Income Taxes

9 Months Ended

12 Months Ended

Sep. 30, 2022

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

17.    INCOME TAXES

The tax expense and the effective tax rate were as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Loss before income taxes	$	(28,058	)	$	(22,591	)	$	(83,088	)	$	(56,293	)
Income tax expense		864			1,190			1,605			1,400
Effective tax rate		(3.08	)%		(5.27	)%		(1.93	)%		(2.49	)%

The Company’s recorded effective tax rate differs from the U.S. statutory rate primarily due to an increase in the domestic valuation allowance caused by tax losses, foreign withholding taxes and foreign tax rate differentials from the U.S. domestic statutory tax rate.

16.    INCOME TAXES

The Company’s income (loss) before provision for income taxes for the years ended December 31, 2021 and 2020 consist of the following:

	2021			2020
United States	$	(79,962	)	$	(73,056	)
International		878			(613	)
	$	(79,084	)	$	(73,669	)

The components of the provision for income taxes for the years ended December 31, 2021 and 2020 consist of the following:

	2021		2020
Current:
Federal	$	—	$	—
State		5		3
International		339		594
	$	344	$	597

	2021		2020
Deferred:
Federal	$	—	$	—
State		—		—
International		112		141
	$	112	$	141
Total provision	$	456	$	738

The Company has incurred net pre-tax losses in the United States only for all periods presented. The Company recorded an income tax expense of $456 and $738 for the years ended December 31, 2021 and 2020, which reflects withholding tax paid on the U.S. books for sales in Korea and estimated 2021 income tax related to foreign subsidiaries.

The benefit from income taxes differs from the amount expected by applying the federal statutory rate to the loss before taxes as follows:

	2021		2020
Federal statutory income tax rate	21.00	%	21.00	%
State income tax rate, net of federal benefit	2.56	%	1.63	%
Foreign withholding and income tax	(0.49	)%	(0.99	)%
Research and development credits	2.03	%	2.51	%
Change in valuation allowance	(22.55	)%	(20.44	)%
Stock based compensation	(0.92	)%	(0.00	)%
Non-deductible permanent expenses	(1.26	)%	(4.61	)%
Other	(0.95	)%	(0.09	)%
	(0.58	)%	(0.99	)%

Deferred income tax reflects the tax 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 categories that give rise to significant components of the deferred tax assets are as follows:

	2021			2020
Deferred tax assets:
Net operating loss carryforwards	$	70,808		$	54,527
Research and development credits		10,650			9,035
Property and equipment and intangible assets		91			—
Deferred revenue		3,662			2,752
Contract liability		1,154			2,282
Share-based compensation		1,235			1,036
Deferred rent		—			378
Operating lease liabilities		2,861			—
Debt issuance cost		—			121
Accruals and reserves		863			989
Gross deferred tax assets		91,324			71,120
Valuation allowance		(86,695	)		(68,760	)
Deferred tax liabilities:
Property and equipment and intangible assets		—			(78	)
Right-of-use assets		(2,461	)		—
Gross deferred tax liabilities		(2,461	)		(78	)
Net deferred tax assets	$	2,168		$	2,282

Based on available objective evidence, management believes it is more-likely-than-not that the federal and state deferred tax assets will not be fully realized due to the Company’s cumulative losses. Accordingly, the Company has provided a valuation allowance on deferred tax assets in excess of deferred tax liabilities against its federal and state deferred tax assets as of December 31, 2021 and 2020. The valuation allowance increased by $17,934 and by $15,265 for the year ended December 31, 2021 and 2020, respectively.

The Company is not asserting permanent reinvestment of its unrepatriated foreign earnings under APB23. Management has analyzed the unrepatriated foreign earnings balances and determined that the following balances exist according to U.S. GAAP as of December 31, 2021: $972 in Canada, $0 in China, $5,681 in Germany, $159 in Japan and $0 in Korea. Based on the U.S. income tax treaties with Japan and Germany, the Company is entitled to a reduced 0% withholding rate on dividends from the Japanese and German subsidiaries (respectively). Under the U.S. income tax treaty with Canada, the withholding tax rate on dividends is reduced to 5%. Based on the unrepatriated earnings balance of $972, the effective tax liability is approximately $49. Management deems this amount to be immaterial to the financials.

As of December 31, 2021, the Company had net operating loss carry forwards of approximately $301,503 and $102,925 available to reduce future taxable income, if any, for both federal and state income tax purposes, respectively. Additionally, as of December 31, 2021, the Company had Germany net operating loss carryforwards of $3,383. The federal and state net operating loss carry forwards will start to expire in 2025 and 2028, respectively, with the exception of $212,867 in federal net operating loss carryforwards, which can be carried forward indefinitely. The Germany net operating losses can be carried forward indefinitely.

The Company also had federal and state research and development credit carry forwards of approximately $8,900 and $7,993, respectively, at December 31, 2021. The federal credits will expire starting in 2029 if not utilized. State research and development tax credits will carry forward indefinitely.

Under Sections 382 and 383 of the Internal Revenue Code of 1986 and similar state tax laws, if a corporation undergoes an ownership change, the utilization of net operating loss carryforwards and other tax attributes could be subject to an annual limitation. The annual limitation may result in the expiration of the net operating loss carryforwards and credits carryforwards before utilization. The Company has not undertaken a study to determine if ownership change has occurred as defined under IRC Section 382. In the event the Company previously experienced an ownership change, or should experience an ownership change in the future, the amount of net operating losses and research and development credit carryovers, which are reserved by a full deferred tax asset valuation allowance, could be limited and may expire unutilized.

As of December 31, 2021, the Company has not filed its 2019 Germany income tax return. Accordingly, the Company has recognized $474 of interest and penalties expected to be owed with the late filing of the 2019 Germany income tax return, which have been included as other expense in the Company’s statement of operations with its consolidated financial statements.

The Company’s tax years 2006 to 2021 will remain open for examination by the federal and state authorities for three and four years, respectively, from the date of utilization of any net operating loss credits.

On March 27, 2020 and December 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Consolidated Appropriation Act (CAA), respectively, as a result of the Coronavirus pandemic, which contain among other things, numerous income tax provisions. Some of these tax provisions are expected to be effective retroactively for years ending before the date of enactment. The company has evaluated the current legislation and at this time, does not anticipate the CARES Act or the CCA to have a material impact on its financial statements.