Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

12. Income taxes

Pretax earnings from continuing operations consist of the following:

	Year ended December 31,
(in thousands)	2021			2020			2019
United States	$	(62,558	)	$	(31,891	)	$	(38,720	)
Non-U.S.		(14,153	)		(5,644	)		(3,842	)
Total pre-tax earnings	$	(76,711	)	$	(37,535	)	$	(42,562	)

Our components of the provision for income taxes are as follows:

	Year ended December 31,
(in thousands)	2021			2020		2019
Income tax provision (benefit)
Current:
Federal	$	—		$	—	$	—
State	11			24			25
Foreign	134			1			3
Total current	$	145		$	25	$	28
Deferred:
Federal		(202	)		—		—
State		23			—		—
Foreign		—			—		—
Total deferred		(179	)		—		—
Total provision (benefit)	$	(34	)	$	25	$	28

Our provision for income taxes attributable to continuing operations differs from the expected tax expense (benefit) amount computed by applying the U.S. statutory federal income tax rate of 21% to income from continuing operations before income taxes. The variance is primarily a result of the application of a valuation allowance for net deferred assets, including NOL carryforwards and credits generated in Australia, the UK, and the United States. Current income tax expense for the period is a result of the Texas Gross Margin tax in the case of the state tax expense and taxable profits in Ireland, the Ukraine and Singapore in the case of the foreign tax expense along with withholding taxes. Deferred income tax expense is a result of taxable temporary differences related to indefinite-lived assets along with a tax benefit related to the reduction of the valuation allowance.

	Year ended December 31,
(in thousands)	2021			2020			2019
U.S. federal taxes at statutory rate		21.00	%		21.00	%		21.00	%
State taxes, net of federal benefit		5.58			4.91			3.25
Foreign tax rate differentials		0.83			0.66			0.33
Research and development credit		2.65			4.97			3.24
Purchase price accounting		0.35			0.00			0.00
Stock-based compensation		26.29			16.97			0.38
162(m) addback		(15.65	)		0.00			0.00
Permanent differences, other		(0.92	)		(8.17	)		(3.77	)
Change in valuation allowance		(40.09	)		(40.41	)		(24.50	)
Other		—			—			—
Effective tax rate		0.04	%		(0.07	)%		(0.07	)%

The Tax Cuts and Jobs Act of 2017 (the “TJCA”) subjects a U.S. shareholder to current tax on certain earnings of foreign subsidiaries under a provision commonly known as GILTI (global intangible low-taxed income). Under U.S. GAAP, an accounting policy election can be made to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years, or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. We have elected to account for GILTI in the year the tax is incurred.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of deferred taxes are as follows:

	December 31,
(in thousands)	2021			2020
Deferred tax assets:
Net operating loss and credit carryforwards	$	76,475		$	52,216
Lease liabilities		2,834			3,868
Deferred revenue		358			426
Depreciation and amortization		7,942			8,381
Stock-based compensation		3,367			2,401
Other		7,954			1,721
Gross deferred tax assets	$	98,930		$	69,013
Valuation allowance		(92,531	)		(62,917	)
Deferred tax liabilities:
Foreign DTLs		(429	)		—
Goodwill DTL		(321	)		—
Deferred commission		(1,885	)		(1,448	)
Right-of-use assets		(2,049	)		(2,904	)
Prepaid expenses and other		(1,809	)		(1,744	)
Gross deferred tax liabilities		(6,493	)		(6,096	)
Net deferred tax assets	$	(94	)	$	—

At December 31, 2021, we had NOL carryforwards for U.S. federal income tax purposes of approximately $243.8 million. Of this total, $195.4 million is related to tax years 2018-2021 that do not have an expiration, as a result of the TCJA. The remaining $48.4 million of U.S. federal NOL carryforwards are available to offset future U.S. federal taxable income and begin to expire in 2036.

At December 31, 2021, we had NOL carryforwards for certain state income tax purposes of approximately $113.8 million. These state NOL carryforwards are available to offset future state taxable income and begin to expire in 2036.

At December 31, 2021, we had foreign NOL carryforwards in Australia and the U.K., combined, of approximately $26.0 million, which are available to offset future foreign taxable income and that do not have an expiration.

At December 31, 2021, we did not provide any U.S. income or foreign withholding taxes related to certain foreign subsidiaries’ undistributed earnings, as such earnings have been retained and are intended to be indefinitely reinvested. The majority of our foreign operations are in excess tax basis over book basis positions. It is not practicable to estimate the amount of taxes that would be payable upon remittance of these earnings, because such tax, if any, is dependent upon circumstances existing if and when remittance occurs.

At December 31, 2021, we had research and development tax credit carryforwards of approximately $6.8 million, which are available to offset future U.S. federal income tax. These U.S. federal tax credits begin to expire in 2034.

We have established a valuation allowance due to uncertainties regarding the realizability of deferred tax assets based on our lack of earnings history. During 2021, the valuation allowance increased by approximately $29.2 million due to continuing operations and an overall net increase of approximately $0.4 million due to the tax benefit of IPO costs booked to equity.

We file U.S. federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2018 through 2021 tax years generally remain open and subject to examination by U.S. federal, state and foreign tax authorities. The 2018 tax year generally remains open and subject to examination by foreign tax authorities. Losses generated in any year since inception remain open to adjustment until the statute of limitations closes for the tax year in which the NOL carryforwards are utilized. We are currently under audit only in the state of Rhode Island.

As of December 31, 2021, we had $0.4 million unrecognized tax benefits. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. During 2021 and 2020, we did not recognize any material interest or penalties. We had $0 of accrued penalties and interest due to the unrecognized tax benefit as of December 31, 2021 and December 31, 2020.

A reconciliation of our liability for unrecognized tax benefits is as follows:

	December 31,
(in thousands)	2021		2020
Balance, beginning of year	$	—	$	—
Increase for tax positions related to the current year		—		—
Increase for tax positions related to the prior years		396		—
Decrease for tax positions related to prior years		—		—
Balance, end of year	$	396	$	—