Income Taxes

12 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

10. Income Taxes

The Company’s income before provision for (benefit from) income taxes for fiscal 2023, 2022 and 2021 were as follows:

	September 30, 2023			October 1, 2022		October 2, 2021
(In thousands)
Domestic	$	(9,904	)	$	54,609	$	126,810
Foreign		14,298			14,121		30,115
Income before provision for (benefit from) income taxes	$	4,394		$	68,730	$	156,925

Components of the provision for (benefit from) income taxes consisted of the following:

	September 30, 2023			October 1, 2022			October 2, 2021
(In thousands)
Current:
U.S. Federal	$	7,507		$	—		$	—
U.S. State		4,947			483			440
Foreign		2,810			3,401			6,216
Total current		15,264			3,884			6,656
Deferred:
U.S. Federal		—			(1,459	)		—
U.S. State		—			(21	)		—
Foreign		(596	)		(1,057	)		(8,326	)
Total deferred		(596	)		(2,537	)		(8,326	)
Provision for (benefit from) income taxes	$	14,668		$	1,347		$	(1,670	)

The Company is subject to income taxes in the United States and foreign jurisdictions in which it operates. The Company’s tax provision is impacted by the jurisdictional mix of earnings as its foreign subsidiaries have statutory tax rates different from those in the United States. For the year ended September 30, 2023 the Company’s U.S. tax expense was adversely impacted by the requirement to capitalize and amortize research and development expenses under Section 174 as the Company recorded a current U.S. tax expense with no corresponding deferred tax benefit due to the valuation allowance maintained against its U.S. deferred tax assets.

Components of the Company’s deferred income tax assets and liabilities are as follows:

	September 30, 2023			October 1, 2022
(In thousands)
Deferred tax assets
Research & development tax credit carryforwards	$	75,593		$	92,487
Capitalized research & development		63,395			9,420
Accrued expenses and reserves		17,837			8,872
Deferred revenue		15,855			14,170
Operating lease liability		13,097			7,717
Stock-based compensation		7,727			9,261
Foreign net operating loss carryforwards		7,606			7,702
Other capitalized costs		5,364			3,799
Depreciation		2,700			2,239
U.S. net operating loss carryforwards		1,852			26,363
Other		494			182
Total deferred tax assets		211,520			182,212
Valuation allowance		(185,840	)		(162,267	)
Deferred tax assets, net of valuation allowance		25,680			19,945
Deferred tax liabilities
Intangibles		(22,475	)		(22,125	)
Right-of-use asset		(11,392	)		(5,940	)
Other		—			(14	)
Total deferred tax liabilities		(33,867	)		(28,079	)
Net deferred tax assets (liabilities)	$	(8,187	)	$	(8,134	)
Reported as
Deferred tax assets	$	1,659		$	1,508
Deferred tax liabilities		(9,846	)		(9,642	)
Net deferred tax assets (liabilities)	$	(8,187	)	$	(8,134	)

The Company has assessed, on a jurisdictional basis, the realization of its net deferred tax assets, including the ability to carry back net operating losses, the existence of taxable temporary differences, the availability of tax planning strategies and available sources of future taxable income. The Company has concluded that based on cumulative taxable income and future taxable income that it is able to realize a benefit for net deferred tax assets in certain foreign jurisdictions. In addition, the Company has concluded that a valuation allowance on its net deferred tax assets in the U.S. and certain foreign jurisdictions continues to be appropriate considering cumulative taxable losses in recent years and uncertainty with respect to future taxable income. It is possible that within the next 12 months there may be sufficient positive evidence to release a portion or all of the remaining valuation allowance in the U.S. and certain foreign jurisdictions. Release of the remaining valuation allowance would result in a benefit to income tax expense for the period the release is recorded, which could have a material impact on net earnings. The timing and amount of the potential valuation allowance release are subject to significant management judgment, as well as prospective earnings in the United States and certain other foreign entities and jurisdictions.

