Income Taxes

6 Months Ended

Jun. 30, 2025

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 7: INCOME TAXES

Each interim period is considered an integral part of the annual period; accordingly, we measure our income tax expense using an estimated annual effective tax rate. An enterprise is required, at the end of each interim reporting period, to make its best estimate of the annual effective tax rate for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis, as adjusted for discrete taxable events that occur during the interim period.

Our income tax provision was $11 million and $2 million for the three and six months ended June 30, 2025, respectively, and our income tax provision was $14 million and $57 million for the three and six months ended June 30, 2024, respectively. The change in our income tax provision during the three months ended June 30, 2025, when compared to the same period in 2024, was primarily due to discrete items recorded during the second quarter of 2024. The change in our income tax provision during the six months ended June 30, 2025, when compared to the same period in 2024, was primarily the result of an Internal Revenue Service (“IRS”) audit settlement for the 2014, 2015, and 2016 tax years, resulting in an incremental income tax provision of $45 million, recorded during the six months ended June 30, 2024, as described below.

Our effective tax rate for the three months ended June 30, 2025 differs from the U.S. federal statutory rate of 21%, primarily due to state taxes and unfavorable stock-based compensation tax effects. Our effective tax rate for the six months ended June 30, 2025 differs from the U.S. federal statutory rate of 21%, primarily due to a discrete tax benefit of $11 million recorded during the first quarter of 2025 to release income tax reserves as a result of the U.S. federal statute of limitation of assessment closing on tax years 2014, 2015, and 2016.

A reconciliation of the provision (benefit) for income taxes to the amounts computed by applying the statutory federal income tax rate to income (loss) before income taxes is as follows for the periods presented:

	Six months ended June 30,
	2025			2024
	(in millions)
Income tax expense (benefit) at the federal statutory rate	$	6		$	5
State income taxes, net of effect of federal tax benefit		1			2
Unrecognized tax benefits and related interest (1)		(10	)		1
Stock-based compensation		5			4
Research tax credit		(2	)		(2	)
Change in valuation allowance		1			(2	)
IRS audit settlement		—			45
Transfer pricing reserves adjustment		—			(4	)
Other, net		1			8
Provision (benefit) for income taxes	$	2		$	57

(1)Includes a discrete tax benefit of $11 million in income tax reserves during the first quarter of 2025, related to the U.S. federal statute of limitation of assessment closing on tax years 2014, 2015, and 2016, during the first quarter of 2025.

Our accounting policy is to recognize accrued interest and penalties related to unrecognized tax benefits and income tax liabilities as part of our income tax expense. As of June 30, 2025, we had an accrued interest liability of $21 million, which was included in unrecognized tax benefits in other long-term liabilities on our unaudited condensed consolidated balance sheet, and no penalties were accrued.

We are currently under examination by the IRS for tax year 2018 and have various ongoing audits for foreign and state income tax returns. These audits include questions regarding, or review of, the timing and amount of income and deductions and the allocation of income among various tax jurisdictions. These examinations may lead to proposed or ordinary course adjustments to our income taxes. We are no longer subject to tax examinations by tax authorities for years prior to 2018. As of June 30, 2025, no material assessments have resulted, except as noted below regarding our 2014 through 2016 standalone IRS audit, which was settled during 2024, and our 2012 through 2016 HM Revenue & Customs (“HMRC”) audit, which is ongoing.

As previously disclosed, we received Notices of Proposed Adjustments (“NOPA”) from the IRS for the 2014 through 2016 tax years relating to certain transfer pricing arrangements with our foreign subsidiaries. In response, we requested competent authority assistance under the Mutual Agreement Procedure (“MAP”) for the 2014 through 2016 tax years. In January 2024, we received notification of a MAP resolution agreement for the 2014 through 2016 tax years, which we accepted in February 2024. As a result of this audit settlement, we recorded additional income tax expense of $45 million, inclusive of interest, as a discrete item, during the six months ended June 30, 2024, on our unaudited condensed consolidated statement of operations, of which $46 million of this amount was recorded during the first quarter of 2024 and a $1 million income tax benefit that was recorded during the second quarter of 2024. In addition, the Company reviewed the impact of this audit settlement on our existing transfer pricing income tax reserves for

subsequent open tax years at the time, which resulted in an income tax benefit, inclusive of estimated interest, of $4 million during the first quarter of 2024. During the three months ended June 30, 2024, we made a payment to the IRS of $141 million, inclusive of estimated interest, to satisfy this audit settlement.

In January 2021, we received from HMRC an issue closure notice relating to adjustments for the 2012 through 2016 tax years. These proposed adjustments are related to deductions for intercompany financing and would result in an increase to our worldwide income tax expense in an estimated range of $25 million to $35 million, exclusive of interest expense, at the close of the audit if HMRC prevails. We disagree with the proposed adjustments and we intend to defend our position through applicable administrative and, if necessary, judicial remedies. We are also currently subject to audit by HMRC in tax years 2017 through 2022. If HMRC were to seek adjustments of a similar nature through a closure notice for transactions in these years, we could be subject to significant additional tax liabilities. Our policy is to review and update tax reserves as facts and circumstances change.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”), which includes a broad range of changes to federal tax law and other regulatory provisions that may impact the Company, was signed into law in the United States. We continue to assess its impact and, as the OBBBA was not signed into law until the Company’s third quarter of 2025, the impacts are not included in its operating results for the three and six months ended June 30, 2025. The Company will evaluate the impact of the newly enacted tax law and its impact on the Company’s forecasted annual effective tax rate in subsequent periods as required.