Income taxes

12 Months Ended

Dec. 31, 2022

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,
	2022		2021		2020
	(in thousands)
Domestic	$	(123,521)	$	(71,537)	$	(34,829)
Foreign	(18,693)		(8,441)		792
Loss before income tax benefit	$	(142,214)	$	(79,978)	$	(34,037)

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

	Years Ended December 31,
	2022		2021		2020
	(in thousands)
Current:
Federal	$	(6)	$	—	$	(551)
State	154		217		(73)
Foreign	1,894		638		987
Total current expense	2,042		855		363
Deferred:
Federal	(268)		(487)		(10,657)
State	(170)		(1,145)		(1,173)
Foreign	(2,517)		(4,012)		1,512
Total deferred benefit	(2,955)		(5,644)		(10,318)
Total income tax benefit	$	(913)	$	(4,789)	$	(9,955)

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,
	2022		2021		2020
Statutory U.S. federal income tax rate	21.0	%	21.0	%	21.0	%
State income tax benefit, net of federal tax effect	2.5		3.1		4.7
Permanent differences	0.1		—		(0.7)
Foreign rate differential	(0.6)		(0.5)		(0.5)
Remeasurement gain/loss	—		0.7		(2.0)
Tax credits	2.0		2.3		3.4
Valuation allowance	(21.5)		(24.4)		(2.3)
Stock-based compensation	(1.6)		12.2		6.9
Transaction costs	(0.4)		(0.8)		(0.5)
Deferred rate change	0.4		0.9		(1.0)
Section 162(m)	(1.9)		(9.4)		—
Foreign withholding taxes	(0.5)		—		—
Other	1.1		0.9		0.2
Effective tax rate	0.6	%	6.0	%	29.2	%

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

	December 31,
	2022		2021
	(in thousands)
Deferred tax assets:
Accrued compensation	$	3,821	$	4,529
Deferred revenue	12,883		8,331
Section 174 capitalization	9,540		—
Stock-based compensation	14,960		5,026
Federal tax credits	8,949		6,668
Foreign withholding taxes	2,782		—
Net operating losses	50,794		46,173
State tax credits	2,495		2,086
Business interest limitation	10,054		10,450
Operating lease liabilities	4,347		4,848
2026 Notes	6,627		8,304
Other	3,842		3,267
Gross deferred tax assets	131,094		99,682
Valuation allowance	(63,541)		(31,512)
Total deferred tax assets	67,553		68,170
Deferred tax liabilities:
Deferred contract costs	(14,170)		(10,491)
Operating lease right-of-use assets	(3,520)		(4,047)
Intangibles and other	(50,578)		(59,670)
Other	(300)		(1,191)
Gross deferred tax liabilities	(68,568)		(75,399)
Net deferred tax liabilities	$	(1,015)	$	(7,229)

The components giving rise to the net deferred tax liabilities detailed above have been included in the consolidated balance sheets as follows:

	December 31,
	2022		2021
	(in thousands)
Non-current deferred tax assets (1)	$	4,490	$	1,471
Non-current deferred tax liabilities	(5,505)		(8,700)
Net deferred tax liabilities	$	(1,015)	$	(7,229)

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

As of December 31, 2022 and 2021, the Company established a valuation allowance against certain deferred tax assets in the U.S. and UK to reduce the total to an amount management believes are more likely than not to be realized. 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 $32.0 million, $28.5 million, and $0.9 million during the years ended December 31, 2022, 2021, and 2020, respectively.

As of December 31, 2022, the Company had a U.S. federal NOL carryforward of approximately $141.9 million, a foreign NOL carryforward of approximately $59.7 million, federal research and development credits of approximately $8.0 million, and foreign tax credits of approximately $1.9 million primarily consisting of investment tax credit carryforwards. The Company also had state NOL carryforwards of approximately $93.3 million and state credits for research and development of approximately $3.5 million. Approximately $87.7 million of the federal NOL carryforwards will begin to expire in 2037. The remainder of the federal NOLs of $54.2 million and the foreign NOLs are carried forward indefinitely. The state NOL carryforwards began expiring in 2022 and are available to offset future taxable income or reduce taxes payable through 2042. The federal research and development credits, state research and development credits, and foreign tax credits will begin

expiring in 2033, 2026, and 2023, respectively. The Company also had a foreign withholding tax carryforward of approximately $2.8 million.

The Company has not provided for deferred taxes on outside basis differences for investments in its international subsidiaries that are unrelated to unremitted earnings as these basis differences will be indefinitely reinvested. A determination of the unrecognized deferred taxes related to these other components of outstanding basis difference is not practicable to calculate.

A company’s ability to utilize a portion of its NOL carryforwards to offset future taxable income may be subject to certain limitations under Section 382 of the 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 NOLs will be fully available for utilization before expiration.

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

	Years Ended December 31,
	2022		2021		2020
	(in thousands)
Balance, January 1	$	1,003	$	670	$	540
Additions based on tax positions related to the current year	230		161		130
Additions based on tax positions related to prior years	39		172		—
Balance, December 31	$	1,272	$	1,003	$	670

Under the provision for uncertainty in income taxes, the total gross amount of unrecognized tax benefit as of December 31, 2022 was approximately $1.4 million. At December 31, 2022, the realization of unrecognized tax benefits was not expected to impact the effective rate due to a full valuation allowance on federal and state deferred taxes.

The Company files income tax returns in the U.S. federal jurisdiction, Minnesota, the UK, 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 2019. 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, 2022, 2021, and 2020.

On March 27, 2020, the CARES Act was signed into law. The most significant relief measure which the Company qualified for was 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 and the remaining $1.9 million of the deferred portion of payroll taxes in the fourth quarter of 2022.