For the year ended September 30, 2023, we utilized $84.9 million U.S. federal net operating loss and have no U.S. federal net operating loss carryforwards remaining. As of September 30, 2023, we had gross state net operating loss carryforwards of $25.4 million, which expire beginning in 2032, as well as $46.9 million in foreign net operating loss carryforwards with an indefinite life. As of September 30, 2023, we also had U.S. federal research and development tax credit carryforwards as filed of $54.4 million, and state research and development tax credit carryforwards as filed of $47.0 million, which will expire beginning in 2038 and 2025, respectively. The federal and state research and development tax credits are shown net of uncertain tax positions and net of federal benefit, as applicable, in the components of the Company's deferred income tax assets and liabilities. For the year ended September 30, 2023, the increase in capitalized research and development relates to the requirement to capitalize research and development expenses under Section 174.

Because of the change of ownership provisions of Sections 382 and 383 of the Internal Revenue Code, and similar state provisions, use of a portion of the Company’s U.S. federal and state net operating loss and research and development tax credit carryforwards may be limited in future periods if there are future changes in ownership. Further, a portion of the carryforwards may expire before being applied to reduce future taxable income and income tax liabilities if sufficient taxable income is not generated in future periods.

The following table summarizes changes in the valuation allowance for fiscal 2023, 2022 and 2021:

	September 30, 2023			October 1, 2022			October 2, 2021
(In thousands)
Beginning balance	$	162,267		$	155,978		$	113,939
Increase during the period		23,628			13,841			49,791
Decrease during the period		(55	)		(7,552	)		(7,752	)
Ending balance	$	185,840		$	162,267		$	155,978

Reconciliation of U.S. statutory federal income taxes to the Company’s provision for (benefit from) income taxes is as follows:

	September 30, 2023			October 1, 2022			October 2, 2021
(In thousands)
U.S. federal income taxes at statutory rate	$	923		$	14,433		$	32,954
U.S. state and local income taxes, net of federal benefit and state credits		(841	)		(2,594	)		(9,473	)
Foreign income tax rate differential		734			970			1,430
Stock-based compensation		104			(15,532	)		(47,496	)
Federal research and development tax credits		(7,591	)		(8,983	)		(21,535	)
Unrecognized federal tax benefits		184			(2,482	)		4,041
Change in tax rate		—			5,013			(2,681	)
Global intangible low taxed income, net of foreign tax credits		1,234			290			—
Foreign -derived intangible income (FDII) deduction		(6,863	)		—			—
Subpart F income		1,374			—			—
162(m) executive compensation limitation		2,513			2,574			—
Other		(695	)		1,079			(565	)
Change in valuation allowance		23,592			6,579			41,655
Provision for income taxes	$	14,668		$	1,347		$	(1,670	)

Change in gross unrecognized tax benefits, excluding interest and penalties, as a result of uncertain tax positions are as follows:

	September 30, 2023			October 1, 2022			October 2, 2021
(In thousands)
Beginning balance	$	17,021		$	21,252		$	14,721
Decrease - tax positions in prior periods		(566	)		(6,039	)		(4	)
Increase - tax positions in current periods		1,164			1,808			6,535
Ending balance	$	17,619		$	17,021		$	21,252

The Company does not anticipate changes to its unrecognized benefits within the next 12 months that would result in a material change to the Company’s financial position. The unrecognized tax benefits as of September 30, 2023, would have no impact on the effective tax rate if recognized

The Company conducts business in a number of jurisdictions and, as such, is required to file income tax returns in multiple jurisdictions globally. U.S. federal income tax returns for the 2019 tax year and earlier are no longer subject to examination by the U.S. Internal Revenue Service (the "IRS"). All U.S. federal and state net operating losses as well as research and development tax credits generated to date, including 2019 and earlier, used in open tax years are subject to adjustment by the IRS and state tax authorities.

The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense. There were no accrued interest or penalties as of September 30, 2023, and October 1, 2022.

As of September 30, 2023, the Company continues to assert that the unremitted earnings in our foreign subsidiaries are permanently reinvested and therefore no deferred taxes or withholding taxes have been provided. If, in the future, the Company decides to repatriate its $6.4 million of undistributed earnings from these subsidiaries in the form of dividends or otherwise, the Company could

be subject to withholding taxes payable at that time. Outside basis differences in the Company's foreign subsidiaries including unremitted earnings and any related taxes are not material.