)			(2,597)			—
Return to provision adjustment		346			(757)			204
Other		751			1,337			(735)
Provision for income taxes (Income tax benefit)	$	(19,227)		$	49,379		$	(81,357)
Effective tax rate		(12.4)	%		25.1	%		57.5	%

(1) Other permanent differences include certain expenses that are not deductible for tax purposes including meals and entertainment, lobbying fees, and nondeductible transaction-related costs.

Significant components of our deferred income tax assets and liabilities are as follows at December 31, 2023 and December 31, 2022 (in thousands):

	2023		2022
Deferred income tax assets:
R&D capitalization, net	$	99,746	$	46,122
Deferred revenue		60,206		47,586
Convertible debt, net		39,649		48,378
R&D tax credit carryforward		16,554		12,826
Reserves, accruals, and other		12,264		9,080
Accrued bonus		11,253		8,652
Stock based compensation		10,544		15,374
Lease liability		9,664		9,973
Strategic investments		6,109		—
Amortization		4,425		2,820
Deferred compensation		2,803		1,575
Net operating loss carryforward		2,115		4,874
Inventory reserve		1,986		1,279
Total deferred income tax assets		277,318		208,539
Deferred income tax liabilities:
Depreciation		(14,575)		(10,272)
Right of use asset		(8,404)		(8,748)
Prepaid expenses		(2,223)		(1,119)
Customer contract asset		(690)		(552)
Goodwill amortization		(313)		—
Strategic investments		—		(4,615)
Total deferred income tax liabilities		(26,205)		(25,306)
Net deferred income tax assets before valuation allowance		251,113		183,233
Valuation allowance		(21,600)		(26,368)
Net deferred income tax assets	$	229,513	$	156,865

We have $17.5 million of state net operating losses (“NOLs”) which do not expire until 2041. We have $29.0 million of state R&D credits carrying forward, which expire at various dates between 2024 and 2037 or carry forward indefinitely. In the United Kingdom, we have $4.8 million of NOLs, which may be carried forward indefinitely.

In preparing our consolidated financial statements, management assesses the likelihood that its deferred income tax assets will be realized from future taxable income. In evaluating our ability to recover our deferred income tax assets, management considers all available positive and negative evidence, including our operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction by jurisdiction basis. A valuation allowance is established if it is determined that it is more likely than not that some portion or all of the net deferred income tax assets will not be realized. Management exercises significant judgment in determining our provision for income taxes, our deferred income tax assets and liabilities, and our future taxable income for purposes of assessing our ability to utilize any future tax benefit from our deferred income tax assets. The net change in total valuation allowance for the years ended December 31, 2023, and 2022 was a decrease of $4.8 million and increase of $10.2 million, respectively. The valuation allowance changes are driven primarily by certain state R&D tax credits that are expected to expire unutilized and movement in deferred tax assets associated with unrealized investment losses and transaction costs incurred in connection with certain investments that are not more likely than not to be realized. The net change in the valuation allowance in 2023 and 2022 was recorded to tax expense.

We consider the undistributed earnings of certain non-U.S. subsidiaries to be indefinitely reinvested outside of the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings. We project that our foreign earnings will be utilized offshore for working capital and future foreign growth and we have not made a provision for U.S. or additional

foreign withholding taxes of the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. We have determined the amount of deferred tax liability related to investments in these foreign subsidiaries is immaterial. If we decide to repatriate the undistributed foreign earnings, we will recognize the income tax effects in the period we change our assertion on indefinite reinvestment.

We complete R&D tax credit studies for each year that an R&D tax credit is claimed for federal and state income tax purposes. Management has made the determination that it is more likely than not that the full benefit of the R&D tax credit will not be sustained on examination and recorded a liability for unrecognized tax benefits of $25.8 million as of December 31, 2023. Should the unrecognized benefit of $25.8 million be recognized, our effective tax rate would be favorably impacted.

The following table presents a roll forward of our liability for unrecognized tax benefits, exclusive of accrued interest, as of December 31 (in thousands):

	2023		2022		2021
Balance, beginning of period	$	21,492	$	18,249	$	7,657
Increase (decrease) in previous year tax positions		(215)		232		22
Increase in current year tax positions		6,963		3,343		11,416
Decrease due to lapse of statutes of limitations		(2,486)		(332)		(846)
Balance, end of period	$	25,754	$	21,492	$	18,249

Federal income tax returns for 2020 through 2022 remain open to examination by the U.S. Internal Revenue Service, while state and local income tax returns for 2019 through 2022 also generally remain open to examination by state taxing authorities. The 2009 through 2018 state and local income tax returns are only open to the extent that net operating loss or other tax attributes carrying forward from those years were utilized in 2019 through 2022. The foreign tax returns for 2019 through 2022 also generally remain open to examination, although some foreign statutes can audit returns up to ten years.

We recognize interest and penalties related to unrecognized tax benefits within the provision (benefit) for income tax expense line in the consolidated statements of operations and comprehensive income (loss). As of December 31, 2023, and 2022, we had accrued interest of $0.6 million and $0.3 million, respectively.

The Tax Cuts and Jobs Act of 2017 contains a provision that subjects a U.S. parent of a foreign subsidiary to current U.S. tax on its global intangible low-taxed income (“GILTI”). GILTI is eligible for a deduction that lowers the effective tax rate on GILTI to 10.5% for calendar years 2018 through 2025 and 13.125% after 2025. We report the tax impact of GILTI as a period cost when incurred. Accordingly, we do not provide deferred taxes for basis differences expected to reverse as GILTI.