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Income taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income taxes
11. Income taxes

The domestic and foreign components of income (loss) before provision for income taxes consisted of the following (in thousands):
Fiscal Year Ended December 31,
202220212020
Domestic$(155,528)$(80,243)$(77,212)
Foreign3,939 1,400 2,741 
Total net loss before taxes$(151,589)$(78,843)$(74,471)
The provision for income taxes consisted of the following (in thousands):

Fiscal Year Ended December 31,
202220212020
Current:
Federal$— $— $— 
State45 183 63 
Foreign2,241 1,149 2,937 
Total current income tax expense2,286 1,332 3,000 
Deferred:
Federal — — — 
State— — — 
Foreign— (149)149 
Total deferred income tax expense— (149)149 
Total provision for income taxes$2,286 $1,183 $3,149 

The Company had an effective tax rate of (1.51)%, (1.50)%, and (4.23)% for the fiscal years ended December 31, 2022, 2021, and 2020, respectively. The difference between the 21% statutory federal tax rate and the effective tax rate was primarily a result of income earned in jurisdictions with higher statutory tax rates, foreign withholding taxes, and tax credits offset by change in valuation allowance.

The reconciliation between the statutory federal income tax rate and the Company’s effective tax rate as a percentage of loss before income taxes is as follows:
Fiscal Year Ended December 31,
202220212020
Federal tax expense21.00 %21.00 %21.00 %
State taxes, net of federal benefit1.24 %1.07 %1.17 %
Foreign rate differential(0.33)%(0.12)%(0.32)%
Withholding taxes(0.60)%(0.78)%(3.06)%
Nondeductible compensation(2.52)%(5.29)%— %
Stock-based compensation(3.18)%0.27 %(1.94)%
Change in valuation allowance(21.41)%(34.54)%(21.16)%
Research and development credits4.69 %16.87 %— %
Other(0.40)%0.02 %0.08 %
Effective tax rate(1.51)%(1.50)%(4.23)%
Significant components of the net deferred tax assets (liabilities) for the fiscal years ended December 31, 2022 and 2021, consisted of the following (in thousands):

December 31,December 31,
20222021
Deferred tax assets:
Accruals and reserves$5,107 $4,795 
Deferred revenue61,285 45,268 
Net operating loss30,047 42,008 
Research and development tax credits20,412 13,301 
Stock-based compensation expense7,995 2,952 
Indirect tax reserves1,496 4,107 
Property and equipment, net2,031 1,799 
Capitalized research and development costs23,475 — 
Operating lease liabilities2,767 — 
Other491 351 
Gross deferred tax assets155,106 114,581 
Valuation allowance(129,453)(97,010)
Total deferred tax assets25,653 17,571 
Deferred tax liabilities:
Deferred contract costs(14,814)(10,009)
Operating lease right-of-use assets(2,245)— 
Other deferred tax liabilities(8,594)(7,562)
Total deferred tax liabilities(25,653)(17,571)
Net deferred tax liabilities$— $— 

A valuation allowance is provided for deferred tax assets where the recoverability of the assets is uncertain. The determination to provide a valuation allowance is dependent upon the assessment of whether it is more likely than not that sufficient future taxable income will be generated to utilize the deferred tax assets.

As of December 31, 2022 and December 31, 2021, the Company has established a valuation allowance of $129.5 million and $97.0 million, respectively, against its gross deferred tax assets due to the uncertainty surrounding the realization of such assets. The change in total valuation allowance from 2021 to 2022 was an increase of $32.5 million.

As of December 31, 2022, the Company had $132.7 million of federal net operating loss (“NOL”) carryforwards. $44.5 million of federal NOL carryforwards generated in taxable years beginning prior to January 1, 2018 begin expiring in 2030, if not utilized. $88.2 million of federal NOL carryforwards generated in taxable years beginning after December 31, 2017 have an indefinite carryforward period, but are subject to the 80% deduction limitation based upon pre-NOL deduction taxable income.

As of December 31, 2022, the Company had $31.7 million of state NOL carryforwards. The state NOL carryforwards begin expiring in 2030, if not utilized.

