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Income Taxes
 12 Months Ended
Nov. 30, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
For the year ended November 30, 2022, the Company did not record any current income tax benefit or provision, and for the year ended November 30, 2021, the Company recorded a current income tax provision of $0.1 million primarily due to state taxes offset by a federal income tax refund. The Company had generated net operating losses (NOLs) since inception and has established a valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets.
Loss before provision for income taxes includes the following component (in thousands):
November 30,
20222021
Domestic$(180,360)$(117,063)
$(180,360)$(117,063)
The provision for income taxes consists of the following (in thousands):
November 30,
20222021
Current:
Federal$— $(203)
State— 334 
Total provision for income taxes$— $131 
The effective tax rate differs from the federal statutory rate as follows:
November 30,
20222021
Federal statutory income tax rate21.0 %21.0 %
State income tax rate5.9 5.0 
Research and development tax credits3.5 4.5 
Stock-based compensation(2.0)(1.2)
Change in valuation allowance(28.4)(29.3)
Other— (0.1)
Total— %(0.1)%
Deferred Tax Assets and Liabilities
Deferred income taxes reflect the net tax effects of loss and credit carryforwards and 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 deferred tax assets for federal and state income taxes are as follows (in thousands):
Year ended November 30,
20222021
Deferred tax assets:
Net operating loss carryforwards$83,775 $41,081 
Research and development tax credits27,096 17,502 
Deferred revenue19,950 21,874 
Stock-based compensation3,846 1,054 
Accrued expenses and other liabilities3,797 1,896 
Operating lease liabilities3,199 3,436 
Gross deferred tax assets141,663 86,843 
Valuation allowance(138,362)(83,517)
Total deferred tax assets3,301 3,326 
Deferred tax liabilities:  
Operating lease right-of-use assets(3,301)(3,326)
Total deferred tax liabilities(3,301)(3,326)
Net deferred tax assets$— $— 
Realization of the deferred tax assets is dependent upon future taxable income, the amount, if any, and timing of which are uncertain. The Company has established a valuation allowance to offset deferred tax assets as of November 30, 2022 and 2021 due to the uncertainty of realizing future tax benefits from its NOL carryforwards and other deferred tax assets. The valuation allowance increased by $54.8 million during the year ended November 30, 2022, primarily related to an increase on the deferred tax asset for research and development (R&D) credits and NOL carryforwards. The valuation allowance increased by $36.1 million during the year ended November 30, 2021, primarily due to an increase on the deferred tax asset for deferred revenue, R&D credits and NOL carryforwards.
As of November 30, 2022, the Company had NOL carryforwards available to reduce future taxable income, if any, for federal and state income tax purposes of $276.3 million and $299.6 million, respectively. Federal NOL carryforwards generated for tax years beginning before December 31, 2017 can be carried forward 20 years and begin expiring in 2029. Federal NOL carryforwards of $272.9 million for tax years beginning after December 31, 2017 can be carried forward indefinitely.
State NOL carryforwards begin expiring in 2029. As of November 30, 2022, the Company had federal and state research credit carryforwards of $22.1 million and $15.2 million, respectively. If not utilized, the federal credit carryforwards will begin expiring in 2032 and the state credits carry forward indefinitely.
Internal Revenue Code of 1986, as amended (IRC), Section 382 places a limitation on the utilization of NOL and tax credit carryforwards in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50 percentage points. The Company has identified two ownership changes that have triggered a limitation on pre-change NOLs under Section 382. A majority of the Company’s pre-change NOLs remain available within the carryforward period provided by the IRC, subject to availability of taxable income. As a result of the ownership changes, the Company has determined that approximately $0.4 million of NOLs will expire unutilized, and as such, these NOLs are not reflected in the Company’s deferred tax asset balance.
Unrecognized Tax Benefits
The Company has recorded a liability related to uncertain tax positions in the financial statements. It is the Company’s policy to include penalties and interest expense related to income taxes as a component for the provision for income taxes. The Company has unrecognized tax benefits of $10.3 million as of November 30, 2022, all of which are offset by a full valuation allowance. There are no tax benefits included in the balance of unrecognized tax benefits that, if recognized, would affect the effective tax rate. There are no interest and penalties accrued as of November 30, 2022. A reconciliation of the beginning and ending amounts of unrecognized income tax benefits during the years ended November 30, 2022 and 2021 is as follows (in thousands):
Years ended November 30,
20222021
Balance at beginning of period$6,331 $5,361 
Additions based on tax positions related to prior period— 1 
Additions based on tax positions related to current period3,930 2,282 
Settlements— (1,313)
Balance at end of period$10,261 $6,331 
The Company files income tax returns in the United States and in various states. In February 2018 the Internal Revenue Service (IRS) commenced an examination of the Company’s U.S. income tax return for the tax years ending in 2016, 2017, 2018 and 2019. All tax issues under examination were effectively settled during the year ended November 30, 2021. As a result, the Company removed the associated unrecognized tax benefit reserves and decreased its R&D credit carryforward by $1.3 million. The Company continues to maintain an unrecognized tax benefit related to federal R&D credits generated in years not covered by the examination.
Additionally, in January 2019 the California Franchise Tax Board (FTB) initiated an examination of the Company’s California tax return for the tax years ending in 2015, 2016, 2017 and 2018. During the year ended November 30, 2021, the FTB issued proposed audit assessments related to revenue sourcing and R&D credits. The Company does not agree with the FTB assessments and intends to challenge the assessments. Pursuant to a measurement analysis, the Company has not recorded an unrecognized tax benefit related to the FTB’s sourcing position. The Company maintains an unrecognized tax benefit related to its California R&D credits for all years.
All of the Company’s tax years will remain open for examination by the federal and state authorities for three and four years, respectively, from the date of the utilization of any NOLs.
In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, allows NOLs incurred in taxable years 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The fiscal 2020 tax benefit was primarily due to the carryback of NOLs to prior taxable years as allowed under the CARES Act. In fiscal 2020, the Company filed refund claims of $19.6 million to carryback NOLs generated in fiscal years ended November 30, 2018 and 2019. These refund claims were approved by Congressional Joint Committee on Taxation during the year ended November 30, 2021. As of November 30, 2021, the Company had received the full amount of these refund claims.
In August 2022, the U.S. Inflation Reduction Act (the Act) was enacted into law. The Act includes various tax provisions, including an excise tax on stock repurchases, expanded tax credits for clean energy incentives and a corporate alternative minimum tax that generally applies to U.S. corporations with adjusted financial statement income in excess of $1.0 billion. The Company does not expect the Act to have a material impact on its financial statements.
In December 2017, the Tax Cuts and Jobs Act (TCJA) was signed into law, significantly reforming the Internal Revenue Code of 1986, as amended (IRC). The TCJA contained certain provisions that went into effect on January 1, 2022, including a provision impacting Section 174 of the IRC whereby for tax years beginning on or after January 1, 2022, taxpayers are required to capitalize and amortize, rather than deduct, research and experimental (R&E) expenses. The R&E expenses under Section 174 must be amortized over five years for research performed in the U.S. and 15 years for research performed outside the U.S. The provisions of Section 174 are not applicable to the financial statements as of and for the year ended November 30, 2022. The Company is closely monitoring these provisions and is in the process of analyzing the potential impact to its income taxes and financial position in future years.