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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The U.S. and non-U.S. components of loss before income taxes consist of the following (in thousands):
Years Ended December 31,
202420232022
United States$(83,550)$(23,655)$(58,059)
International1,772 707 478 
Loss before incomes taxes$(81,778)$(22,948)$(57,581)
The provision for income taxes consists of the following (in thousands):
Years Ended December 31,
202420232022
Current
U.S. Federal$1,141 $3,144 $666 
State(8)206 6 
International510 (41)92 
Total current tax expense1,643 3,309 764 
Deferred
U.S. Federal— — — 
State— — — 
International— — — 
Total deferred tax expense— — — 
Total income tax expense$1,643 $3,309 $764 
The effective tax rate differs from the U.S. federal statutory rate as follows:
Years Ended December 31,
202420232022
Federal statutory tax21.0 %21.0 %21.0 %
State taxes19.3 7.7 2.3 
Change in valuation allowance(157.2)(78.9)(17.2)
General business credits46.2 13.0 2.6 
Stock-based compensation (1)
61.4 19.3 (10.0)
Foreign-derived intangible income6.8 — — 
Foreign taxes0.9 — — 
Other(0.4)3.4 — 
Effective tax rate(2.0)%(14.5)%(1.3)%
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(1) Includes stock-based compensation and stock-based compensation related to secondary transactions and Section 83(b) elections
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of the temporary differences and carryforwards that give rise to deferred tax assets and liabilities consist of the following (in thousands):
As of December 31,
20242023
Deferred tax assets
Net operating losses$1,115 $678 
General business credits48,512 4,291 
Intangibles (2)
98,754 30,806 
Stock-based compensation14,874 2,727 
Other7,040 3,297 
Total deferred tax assets before valuation allowance170,295 41,799 
Deferred tax liabilities
Stock-based compensation – Section 83(b) elections(502)(1,145)
ROU assets(179)(500)
Fixed assets(1,206)(831)
Others(115)— 
Total deferred tax liabilities(2,002)(2,476)
Less: valuation allowance(168,293)(39,323)
Net deferred tax assets after valuation allowance$— $— 
__________
(2) Primarily relates to capitalized R&D. Beginning January 1, 2022, the Tax Cuts and Jobs Act, (the “Tax Act”), eliminated the option to deduct research and development expenditures in the current year and requires taxpayers to capitalize such expenses pursuant to Internal Revenue Code Section 174. The capitalized expenses are amortized over a 5-year period for domestic expenses and a 15-year period for foreign expenses.
In determining the need for a valuation allowance, the Company reviewed both positive and negative evidence pursuant to the requirements of ASC 740, Income Taxes, including current and historical results of operations, future income projections, and potential tax planning strategies. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the 3-year period ended December 31, 2024. Such objective evidence limits the ability to consider other subjective evidence such as its projections for future growth. On the basis of this evaluation, as of December 31, 2024, a valuation allowance of $168.3 million has been recorded, which reflects an increase in the valuation allowance of $129.0 million for the year ended December 31, 2024. As of December 31, 2023, a valuation allowance of $39.3 million has been recorded, which reflects an increase in the valuation allowance of $18.1 million for the year ended December 31, 2023. As of December 31, 2022, a valuation allowance of $21.2 million has been recorded, which reflects an increase in the valuation allowance of $9.9 million for the year ended December 31, 2022.
As of December 31, 2024 and 2023, the Company had gross federal net operating loss carryforwards of approximately $1.8 million and $2.0 million, respectively, which can be carried forward indefinitely, and state net operating loss carryforwards of $10.4 million and $3.7 million, respectively, which begin to expire in 2039. In addition, as of December 31, 2024 and 2023 the Company had federal research credit carryforwards of approximately $43.6 million and $5.6 million, respectively, which begin to expire in 2039, California research credit carryforwards of $33.2 million and $7.5 million, respectively, which can be carried forward indefinitely, and Canadian research credit carryforwards of $2.0 million and $0.9 million, respectively, which begin to expire in 2042. Net operating losses and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has performed a preliminary Section 382 analysis through December 31, 2022 and based on this analysis, approximately $0.2 million of its federal R&D credits will expire unutilized and has therefore removed them from the deferred tax asset and related carryforward disclosures as of December 31, 2022. No further Section 382 analysis was performed for 2023 and 2024 as the Company does not expect any limitation relating to ownership change due to the increased valuation of the Company.
The Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the Company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized tax benefits.” A liability is recognized (or amount of the tax attribute carry forward reduced) for unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.
The Company had approximately $23.1 million and $4.0 million unrecognized tax benefits as of December 31, 2024 and 2023, respectively. The unrecognized tax benefits, if recognized, would not have an impact on the Company’s effective tax rate due to the valuation allowance position.
A reconciliation of the beginning and ending amount of the Company’s unrecognized tax benefits is as follows (in thousands):
Years Ended December 31,
202420232022
Balance, beginning of period$3,993 $3,162 $2,005 
Decreases related to prior year tax positions— (1,024)(844)
Increases related to current year tax positions18,608 1,855 2,001 
Increases related to prior year tax positions469 — — 
Balance, end of period$23,070 $3,993 $3,162 
It is the Company’s policy to include penalties and interest expense related to income taxes as a component of income tax expense. The Company determined that no interest and penalties related to unrecognized tax benefits was required as of December 31, 2024 and 2023, respectively.
The Company is not currently under examination by the United States Internal Revenue Service or any other state, city, local or foreign jurisdiction. The Company’s tax years from inception are subject to examination by the Internal Revenue Service and state taxing authorities. The Company does not anticipate any significant changes to its unrecognized tax positions within the next twelve months.
Deferred income taxes have not been provided for undistributed earnings of the Company’s consolidated foreign subsidiaries because of the Company’s intent to reinvest such earnings indefinitely in active foreign operations. The Company believes that future domestic cash generation will be sufficient to meet future domestic cash needs. The Company has not recorded a deferred tax liability on the undistributed earnings of non-U.S. subsidiaries. The foreign withholding taxes would not have a material impact on the Company’s financial position and results of operation. As of December 31, 2024 and 2023, the Company had $4.1 million and $1.3 million in unremitted earnings that were indefinitely reinvested related to its consolidated foreign subsidiaries.