Income taxes

3 Months Ended

Mar. 31, 2020

Income Tax Disclosure [Abstract]

Income taxes

Income taxes

We recorded income tax expense of $9.1 million for the three months ended March 31, 2020, net of discrete benefits related to stock option exercises and dispositions of $0.1 million. Income tax expense for the three months ended March 31, 2020 consisted primarily of reductions in our deferred tax assets of $5.1 million caused by utilization of our federal and state net operating losses and research tax credits, and income tax expense of $4.0 million for federal and in states where we do not have net operating loss carryforwards.

In the three months ended March 31, 2019, our income tax expense was $1.8 million, consisting primarily of reductions of $0.9 million in our deferred tax assets caused by utilization of our federal and state net operating losses, and income tax expense of $0.9 million in states where we do not have net operating loss carryforwards.

Our effective tax rate differed from the federal statutory rate due to state income taxes and non-deductible stock-based compensation, which increased our tax expense, offset by research and development tax credits and the excess tax deduction arising from the exercise of employee stock options, which reduced our tax expense.

Each quarter, we assess the likelihood that we will generate sufficient taxable income to use our federal and state deferred tax assets. If we believe that recovery of these deferred tax assets is not more likely than not, we will establish a valuation allowance. Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence, including recent operating results, projections of future taxable income, our ability to utilize net operating losses and tax credit carryforwards, and the feasibility of tax planning strategies. Other than valuation allowances against our California net deferred tax assets, we have determined that it is more likely than not we will realize the benefit related to all other deferred tax assets. To the extent we increase a valuation allowance, we will include an expense in the Condensed Consolidated Statement of Comprehensive Income in the period in which such determination is made.

On March 27, 2020, President Trump signed into U.S. federal law the CARES Act, which provides emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic. Based on our preliminary analysis, the relief provisions will not have a material impact on our condensed consolidated financial statements.