Income Taxes

9 Months Ended

Sep. 30, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company is required to calculate its interim income tax provision using the estimated annual effective tax rate (“AETR”) method prescribed by Accounting Standards Codification (“ASC”) 740-270, and as such, excludes losses in jurisdictions where the Company cannot benefit in computing its worldwide AETR. A separate AETR is computed and applied to ordinary losses in the U.S. jurisdiction as required by ASC 740-270-30-36(a). For the three and nine months ended September 30, 2024, the Company recorded foreign income tax expense of $1.9 million and $0.9 million, respectively, and U.S. income tax expense of zero. The Company’s effective tax rate for the three months ended September 30, 2024 was affected by a mix of ordinary income in foreign jurisdictions that are tax-effected using a blended worldwide AETR of 30%, and ordinary loss in the U.S. jurisdiction that was tax-effected using a separate U.S. AETR of 0%. The separate U.S. AETR differed from the U.S. federal statutory tax rate of 21% due primarily to a full valuation allowance against the Company’s U.S. deferred tax assets.

For the three and nine months ended September 30, 2023, the Company recorded income tax expense of $3.5 million and income tax benefit of $2.4 million, respectively. The estimated worldwide AETR differed from the U.S. federal statutory tax rate of 21% due primarily to income in foreign jurisdictions that are taxed at higher rates than the U.S. federal rate, a full valuation allowance against the Company's U.S. deferred tax assets, and the impact of accounting for business combination.

The Company has established a valuation allowance in the U.S. against its deferred tax assets because it is more likely than not that the deferred tax assets will not be realized. In determining whether deferred tax assets are realizable, the Company considers numerous factors including historical profitability, the amount of future taxable income and the existence of taxable temporary differences that can be used to realize deferred tax assets.

The Company applies ASC 740, the accounting standard addressing the accounting for uncertainty in income taxes, which prescribes rules for recognition, measurement and classification in the financial statements of tax positions taken or expected to be taken in a tax return. The Company has gross unrecognized tax benefits of $1.4 million and $1.1 million as of September 30, 2024 and December 31, 2023, respectively.