Income taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income taxes

Income taxes

The domestic and foreign components of loss before income tax benefit were as follows:

	Years Ended December 31,
	2021		2020		2019
	(in thousands)
Domestic	$	(71,537)	$	(34,829)	$	(43,544)
Foreign	(8,441)		792		(834)
Loss before income tax benefit	$	(79,978)	$	(34,037)	$	(44,378)

The components of income tax expense (benefit) attributable to continuing operations were as follows:

	Years Ended December 31,
	2021		2020		2019
	(in thousands)
Current:
Federal	$	—	$	(551)	$	(7)
State	217		(73)		138
Foreign	638		987		1,013
Total current expense	855		363		1,144
Deferred:
Federal	(487)		(10,657)		(9,341)
State	(1,145)		(1,173)		(1,209)
Foreign	(4,012)		1,512		(627)
Total deferred benefit	(5,644)		(10,318)		(11,177)
Total income tax benefit	$	(4,789)	$	(9,955)	$	(10,033)

The income tax benefit differs from the amount of income tax benefit determined by applying the statutory U.S. federal income tax rate to pretax loss due to the following:

	Years Ended December 31,
	2021		2020		2019
Statutory U.S. federal income tax rate	21.0	%	21.0	%	21.0	%
State income tax benefit, net of federal tax effect	3.1		4.7		2.9
Permanent differences	—		(0.7)		(0.5)
Foreign rate differential	(0.5)		(0.5)		0.2
Remeasurement gain/loss	0.7		(2.0)		0.5
Tax credits	2.3		3.4		2.0
Valuation allowance	(24.4)		(2.3)		(2.0)
Stock-based compensation	12.2		6.9		—
Transaction costs	(0.8)		(0.5)		(0.4)
Deferred rate change	0.9		(1.0)		(0.3)
GILTI inclusion	—		—		(0.5)
Section 162(m)	(9.4)		—		—
Other	0.9		0.2		(0.3)
Effective tax rate	6.0	%	29.2	%	22.6	%

Significant components of the Company’s deferred income tax assets and liabilities were as follows:

	December 31,
	2021		2020
	(in thousands)
Deferred tax assets:
Allowance for doubtful accounts	$	95	$	113
Accrued compensation	4,529		3,119
Deferred revenue	8,331		3,724
Stock-based compensation	5,026		1,938
Federal tax credits	6,668		4,099
Net operating losses	46,173		26,996
State tax credits	2,086		1,640
Business interest limitation	10,450		9,829
Operating lease liabilities	4,848		—
Convertible Senior Notes	8,304		—
Other	3,172		1,942
Gross deferred tax assets	99,682		53,400
Valuation allowance	(31,512)		(3,016)
Total deferred tax assets	68,170		50,384
Deferred tax liabilities:
Prepaid items	(624)		(853)
Equipment and leasehold improvements	(168)		—
Deferred contract costs	(10,491)		(7,634)
Operating lease right-of-use assets	(4,047)		—
Intangibles and other	(59,670)		(46,898)
Other	(399)		—
Gross deferred tax liabilities	(75,399)		(55,385)
Net deferred tax liabilities	$	(7,229)	$	(5,001)

The components giving rise to the net deferred tax liabilities detailed above have been included in the consolidated balance sheets as of December 31, 2021 and 2020 as follows:

	December 31,
	2021		2020
	(in thousands)
Non-current deferred tax assets (1)	$	1,471	$	86
Non-current deferred tax liabilities	(8,700)		(5,087)
Net deferred tax liabilities	$	(7,229)	$	(5,001)

(1) Included in other assets in the consolidated balance sheets.

As of December 31, 2021, the Company established a valuation allowance against a majority of our domestic deferred tax assets to reduce the total to an amount management believed was appropriate based on an analysis of both positive and negative evidence. Realization of deferred tax assets is dependent upon sufficient future taxable income during the periods when deductible temporary differences and carryforwards are expected to be available to reduce taxable income. The valuation allowance increased by $28.5 million, $0.9 million, and $0.9 million for the years ended December 31, 2021, 2020, and 2019 respectively.

As of December 31, 2021, the Company had a U.S. federal net operating loss carryforward of approximately $139.8 million, a foreign net operating loss carryforward of approximately $52.8 million, federal research and development credits of approximately $6.1 million, and foreign tax credits of approximately $1.2 million primarily consisting of investment tax credit carryforwards. The Company also had state net operating loss carryforwards of approximately $81.8 million and state credits for research and development of approximately $2.9 million. Approximately $102.5 million of the federal net operating loss carryforwards will begin to expire in 2037. The remainder of the federal net operating losses of $37.3 million and the foreign net operating losses are carried forward indefinitely. The state net operating loss carryforwards will begin to expire in 2022 and are available to offset future taxable income or reduce taxes payable through 2040. The federal research and development credits, state research and development credits, and foreign tax credits will begin expiring in 2033, 2026, and 2023, respectively.

A company’s ability to utilize a portion of its net operating loss carryforwards to offset future taxable income may be subject to certain limitations under Section 382 of the Internal Revenue Code due to changes in the equity ownership of the Company. The Company conducted a Section 382 analysis and determined that although an ownership change occurred in a prior period, all net operating losses that were not acquired are fully available as of December 31, 2021.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits was as follows:

	Years Ended December 31,
	2021		2020		2019
	(in thousands)
Balance, January 1	$	670	$	540	$	439
Additions based on tax positions related to the current year	161		130		92
Additions based on tax positions related to prior years	172		—		19
Reductions based on tax positions related to prior years	—		—		(10)
Balance, December 31	$	1,003	$	670	$	540

Under the provision for uncertainty in income taxes, the total gross amount of unrecognized tax benefit as of December 31, 2021 was approximately $1.1 million. If recognized, the total amount of unrecognized tax benefit that would affect the effective income tax rate was $0.9 million and $0.6 million as of December 31, 2021 and 2020, respectively.

The Company files income tax returns in the U.S. federal jurisdiction, Minnesota, and various other state and foreign jurisdictions. With few exceptions, the Company is not subject to U.S. federal, foreign, state, and local income tax examinations by tax authorities for years before 2018. It is difficult to predict the final timing and resolution of any particular uncertain tax position. Based on the Company’s assessment of many factors, including past experience and complex judgements about future events, the Company does not currently anticipate significant changes in its uncertain tax positions over the next 12 months.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits as additional income tax expense. The Company did not recognize material income tax expense related to interest and penalties during the years ended December 31, 2021, 2020, and 2019.

On March 27, 2020, the CARES Act was signed into law. The most significant relief measure which the Company qualified for is the payroll tax deferral. Beginning with pay dates on and after April 17, 2020, the Company elected to defer the employer-paid portion of social security taxes, resulting in an accrual of $3.8 million as of December 31, 2020. The Company paid $1.9 million of the deferred portion of payroll taxes in the fourth quarter of 2021. The remaining $1.9 million is due December 31, 2022 and is included in accrued liabilities in the consolidated balance sheet.