XML 101 R18.htm IDEA: XBRL DOCUMENT v3.24.1.1.u2
Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
The Company files income tax returns in the U.S. federal and various state and local jurisdictions and foreign jurisdictions. The Company’s income (loss) before provision for income taxes consisted of the following (in thousands):
Year Ended December 31,
202320222021
U.S.$(165,784)$(84,189)$(356)
Foreign4,485 3,487 3,741 
Income (loss) before income taxes$(161,299)$(80,702)$3,385 
The components of the provision for income taxes are as follows (in thousands):
Year Ended December 31,
202320222021
Current:
Federal$— $52 $— 
State46 126 (87)
Foreign1,471 1,275 1,512 
Total Current1,517 1,453 1,425 
Deferred:
Federal6 2 2 
State1 1 1 
Foreign10 182 (105)
Total Deferred17 185 (102)
Tax provision$1,534 $1,638 $1,323 
The Company’s net deferred tax assets consist of the following (in thousands):
December 31,
20232022
Net operating loss carryforwards$47,406 $21,443 
Stock-based compensation2,014 2,594 
Other accruals and reserves12,552 4,592 
Credits18,614 14,908 
Accrued warranty759 778 
Depreciation and amortization1,241 1,857 
Section 174 Costs13,391 7,578 
Other2,965 1,541 
Operating lease liability2,842 3,384 
Deferred tax asset before valuation allowance101,784 58,675 
Valuation allowance(97,280)(53,118)
Deferred tax asset after valuation allowance4,504 5,557 
Deferred contract acquisition costs(1,287)(1,763)
Goodwill(159)(138)
Right of use asset(2,479)(3,066)
Net deferred tax asset (liability)$579 $590 
The differences between the U.S. federal statutory income tax rates to the Company’s effective tax rate are as follows:
Year Ended December 31,
202320222021
U.S. federal statutory income tax rate21.00 %21.00 %21.00 %
State tax rate(0.02)(0.16)(2.55)
Meals and entertainment(0.25)(0.47)9.28 
Permanent differences0.24 (0.07)1.11 
Stock-based compensation(0.43)0.89 (13.08)
Extinguishment of PPP loan(0.07)— (44.59)
Debt extinguishment costs— (8.48)— 
Excess compensation(0.19)(1.34)7.88 
Foreign rate differential(0.31)(0.76)17.03 
General business credit0.71 0.78 (17.95)
Valuation allowance(21.52)(11.41)72.82 
Change in prior year reserves— — (0.08)
Deferred true-up(0.33)(2.02)(11.76)
Effective tax rate(1.17)%(2.04)%39.11 %
As of December 31, 2023, the Company recorded a valuation allowance of $97.3 million for the portion of the deferred tax asset that it does not expect to be realized. The valuation allowance on the Company’s net deferred taxes increased by $44.2 million and $12.6 million during the years ended December 31, 2023 and 2022, respectively. The changes in valuation allowance are primarily due to additional U.S. deferred tax assets and liabilities incurred in the respective year. The Company has $0.6 million of net deferred tax assets in foreign jurisdictions, which management believes are more-likely-than-not to be realized given the expectation of future earnings in these jurisdictions. The Company continues to monitor the realizability of the U.S. deferred tax assets taking into account multiple factors, including the results of operations and magnitude of excess tax deductions for stock-based compensation. The Company intends to continue maintaining a full valuation allowance on its U.S. deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. Release of all, or a portion, of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded.
At December 31, 2023, the Company had approximately $190.7 million and $99.4 million of federal and state net operating loss carryforwards, respectively, available to offset future taxable income. The federal and state net operating loss carryforwards, if not utilized, will generally begin to expire in 2030 through 2040, respectively. Approximately $154.2 million of total federal net operating loss carryforwards were generated after December 31, 2017 and have no expiration. At December 31, 2023, the Company had research and development tax credits available to offset federal and California tax liabilities in the amount of $11.5 million and $12.1 million, respectively. Federal credits will begin to expire in 2024 and California state tax credits have no expiration.
Federal and state laws can impose substantial restrictions on the utilization of net operating loss and tax credit carryforwards in the event of an “ownership change,” as defined in Section 382 of the Internal Revenue Code. The Company has determined that no significant limitation would be placed on the utilization of the Company’s net operating loss and tax credit carryforwards due to prior ownership changes.
No deferred tax liabilities have been recorded relating to the earnings of the Company’s foreign subsidiaries since all such earnings are intended to be indefinitely reinvested. The amount of the unrecognized deferred tax liability associated with these earnings is immaterial.
Uncertain Tax Positions
The Company establishes reserves for uncertain tax positions based on the largest amount that is more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The Company performs a two-step approach to recognizing and measuring uncertain tax positions. 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 processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.
Although the Company believes it has adequately reserved for its uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. The Company adjusts these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest and penalties.
The Company files U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. Tax years after 2009 remain subject to examination by U.S. federal and California state tax authorities due to the Company’s net operating loss and credit carryforwards. For significant foreign jurisdictions, tax years after 2018 remain subject to examination by their respective tax authorities.
The following table summarizes the activity related to the Company’s gross unrecognized tax benefits, excluding related interest and penalties, in December 31, 2021 to December 31, 2023 (in thousands):
Year Ended December 31,
202320222021
Balance at beginning of year$3,725 $2,746 $1,864 
Increase (decrease) related to prior year tax positions
258 (36)(37)
Increase related to current year tax positions
1,013 1,015 919 
Balance at end of year$4,996 $3,725 $2,746