Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

11. Income Taxes

The Company has not recorded income tax benefits for net operating losses incurred or research and development tax credits generated, as the Company believed, based upon the weight of available evidence, that it is more likely than not that its net operating loss and tax credit carryforwards will not be realized. The Company’s income tax expense for the year ended December 31, 2023 related to foreign and state income taxes. The Company did not record income tax expense for the year ended December 31, 2022, as taxable income was offset by net operating loss carryforwards. During the year ended December 31, 2021, the Company released $2.5 million of its valuation allowance related to the net deferred tax liability recorded as a result of the PolicyFuel acquisition. The Company maintains a valuation allowance on its overall net deferred tax asset as it is deemed more likely than not the net deferred tax asset will not be realized.

A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows:

	Year Ended December 31,
	2023				2022				2021
Federal statutory income tax rate		21.0		%		21.0		%		21.0		%
State taxes, net of federal benefit		6.9				7.3				5.2
Federal and state research and development tax credits		(0.3	)			2.3				5.6
Nondeductible items		(0.3	)			2.8				(2.0	)
Stock-based compensation		(5.8	)			(16.0	)			10.9
Deferred taxes on acquisition		—				2.5				11.4
Other		1.4				—				0.4
Change in valuation allowance		(24.0	)			(19.9	)			(41.1	)
Effective income tax rate		(1.1	)	%		—		%		11.4		%

Net deferred tax assets as of December 31, 2023 and 2022 consisted of the following (in thousands):

	December 31,
	2023			2022
Deferred tax assets:
Net operating loss carryforwards	$	30,638		$	24,621
Capitalized research and development		11,793			7,186
Research and development tax credit carryforwards		9,183			7,950
Accrued expenses and other current liabilities		388			307
Property and equipment		293			271
Intangible assets		233			—
Stock-based compensation		2,233			2,593
Operating lease liability		573			1,706
Other		238			156
Total deferred tax assets		55,572			44,790
Valuation allowance		(53,948	)		(41,755	)
Net deferred tax assets		1,624			3,035
Deferred tax liabilities:
Capitalized software development costs		(1,195	)		(1,313	)
Operating lease right-of-use assets		(429	)		(1,529	)
Intangible assets		—			(193	)
Total deferred tax liabilities		(1,624	)		(3,035	)
Net deferred tax assets and liabilities	$	—		$	—

As of December 31, 2023, the Company had federal net operating loss carryforwards of $113.1 million to offset future taxable income, which do not expire but are limited in their usage to an annual deduction equal to 80% of annual taxable income. As of December 31, 2023, the Company had state net operating loss carryforwards of $106.8 million, which may be available to offset future taxable income and expire at various dates beginning in 2027. As of December 31, 2023, the Company also had federal and state research and development tax credit carryforwards of $5.9 million and $3.9 million, respectively, which may be available to reduce future tax liabilities and expire at various dates beginning in 2030 and 2029, respectively.

Utilization of the U.S. federal and state net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 and Section 383 of the Internal Revenue Code ("IRC") of 1986, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period. In 2019, the Company performed an analysis of the ownership changes as defined within IRC Section 382(g) during the period beginning with the first issuance of the Company’s stock on August 8, 2008 through June 30, 2019. It was determined that it is more likely than not that the Company did not undergo an ownership change within the meaning of IRC Section 382(g) during the analysis period. Therefore, net operating losses for that period are not limited and are available to cover future taxable income. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since June 30, 2019 due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since June 30, 2019, utilization of the net operating loss carryforwards or research and development tax credit carryforwards generated after June 30, 2019 may be subject to an annual limitation, which would be determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of such net operating loss carryforwards or research and development tax credit carryforwards before utilization.

The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets, which are comprised primarily of net operating loss carryforwards and research and development tax credit carryforwards. Management has considered the Company’s history of cumulative net losses incurred since inception and estimated future taxable income and has concluded that it is more likely than not that the Company will not realize the benefits of federal and state deferred tax assets. Accordingly, a full valuation allowance has been established against the net deferred tax assets as of December 31, 2023 and 2022. The Company reevaluates the positive and negative evidence at each reporting period.

The increase in the valuation allowance for deferred tax assets during the year ended December 31, 2023 related primarily to increases in net operating losses and capitalized research and development costs. The increase in the valuation allowance for deferred tax assets during the year ended December 31, 2022 related primarily to capitalized research and development costs due to the new requirement to capitalize research and development costs under IRC Section 174, partially offset by a decrease in net operating loss carryforwards that were used to offset taxable income. The Company generated taxable income for the year ended December 31, 2022 due to the requirement to capitalize research and development costs. The increase in the valuation allowance for deferred tax assets during the year ended December 31, 2021 related primarily to an increase in net operating loss carryforwards and research and development tax credit carryforwards and stock-based compensation expense. The changes in the valuation allowance were as follows (in thousands):

	Year Ended December 31,
	2023		2022		2021
Valuation allowance as of beginning of year	$	41,755	$	36,921	$	30,558
Decreases recorded to accumulated deficit		—		—		(159	)
Decreases recorded as a benefit to income tax provision		—		—		(2,510	)
Increases recorded to tax provision		12,193		4,834		9,032
Valuation allowance as of end of year	$	53,948	$	41,755	$	36,921

The Company assesses the uncertainty in its income tax positions to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals of litigation processes, based on the technical merits of the position. For tax positions meeting the more-likely-than-not threshold, the tax amount recognized in the consolidated financial statements is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon the ultimate settlement with the relevant taxing authority. No reserve for uncertain tax positions or related interest and penalties has been recorded at December 31, 2023 and 2022.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. The Company is open to future tax examination under statute from 2019 to the present, however, carryforward attributes that were generated prior to January 1, 2020 may still be adjusted upon examination by federal, state or local tax authorities if they either have been or will be used in a future period.