XML 41 R22.htm IDEA: XBRL DOCUMENT v3.25.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Income (loss) before income taxes from U.S. and foreign operations were as follows:
Year Ended December 31,
202420232022
U.S.$75,651 $174 $(16,866)
Foreign22,048 26,602 (7,019)
Total income (loss) before income taxes$97,699 $26,776 $(23,885)
Total income tax expense included in the Consolidated Statements of Operations is comprised of the following:
Year Ended December 31,
202420232022
Current:
Federal$5,437 $829 $— 
State1,786 (99)242 
Foreign3,443 6,835 5,482 
Total current$10,666 $7,565 $5,724 
Deferred:
Federal$144 $140 $368 
State1 (120)44 
Foreign2,396 (218)(2,217)
Total deferred2,541 (198)(1,805)
Income tax expense$13,207 $7,367 $3,919 
The following table reconciles our benefit of income taxes at the statutory rate to the effective tax rate, using a U.S. federal statutory tax rate of 21%:
Year Ended December 31,
202420232022
Income tax expense (benefit) at federal statutory rate$20,517 $5,623 $(5,016)
State and local taxes, net of federal benefit1,412 (2,509)(205)
Foreign tax rate differential(3,858)1,030 168 
Stock-based compensation deductions(5,698)(17,998)(3,077)
Nondeductible expenses2,206 (14)3,603 
Unrecognized tax positions4,360 1,083 1,482 
Net change in valuation allowance44,559 138 4,442 
Global intangible low-tax income110 — 1,091 
Foreign-derived intangible income deduction
(3,140)(970)(664)
162(m) limitation9,295 17,072 7,058 
U.S. R&D tax credits(3,402)(2,810)(4,432)
Valuation allowance release related to acquisition— (1,074)— 
Acquisition related compensation2,659 7,811 — 
Impact of intra-entity intellectual property rights transfer
(59,627)— — 
Other3,814 (15)(531)
Total income tax expense$13,207 $7,367 $3,919 
During the year ended December 31, 2024, the Company completed an intra-entity transfer of intellectual property rights from Malta to the U.S. by filing an election to treat Cloudways as a disregarded entity for U.S. income tax purposes. The transfer of intellectual property rights did not result in a taxable gain in any jurisdictions, including Malta, Pakistan and the U.S. The transaction resulted in a step-up of the U.S. tax deductible basis in the transferred intellectual property rights, and accordingly, created a temporary difference between the book basis and the tax basis of such intellectual property rights. Consequently, the Company recognized $59,627 in deferred tax assets, which was further offset by the valuation allowance.
The components of deferred tax assets and liabilities are as follows:
December 31,
20242023
Deferred tax assets:
Accounts receivable$1,261 $1,223 
Accrued expenses2,354 982 
Capitalized research and development44,724 30,918 
Operating lease liability 32,398 44,443 
Net operating loss carryforwards11,498 28,222 
Stock-based compensation3,389 5,419 
Tax credit carryforwards17,778 18,338 
Depreciation and amortization18,538 — 
Other2,593 989 
Gross deferred tax assets134,533 130,534 
Less: valuation allowance(109,541)(60,520)
Total net deferred tax asset$24,992 $70,014 
Deferred tax liability
Depreciation and amortization$— $(31,808)
Operating lease ROU asset(28,915)(39,745)
Total deferred tax liability(28,915)(71,553)
Total net deferred tax liability$(3,923)$(1,539)
As of December 31, 2024, the Company had approximately $26,216 in federal net operating loss (NOL) carryforwards and $15,689 in federal tax credits. If not utilized, the federal tax credit carryforwards will expire at various dates beginning in 2039. The federal NOL carryforward can be carried forward indefinitely. As of December 31, 2024, the Company had approximately $17,650 in state NOL carryforwards and $2,126 in California tax credits. If not utilized, the state NOL carryforwards will expire at various dates beginning in 2030. The California state tax credits can be carried forward indefinitely. The Company had $11,302 of foreign NOLs that do not expire. The amount of net operating loss and tax credits carryforwards reflected in the financial statements differ from the amounts reported on the tax return due to uncertain tax positions related to tax laws and regulations that are subject to varied interpretation by the tax authorities.
Certain tax attributes may be subject to an annual limitation as a result of the issuance of stock, which may constitute a change of ownership as defined under Internal Revenue Code Section 382. The Internal Revenue Code Section 382 study is in process as of December 31, 2024.
The Company assesses the likelihood of its ability to realize the benefit of its deferred tax assets in each jurisdiction by evaluating all relevant positive and negative evidence. A valuation allowance is established if it is determined that any portion of the deferred tax assets is not more likely than not to be realized. For the year ended December 31, 2024, the Company has maintained a valuation allowance against its U.S. deferred tax assets as they are not more-likely than not to be realized.
The valuation allowance activity for the periods indicated is as follows:
December 31,
20242023
Balance as of the beginning of period$(60,520)$(47,361)
Additions charged to expense(49,021)(13,159)
Balance as of the end of period$(109,541)$(60,520)

The Company provides for U.S. and foreign income taxes on the undistributed earnings of foreign subsidiaries unless they are considered indefinitely reinvested outside the U.S. On December 31, 2024, the amount of unrecognized deferred tax liability for temporary differences on undistributed earnings in foreign subsidiaries upon which U.S. and foreign income taxes have not been provided is not material.
In general, it is the Company’s practice and intention to reinvest the earnings of non-U.S. subsidiaries in those operations. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. The amount of undistributed earnings of non-U.S. subsidiaries at December 31, 2024, as well as the related deferred income tax, if any, is not material.
The Company files U.S. federal income tax returns as well as various state, local, and foreign jurisdictions. As of December 31, 2024, tax years 2018 and later remain open for examination.
ASC 740 clarifies the accounting and reporting for uncertainties in income tax law and prescribes a comprehensive model for financial statement recognition measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. ASC 740 requires that tax effects of an uncertain tax position be recognized only if it is “more likely than not” to be sustained by the taxing authority as of the reporting date.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Year Ended December 31,
202420232022
Balance of unrecognized tax benefits at beginning of year$20,337 $17,044 $721 
Additions based on tax positions related to the current period5,209 1,571 3,014 
Additions for tax positions of prior periods816 1,947 2,833 
Additions recorded as part of business combination — — 11,106 
Reductions for tax positions of prior periods(3,162)— (630)
Release due to expiration of statute of limitations(808)(225)— 
Balance of unrecognized tax benefits at end of year$22,392 $20,337 $17,044 
Amounts included in the balance of unrecognized tax benefits as of December 31, 2024, 2023 and 2022, if recognized, would affect the effective tax rate upon recognition. The total amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate is $14,197 as of December 31, 2024.
As of December 31, 2024, the Company recognized $6,475 of interest and penalties related to unrecognized tax benefits in the provision for taxes. Interest and penalties related to income tax liabilities are included in income tax expense. During the years ended December 31, 2024, 2023 and 2022, the Company recognized $2,864, $1,816 and $1,540, respectively, in interest expense and penalties. The Company has not made any payments on interest and penalties as of December 31, 2024.
The total amount of unrecognized tax benefits relating to the Company’s tax positions is subject to change based on future events including, but not limited to, the settlements of ongoing audits and/or the expiration of applicable statutes of limitations. The outcomes and timing of such events are highly uncertain. The Company does not anticipate any significant change in the uncertain tax positions within the next 12 months.