As of December 31, 2022, the Company had U.S. federal and state research and development tax credit carryforwards of $15.5 million and $12.3 million, respectively. The federal research and development tax credit carryforwards will expire in various amounts beginning in 2035 while the state research and development tax credit carryforwards can be carried forward indefinitely.
The United States enacted the Tax Cuts and Jobs Act in December 2017, which requires companies to capitalize all their research and development costs for U.S. tax purposes, including software development costs, incurred in tax years beginning after December 31, 2021. Beginning in 2022, the Company began capitalizing and amortizing research and development costs over a five-year period for domestic research and a fifteen-year period for international research rather than expensing these costs.

The utilization of the Company’s net operating losses may be subject to a limitation due to the “ownership change” provisions under Section 382 of the Internal Revenue Code and similar state and foreign provisions. Such limitation may result in the expiration of the net operating loss carryforwards generated before 2018 prior to their utilization. The Company has performed a recent Section 382 study as of December 31, 2022 to determine any potential Section 382 limitations on the utilization of its net operating loss carryforwards and tax credit carryforwards and has determined that no additional ownership changes have occurred since November 2012. The Company experienced two ownership changes with the Company’s Series A and A-1 redeemable convertible preferred stock offering in September 2011 and with the Company’s Series B redeemable convertible preferred stock offering in November 2012. The Company has estimated that the gross U.S. federal NOL carryforwards from 2010 to 2012 that would be subject to limitation are approximately $3.4 million.

For the fiscal year ended December 31, 2021, the Company performed a Section 382 study to determine any potential Section 382 limitations on the utilization of the acquired federal NOLs from the business combination of CorpU. The Company determined that CorpU experienced an ownership change in May 2013 and therefore, the federal gross NOL carry forwards of $20.7 million would be subject to limitation. The $3.2 million of acquired NOL carryforwards subject to the Section 382 limitation will expire unutilized, therefore the deferred tax asset associated with such NOLs were written off.

Uncertain tax positions— As of December 31, 2022 and 2021, the Company had gross unrecognized tax benefits of $5.3 million and $3.6 million, respectively, related to federal and state research and development tax credits. The Company has performed a research and development tax credit study and has reserved against a portion of its federal and state research and development tax credit carryforwards. The Company’s tax position of such credits is not more likely than not to be sustained upon examination. The Company has recorded an uncertain tax position related to the deferred tax asset recognized for these credits.

A reconciliation of the beginning and ending balance of unrecognized tax benefit is as follows (in thousands):

Fiscal Year Ended December 31,
202220212020
Gross unrecognized tax benefits at the beginning of the year$3,608 $10,580 $146 
Increases (decreases) related to prior year tax positions224 (7,892)7,006 
Increases related to current year tax positions1,478 920 3,428 
Statute of limitations expirations— — — 
Gross unrecognized tax benefits at the end of the year$5,310 $3,608 $10,580 

The Company is currently unaware of uncertain tax positions that could result in significant additional payments, accruals, or other material deviations in the next 12 months. The Company currently does not record interest and penalties, if any, related to unrecognized tax benefits. None of the unrecognized tax benefits as of December 31, 2022, if recognized in a future period, would affect the Company’s effective tax rate.

The Company files income tax returns in U.S. federal, and certain state and foreign jurisdictions with varying statutes of limitations. Due to NOL carryforwards and tax credit carryforwards, the statutes of limitations remain open for tax years from inception of the Company through the fiscal year ended December 31, 2022. There are currently no income tax audits underway by U.S. federal or state jurisdictions. There are income tax audits in Turkey and India that began in 2022 but no notices or assessments have been issued at this time.

The Company intends to indefinitely reinvest any future undistributed foreign earnings outside the United States and therefore such earnings will not be subject to U.S. federal or state, or foreign withholding tax. The Company has prepared an analysis of the repatriation of earnings outside of the U.S. and has determined that the potential tax in connection with such repatriation is approximately $0.3 million.
Intended to provide economic relief to those impacted by the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 and includes provisions, among others, addressing the carryback of net operating losses for specific periods, refunds of alternative minimum tax credits, temporary modifications to the limitations placed on the tax deductibility of net interest expenses, and technical amendments for qualified improvement property. Additionally, the CARES Act, in efforts to enhance business’ liquidity, provides for refundable employee retention tax credits and the deferral of the employer-paid portion of social security taxes. Under the CARES Act, the Company deferred $2.6 million related to the employer portion of social security taxes during the year ended December 31, 2020, of which $1.5 million was settled in 2021 and $1.1 million was settled in 2022.