Income Taxes

6 Months Ended

Jun. 30, 2024

Income Tax Disclosure [Abstract]

Income taxes

Income taxes

The Company accounts for income taxes under an asset and liability approach. Deferred income taxes comprise the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax reporting purposes, net operating loss carryforwards, and other tax credit carryforwards measured by applying currently enacted tax laws. A valuation allowance is provided when necessary to reduce deferred tax assets to an amount that is more likely than not to be realized.

The Company determines whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company uses a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. The Company’s policy for interest and penalties related to uncertain tax positions is to recognize interest and penalties, if any, in interest expense and other expense, respectively, in the accompanying consolidated statement of operations. Accrued interest and penalties, if any, are included in accrued expenses in the consolidated balance sheet.

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and foreign jurisdictions. The U.S. state and foreign jurisdictions have statutes of limitations that generally range from three to five years. The Company’s federal, state and foreign income tax returns are subject to examination unless the statutes of limitations close. The Company is not currently under examination for federal, state, and foreign income tax purposes.

The Company intends to reinvest its undistributed earnings of its foreign operations. Following enactment of the 2017 Tax Cuts and Jobs Act, the repatriation of cash to the United States is generally no longer taxable for federal income tax purposes. However, the repatriation of cash held outside the United States could be subject to applicable foreign withholding taxes and state income taxes. The Company may remit foreign earnings to the United States to the extent it is tax efficient to do so. It does not expect the tax impact from remitting these earnings to be material. The Company adopted this guidance on January 1, 2021 on a prospective basis, and the adoption did not have a material impact to the Company’s unaudited interim consolidated financial statements.

The Company's effective income tax rate from continuing operations was (2.6)% and 28.4% for the six months ended June 30, 2024 and 2023, respectively. The Company’s effective income tax rate for the six months ended June 30, 2024 is lower than the US federal statutory tax rate due to the impact of non-deductible stock-based compensation, and the Company's mix of earnings between various taxing jurisdictions, partially offset by a deduction for foreign-sourced revenue, stock compensation, and federal and state research credits. The effective income rate for the six months ended June 30, 2023 was higher than the US federal statutory tax rate primarily due to state income taxes, non-deductible stock-based compensation, the Company's mix of earnings between various taxing jurisdictions, partially offset by a deduction for foreign-sourced revenue, and federal and state research credits.

Realization of the Company's deferred tax assets is dependent primarily on the generation of future taxable income. In considering the need for a valuation allowance, the Company considers its historical, as well as future projected, taxable income along with other objectively verifiable evidence. Objectively verifiable evidence includes the Company's realization of tax attributes, assessment of tax credits, and utilization of net operating loss carryforwards during the year.

Components of our results of operations:

Income Taxes:

The Company's benefit from income taxes consists primarily of provision for federal taxes and local taxes in the United States as well as foreign taxes. As the Company plans to expand the scale and scope of its international business activities, any changes in the United States and foreign taxation of such activities may increase the Company's overall provision for income taxes in the future.

Results of operations:

The following table displays the benefit from income taxes for the three and six months ended June 30, 2024 and 2023 (in thousands):

	Three months ended June 30,				Change
	2024		2023		Amount		%
Provision for (benefit from) income taxes	$	3,248	$	(2,207)	$	5,455	(247)	%

	Six months ended June 30,				Change
	2024		2023		Amount		%
Provision for (benefit from) income taxes	$	424	$	(4,440)	$	4,864	(110)	%

Provision for income taxes was $3.2 million for the three months ended June 30, 2024, as compared to a benefit from income taxes of $2.2 million for the three months ended June 30, 2023. The net change of $5.5 million for the three months ended June 30, 2024 was primarily due to the reversal of the tax benefit during the three months ended June 30, 2024 due to a lower effective tax rate for the three months ended June 30, 2024, and an adjustment to tax expense to account for the settlement price of restricted stock units settled in the quarter being lower than the grant price.

Provision for income taxes was $0.4 million for the six months ended June 30, 2024, as compared to a benefit from income taxes of $4.4 million for the six months ended June 30, 2023. The net increase of $4.9 million for the six months ended June 30, 2024 is primarily due to a lower effective tax rate