Income taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income taxes

8. Income taxes

Income (loss) before income taxes consisted of the following:

	Year ended December 31,
(in thousands)	2023		2022		2021
United States	$	(79,514)	$	26,215	$	83,419
Foreign	11,781		8,238		6,681
Income (loss) before income taxes	$	(67,733)	$	34,453	$	90,100

Income tax expense (benefit) consisted of the following:

	Year ended December 31,
(in thousands)	2023		2022		2021
Current
Federal	$	3	$	2	$	(128)
State	162		818		267
Foreign	3,176		2,076		(7,669)
Total current	3,341		2,896		(7,530)
Deferred
Federal	(14,018)		5,039		(205,856)
State	(3,828)		(2,312)		(67,933)
Foreign	(45)		(17)		248
Total deferred	(17,891)		2,710		(273,541)
Income tax expense (benefit)	$	(14,550)	$	5,606	$	(281,071)

	Year ended December 31,
	2023				2022				2021
(dollars in thousands)	$		%		$		%		$		%
Reconciliation to statutory rate
Tax at federal statutory rate	$	(14,224)	21.0	%	$	7,234	21.0	%	$	18,921	21.0	%
Impact of foreign operations	2,969		(4.4)		1,572		4.6		(8,222)		(9.2)
Stock-based compensation	3,434		(5.1)		(1,192)		(3.5)		(5,345)		(5.9)
Nondeductible items	557		(0.8)		1,805		5.2		1,684		1.9
Change in valuation allowance	—		—		—		—		(284,551)		(315.8)
State income taxes, net of federal benefit	(1,560)		2.3		1,189		3.5		1,828		2.0
Tax credits	(5,474)		8.1		(5,222)		(15.1)		(6,091)		(6.8)
Other	(252)		0.4		220		0.6		705		0.8
Income tax expense (benefit) at effective tax rate	$	(14,550)	21.5	%	$	5,606	16.3	%	$	(281,071)	(312.0)	%

The effective tax rate of 21.5% for 2023, primarily resulted from a tax benefit on pre-tax book loss, and federal and California research and development credits, partially offset by the nondeductible equity tax expense from stock-based compensation and the impact of foreign operations, net of the release of a portion of uncertain tax positions as a result of a lapse in the statute of limitations in certain jurisdictions. The effective tax rate of 16.3% for 2022, primarily resulted from tax expense on pre-tax book income, partially offset by the income tax benefits from stock-based compensation, federal and California research and development credits, and an income tax benefit related to foreign provision to income tax return adjustments.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and deferred tax liabilities were as follows:

	Year ended December 31,
(in thousands)	2023		2022
Deferred tax assets:
Net operating loss carryforwards	$	109,059	$	118,399
Tax credit carryforwards	96,610		91,147
Stock-based compensation	5,966		6,034
Allowance for returns	1,823		1,818
Intangible assets	2,727		3,753
Depreciation and amortization	988		1,661
Operating lease liabilities	8,326		10,177
Capitalized research and development costs	55,266		29,122
Accruals and reserves	20,540		22,001
Total deferred tax assets	$	301,305	$	284,112
Deferred tax liabilities:
Operating lease right-of-use assets	(4,321)		(5,072)
Total deferred tax liabilities	(4,321)		(5,072)
Net deferred tax assets	$	296,984	$	279,040

Each quarter, the Company assesses the recoverability of its existing deferred tax assets under ASC Topic 740. The Company assesses available positive and negative evidence and uses judgment regarding past and future events, including operating results to estimate whether sufficient future taxable income will be generated to use its

existing deferred tax assets. For the period ended December 31, 2023, based on evidence currently available, the Company continues to believe that it is more likely than not that its United States federal, state, and foreign deferred tax assets will be realized and thus, a valuation allowance is not required on its deferred tax assets. The Company continuously monitors future projections of its operating results to determine the potential impact regarding its assessment of the recoverability of deferred tax assets in each of its applicable jurisdictions. In the event there is a need to record a valuation allowance or release a valuation allowance, as applicable, a tax expense or benefit would be recorded, which may be material to the Company’s consolidated financial statements.

As of December 31, 2023, the Company’s federal, California, and other state net operating loss carryforwards for income tax purposes were $394.1 million, $243.1 million, and $169.8 million, net of reserves, respectively. Also, the Company’s federal and California state tax credit carryforwards were $54.4 million and $53.4 million, net of reserves, respectively. If not utilized, federal net operating losses that arose before 2018 and California loss carryforwards will begin to expire from 2035 to 2043, while federal credit and other state loss carryforwards will begin to expire primarily from 2024 to 2043. Federal net operating losses that arose after 2017 and all California tax credits will be carried forward indefinitely.

Uncertain income tax positions. The Company had gross unrecognized tax benefits of $25.8 million, $23.4 million, and $21.3 million, as of December 31, 2023, 2022, and 2021, respectively. For fiscal year 2023, 2022, and 2021, total unrecognized income tax benefits were $10.9 million, $9.8 million, and $7.3 million, respectively, and if recognized, would reduce income tax expense. A material portion of the Company’s gross unrecognized tax benefits, if recognized, would increase the Company’s net operating loss carryforward.

The Company conducts business globally and as a result, files income tax returns in the United States and foreign jurisdictions. The Company’s unrecognized tax benefits relate primarily to unresolved matters with taxing authorities. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, the Company believes that its reserves reflect the more likely outcome. The Company believes, due to statute of limitations expiration, that within the next 12 months, it is possible that up to $2.9 million of uncertain tax positions could be released. It is also reasonably possible that additional uncertain tax positions will be added. It is not reasonably possible at this time to quantify the net effect.

A reconciliation of the beginning and ending amount of gross unrecognized income tax benefits are as follows:

	Year ended December 31,
(in thousands)	2023		2022		2021
Balance at January 1	$	23,414	$	21,330	$	27,471
Increase related to current year tax positions	4,948		2,543		3,081
Increase related to prior year tax positions	—		—		3,900
Decrease related to prior year tax positions	(2,526)		(459)		(13,122)
Balance at December 31	$	25,836	$	23,414	$	21,330

The Company’s policy is to account for interest and penalties related to income tax liabilities within the provision for income taxes. The balances of accrued interest and penalties recorded in the balance sheets and provision were not material for any period presented.

The Company files income tax returns in the United States and in foreign jurisdictions. As of December 31, 2023, the Company continues to assert indefinite reinvestment to the extent of any foreign withholding taxes on the undistributed earnings related to these foreign branches. Any foreign withholding tax on these earnings is deemed not to be material.